AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 29, 1997
REGISTRATION NO. 333-28111
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NUMBER 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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THE O'BOISIE CORPORATION
(Name of small business issuer in its charter)
ILLINOIS 2000 36-4058424
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code No.) Identification
incorporation or organization) No.)
1111 WEST 22ND STREET, SUITE 640, OAK BROOK, ILLINOIS 60521, (630) 575-0290
(Address and telephone number of principal executive offices and principal place
of business)
DAVID BLUE
PRESIDENT
THE O'BOISIE CORPORATION
1111 WEST 22ND STREET, SUITE 640, OAK BROOK, ILLINOIS 60521, (630) 575-0290
(Name, address, and telephone number of agent for service)
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COPIES TO:
ALAN E. MOLOTSKY, ESQ. ALAN I. ANNEX, ESQ.
HOGAN, MARREN & MCCAHILL, LTD. ROBERT S. MATLIN, ESQ.
205 NORTH MICHIGAN AVENUE, SUITE 4300 CAMHY KARLINSKY & STEIN LLP
CHICAGO, ILLINOIS 60601 1740 BROADWAY, SIXTEENTH FLOOR
(312) 946-1800 NEW YORK, NEW YORK 10019
FAX: (312) 946-9818 (212) 977-6600
FAX: (212) 977-8389
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
the effective date of this Registration Statement.
--------------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the
"Securities Act"), please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If any of the securities registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. /X/
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
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CALCULATION OF REGISTRATION FEE
AMOUNT PROPOSED MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE
SECURITIES TO BE REGISTERED REGISTERED PER SECURITY(1)
Common Stock......................................................... 1,725,000 shares(2)(3) $7.50
Representative's Warrants............................................ 150,000 warrants $.0001
Common Stock issuable upon exercise of Representative's Warrants..... 150,000 shares $9.00
Total............................................................ -- --
PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED OFFERING PRICE(1) FEE
Common Stock......................................................... $12,937,500 $3,920.46*
Representative's Warrants............................................ $15.00 (4)
Common Stock issuable upon exercise of Representative's Warrants..... $1,350,000 $409.10*
Total............................................................ $14,287,500 $4,329.56*
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 of Regulation C under the Securities Act.
(2) Pursuant to Rule 416 under the Securities Act of 1933, as amended (the
"Securities Act"), there are also being registered such additional shares of
Common Stock as may be issuable pursuant to the anti-dilution provisions of
the Representative's Warrants.
(3) Includes 225,000 shares of Common Stock which the Underwriters have the
option to purchase to cover over-allotments, if any.
(4) No registration fee required pursuant to Rule 457(i) under the Act.
* Previously paid $7,696.98 for original registration fee.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SECTION
8(a), MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 28, 1997
PROSPECTUS
[LOGO]
The O'Boisie Corporation
1,500,000 SHARES OF COMMON STOCK
The O'Boisie Corporation ("O'Boisie" or the "Company") is offering (the
"Offering") 1,500,000 shares of common stock, par value $.01 per share (the
"Common Stock").
Prior to this offering, there has been no public market for the shares of
Common Stock, and there can be no assurance that any such trading market will
develop after the sale of the Common Stock offered hereby. It is estimated that
the initial offering price of the Common Stock will be between $6.50 and $7.50
per share. The public offering price of the Common Stock has been arbitrarily
determined by the Company and the Underwriters, and does not bear any
relationship to the Company's assets, earnings, book value or any other
established criteria of value. See "Risk Factors" and "Underwriting." The
Company is applying for listing on the American Stock Exchange for the shares of
Common Stock under the trading symbol " ." Listing of the Company's
Common Stock on the American Stock Exchange provides no assurance that a market
will develop, or if developed, will be meaningful or sustained.
--------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT
AFFORD TO LOSE THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS"
BEGINNING ON PAGE AND "DILUTION" BEGINNING ON PAGE .
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
UNDERWRITING
PRICE TO DISCOUNTS & PROCEEDS TO
PUBLIC COMMISSION(1) COMPANY(3)
Per Share of Common Stock........................ $ $ $
Total Shares of Common Stock(2).................. $ $ $
(1) In addition to the 10% Underwriting Discounts and Commissions, the Company
has agreed to pay National Securities Corporation (the "Representative") a
nonaccountable expense allowance equal to 3.0% of the gross proceeds of this
offering ($ or $ if the Over-Allotment Option (as defined) is
exercised in full). The Company has also issued to the Underwriters, for
nominal consideration, a warrant giving the Representative the option to
purchase 150,000 shares of Common Stock at $ per share of Common Stock
(120% of the initial public offering price) (the "Representative's
Warrant"). The Company has agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended (the "Securities Act"). The Company has also agreed to retain the
Representative as a management and financial consultant for a two year
period for a total fee of $48,000. See "Underwriting."
(2) The Company has granted the Underwriters a 45-day option (the
"Over-Allotment Option") to purchase up to an additional 225,000 shares of
Common Stock solely to cover over-allotments, if any. See "Underwriting." If
the Underwriters exercise the Over-Allotment Option in full, the total price
to public, Underwriting Discounts and Commissions and Proceeds to the
Company will be approximately $ , $ and $ ,
respectively.
(3) Assuming the Over-Allotment Option is not exercised, before deducting
estimated Offering expenses of approximately $750,000 payable by the
Company, including the nonaccountable expense allowance payable to the
Representative, of which $50,000 has already been paid.
(CONTINUED ON FOLLOWING PAGE)
The Common Stock is offered by the Underwriters on a firm commitment basis,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters and subject to certain other conditions. The Underwriters reserve
the right to withdraw, cancel or modify this Offering and reject any order in
whole or in part. It is expected that certificates and instruments representing
the Common Stock will be made against payment in New York, New York on or about
, 1997.
NATIONAL SECURITIES CORPORATION
The date of this Prospectus is , 1997
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS,
ON THE AMERICAN STOCK EXCHANGE OR OTHERWISE, WHICH STABILIZE, MAINTAIN OR
OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING PURCHASES OF THE
COMMON STOCK TO STABILIZE ITS MARKET PRICE. SPECIFICALLY, THE UNDERWRITERS MAY
OVER-ALLOT IN CONNECTION WITH THE OFFERING AND MAY BID FOR AND PURCHASE SHARES
OF COMMON STOCK IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
2
[PHOTOS]
The Company intends to distribute to its shareholders annual reports
containing audited financial statements for each fiscal year and quarterly
reports for the first three quarters of each fiscal year containing unaudited
financial statements and such other periodic reports as the Company may
determine to be appropriate or required by law.
3
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY INFORMATION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO, AND SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND
FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS
PROSPECTUS. EACH PROSPECTIVE INVESTOR SHOULD READ THIS PROSPECTUS IN ITS
ENTIRETY. UNLESS OTHERWISE INDICATED, THE INFORMATION CONTAINED IN THIS
PROSPECTUS: (I) ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION,
(II) DOES NOT GIVE EFFECT TO THE COMMON STOCK ISSUABLE UPON (A) EXERCISE OF THE
PRIVATE PLACEMENT WARRANTS OWNED BY THE PRIVATE PLACEMENT SECURITYHOLDERS ISSUED
IN THE PRIVATE PLACEMENT (ALL AS DEFINED), (B) ANY EXERCISE OF THE
REPRESENTATIVE'S WARRANTS, (C) EXERCISE OF THE OPTIONS WHICH MAY BE GRANTED
UNDER THE COMPANY'S STOCK OPTION PLAN, (D) EXERCISE OF OPTIONS WHICH HAVE BEEN
GRANTED TO THE COMPANY'S CHAIRMAN DESIGNEE AND CHIEF EXECUTIVE OFFICER DESIGNEE,
(E) EXERCISE OF THE WARRANT GRANTED TO MILES J. WILLARD COMPANY AS PART OF THE
RENEGOTIATION OF THE PAYMENT TERMS UNDER THE COMPANY'S PATENT LICENSE AGREEMENTS
WITH THAT COMPANY, OR (F) CONVERSION OF THE CONVERTIBLE PREFERRED STOCK
ANTICIPATED TO BE ISSUED TO UNITED BISCUITS UK LTD. IN EXCHANGE FOR THAT
COMPANY'S SUBORDINATED LOAN TO THE COMPANY, (III) ASSUMES THE COMPANY AND UNITED
BISCUITS UK LTD. REACH A FINAL AGREEMENT ON THE CONVERSION OF THE $4,000,000 OF
DEBT OWED TO THAT COMPANY INTO CONVERTIBLE PREFERRED STOCK AND (IV) HAS BEEN
ADJUSTED TO REFLECT A REVERSE STOCK SPLIT WHICH WILL BE EFFECTED IN SEPTEMBER
1997 PURSUANT TO WHICH EACH 23.373 SHARES OF COMMON STOCK OUTSTANDING WILL BE
CONVERTED INTO ONE SHARE OF COMMON STOCK.
THE COMPANY
O'Boisie manufactures and markets a broad line of brand name salty snack
food products. The Company was formed in January 1996 for the purpose of
acquiring certain of the assets, and assuming certain of the liabilities, of the
salty snack food business formerly conducted as part of a division of the
Keebler Company ("Keebler"), including a 140,000 square foot manufacturing
facility in Bluffton, Indiana. The Company is in the process of establishing
national presence for its branded products, many of which the Company believes
have maintained strong consumer awareness during the transition from Keebler to
O'Boisie. O'Boisie's primary brands are Tato Skins-Registered Trademark-,
O'Boisies-Registered Trademark-, Pizzarias-Registered Trademark-,
Chachos-Registered Trademark-, Tato Wilds-Registered Trademark-, Chip
Chasers-Registered Trademark- and Butter Braid Pretzels-Registered Trademark-,
most of which are manufactured in a variety of flavors and sizes.
The Company's products are sold in vending machines, regional supermarket
chains, club stores, regional restaurants, convenience stores and institutional
outlets. Major customers include Kroger's, Dominick's, Cub Foods, Meijers,
Wal-Mart and Vend Society of America. The Company distributes its products
through a national network of distributors, brokers, and potato chip
manufacturers ("chippers"), as well as directly to retailers through the
retailers' warehouse programs. From the commencement of production in February
1996 through May 1997, the Company has generated approximately $17,400,000 in
revenue from continuing operations and a loss from continuing operations of
approximately $1,800,000. As described in this Prospectus, the Company has also
incurred a loss from discontinued operations during that period of approximately
$6,900,000, due to discontinuance of its direct store delivery business.
The Company intends to expand its business and achieve profitability by
pursuing the following strategies:
- Broaden distribution of its established, branded products by adding
distributors, regional "chippers" and grocery/discount chains throughout
the country. Prior to its sale by Keebler, one or more of the current
O'Boisie brand products had a presence in approximately 96% of grocery
stores nationwide (commonly referred to as All Commodity Volume ("ACV")),
as measured for Keebler by Information Resources Inc. ("IRI") Syndicated
Service, and, according to Keebler's attitude and usage study, had 90%
consumer awareness nationwide.
- Develop new products based on the Company's established product lines and
licensed process patents.
- Utilize the Company's pretzel manufacturing capacity to expand its sales
in the bulk and private label markets.
4
- Acquire complementary salty and other snack food processors to broaden the
Company's product line and generate economies of scale in manufacturing,
marketing and distribution.
The Company was incorporated in Illinois on January 19, 1996. Its principal
executive offices are located at 1111 West 22nd Street, Suite 640, Oak Brook,
Illinois 60521, telephone number (630) 575-0290.
THE OFFERING
SECURITIES OFFERED
Common Stock........................... 1,500,000 shares of Common Stock.
COMMON STOCK OUTSTANDING(1)..............
Prior to Offering 756,250
After Offering 2,256,250
USE OF PROCEEDS.......................... The Company intends to use the net proceeds from
this Offering for repayment of indebtedness,
including bank debt and fees, trade payables,
accrued expenses and indebtedness to a
shareholder and former Chairman and Chief
Executive Officer of the Company who is now
serving as a consultant to the Company. A
portion of the net proceeds will be used for
sales and marketing expenses to acquire shelf
space for the Company's products, and for other
general corporate purposes including the
possible pursuit of acquisition opportunities.
See "Use of Proceeds."
RISK FACTORS............................. An investment in the Company involves a high
degree of risk and should be made only after
careful consideration of risk factors which may
affect the Company, its business and an
investment in Common Stock. Such risks include,
among others, immediate substantial dilution,
the Company's limited operating history
including its history of incurring losses, the
Company's limited capital and the substantial
competition that the Company faces. See "Risk
Factors" and "Dilution."
PROPOSED AMERICAN STOCK EXCHANGE
SYMBOL................................. OBY
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(1) Does not include (i) 225,000 shares of Common Stock issuable upon exercise
of the Underwriters' Over-Allotment Option, (ii) 150,000 shares of Common
Stock issuable upon exercise of the Representative's Warrants (iii) 26,526
shares of Common Stock issuable upon exercise, at $ per warrant, of the
26,526 Private Placement Warrants issued in the Private Placement, (iv)
150,000 shares of Common Stock reserved for issuance under the Company's
Stock Option Plan, (v) exercise of options to acquire 225,000 shares of
Common Stock of the Company at an exercise price equal to the initial public
offering price of the Common Stock ($ ) issued to the Company's Chairman
Designee and Chief Executive Officer Designee, (vi) exercise of the warrant
for 12,500 shares of Common Stock, exercisable at $1.00 per share, granted
to Miles J. Willard Company as part of the renegotiation of the payment
terms under the Company's patent license agreements with that company or
(vii) conversion of the $4,000,000 of convertible preferred stock of the
Company anticipated to be issued to United Biscuits UK Ltd. in exchange for
that Company's subordinated loan to the Company, convertible at % of the
initial public offering price of Common Stock ($ ) into shares of
Common Stock. Includes 6,250 shares anticipated to be issued to Mr. Vitulli
upon his becoming Chairman and Chief Executive Officer of the Company. See
"Underwriting," "Management" and "Description of Securities."
5
SUMMARY FINANCIAL DATA
The summary financial data have been taken or derived from, and should be
read in conjunction with, the Company's financial statements and the related
notes thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and the capitalization data included elsewhere in this
Prospectus. See "Capitalization" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
STATEMENT OF OPERATIONS DATA:
FROM INCEPTION (JANUARY 19,
1996) TO 10 MONTHS ENDED
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JULY 27, 1996 MAY 18, 1996 MAY 24, 1997
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Net sales................................................. $ 7,825,146 $ 5,735,215 $ 9,603,400
Cost of sales............................................. 3,432,471 2,353,496 6,826,758
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Gross profit.............................................. 4,392,675 3,381,719 2,776,642
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Operating expenses
Selling, general and administrative....................... 3,881,864 3,086,754 2,441,042
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Income from operations.................................... 510,811 294,965 335,600
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Other income (expense)
Write-off of advances to affiliate...................... (1,118,989) (644,000) --
Interest expense........................................ (320,362) (69,644) (1,125,293)
Other income (expense).................................. 13,090 (26,845) (79,757)
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Total other expense....................................... (1,426,261) (740,489) (1,205,050)
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Loss from continuing operations........................... (915,450) (445,524) (869,450)
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Loss from discontinued operations......................... (4,748,238) (3,477,040) (2,157,707)
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Net loss.................................................. $ (5,663,688) (3,922,564) (3,027,157)
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Loss from continuing operations
per share............................................... $ (1.23) $ (0.60) $ (1.13)
Loss from discontinued operations
per share............................................... $ (6.36) $ (4.69) $ (2.81)
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Net loss per share........................................ $ (7.59) $ (5.29) $ (3.94)
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Weighted average shares outstanding....................... 746,643 742,224 768,750(1)
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BALANCE SHEET DATA:
MAY 24, 1997
------------------------------
JULY 27, 1996 ACTUAL AS ADJUSTED(2)
-------------- -------------- --------------
Current Assets.............................................. $ 2,989,327 $ 2,057,768 $ 4,262,768
Current Liabilities......................................... 13,252,416 12,290,185 4,490,185
Working Capital (Deficit)................................... (10,263,089) (10,232,417) (227,417)
PP & E (net)................................................ 9,903,401 8,269,737 8,269,737
Total Assets................................................ 12,943,728 10,654,340 13,359,340
Long Term Debt.............................................. 3,900,000 5,600,000 3,400,000
Total Shareholders' Deficit................................. (4,208,688) (7,235,845) 5,469,155
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(1) Reflects the effects of the application of SAB 83 which requires the
inclusion of the 6,250 shares anticipated to be issued to Peter Vitulli and
the 12,500 shares issuable upon exercise of the warrant issued to Miles J.
Willard Company.
(2) As adjusted to give effect to the sale by the Company of the Common Stock
offered hereby at the middle of the initial public offering price range set
forth on the cover of this Prospectus, and the application of the estimated
net proceeds from the Offering as described in "Use of Proceeds" including
the recognition of success fees related to the bank loan amendment and the
anticipated conversion of $4,000,000 of debt owed by the Company to United
Biscuits UK Ltd. into convertible preferred stock. See "Risk Factors--Going
Concern Opinion of Auditors, Limited Capital, Default on Bank Debt, Need for
Additional Financing," "Use of Proceeds" and "Description of Capital Stock."
6
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK AND SHOULD NOT BE PURCHASED BY ANYONE WHO CANNOT AFFORD THE LOSS OF HIS OR
HER ENTIRE INVESTMENT. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER, AMONG
OTHER THINGS, THE FOLLOWING FACTORS CONCERNING THE BUSINESS OF THE COMPANY AND
THIS OFFERING. IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS, THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING
THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE SECURITIES OFFERED HEREBY.
THIS PROSPECTUS CONTAINS, IN ADDITION TO HISTORICAL INFORMATION, FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS
MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING
STATEMENTS. FACTORS THAT MIGHT CAUSE OR CONTRIBUTE TO SUCH DIFFERENCE INCLUDE,
BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW, AS WELL AS THOSE DISCUSSED
ELSEWHERE IN THIS PROSPECTUS.
LIMITED OPERATING HISTORY; ABSENCE OF PROFITABILITY
The Company has a limited operating history. The Company began operations in
January of 1996 with the acquisition of certain non-operating assets of the
salty snack foods division of Keebler. Since the assets were not operational at
the time of purchase and were only part of a division of Keebler, the operations
of which the Company believes are not relevant to the Company's operations,
historical financial statements of the assets purchased are nonexistent. Future
operating results will depend on many factors, including demand for the
Company's products, the level of competition, the Company's ability to acquire,
develop, and/or market new products, and the ability of the Company's officers
and key employees to manage its business and control costs. At May 24, 1997, the
Company had an accumulated deficit of ($8,690,845), which includes losses from
discontinued operations of ($6,905,945), and a working capital deficit of
($10,232,417). There is no assurance the Company will ever be able to profitably
produce and market its products. Since May 24, 1997, the Company has continued
to incur losses and its working capital deficit has increased.
GOING CONCERN OPINION OF AUDITORS; LIMITED CAPITAL; DEFAULT ON BANK DEBT; NEED
FOR ADDITIONAL FINANCING
The Company's independent auditors have issued their report on the Company's
financial statements, which expresses substantial doubt regarding the Company's
ability to continue as a going concern. See Financial Statements, and in
particular Note 1 to the Financial Statements. The Company's financial
statements are presented on a going-concern basis, which contemplates the
realization of assets and satisfaction of liabilities in the normal course of
business. The financial statements do not include any adjustment to reflect the
possible future effects on the recoverability and classification of assets, or
the amounts and classification of liabilities, that may result from the possible
inability of the Company to continue as a going concern if it does not obtain
sufficient capital and other funds, needed by it to operate its business, on
terms reasonably satisfactory to the Company. Furthermore, the Company believes
it requires the net proceeds of this Offering to continue in business.
The Company has previously been in default under its bank loan covenants. On
June 30, 1997 the Company entered into an amendment of those loans which
resulted in the prior defaults as of that date being waived. On August 25, 1997,
the Company entered into a further amendment to its bank documents. Under the
amendments the Company is required to pre-pay $5,000,000 of its bank debt by
September 30, 1997 or it will again be in default under its bank loans.
Currently, there is no assurance that, other than using the proceeds of this
Offering, the Company would be able to make that payment. Although the Company
believes that the proceeds from this Offering will, together with cash flow from
future anticipated operations, allow it to implement its business plan and
satisfy its contemplated cash requirements for at least 12 months following the
completion of this Offering, the Company's continued operation thereafter will
depend upon the availability of revenues from its operations. In the event there
is insufficient cash flow from operations, the Company will need to arrange
additional funding when required. There can be no assurance that such funds will
be available, or, if available, will be on terms
7
satisfactory to the Company. Any inability to obtain additional financing could
have a material adverse effect on the Company, including causing the curtailment
or cessation of its operations. To the extent the Company is repaying a
significant portion of its bank financing from the proceeds of this Offering,
there is no assurance the Company will find a lender to loan the Company money
in the future on terms satisfactory to the Company. See "Use of Proceeds" and
"Business."
COMPETITION
The Company's business is highly competitive and the Company faces
significant competition in the salty snack business. The Company competes with
two major producers (Frito-Lay and Procter & Gamble's Pringles), each of which
has far greater product penetration, financial and personnel resources, product
development facilities, manufacturing capabilities, marketing and distribution
organizations and overall market power than the Company. The Company also
competes with other small or regional salty snack food producers for sales
through almost all distribution channels. Many of these other companies also
have greater resources than the Company.
Approximately 60% of the Company's sales in 1996 were made through grocery
stores, supermarkets and warehouse club chains. Levels of such sales are
affected by the competitive factors facing the food retailing industry, which
has required food products companies, including the Company, to pay "slotting"
fees in order to obtain and maintain shelf space, primarily for new products.
There can be no assurance that the Company will be able to obtain adequate shelf
space for its current and any future products, respond successfully to any
future increases in slotting fees or other impediments to increased
distribution, or that its failure to do so at prices reasonable for the Company
will not have a material adverse effect on the Company and its business. There
can be no assurance that the Company will be able to maintain or expand its
current shelf space in these or other retail outlets, that the Company will be
able to compete successfully with existing major producers and other competitors
in the industry, or that additional competitors will not enter the market.
DEPENDENCE ON KEY PERSONNEL; ATTRACTION AND RETENTION OF PERSONNEL
The business of the Company has been and will be largely dependent upon the
skills, experience and efforts of its executive officers. The Company's Chairman
Designee and Chief Executive Officer Designee, Peter Vitulli, has experience in
the beverage and cereal industries. The Company's President, David Blue, has a
broad range of experience in the food industry, including the salty snack food
business. Because of the difficulty in finding adequate replacements for its
executive officers, the loss, incapacity or unavailability of any of these
individuals or other officers or key employees of the Company could have a
material adverse effect on the Company's business and potential earning
capacity. The Company intends to enter into employment agreements with certain
of its executive officers, including Mr. Vitulli and Mr. Blue, effective
immediately prior to the Offering. While the Company does not currently have
key-man insurance on its executive officers, it intends to obtain such insurance
prior to the Offering on the life of Mr. Vitulli. In addition, the Company
believes that its growth will depend significantly upon its ability to continue
to attract and retain other skilled management and sales employees. The failure
of the Company to hire such individuals will likely have a material adverse
effect on the Company's business.
CHANGE IN DELIVERY SYSTEMS/DISCONTINUED BUSINESS
In addition to manufacturing and distributing its own products, the Company
initially purchased and distributed snack products manufactured by third
parties, including principally Keebler, the objective of which was to operate a
profitable Direct Store Delivery ("DSD") system. In August 1996, the Company
elected to discontinue distributing other companies' products and to instead
focus solely on its own manufactured products, and the DSD operations ceased in
October 1996. Management believes such discontinuation to be beneficial, and
notes that the Company has added regional chippers and distributors to its
existing sales and distribution network. However, there is no guarantee that
this change in the
8
distribution system will not have a material adverse effect on the Company's
business. In addition, the Company stopped selling to Keebler in 1996. Total
sales for the period ended July 27, 1996 (which totalled $21,791,392, including
$13,966,246 in sales which are part of the Company's discontinued operations)
also included $5,735,215 in sales (of the remaining $7,825,146 in sales from
continuing operations) to Keebler which are non-recurring.
UNCERTAINTY OF NEW PRODUCT DEVELOPMENT AND MARKET ACCEPTANCE OF NEW PRODUCTS;
NEED TO
COMMERCIALIZE NEW PRODUCTS
In addition to producing and marketing its existing product lines, the
Company is currently engaged in various stages of product development. The
Company is actively engaged in the development and commercialization of new
products, such as low fat potato crisps and new pretzel products. Continued
product development and commercialization efforts are subject to all of the
risks inherent in the development of new products, including unanticipated
development problems, as well as the possible insufficiency of funds to
undertake development and commercialization that could result in abandonment or
substantial change in the development of a specific product. In addition, demand
and market acceptance for newly developed products are subject to a high level
of uncertainty. The Company has not yet commenced significant market activities
relating to its new products and has only conducted limited market or
feasibility studies for such products. Achieving market acceptance for the
Company's new products will require substantial marketing efforts and the
expenditure of significant funds. The Company's prospects will be adversely
affected if it is unable to commercialize its new products. See "Business--New
Products."
STOCK OWNERSHIP; PRIVATE PLACEMENT MEMORANDUM CORRECTION
In mid-1996 several months following the formation of the Company and the
purchase of certain assets from Keebler as described in this Prospectus, the
controlling stockholder of the Company, Donald F. Schumacher II, and management
of the Company have represented that Mr. Schumacher had discussions with another
party for that party to potentially acquire from Mr. Schumacher 224,213 shares
of Common Stock of the Company if such third party performed certain services
for the Company, paid for the shares being discussed (including giving Mr.
Schumacher, in return, proportionate interests in one or more other companies)
and participated on a pro-rata basis in the necessary $3,000,000 personal
guaranty on the Company's bank loans. Management represents that the third party
did not perform those services for the Company, did not pay for the shares or
make any payments to Mr. Schumacher or the Company, defaulted on a rental
payment owed to the Company, did not participate in the guarantee and never
acquired any shares of the Company's stock. However, in anticipation of the
shares being issued to such third party, based upon committments and
representations of the third party that he would fulfill his committments, the
Company stated in the private placement memorandum for the Private Placement
that such party owned the 224,213 shares of Common Stock and began to reflect
those shares in documents as being owned by the third party, although those
shares were never issued to the third party. There can be no assurance that such
third party will not allege he is entitled to some or all such shares. Mr.
Schumacher has agreed with the Company that, although he believes the third
party is not entitled to any shares of Common Stock and was never issued any
shares of Common Stock, that if for some reason it is definitively determined
that such third party is so entitled to any such shares, Mr. Schumacher will
cause Schumacher Capital LLC to transfer shares of Common Stock to such third
party in settlement of (or will otherwise settle) any such claim. The Company
believes the changes from the statements in the Private Placement Memorandum
about ownership are not material; however there is no assurance that one or more
Private Placement Securityholders will not believe that misstatement in, or any
other disclosure issue contained in or based on, the private placement
memorandum is a material change in information provided to them, which if they
were successful in requiring a return of their investment could have a material
adverse effect on the Company of up to, the Company believes to be, a maximum of
the $1,240,000 raised in the private placement plus the costs associated with
the lawsuit. This would also require the Company to use its
9
limited resources, including, potentially, a portion of the net proceeds of this
Offering to pay any such amount. See also "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Legal Proceedings."
CONFLICTS OF INTEREST; CERTAIN TRANSACTIONS; BANKRUPTCY OF AFFILIATED COMPANY
The former Chairman and Chief Executive Officer of the Company, and the
current controlling shareholder of the Company, Donald F. Schumacher II, is also
the majority shareholder of Kelly Food Products, Inc. ("Kelly"), a regional
manufacturer of salty snack food products which was located in Decatur, Illinois
and which filed for bankruptcy in October 1996. The Company believes that none
of the products manufactured by Kelly directly competed with specific products
manufactured by the Company. Nevertheless, the Company and Kelly did compete to
some extent in the overall salty snack foods industry.
Kelly originally entered into the agreement with Keebler to obtain the right
to purchase certain non-operating assets of the salty snack foods division from
Keebler, which agreement by its terms was assignable by Kelly to any company
controlled by a person or entity which simultaneously controlled a majority
interest in Kelly. Mr. Schumacher was the majority owner of both Kelly and
O'Boisie at that time. Kelly assigned those rights to purchase the assets to
O'Boisie, without payment to Kelly, when O'Boisie was formed in January 1996,
because Mr. Schumacher determined that Kelly did not have the financial ability
to exercise those rights and would not have been able to consummate the
purchase. As a result, the Company was the actual purchaser of the assets
directly from Keebler and Mr. Schumacher invested funds in O'Boisie to
effectuate the transaction. The Company believes, and Mr. Schumacher believes on
behalf of both the Company and Kelly, that Kelly's transfer of the right to
purchase the assets covered by the agreement with Keebler without payment to
Kelly by the Company was fair and on an arms' length basis to both companies,
considering the specific assignment terms of the Purchase Agreement with Keebler
permitting assignment by Kelly only to certain affiliates of Kelly and Kelly's
inability to consummate the transaction itself given the financial commitments
required of the buyer. While there is no assurance that Kelly's bankruptcy
trustee would not disagree with the valuation of such transfer and the
circumstances in which it occurred and attempt to argue it was entitled to
recover some value for the transfer since it occurred within one year prior to
filing the bankruptcy, the Company would vigorously disagree and contest any
such assertion and Schumacher Capital, L.L.C. has agreed to indemnify the
Company for any liability it would incur due to any such lawsuit related to the
assignment of the Purchase Agreement by Kelly to the Company or the bankruptcy
of Kelly and, in furtherance of this indemnity, Schumacher Capital LLC has
agreed to place certain of its shares of Common Stock in escrow.
In addition, the Company entered into certain other transactions with Kelly
as described in "Certain Transactions" which the Company believes were on terms
no less favorable to the Company than were available from unaffiliated parties.
From time to time, the Company advanced funds to Kelly totalling $1,118,989,
while the Company was evaluating a merger, acquisition or other similar
transaction with Kelly. In May 1996, Kelly executed a secured promissory note to
the Company to reflect these borrowings. After Kelly filed for bankruptcy
protection in October 1996, the Company wrote-off the loan. The Kelly bankruptcy
is now a Chapter 7 proceeding and, in management's estimation, is not likely to
produce any return of the loan proceeds to the Company as virtually all of the
assets of Kelly have been liquidated for the benefit of a significant portion,
although not all, of Kelly's liability to Kelly's senior secured lender (Mr.
Schumacher had guaranteed a portion of Kelly's senior-lender's loan to Kelly,
which guarantee remains in effect). Nonetheless, the Company has filed a proof
of claim for its debt in the case and intends to pursue available collection on
the loan. Kelly has since ceased substantially all of its operations and is no
longer in the snack food business.
On June 30, 1997, in conjunction with an amendment to the Company's Credit
Agreement, Mr. Schumacher guaranteed the Company's $10,000,000 of loan
obligations to the Lender under the Company's $3,000,000 revolving credit
facility, the Company's $5,000,000 term loan facility and the Company's
$2,000,000 over-line credit facility. The repayments of $5,000,000 of such loans
from the
10
proceeds of this Offering will benefit Mr. Schumacher by reducing his risk under
the guarantee. In addition, the Company will pay $250,000 of accrued salary to
Mr. Schumacher from the proceeds of the Offering.
See "Certain Transactions" for a description of these and other transactions
and see "Use of Proceeds."
RELIANCE ON MAJOR SUPPLIERS
The Company relies on a limited number of suppliers for its raw materials.
If one or more of those suppliers were to become unavailable to the Company, the
Company believes it could obtain its supplies from other companies on similar
terms; however, there is no assurance that alternative suppliers would be
available when required, and such a substitution of suppliers could have a
material adverse effect on the Company's ability to deliver its products in a
timely manner. The major suppliers to the Company currently include: Con Agra, C
and H Packaging, America Key Products, Smurfit, Central Soya and Idaho Supreme.
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
The Company's expansion strategy will, in part, involve the identification
and pursuit of opportunities to, among others, acquire companies, products or
distribution channels. Viable acquisition candidates may be unavailable or
available only on terms unacceptable to the Company. Furthermore, although
certain members of the Company's management team have experience in acquiring
and integrating businesses, the Company has not previously engaged in such
corporate acquisitions, and no assurance can be given that the Company will be
able to successfully acquire or integrate the operations of another business
into those of the Company.
Unless otherwise required by law, the Company does not intend to seek the
approval of the Company's shareholders for any acquisitions. Accordingly, the
shareholders of the Company will be dependent upon the Board of Directors' and
management's judgment with respect to any such transactions. These transactions,
if realized, may involve the issuance of a significant number of additional
shares of the Company's capital stock, the incurrence, assumption or issuance by
the Company of substantial indebtedness and the undertaking by the Company of
material obligations including, among other things, long-term employment,
consulting or management agreements. The Company has no present commitments,
agreements or understandings with respect to any acquisitions.
The Company currently operates out of one manufacturing facility in Indiana,
and the success and the rate of the Company's possible acquisitions and
expansion into new geographical markets in this manner will depend on a number
of factors, including general economic and business conditions affecting the
food industry, competition, the availability of sufficient capital, the
identification and leasing of suitable facilities on acceptable terms, and the
ability to attract and retain qualified personnel and operate effectively in
areas in which the Company has no prior experience. As a result, there can be no
assurance that the Company will be able to achieve its planned acquisition
strategy on a timely or profitable basis.
DEPENDENCE ON LICENSED PATENTS
The Company is the licensee under three separate patent license agreements
with the Miles J. Willard Company pursuant to which the Company has acquired,
through assignment from Keebler, exclusive rights in North America to use
several patents and patent applications that are material to the manufacturing
process of the Company's products (other than its pretzel products). The patents
pertain to equipment used in the Company's manufacturing process for Tato
Skins-Registered Trademark-, Pizzarias-Registered Trademark-,
Chachos-Registered Trademark- and O'Boisies-Registered Trademark-. This
particular equipment gives each of these products a surface texture that looks
like bubbles on the product surface. The Company believes this technique and
texture also allow the products' flavor to be released more quickly than in
comparable products. One of the agreements requires the Company to pay royalties
on the sale of products, including, minimum royalty payments of $200,000 per
year through the date of this
11
Offering and the greater of $100,000 per year or $25,000 per product using the
patents (currently four products) after this Offering if a certain level of
sales is not achieved. Under the patent license agreements, the Company is
responsible for prosecuting infringers of the patented processes. All of the
license agreements require the Company to protect the confidentiality of the
licensed proprietary information. The license agreements generally terminate on
the expiration of the last-to-expire patent. The patents currently expire during
the period from 2005 through 2011. Each agreement is terminable by either party,
upon notice, if the other party defaults in its obligations. Termination of any
of these license agreements would have a material adverse effect on the Company.
The Company was in default under these agreements due to delinquent payments to
Miles J. Willard Company, but has entered into an amendment to these agreements
approving deferred payment terms, revising future payment requirements and
granting Miles J. Willard Company a warrant to purchase 12,500 shares of Common
Stock at $1.00 per share. See "Business--Trademarks and Patents."
CONTESTED TRADEMARK
The Company has been informed that there are two cases pending before the
Trademark Trial and Appeal Board of the U.S. Patent and Trademark Office
contesting the validity of the Chachos-Registered Trademark- trademark. Although
O'Boisie intends to vigorously prosecute these cases, it can provide no
assurance that the Chachos-Registered Trademark- trademark will withstand both
of these challenges to its validity. An adverse outcome in either of these cases
could subject the Company to significant liabilities to third parties, require
that the trademark be licensed from third parties, or require the Company to
cease manufacturing and selling (or at a minimum change the name and incur the
marketing and packaging costs associated therewith) one of its branded product
lines which currently constitutes 5% of the Company's sales. Such an adverse
outcome would have a material adverse effect on the Company's business. See
"Business--Trademarks and Patents".
CONTROL BY PRESENT SHAREHOLDERS
Upon completion of this offering, the current directors and officers of the
Company and their affiliates will own approximately 32.3% of the Company's
issued and outstanding capital stock (not including stock options to acquire
additional shares of Common Stock). Accordingly, pending a further issuance of
the Company's voting stock or other change in the shareholder composition, such
persons will be able to effectuate significant control in decisions on the
election of the Directors of the Company and will be able to control or have
significant influence over all matters requiring approval by the shareholders of
the Company, including approval of significant corporate transactions,
irrespective of how other shareholders vote. See "Management," "Security
Ownership of Certain Beneficial Owners and Management" and "Description of
Securities" and "Risk Factors--Stock Ownership; Private Placement Memorandum
Correction."
MANAGEMENT TEAM INTEGRATION; MANAGEMENT OF POTENTIAL GROWTH
Two of the Company's three executive officers joined the Company upon its
inception in January 1996. Mr. Vitulli agreed in August 1997 to join the Company
as an executive officer prior to this Offering. In general, while some of these
individuals have substantial experience in the food production and distribution
industry, they have not previously worked together and therefore are in the
process of integrating as a management team. See "Management." Furthermore, it
is anticipated that, if the Company is able to implement its acquisition
strategy and expand its operations, the Company will need to retain and
integrate further management personnel, particularly in the areas of sales and
marketing. There can be no assurance that the Company will be able to manage
effectively its acquisition strategy or expansion of its operations, that the
Company's systems, procedures or controls will be adequate to support the
Company's operations or that the Company's management will be able to achieve
the rapid
12
execution necessary to fully exploit what the Company believes to be the market
opportunity for the Company's products.
ABSENCE OF OUTSIDE DIRECTORS
The Company's current Board of Directors consists of two members, both of
whom are employees of the Company and a director designee (Peter J. Vitulli) who
has agreed to become a director and employee of the Company prior to this
Offering. Following this Offering, the Company intends to elect two additional
directors, who are not employees of the Company and who have agreed in principle
to join the Company's Board and whose names are set forth in this Prospectus.
However, no assurances can be given that the Company will be able to retain
outside directors. See "Management."
LEGAL PROCEEDINGS
The Company is a party to several legal proceedings. See "Business--Legal
Proceedings." While the Company is actively contesting these matters, there is
no assurance that one or more of these proceedings or any additional legal
proceedings in the future will not be decided adversely to the Company, or that
the Company will not determine it to be in the Company's best interest to settle
some of these matters, which could singly or in the aggregate have a material
adverse effect on the Company and its financial position due to the amount of
money that could be involved, which could be in excess of $500,000.
NET OPERATING LOSSES
At July 27, 1996, the Company had approximately $4.5 million of net
operating loss carryforwards ("NOL's") for federal income tax purposes which are
available to offset the future taxable income of the Company. The Internal
Revenue Code imposes a restriction on the use of this attribute if a corporation
undergoes an "ownership change" within the meaning of Internal Revenue Code
Section 382(g). After an ownership change, the amount of pre-change NOL's that
can be utilized to offset income for each post-change taxable year generally
will be limited (the "Annual Limitation") to an amount equal to the fair market
value of the corporation immediately before the ownership change multiplied by
the federal long-term tax-exempt bond rate on the date of the ownership change.
The sale and issuance of Common Stock in the Offering, together with or
separate from other recent or future transactions, including, potentially, the
exercise of outstanding or additionally issued options or warrants and the
issuance and/or conversion of the convertible preferred stock anticipated to be
issued to United Biscuits UK Ltd., would likely result in an ownership change.
If an ownership change is deemed to occur, the Annual Limitation will apply to
the Company's utilization of NOL's after the ownership change. The Annual
Limitation on the utilization of NOL's for the post-change period will not
affect the remaining statutory period within which the NOL's may be carried. To
the extent that taxable income for any post-change taxable year is less than the
amount of the Annual Limitation, the Annual Limitation for the subsequent year
will be increased by the unused portion.
PRODUCT LIABILITY
The testing, marketing and sale of food products entails an inherent risk of
product liability and there can be no assurance that product liability claims
will not be asserted against the Company. The Company currently has product
liability insurance coverage in an aggregate amount of $7,000,000 and in an
amount of $6,000,000 per claim. While Management intends to obtain additional
product liability insurance coverage as the Company expands its product
offerings if management believes such additional insurance to be good business
practice for the Company, such insurance is expensive, difficult to obtain and
may not be available in the future on acceptable terms, if at all. Furthermore,
there can be no assurance that such insurance coverage will be adequate, or that
a product liability claim, even one without merit, would not have a material
adverse effect on the business or financial condition of the Company. In
addition, the
13
Company, like other companies producing food or manufacturing products, must
closely monitor complaints which could, in certain events, require the Company
to recall certain of its products or take other actions to protect the Company's
products' integrity, which could have a material adverse effect on the Company's
performance.
GOVERNMENT REGULATION
The Company is required to comply with certain regulations at both the state
and federal levels. The Company must comply with federal regulations
administered by the Federal Food and Drug Administration (the "FDA") and the
United States Department of Agriculture. New food labeling regulations
administered by the Secretary of Health and Human Services through the FDA
subject the Company to uniform labeling and certain other labeling requirements
for its products. The Company has revised its product packaging to comply with
the new regulations. While the Company believes it is in material compliance
with such regulations, there can be no assurance it will be able to continue to
comply with all such regulations, especially if regulations are amended or
supplemented in the future.
USE OF PORTION OF PROCEEDS OF THIS OFFERING TO REPAY DEBT; MANAGEMENT'S BROAD
DISCRETION REGARDING ALLOCATION OF PROCEEDS
A substantial portion, approximately $6,500,000 (73.3%), of the net proceeds
of this Offering will be used for repayment of debts and other obligations of
the Company and as such will not be available for use by the Company in its
operations. Management has broad discretion in the allocation of the remaining
portion of the proceeds from this Offering. Accordingly, investors should
consider such broad discretion in the application of such funds prior to making
a determination to purchase the Common Stock offered hereby. See "Use of
Proceeds."
CURRENT INTENT NOT TO PAY DIVIDENDS ON COMMON STOCK; POTENTIAL LIMITATIONS ON
ABILITY TO PAY DIVIDENDS; POTENTIAL LIMITATIONS ON ABILITY TO REDEEM STOCK
The Company has not paid dividends on its Common Stock and currently intends
to continue to follow a policy of retaining earnings, if any, to finance future
growth. Accordingly, the Company does not anticipate the payment of cash
dividends to holders of Common Stock in the foreseeable future. Under the
Company's loan agreements, the Company is prohibited from paying dividends or
other distributions on its Common Stock or preferred stock, or redeeming Common
Stock or preferred stock, without the lender's authorization.
ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK AND PREFERRED STOCK
Pursuant to its Articles of Incorporation, the Company has the authority to
issue additional shares of Common Stock and shares of preferred stock. The Board
of Directors of the Company is authorized to issue up to 30,000,000 shares of
Common Stock, and up to 10,000,000 shares of preferred stock (including the
shares of preferred stock anticipated to be issued to United Biscuits UK Ltd.)
in one or more series, and to determine the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms or conditions of redemption of each series of
preferred stock without any vote or action of the shareholders of the Company.
The issuance of additional shares of Common Stock or of preferred stock could
result in the dilution of the voting power of the shares of Common Stock
purchased in this Offering. See "Description of Capital Stock."
ANTI-TAKEOVER CONSIDERATIONS AND POTENTIAL ADVERSE EFFECT ON MARKET PRICE OF
SECURITIES FROM ISSUANCE OF PREFERRED STOCK
The Company's Board of Directors has the authority to issue over 9 million
additional shares of preferred stock, par value $.01 per share (in addition to
the shares of convertible preferred stock
14
anticipated to be outstanding) and to fix the rights and preferences of such
shares. Such issuance could occur without action by the holders of the Common
Stock. Such preferred stock could have voting and conversion rights that
adversely affect the voting power of the holders of Common Stock, or could
result in one or more classes of outstanding securities that would have
dividend, liquidation or other rights superior to those of the Common Stock.
Issuance of such preferred stock may have an adverse effect on the then
prevailing market price of the Common Stock. This authority, together with
certain provisions in the Company's Articles of Incorporation (the "Articles")
and By-Laws, may delay, deter or prevent a change in control of the Company, may
discourage bids for the Common Stock at a premium over the market price of the
Common Stock and may adversely affect the market price of, and the voting and
other rights of the holders of, the Common Stock. See "Description of Capital
Stock."
IMMEDIATE AND SUBSTANTIAL DILUTION
This offering involves an immediate and substantial dilution to investors.
Purchasers of the Common Stock offered hereby (assuming an initial public
offering price of $7.00 per share of Common Stock) will incur an immediate
dilution on a pro forma basis of $6.49 per share of the net tangible book value
of the Common Stock after the Offering, which dilution amounts to approximately
93% of the offering price per share of Common Stock to investors in Common Stock
in this Offering. See "Dilution."
ARBITRARY DETERMINATION OF OFFERING PRICE; POSSIBLE VOLATILITY OF SECURITIES
PRICE
The initial public offering price of the Common Stock has been arbitrarily
determined by the Company and the Underwriters and bears no relationship
whatsoever to the Company's assets, earnings, book value or any other objective
standard of value. The market price for the Company's Common Stock following
this Offering may be highly volatile. Factors such as the Company's financial
results may have a significant impact on the market price of the Common Stock.
See "Underwriting."
MARKET OVERHANG FROM CONVERTIBLE PREFERRED STOCK, WARRANTS AND OUTSTANDING
OPTIONS
Immediately after the Offering, the Company anticipates it will have
shares of outstanding convertible preferred stock owned by United
Biscuits UK Ltd. (convertible into shares of Common Stock). The Company
will also have outstanding the Representative's Warrants to purchase up to
150,000 shares of Common Stock, the 26,526 Private Placement Warrants owned by
the Private Placement Securityholders, 225,000 options, each option to acquire a
share of Common Stock at an exercise price of $ per share (the initial public
offering price of the Common Stock) and the 12,500 warrants granted Miles J.
Willard Company. To the extent that such convertible securities are converted
and/or such stock options or warrants are exercised, dilution to the interests
of the Company's shareholders may occur. Moreover, the terms upon which the
Company will be able to obtain additional equity capital may be adversely
affected since the holders of the outstanding convertible preferred stock,
options and warrants can be expected to exercise or convert them, to the extent
they are able to, at a time when the Company would, in all likelihood, be able
to obtain any needed capital on terms more favorable to the Company than those
provided in the convertible preferred stock, options and warrants. Furthermore,
the sale of Common Stock or other securities held by or issuable to the holders,
or merely the potential of such sales could have an adverse effect on the market
price of the Company's Securities. See "Management" and "Description of
Securities."
SECURITIES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have a total of
2,256,250 shares of Common Stock outstanding, of which the 1,500,000 shares
offered hereby will be eligible for immediate sale in the public market without
restriction, unless they are held by "affiliates" of the Company within the
meaning of Rule 144 under the Securities Act.
15
The sale of a substantial number of shares of Common Stock, or the
perception that such sales could occur, could adversely affect prevailing market
prices for the Common Stock. In addition, any such sale or perception could make
it more difficult for the Company to sell equity securities or equity related
securities in the future at a time and price that the Company deems appropriate.
No prediction can be made as to the effect, if any, that future sales of shares,
or the availability of shares for future sales, will have on the market price of
the Common Stock from time to time or the Company's ability to raise capital
through an offering of its equity securities. See "Security Ownership of Certain
Beneficial Owners and Management," "Underwriting," and "Securities Eligible for
Future Sale."
RESTRICTED SECURITIES. The remaining 756,250 shares of Common Stock will be
"restricted securities" within the meaning of Rule 144 under the Securities Act
("Rule 144"). In general, under Rule 144, beginning 90 days after the effective
date of the Registration Statement of which this Prospectus is a part, a
shareholder, including an "affiliate" of the Company, as that term is defined in
Rule 144 (an "Affiliate"), who has beneficially owned his or her restricted
securities (as that term is defined in Rule 144) for at least one year from the
later of the date such securities were acquired from the Company or (if
applicable) the date they were acquired from an Affiliate, is entitled to sell,
within any three-month period, a number of such shares that does not exceed the
greater of one percent of the then outstanding shares of Common Stock
(approximately 22,562 shares immediately after this offering) or the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding the date on which notice of such sale was filed under Rule 144,
provided certain requirements concerning availability of public information,
manner of sale and notice of sale are satisfied. Affiliates may sell shares not
constituting restricted securities in accordance with the foregoing volume
limitations and other requirements but without regard to the holding period. In
addition, under Rule 144(k), if a period of at least two years has elapsed
between the later of the date restricted securities were acquired from the
Company and the date they were acquired from an Affiliate of the Company, a
shareholder who is not an Affiliate of the Company at the time of sale and has
not been an Affiliate for at least three months prior to the sale would be
entitled to sell the shares immediately without regard to the volume limitations
and other conditions under Rule 144 described above. Since the outstanding
shares of Common Stock have been outstanding for over one year, Rule 144 will be
available to the Company's shareholders. The possibility that a substantial
number of shares of Common Stock may be offered or sold in the public market may
have a material adverse effect on prevailing market prices for the Common Stock
and could impair the shareholders' ability to sell the Company's Common Stock,
or the Company's ability to raise capital through the sale of its equity
securities. See "Description of Securities--Registration Rights."
LOCK-UP AGREEMENTS. The Company, its officers and directors and certain
other shareholders of the Company (who in the aggregate hold 735,768 shares of
the restricted securities upon completion of the offering), and Miles J. Willard
Company (which received a warrant to purchase 12,500 shares of Common Stock at
$1.00 per share), have agreed that they will not directly or indirectly offer,
sell, contract to sell, grant any option to purchase or otherwise dispose of,
without the prior written consent of the Representative, any shares of Common
Stock or any other equity security of the Company, or any securities convertible
into or exercisable or exchangeable for, or warrants, options or rights to
purchase or acquire, Common Stock or any other equity security of the Company,
or enter into any agreement to do any of the foregoing, for a period of 13
months from the date of this Prospectus. Upon expiration of such 13 month period
(or earlier upon the consent of the Representative), all of such currently
outstanding restricted shares will be eligible for sale under Rule 144, subject
to volume and other limitations of the Rule. The holders of approximately 21,000
of the remaining 26,526 restricted shares have agreed to similar restrictions
through November 6, 1997. The Representative may, in its sole discretion, and at
any time without notice, release all or any portion of the shares subject to the
lock-up agreements. In addition, the Private Placement Securityholders have
"piggy-back" registration rights with respect to their 26,526 shares of Common
Stock allowing them, subject to certain conditions, to include such shares in
one or more future registered public offerings of shares of Common Stock. See
"Securities Eligible for Future Sale" and "Underwriting."
16
OUTSTANDING OPTIONS AND WARRANTS. No options to purchase shares of Common
Stock are outstanding under the Company's Stock Option Plan, which is to be
adopted in September 1997 (the "Stock Option Plan"). The Company intends to file
a registration statement under the Securities Act after the effective date of
the Registration Statement of which this Prospectus forms a part, covering the
150,000 shares of Common Stock to be reserved for issuance under the Stock
Option Plan. Upon the effectiveness of that registration statement, the shares
of Common Stock issuable under the Stock Option Plan pursuant to vested stock
options, other than shares held by Affiliates, will be immediately eligible for
resale in the public market without restriction, subject to the terms of the
lock-up agreements, if applicable, although no options have been granted to
date. The Company has issued an option to acquire 225,000 shares of the
Company's stock, at $ per share (the initial public offering price), to Peter
J. Vitulli, the Company's Chairman Designee and Chief Executive Officer
Designee. The options vest one third each of the next three years on the
anniversary of August , 1997. The Company also issued a warrant to Miles J.
Willard Company permitting that company to purchase 12,500 shares of Common
Stock at $1.00 per share, as part of the renegotiation of the payment terms
under the Company's patent license agreements with that company. The Private
Placement Securityholders own 26,526 Private Placement Warrants to purchase a
total of 26,526 shares of Common Stock for $ per share at any time during the
three years following this Offering, subject to the hold-back period through
November 6, 1997 to which holders of approximately 21,000 of the Private
Placement Warrants have agreed. The Company also anticipates issuing
shares of convertible preferred stock to United Biscuits UK Ltd. that are
convertible into a total of shares of Common Stock (based on % of the
initial offering price of the Common Stock). The convertible preferred stock is
convertible one-fourth on September , 1997 and one-fourth each six months
thereafter. See "Shares Eligible for Future Sale."
ABSENCE OF PRIOR PUBLIC MARKET; AMERICAN STOCK EXCHANGE MAINTENANCE
REQUIREMENTS; POSSIBLE DELISTING OF SECURITIES FROM AMERICAN STOCK EXCHANGE
SYSTEM; RISKS OF LOW-PRICED STOCKS
Prior to this Offering, there has been no public market for the Common
Stock. Application is being made for listing of the Common Stock on the American
Stock Exchange. However, there can be no assurance that, following this
Offering, a regular trading market for the Common Stock will develop or be
sustained.
Current rules impose stringent criteria for the listing of securities on the
American Stock Exchange, including standards for maintenance of such listing.
Such maintenance standards include minimum levels of total or net tangible
assets and total capital and surplus and a minimum bid price for the securities.
From time to time these criteria for listing change, generally imposing more
stringent requirements on companies listed on the American Stock Exchange and
maintenance have recently been proposed and if approved by the Commission would
apply to the Company. On a pro forma basis, taking into account the anticipated
use of proceeds of the Offering and the Company's current obligations, the
Company meets the existing listing standards and believes it will meet the
maintenance standards.
If the Company is unable to satisfy the American Stock Exchange maintenance
criteria in the future, its Common Stock could be delisted, and trading, if any,
would thereafter be conducted in the over-the-counter market in the so-called
"pink sheets" or the "Electronic Bulletin Board" of the National Association of
Securities Dealers, Inc. ("NASD"). As a consequence of such delisting, an
investor could find it more difficult to dispose of, or to obtain accurate
quotations as to the price of, the Common Stock.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure, relating to the market for penny stocks, in connection
with trades in any stock defined as a penny stock. The Commission has adopted
regulations that generally define a penny stock to be any equity security that
has a market price of less than $5.00 per share, subject to certain exceptions.
Such exceptions include any equity security issued by an issuer that has (i) net
tangible assets of at least $2,000,000, if such issuer has been in continuous
operation for more than three years, (ii) net tangible assets of at least
$5,000,000, if such issuer has been in continuous operation for less than three
years, or (iii) average annual revenue of at
17
least $6,000,000, if such issuer has been in continuous operation for less than
three years. Unless an exception is available, the regulations require the
delivery, prior to any transaction involving a penny stock of a disclosure
schedule explaining the penny stock market and the risks associated therewith.
In addition, if the Company's Securities are not listed on the American
Stock Exchange or the Company does not have $2,000,000 in net tangible assets,
trading in the Company's Securities would be covered by Rules 15g1-15g6
promulgated under the Securities Exchange Act of 1934 (the "Exchange Act") for
non-exchange listed securities. Under such rules, broker/dealers who recommend
such securities to persons other than established customers and accredited
investors must make a special written suitability determination for the
purchaser's written agreement to a transaction prior to sale. Securities are
exempt from these rules if the market price of the Common Stock is at least
$5.00 per share.
Although the Company's Common Stock will, as of the date of this Prospectus,
be outside the definitional scope of a penny stock, as it will be listed on the
American Stock Exchange, in the event the Common Stock were subsequently to
become characterized as a penny stock, the market liquidity for the Common Stock
could be severely affected. In such an event, the regulations on penny stocks
could limit the ability of broker/dealers to sell the Common Stock and thus the
ability of purchasers of the Common Stock to sell their Securities in the
secondary market.
FOR ALL OF THE AFORESAID REASONS AND OTHERS SET FORTH HEREIN, THE PURCHASE
OF SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. ANY PERSON
CONSIDERING AN INVESTMENT IN THE SECURITIES OFFERED HEREBY SHOULD BE AWARE OF
THESE AND OTHER FACTORS SET FORTH IN THIS PROSPECTUS. THE SECURITIES SHOULD BE
PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO ABSORB A TOTAL LOSS OF THEIR
INVESTMENT IN THE COMPANY AND HAVE NO NEED FOR A RETURN ON THEIR INVESTMENT.
18
USE OF PROCEEDS
The estimated net proceeds to the Company from the sale of the Securities
offered hereby, after deducting the underwriting commissions and the
Underwriter's nonaccountable expenses and other offering expenses, will be
approximately $8,705,000 ($10,075,250 if the Underwriters' Over-Allotment Option
is exercised in full) based on an assumed initial public offering prices of
$7.00 for the shares of Common Stock (the mid-point of the price range set forth
on the cover page of this Prospectus). The net proceeds to the Company are
expected to be used over the next 12 months as follows:
APPROXIMATE
APPLICATIONS AMOUNT PERCENT
- --------------------------------------------------------------------- ------------- ---------
Repayment of senior indebtedness (1)................................. $ 5,000,000 57.44%
Payment of indebtedness for salary (2)............................... 250,000 2.87%
Payment of Success Fee to Lender upon repayment of senior
indebtedness (3)................................................... 250,000 2.87%
Payment of trade payables and accrued expenses (4)................... 1,000,000 11.49%
Sales and marketing (including marketing or slotting expenditures to
obtain shelf space)................................................ 1,500,000 17.23%
General corporate purposes, including working capital and general and
administrative expenses and possible acquisitions (5).............. 705,000 8.10%
------------- ---------
$ 8,705,000 100.00%
- ------------------------
(1) The senior indebtedness, a portion of which will be paid down using a
portion of the proceeds of this Offering, was incurred to pay for the
acquisition of the Company's business (paying down $4 million of the bridge
acquisition financing) and for working capital. The senior indebtedness to
be repaid includes: (i) one revolving note for approximately $2,500,000,
bearing interest at 3.75% over the prime or reference rate of Republic
Acceptance Corporation (the "Lender"), maturing September 30, 1998, (ii) one
additional revolving note (the over-the-line revolving note) for
approximately $2,000,000, bearing interest at 10% over the Lender's prime or
reference rate, maturing September 30, 1998, and (iii) $500,000 of the
Company's $5,000,000 term note to the Lender maturing June 30, 1999, bearing
interest at 3.75% over the Lender's prime or reference rate. When in
default, these notes bear interest at 7.25% to 13.5% over the Lender's prime
or reference rate. The Company is required to pre-pay these two revolving
notes in full on or before September 30, 1997 or the Company will be
required to prepay the Company's $5,000,000 term loan from the Lender.
(2) Payable to Mr. Donald Schumacher II, the former Chairman and Chief Executive
Officer of the Company, for accrued salary for 1996.
(3) As part of its renegotiation of its bank debt with the Lender, the Company
has agreed to pay a success fee of $500,000 to the Lender. The fee is
payable $250,000 at the Closing of this Offering and the remainder in 12
equal monthly payments beginning with the first payment due on September 30,
1997.
(4) Including Trade Payables of approximately $475,000 (including $250,000 owed
to Miles J. Willard Company and interest thereon at 7% per annum from
January 1, 1997) and real and personal property taxes of approximately
$361,000, accrued interest and expenses of approximately $160,000 with
respect to the subordinate loan from United Biscuits UK Ltd.
(5) As described in "Risk Factors--Stock Ownership; Private Placement Memorandum
Correction," it is possible in certain limited circumstances that the
Company could be required to use a portion of the net proceeds of this
Offering to pay amounts to the private placement stockholders of the
Company.
The Company may use part of the net proceeds from this Offering to attempt
to expand its revenues by identifying and pursuing acquisitions of other
companies with the same or related snack food product
19
offerings (or to purchase product lines) as opportunities arise and to a lesser
extent by entering new markets through internal expansion, which will include
expanding the distribution of current products and the introduction of new
product offerings. The Company has no present commitments, agreements or
understandings with respect to any acquisitions. See "Risk Factors--Risks
Associated with Acquisition Strategy."
The total amount allocated to, and the timing of, the applications described
above represent Management's best estimate of the allocation of net proceeds,
based upon the Company's present plans regarding its expansion and the
development and promotion of its products, current market conditions and other
business and economic considerations. To the extent Management believes
adjustments are necessary due to actual or anticipated changes in such factors,
the amounts set forth above may be reallocated among such applications.
Any net proceeds received by the Company from the exercise of the
Underwriters' Over-Allotment Option will be allocated to working capital for
general corporate purposes. Any net proceeds not immediately required for the
purposes described above will be invested by the Company in investment-grade,
short-term, interest-bearing investments.
DIVIDEND POLICY
The Company has never declared or paid any dividends on the Common Stock and
does not anticipate paying any dividends in the foreseeable future. The Company
currently intends to retain all future earnings to provide funds for the further
development and growth of its business. Under the Company's loan agreements, the
Company is prohibited from paying dividends or other distributions on the Common
Stock, or redeeming Common Stock or preferred stock, without the Lender's
authorization. The payment of dividends on the Common Stock in the future will
depend on the results of operations, financial condition, capital expenditure
plans and other cash obligations of the Company and will be at the sole
discretion of the Board of Directors. See "Risk Factors," and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
DILUTION
The net tangible book value of the Company as of May 24, 1997 was
$(7,562,680) or $(10.08) per share of Common Stock. Net tangible book value per
share of Common Stock is determined by dividing tangible assets, less total
liabilities and preferred stock, by the number of shares of Common Stock
outstanding. Dilution per share represents the difference between the initial
public offering price per share of Common Stock and the pro forma net tangible
book value per share of Common Stock immediately after the Offering. After
giving effect to the sale by the Company of the shares of Common Stock offered
hereby (after deduction of estimated underwriting discounts, commissions and
other Offering expenses), assuming an initial public offering price in the
middle of the range on the cover page of this Prospectus, the pro forma net
tangible book value of the Company available to holders of Common Stock at May
24, 1997, as adjusted, would have been $1,142,320 or $0.51 per share. This
represents an immediate increase in net tangible book value of $10.59 per share
to existing common shareholders and an immediate dilution to the public
investors of $6.49 per share.
The following table illustrates this dilution in net tangible book value per
share to new investors as of May 24, 1997:
Assumed initial public offering price per share................... $ 7.00
Pro forma net tangible book value per common share before the
Offering........................................................ (10.08)
Increase in net tangible book value per common share attributable
to new investors in shares of Common Stock offered hereby....... 10.59(1)
Pro forma net tangible book value per common share after
Offering........................................................ .51(1)(2)
Dilution to new investors......................................... $ 6.49(1)(2)
---------
---------
20
The following table summarizes, on a pro forma basis as of May 24, 1997, the
differences among the current shareholders and the new investors in this
offering with respect to the number of shares of Common Stock purchased from the
Company, the total consideration paid to the Company (again assuming an initial
public offering price of $7.00 per share) and the average price paid per share:
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT NUMBER PERCENT PER SHARE
---------- ----------- ------------- ----------- -------------
Current shareholders(3).......... 750,000 33.3% $ 1,740,000 14.2% $ 2.32
New Common Stock investors in
this Offering.................. 1,500,000 66.7% 10,500,000 85.8% $ 7.00
---------- ----- ------------- ----- -----
Total(4)....................... 2,250,000 100.0% $ 12,240,000 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
- ------------------------
(1) After giving effect to the application of the net proceeds of this Offering.
(2) If the Underwriters' Over-Allotment Option is exercised in full, pro forma
net tangible book value per share of Common Stock after the Offering will be
$1.02 and the dilution per share of Common Stock to new investors will be
$5.98. See "Underwriting."
(3) The consideration provided by the current shareholders includes $370,000
directed to be contributed to the capital of the Company in lieu of payment
of fees to certain shareholders. See "Certain Transactions."
(4) Does not include (i) 225,000 shares of Common Stock issuable upon exercise
of the Underwriters' Over-Allotment Option, (ii) 150,000 shares of Common
Stock issuable upon exercise of the Representative's Warrants, (iii) 26,526
shares of Common Stock issuable upon exercise of the Private Placement
Warrants issued in the Private Placement, (iv) 150,000 shares of Common
Stock reserved for issuance under the Company's Stock Option Plan, none of
which options have been granted to date, (v) exercise of options to acquire
225,000 shares of Common Stock of the Company at an exercise price equal to
the initial public offering price of the Common Stock ($ ) issued to the
Company's Chairman Designee and Chief Executive Officer Designee, (vi)
12,500 shares of Common Stock, exercisable at $1.00 per share, upon exercise
of a warrant granted to Miles J. Willard Company as part of the
renegotiation of the payment terms under the Company's patent license
agreements with that company, or (vii) conversion of the $4,000,000 of
convertible preferred stock of the Company anticipated to be issued to
United Biscuits UK Ltd. in exchange for that Company's subordinated loan to
the Company, convertible at % the initial public offering price ($ )
into shares of Common Stock. See "Underwriting," "Management--Stock
Option Plan" and "Description of Capital Stock."
21
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company as of
May 24, 1997; and (ii) the capitalization as adjusted to reflect the sale of the
Common Stock offered hereby at an assumed initial public offering price of $7.00
per share of Common Stock (assuming the middle of the initial public offering
price range on the cover of this Prospectus), after deducting the estimated
underwriting discount and offering expenses payable by the Company and
application of the estimated net proceeds from this Offering to repay certain
current and long-term debts of the Company. See "Use of Proceeds" and "Certain
Transactions." This table should be read in conjunction with the Company's
Financial Statements, and the notes thereto, included elsewhere in this
Prospectus.
AS OF MAY 24, 1997
-----------------------------
ACTUAL AS ADJUSTED
------------- --------------
Senior term debt(1)................................................................ $ 9,034,776 $ 4,034,776
Subordinated-term debt............................................................. 4,000,000 0
Preferred Stock 10,000,000 shares authorized and shares issued and outstanding;
shares issued and outstanding as adjusted(2)............................... 0 4,000,000
Common stock, $.01 par value, 30,000,000 shares authorized and 750,000 shares
issued and outstanding; 2,250,000 shares issued and outstanding on an as adjusted
basis(3)......................................................................... 7,500 22,500
Additional paid-in capital......................................................... 1,447,500 10,137,500
Accumulated deficit................................................................ (8,690,845) (8,690,845)
------------- --------------
Total shareholders' equity (deficit)............................................... (7,235,845) 5,469,155
------------- --------------
Total capitalization (deficiency)................................................ $ (1,635,845) $ 8,869,155
------------- --------------
------------- --------------
- ------------------------
(1) As of August 25, 1997 the senior term debt is approximately $9,500,000.
(2) As adjusted to reflect the anticipated conversion of the Company's
$4,000,000 of debt to United Biscuits UK Ltd. into convertible preferred
stock and the receipt and application of the estimated proceeds of this
Offering. See "Description of Capital Stock."
(3) Does not include (i) 225,000 shares of Common Stock issuable upon exercise
of the Underwriters' Over-Allotment Option, (ii) 150,000 shares of Common
Stock issuable upon exercise of the Representative's Warrants, (iii) 26,526
shares of Common Stock issuable upon exercise of the Private Placement
Warrants issued in the Private Placement, (iv) 150,000 shares of Common
Stock reserved for issuance under the Company's Stock Option Plan, none of
which options have been granted to date, (v) exercise of options to acquire
225,000 shares of Common Stock of the Company at an exercise price equal to
the initial public offering price of the Common Stock ($ ) issued to the
Company's Chairman Designee and Chief Executive Officer Designee, (vi)
conversion of the $4,000,000 of convertible preferred stock of the Company
anticipated to be issued to United Biscuits UK Ltd. in exchange for that
Company's subordinated loan to the Company, convertible at % the initial
public offering price ( ) into shares of Common Stock or (vii)
12,500 shares of Common Stock, exercisable at $1.00 per share, upon exercise
of a warrant granted to Miles J. Willard Company as part of the
renegotiation of the payment terms under the Company's patent license
agreements with that company. See "Underwriting," "Management--Stock Option
Plan" and "Description of Capital Stock."
22
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The unaudited pro forma Statement of Operations that follows is presented to
illustrate the effects of this Offering, the application of the proceeds of this
Offering and the effects of eliminating certain non-recurring charges on the
results of operations of the Company. As described elsewhere in this Prospectus
concurrently with the completion of this Offering, the Company will repay or
extinguish approximately $9,000,000 of long term indebtedness through the
application of proceeds from this Offering and the anticipated exchange of debt
for convertible preferred stock. In addition, included in expenses from
continuing operations are non-recurring charges for $370,000 of compensation to
certain shareholders related to the Keebler acquisition and a $1,118,989
write-off of advances to an affiliate.
The unaudited pro forma statement of operations from inception through July
27, 1996 reflects the effects of the completion of this Offering and the effects
of eliminating certain non-recurring charges ("Pro Forma") as if these
transactions occurred on January 19, 1996. The unaudited pro forma statement of
operations for the ten months ended May 24, 1997 reflects the effects of the
changes indicated as if those transactions occurred on July 28, 1996
The unaudited pro forma statement of operations is presented for
illustrative purposes only, is not necessarily indicative of the results that
would have occurred or of future results, and should be read in conjunction with
the Company's financial statements presented elsewhere herein.
23
THE O'BOISIE CORPORATION
PRO FORMA STATEMENT OF OPERATIONS
(UNAUDITED)
FROM INCEPTION (JANUARY 19, 1996) TEN MONTHS ENDED
TO JULY 27, 1996 MAY 24, 1997
----------------------------------------- ------------------------------------------
OFFERING AND OFFERING AND
NON-RECURRING NON-RECURRING
CHARGES CHARGES
ACTUAL ADJUSTMENTS PRO FORMA ACTUAL ADJUSTMENTS PRO FORMA
------------ ------------- ------------ ------------- ------------- ------------
Net sales....................... $ 7,825,146 $ 7,825,146 $ 9,603,400 $ 9,603,400
Cost of sales................... 3,432,471 3,432,471 6,826,758 6,826,758
------------ ------------- ------------ ------------- ------------- ------------
Gross profit.................... 4,392,675 4,392,675 2,776,642 2,776,642
Operating Expenses
Selling, general and
administrative.............. 3,881,864 $ (370,000)(1) 3,511,864 2,441,042 2,441,042
------------ ------------- ------------ ------------- ------------- ------------
Income from operations.......... 510,811 370,000 880,811 335,600 335,600
------------ ------------- ------------ ------------- ------------- ------------
Other income (expense)
Write-off of advances to
affiliate................... (1,118,989) 1,118,989(2) --
Interest expense.............. (320,362) 233,904(3) (86,458) (1,125,293) $ 725,000(3) (400,293)
Other income (expense)........ 13,090 13,090 (79,757) (79,757)
------------ ------------- ------------ ------------- ------------- ------------
Total other income
(expense)................. (1,426,261) 1,439,351 (73,368) (1,205,050) 725,000 (480,050)
------------ ------------- ------------ ------------- ------------- ------------
Income (loss) from continuing
operations..................... $ (915,450) $ 1,809,351 $ 806,843 869,450 $ 725,000 $ (144,450)
------------ ------------- ------------ ------------- ------------- ------------
------------ ------------- ------------ ------------- ------------- ------------
Income (loss) from continuing
operations per share........... $ (1.23) $ 0.38 $ (1.13) $ (0.09)
------------ ------------- ------------ ------------- ------------- ------------
------------ ------------- ------------ ------------- ------------- ------------
Weighted average shares
outstanding.................... 746,643 1,383,117(4) 2,219,760 768,750 811,688(4) 1,580,438
------------ ------------- ------------ ------------- ------------- ------------
------------ ------------- ------------ ------------- ------------- ------------
- ------------------------
(1) Expense reduction for non-recurring charges of $370,000 for compensation to
certain shareholders related to the Keebler acquisition.
(2) Expense reduction for non-recurring charges related to a write-off of
advances to an affiliate.
(3) Interest reduction on bank debt to be retired with the net proceeds of the
offering and the anticipated extinguishment of United Biscuits UK Ltd. debt
to be extinguished in exchange for convertible preferred stock.
(4) Represents shares being sold to fund the retirement of bank debt (811,688)
and the anticipated number of common shares that the United Biscuits UK Ltd.
preferred stock are anticipated to be convertible into (571,429). Shares
issuable upon conversion of preferred stock have not been considered in
computing pro-forma net loss per share for the ten months ended May 24, 1997
because the effect is antidilutive.
(5) In addition to the adjustments reflected above, included in the Company's
cost of sales and operating expenses are approximately $100,000 and $450,000
of expenses for the periods ended July 27, 1996 and May 24, 1997,
respectively, for start-up and other non-recurring expenses related to the
costs of transition to new systems and the elimination of certain functions
as the Company's operations were streamlined during the period subsequent to
its inception.
24
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with the Company's financial statements, including the notes thereto, included
elsewhere in this Prospectus. The selected financial data for the period ended
July 27, 1996 have been derived from audited financial statements of the Company
included elsewhere in this Prospectus, and should be read in conjunction with
those financial statements, including the notes thereto, and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" also
included elsewhere in this Prospectus. The selected historical financial data as
of May 24, 1997 and for periods ended May 18, 1996 and May 24, 1997 have been
derived from the unaudited financial statements of the Company included
elsewhere in this Prospectus and, in the opinion of Management of the Company,
present fairly the results of operations for those periods. The results of
operations for the ten months ended May 24, 1997 are not necessarily indicative
of results to be expected for the year ending July 26, 1997. The following data
should be used in conjunction with the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements and
notes and other financial information found elsewhere in this Prospectus.
STATEMENT OF OPERATIONS DATA:
FROM INCEPTION
(JANUARY 19, 1996) TO
---------------------------- 10 MONTHS ENDED
JULY 27, 1996 MAY 18, 1996 MAY 24, 1997
------------- ------------- ----------------
Net sales.................................... $ 7,825,146 $ 5,735,215 $ 9,603,400
Cost of sales................................ 3,432,471 2,353,496 6,826,758
------------- ------------- ----------------
Gross profit................................. 4,392,675 3,381,719 2,776,642
------------- ------------- ----------------
Operating expenses--Selling, general and
administrative............................. 3,881,864 3,086,754 2,441,042
------------- ------------- ----------------
Income from operations....................... 510,811 294,965 335,600
------------- ------------- ----------------
Other income (expense)
Write-off of advances to affiliate......... (1,118,989) (644,000) --
Interest expense........................... (320,362) (69,644) (1,125,293)
Other income (expense)..................... 13,090 (26,845) (79,757)
------------- ------------- ----------------
Total other expense.......................... (1,426,261) (740,489) (1,205,050)
------------- ------------- ----------------
Loss from continuing operations.............. (915,450) (445,524) (869,450)
------------- ------------- ----------------
Loss from discontinued operations............ (4,748,238) (3,477,040) (2,157,707)
------------- ------------- ----------------
Net loss..................................... $ (5,663,688) $ (3,922,564) $ (3,027,157)
------------- ------------- ----------------
------------- ------------- ----------------
Loss from continuing operations per share.... $ (1.23) $ (0.60) $ (1.13)
Loss from discontinued operations per
share...................................... (6.36) (4.69) (2.81)
------------- ------------- ----------------
Net loss per share........................... $ (7.59) $ (5.29) $ (3.94)
------------- ------------- ----------------
------------- ------------- ----------------
Weighted average shares outstanding.......... 746,643 742,224 768,750
------------- ------------- ----------------
------------- ------------- ----------------
25
BALANCE SHEET DATA:
MAY 24, 1997
------------------------------
JULY 27, 1996 ACTUAL AS ADJUSTED(1)
-------------- -------------- --------------
Current Assets................................ $ 2,989,327 $ 2,057,768 $ 4,262,768
Current Liabilities........................... 13,252,416 12,290,185 4,490,185
Working Capital (Deficit)..................... (10,263,089) (10,232,417) (227,417)
PP & E (net).................................. 9,903,401 8,269,737 8,269,737
Total Assets.................................. 12,943,728 10,654,340 13,359,340
Long Term Debt................................ 3,900,000 5,600,000 3,400,000
Total Shareholders' Equity (Deficit).......... (4,208,688) (7,235,845) 5,469,155
- ------------------------
(1) As adjusted to give effect to the sale by the Company of the Common Stock
offered hereby, and the application of the estimated net proceeds from the
Offering as described in "Use of Proceeds," including the recognition of
success fees related to the bank loan amendment and the anticipated
conversion of $4,000,000 of debt owed by the Company to United Biscuits UK
Ltd. into convertible preferred stock. See "Risk Factors--Going Concern
Opinion of Auditors, Limited Capital, Default on Bank Debt, Need for
Additional Financing," and "Use of Proceeds."
26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this Prospectus.
BACKGROUND
The Company was incorporated in Illinois on January 19, 1996 to acquire
certain non-operating assets and assume certain liabilities of the Keebler Salty
Snack Division. The assets purchased included a manufacturing plant located in
Bluffton, Indiana (one of the three manufacturing plants formerly operated as
part of that Division by Keebler), limited inventory, certain machinery and
equipment, and rolling stock (i.e., delivery trucks) used primarily in the DSD
(Direct Store Delivery) system.
In June of 1995 United Biscuits UK Ltd. ("United Biscuits" or "U.B.F.C."),
the parent company of Keebler, reportedly decided to sell certain of its United
States assets. Apparently unable to sell the Keebler Salty Snack Division in its
entirety, United Biscuits decided to close all three plants used in that
Division (in Oxford, PA, Halton City, TX, and Bluffton, IN) and sell the
physical assets separately. Many employees were terminated or laid off and the
distribution centers used for that Division around the country were closed.
Inventory was sold at discounts to accelerate liquidation. Shelf space contracts
in supermarkets were not renewed in September and October of 1995, virtually
ensuring that the products would not subsequently be carried in those locations.
In November 1995, all three plants were completely shut down.
On January 26, 1996, O'Boisie purchased the building, machinery and certain
assets located at the Bluffton, Indiana plant and the related rolling stock. In
February 1996, the Company hired certain plant personnel, sales people and
management to start a snack food manufacturing business. In mid-February,
manufacturing operations at the Bluffton plant commenced. Subsequent to that
time, the Company began building its business by (i) producing products formerly
marketed and sold by Keebler as well as new products, (ii) developing new
channels of distribution, and (iii) obtaining new customers.
Company management did not rely on Keebler's operating history, since
management believed that history was not relevant to the business the Company
started. For example, Keebler had three plants and twenty-two distribution
centers. O'Boisie, on the other hand, bought certain non-operating assets and
one physical plant to start a salty snack business which would distribute its
products directly from the plant.
O'Boisie leases a warehouse in Ft. Wayne, Indiana to perform distribution of
its products. Keebler used a wholly owned warehouse located in Alsip, Illinois.
O'Boisie also sold and distributed products never sold or distributed by
Keebler. Those products included Mother's brand cookies, Salerno brand cookies,
Kelly Potato Chips, and Pillsbury's Old El Paso Chips and Salsa.
In comparison to the discontinued Keebler operations, O'Boisie sells through
different channels of distribution and to different classes of customers. For
instance, some products are shipped directly from the plant to various
customers. Channels of distribution not previously utilized before include
vending companies, potato chippers, candy and tobacco distributors, other
distributors and snack food companies.
The Company's decision to discontinue its distribution system business and
move the distribution of the Company's products to independent distributors was
made after careful evaluation of the advantages and disadvantages of this
change. The advantages of a company-owned system include, among others, better
control of products in the stores, more assurance that promotions are reflected
by the retailers and better display activity in the stores. The disadvantage for
the Company's DSD business is that it required a significant amount of volume of
product distribution to justify continuing the business. A DSD distribution
network involves significant overhead expenses. The cost of vehicles, fuel,
insurance, repairs and employee costs are covered only by the volume of product
distributed through the system. The Company was not able to maintain enough
volume for its distribution business to sustain itself in a profitable manner.
27
Consequently, the Company concluded it was important for it to discontinue that
business and focus its efforts on manufacturing and marketing its products to
sell through other distributors.
The purchase from Keebler was financed with an $8,000,000 bridge note from
United Biscuits. In determining the purchase price of these assets, the Company
relied on appraisals of the fixed assets (i.e., land, buildings, machinery and
equipment), which assets were not operational at the time of purchase.
A Transition Agreement ("Transition Agreement") was established between
O'Boisie and Keebler effective January 26, 1996. The agreement was for three
months (other than for systems support) and its purpose was to provide
administrative and distribution support during the transition of the purchased
assets to a new, free-standing operation. The provisions of the Transition
Agreement included the following:
1. Systems support by Keebler through June 15, 1996. The systems for which
the Company purchased Keebler's support included accounts receivable,
accounts payable, general ledger, and route accounting.
2. Sales of Keebler's cookies and crackers by O'Boisie. The agreement
provided that during the three-month period ended April 26, 1996, the
Company would continue to sell Keebler's cookies and crackers through its
DSD system in a 13-state area.
3. Sales of O'Boisie's salty snacks by Keebler. During the three-month
period ended April 26, 1996, Keebler would continue to sell O'Boisie's
salty snacks to grocery stores through its distribution system.
In May and June of 1996, the Company completed a private placement of 26,526
shares of Common Stock and 26,526 Private Placement Warrants, raising net
proceeds of $955,000. On July 5, 1996 the Company entered into loan agreements
with its senior lender, Republic Acceptance Corporation (the "Lender"). At that
time the Lender provided a $5.0 million revolving line of credit and a $5.0
million term loan. United Biscuits received $4.0 million of cash proceeds from
the term loan and took back a $4.0 million subordinated note, all in
satisfaction of its original bridge note. Since the assets were not operational
at the time of purchase and were part of a division of Keebler, historical
financial statements relating to these assets are non-existent.
RESULTS OF OPERATIONS
The Results of Operations information for the Company is provided in this
Prospectus for three periods: the approximately four-month period from inception
to May 18, 1996; the approximately six month period from inception to July 27,
1996; and the approximately ten month period from July 28, 1996 through May 24,
1997. Interim financial information is reported using 13-week quarters with the
first two months of each quarter including four weeks of operating results and
the third month including five weeks.
RESULTS OF OPERATIONS FOR THE FOUR MONTHS ENDED MAY 18, 1996 AND FOR THE TEN
MONTHS ENDED MAY 24, 1997
CONTINUING OPERATIONS.
Net sales for the four months ended May 18, 1996 were $5,735,215 versus
$9,603,400 for the ten months ended May 24, 1997. Sales for the four months
ended May 18, 1996 consisted entirely of sales to Keebler ($5,735,215) under the
Transition Agreement. There were no sales to Keebler in the corresponding ten
month period ended May 24, 1997. Sales for the ten months ended May 24, 1997
were primarily achieved through (i) a network of independent distributors, (ii)
contracting with snack manufacturers who distributed the Company's products in
addition to their own products, (iii) selling to warehouse companies for resale
direct to retailers and (iv) selling directly to wholesalers. Sales to new
customers established by
28
O'Boisie subsequent to commencement of manufacturing operations grew from $0 in
the period ended May 18, 1996 to $9,603,400 for the period ended May 24, 1997.
The increase in revenue from O'Boisie brands sold to distributors, retailers
and wholesalers in the period ended May 24, 1997, can be attributed to the
addition of newly-authorized retail accounts, such as Kroger Foods, Inc. and Tom
Thumb, and expansion into Texas and Florida. The Company now sells its products
through over 125 distributors in 38 states. Currently the Company is selling its
products principally in the Midwest, Northeast and Mid-Atlantic and has begun
selling its products in the Southeast and Southwest.
Due to the change in distribution from the Company's own DSD system to
independent distributors, the Company now relies on the distributors to reclaim
outdated product. As a result, the cost of reclamation is part of the sales
discount to the distributor during the period ended May 24, 1997. Therefore, the
Company has a reserve of $5,000 for any remaining reclamations from the DSD
system as of May 24, 1997 versus $227,927 as of July 27, 1996.
The Company's DSD business included reclamation and promotion expenses in
the price of all products sold. The Company would pay customers for reclamation
of products. As the Company discontinued its DSD business, the Company began
including the cost of reclamation as part of the sales discount offered to
distributors, and the distributors became responsible for the cost of
reclamation. Consequently, these expenses do not show as a separate expense
item, although revenues (net of the discount) are lower as a result. Promotional
expenses are the responsibility of the Company.
Cost of goods sold for the ten-month period ended May 24, 1997 was higher as
a percentage of sales (71%) than for the four-month period ended May 18, 1996 as
a percentage of sales (41%) for five principal reasons. First, although the
sales to Keebler carried higher margins due to the pricing mechanism with
Keebler, these benefits were offset by higher sales and distribution charges
from Keebler as discounts provided to Keebler were considered selling expenses
due to the pricing mechanism. Second, the decrease in total revenues each month
resulted in a lower absorption of fixed costs. Third, management wanted to
maintain lower levels of inventory until revenues began to increase. In order to
keep a full complement of products available, the plant ran shorter production
runs, requiring frequent and costly changeovers. Fourth, there was a change in
the Company's product mix toward vending machine sales, which accounted for 32%
of sales for the period ended May 24, 1997. Although vend production entails
additional labor requirements, these costs are offset by lower selling and
distribution costs. Finally, packaging costs increased due to the necessary
conversion to the Company's own graphics and packaging.
Selling, general and administrative costs decreased significantly from the
period ended May 18, 1996 to the period ended May 24, 1997, from 54% of net
sales to 25% of net sales. The decrease was principally due to a decrease in the
cost of selling and distributing the products resulting from the discontinuation
of the Keebler relationship. If the Company continues its marketing efforts,
management expects the Company to incur additional selling expenses for market
entry, including shelf space "slotting" fees.
Included in the Company's cost of sales and operating expenses are
approximately $75,000 and $450,000 of expenses for the periods ended May 18,
1996 and May 24, 1997, respectively, for start-up and other non-recurring
expenses related to the costs of transition to new systems and the elimination
of certain functions as the Company's operations were streamlined during the
period subsequent to its inception.
Interest expense rose significantly from $69,644 for the four months ended
May 18, 1996 to $1,125,293 for the ten months ended May 24, 1997 due to
continued borrowings required to finance the Company's losses, principally from
discontinued operations, and the costs of financing related to the acquisition
of assets from Keebler. Total borrowing increased from $9,542,697 at May 18,
1996 to $13,034,776 at May 24, 1997.
29
Operating income was $294,965 and $335,600 for the periods ending May 18,
1996 and May 24, 1997, respectively. After interest and other expense the (loss)
for those periods was ($445,524) and ($869,450), respectively. The loss for the
period ended May 18, 1996 stemmed primarily from the $644,000 secured loan to
Kelly which has been fully reserved for and on which management does not expect
to realize any return. Management initially believed Kelly to be a possible
acquisition or merger candidate. With the decision to pursue different channels
of distribution, the acquisition or merger potential was less viable. The loss
for the period ended May 24, 1997 was primarily due to the substantial interest
charges the Company incurred due to bank loans required to support the losses
from the discontinued DSD operations and the costs of financing related to the
acquisition of assets from Keebler.
DISCONTINUED OPERATIONS.
The Company purchased two distinct pools of assets in January of 1996. One
pool dealt solely with the manufacture of salty snack products. The other pool
of assets was for use in a distribution operation which was used primarily for
cookies and crackers (known as the biscuit business) and other ancillary food
products. Eighty percent of the products sold through the DSD system were
biscuits purchased from other companies. The remaining twenty percent were a
combination of O'Boisie's salty snack products, Kelly Food potato chips, and Old
El Paso products.
This distribution business had separate facilities located in Downers Grove,
Illinois, separate management, its own administrative staff, and separate
distinct assets. The DSD system was operated as a stand alone operation. For the
manufacturing business it represented another means of distributing the products
produced at the plant.
When Keebler elected to discontinue distributing products through O'Boisie's
DSD system, eighty percent of the DSD system's revenues disappeared because the
customers commitment for shelf space was to Keebler, not the Company. The
Company attempted to bridge the gap with sales of Mother's brand cookies and
Salerno cookies, however the DSD system was never able to generate enough
revenue to cover costs.
The distribution business required large amounts of cash and an enormous
amount of administrative resources. By electing to exit this business in August
1996, the Company believes it became better positioned to focus on its
manufacturing operation and its unique line of products.
The Company then decided to establish distribution coverage in the United
States by (i) developing a network of independent distributors, (ii) contracting
with snack manufacturers who would distribute the Company's products in addition
to their own, (iii) selling to warehouse companies for resale direct to
retailers, (iv) selling directly to wholesalers.
Accordingly, the results of operations of the DSD system have been reflected
as discontinued operations. The loss from discontinued operations was
($3,477,040) for the four months ended May 18, 1996 versus ($2,157,707) for the
ten months ended May 24, 1997, which included a provision for uncollectible
accounts receivable of approximately $694,000 and $300,000, respectively.
Management believes that it has adequately reserved for any additional
losses which may occur due to discontinued DSD operations which ceased
completely in October of 1996. These reserves as of May 24, 1997 include an
allowance for doubtful accounts of $1,213,969, stemming primarily from over 300
smaller retail accounts serviced by the DSD system.
PERIOD ENDED JULY 27, 1996
Net sales from continuing operations for the six months ended July 27, 1996
were $7,825,146. Sales for the six months ended July 27, 1996 consisted
primarily of sales to Keebler ($5,735,215) in accordance with the Transition
Agreement and sales of the Company's products to the Company's DSD system
30
($1,134,000). The remaining sales were achieved through the establishment of the
distribution relationships described above.
Cost of goods sold increased as a percentage of sales in the period ended
July 27, 1996 (44%) compared to the four months ended May 18, 1996 (41%) for the
same five reasons discussed in the comparison of the periods ended May 18, 1996
and May 24, 1997.
Selling, general and administrative costs decreased slightly from the period
ended May 18, 1996 to the period ended July 27, 1996, from 54% of net sales to
50%, again for the same reasons described above.
Included in the Company's cost of sales and operating expenses are
approximately $100,000 of expenses for the period ended July 27, 1996, for
start-up and other non-recurring expenses related to the costs of transition to
new systems and the elimination of certain functions as the Company's operations
were streamlined during the period subsequent to its inception.
Interest expense rose significantly from $69,644 for the four months ended
May 18, 1996 to $320,362 for the 6 months ended July 27, 1996 due to the
continued borrowings required to finance the Company's operating losses and the
costs of financing related to the acquisition of assets from Keebler. Debt
increased from $9,542,697 at May 18, 1996 to $11,644,079 at July 27, 1996.
Operating income was $510,811 for the period ended July 27, 1996. After
interest and other expense the loss for that period was ($915,450). This loss
stemmed primarily from two sources. The first source is the $1,118,989 secured
loan to Kelly which has been fully reserved for and on which management does not
expect to realize any return. Management initially believed Kelly to be a
possible acquisition or merger candidate. With the decision to pursue different
channels of distribution, the acquisition or merger potential was less viable.
Second, the Company incurred substantial interest charges due to bank loans
required to support the losses from the discontinued DSD operations.
The loss from discontinued operations for the six months ended July 27, 1996
was ($4,748,238), which included a provision for uncollectible accounts
receivable of approximately $900,000.
The net loss of ($5,663,688) for the six months ended July 27, 1996 is
comprised primarily of a one time loss of ($1,118,989) for a write off of
advances to Kelly and a non-recurring loss of ($4,748,238) from discontinued DSD
operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balances were $0 at May 18, 1996, $181,633 at July 27,
1996, and $8,563 at May 24, 1997, respectively. Net cash used in operating
activities was $2,360,631 and $2,254,300 for the periods ended May 18, 1996 and
May 24, 1997, respectively. The net cash used in operating activities
($4,069,831) during the six month period ended July 27, 1996 was used primarily
to fund the non-recurring advances to Kelly and losses incurred in discontinued
operations. The decrease in net cash used for the period ended May 24, 1997 was
primarily due to the discontinuation of the DSD system and cash used to fund
debt service cost.
Net cash provided by (used in) operating activities for continuing
operations and discontinued operation was:
CONTINUING DISCONTINUED
OPERATIONS OPERATIONS
------------ -------------
Period ended May 18, 1996........................................ $ 1,723,358 $ (4,083,989)
------------ -------------
------------ -------------
Period ended July 27, 1996....................................... $ 1,231,556 $ (5,301,387)
------------ -------------
------------ -------------
Period ended May 24, 1997........................................ $ (746,236) $ (1,508,064)
------------ -------------
------------ -------------
31
Net cash used in continuing operations was ($746,236) for the period ended
May 24, 1997 versus net cash provided by continuing operations of $1,723,358 and
$1,231,556 for the periods ended May 18, 1996 and July 27, 1996, respectively.
This change was primarily related to an increase in interest expense and an
increase in accounts receivable.
The Company's gross accounts receivable as of May 24, 1997 consisted of
$1,293,442 related to continuing operations and $1,213,969 related to
discontinued operations. These balances were offset by allowances for doubtful
accounts of $341,807 related to continuing operations and $1,213,969 related to
discontinued operations. Since May 24, 1997 there have been no significant
collections of accounts receivable related to discontinued operations. Although
collection is doubtful, the Company continues to attempt to collect the accounts
receivable related to discontinued operations. Therefore, these balances have
not been charged off.
In the periods ended July 27, 1996 and May 24, 1997, cash used in investing
activities was expended for management information systems to support
operations. There were no stand-alone systems at the Bluffton facility when the
plant was acquired. Approximately $500,000 was spent from commencement of
operations in February 1996 through May 24, 1997 to develop system software and
to purchase hardware. In addition, the Company received proceeds from the
disposition of assets related to its DSD business of $1,482,250 during the
period ended May 24, 1997.
The Company's primary sources of cash flow from financing activities have
been bank debt and sales of common stock. Borrowed funds from the Lender were
$7,644,079 and $9,034,776 at July 27, 1996 and May 24, 1997, respectively. The
increase primarily related to additional financing required to fund losses
during the period ended May 24, 1997. Borrowed funds consist of two components:
(i) revolving lines of credit and (ii) term debts. All amounts outstanding under
the Company's term and revolving agreements with the Lender are secured by a
first priority lien on inventory, receivables, machinery, equipment, rolling
stock, general intangibles and plant, and are guaranteed by Donald F. Schumacher
II, the former Chairman and Chief Executive Officer of the Company and the
controlling stockholder of the Company.
The Company has a revolving line of credit from the Lender of up to
$3,000,000 with a borrowing base equal to 85% of eligible accounts receivable
and 40% of eligible inventory. Interest on this debt is payable monthly in
arrears. As of June 30, 1997, the rate on this outstanding revolving
indebtedness was changed to the Lender's reference rate plus 3.75%. As of August
25, 1997 the outstanding balance under the Lender's revolving line of credit was
approximately $2,500,000.
In addition to the borrowings under the Lender's revolving line of credit,
the Company has term debt of $7,068,906 as of May 24, 1997. Of this amount,
$3,000,000 bears interest at the Lender's reference rate plus 5%, and $4,068,906
bears interest at the Lender's reference rate plus 3.75%. The term loans are
amortized through May 1, 1999 (other than a balloon payment due in 1999). The
outstanding balance under term notes as of August 25, 1997 was $7,000,000.
The Company was in default of certain of the covenants under its bank loans
as of July 27, 1996 and May 24, 1997. On June 30, 1997, an amendment was made to
the Company's credit agreement, which resulted in a $3,000,000 revolving credit
agreement, a $5,000,000 term note and a $2,000,000 over-the-line revolving loan.
This amendment was further amended on August 25, 1997. The amounts outstanding
under the revolving credit agreement and the over-the-line revolving loan are
due no later than September 30, 1998. The amounts outstanding under the term
note are due no later than June 30, 1999. The additional loan of $2,000,000 in
over-the-line advances was obtained by the Company with interest payable at
Lender's reference rate plus 10%. The amended agreement has a provision pursuant
to which the Company is required to prepay on September 30, 1997 either (i) the
revolving loan and the over-the-line advances, or (ii) the term note of
$5,000,000. In conjunction with the June 30, 1997 amendment, the Company will
pay the bank a success fee of $500,000, $250,000 of which is payable upon the
funding of this Offering or a private placement and $250,000 will be payable in
twelve consecutive monthly installments commencing on September 30, 1997. As
part of the June 30, 1997 amendment, the Company negotiated a
32
waiver of all defaults under the loan agreements and obtained new loan
covenants, and revised borrowing terms.
As of July 27, 1996 and May 24, 1997, the Company also had subordinated debt
of $4,000,000 with United Biscuits. The note to United Biscuits bears interest
at 8% with quarterly interest payments in arrears and initial quarterly payments
of $100,000 commencing on June 30, 1997 with a balloon payment of $2,800,000 due
on June 30, 2000. On August , 1997, the Company and United Biscuits reached
agreement to convert this debt into shares of convertible preferred stock
convertible into a total of shares of Common Stock (based on % of the initial
public offering price of the Common Stock) over the next 30 months as described
in "Description of Capital Stock."
Gross proceeds from the Private Placement in May and June 1996 were
$1,240,000; net proceeds were $955,000 after costs associated with that
offering. Shareholder capital contributions were $370,000 for the period ending
July 27, 1996. The source of the $370,000 credited to capital was compensation
to the executive officers of the Company for services they rendered to the
Company in negotiating and finalizing the purchase of the assets from Keebler.
The amounts were not paid to the executives but, at their instructions, were
credited to the capital of the Company. The Company anticipates that its
revolving and term debt with the Lender will total approximately $9,000,000 at
the consummation of the Offering. Management intends to retire all of the
remaining revolving debt (approximately $2,000,000), and the approximately
$3,000,000 of what was previously revolving debt which the Lender has
reclassified as special term debt (following the Company's default), leaving a
total balance to be owed to the Lender of approximately $4,000,000.
The Company's ability to achieve positive operating cash flow will depend on
a variety of factors, including the continuing penetration of existing and new
geographical markets, the continued development of associations with
distributors and wholesalers, the costs of developing and producing new
products, the ability to have longer production runs at the Bluffton, Indiana
plant, the ability to obtain incremental private label pretzel business, and
other factors which may be beyond the Company's control.
The Company's long-term capital requirements will depend on numerous factors
including the rate at which the Company grows internally, acquires other food
businesses and develops new products. The Company has ongoing needs for capital
including working capital for operations, shelf space requirements, product
development costs and capital expenditures to maintain and expand its
operations. While the Company has no present plans, commitments, or agreements
with respect to any material acquisitions, the Company may in the future
consummate acquisitions which may require capital. Future acquisitions may, to
the extent permitted by the revised Credit Agreement, be funded with available
cash from the net proceeds of the Offering, seller financing, institutional
financing and/or additional equity or debt offerings. The Company anticipates
that the net proceeds of this Offering will be adequate to fund the Company's
operations for at least the next twelve months.
As described above under "Risk Factors--Stock Ownership; Private Placement
Memorandum Correction", in the private placement memorandum involving Private
Placement the Company did not correctly reflect the actual ownership of the
Company's outstanding stock but rather the anticipated ownership of the
Company's outstanding stock. While the Company believes this is an immaterial
correction and should not entitle the Private Placement Securityholder to a
return of all or any portion of their capital, there can be no assurance that
one or more of the Private Placement Security Holders would not believe the
misstatement, or any other disclosure issue they might raise, was material and
seek to have their money returned, the gross proceeds of the private placement
being $1,240,000. If that were to occur, and they were successful in whole or in
part, it could require the Company to utilize its limited resources to pay any
such amounts, possibly including a portion of the net proceeds of this Offering.
33
INFLATION
The impact of inflation on the Company's operating results has been moderate
over the last year, reflecting generally lower rates of inflation in the
economy. While inflation has not had a material impact on operating results,
there is no assurance that the Company's business will not be affected by
inflation in the future.
NET OPERATING LOSSES
At July 27, 1996, the Company had approximately $4.5 million of net
operating loss carryforwards ("NOL's") for federal income tax purposes which are
available to offset the future taxable income of the Company. The Internal
Revenue Code imposes a restriction on the use of this attribute if a corporation
undergoes an "ownership change" within the meaning of Internal Revenue Code
Section 382(g). After an ownership change, the amount of pre-change NOL's that
can be utilized to offset income for each post-change taxable year generally
will be limited (the "Annual Limitation") to an amount equal to the fair market
value of the corporation immediately before the ownership change multiplied by
the federal long-term tax-exempt bond rate on the date of the ownership change.
The sale and issuance of Common Stock in the Offering, together with other
recent or future transactions, including, potentially, the exercise of
outstanding or additionally issued options or warrants and the issuance and/or
conversion of the convertible preferred stock anticipated to be issued to United
Biscuits UK Ltd., would likely result in an ownership change. If an ownership
change is deemed to occur, the Annual Limitation will apply to the Company's
utilization of NOL's after the ownership change. The Annual Limitation on the
utilization of NOL's for the post-change period will not affect the remaining
statutory period within which the NOL's may be carried. To the extent that
taxable income for any post-change taxable year is less than the amount of the
Annual Limitation, the Annual Limitation for the subsequent year will be
increased by the unused portion.
34
BUSINESS
GENERAL
O'Boisie manufactures and markets a broad line of brand name salty snack
food products. The Company was formed in January 1996 for the purpose of
acquiring certain of the assets, and assuming certain of the liabilities, of the
salty snack food business formerly conducted as part of a division of Keebler,
including a 140,000 square foot manufacturing facility in Bluffton, Indiana. The
Company is in the process of establishing national presence for its branded
products, many of which the Company believes have maintained strong consumer
awareness during the transition from Keebler to O'Boisie. O'Boisie's primary
brands are Tato Skins-Registered Trademark-, O'Boisies-Registered Trademark-,
Pizzarias-Registered Trademark-, Chachos-Registered Trademark-, Tato
Wilds-Registered Trademark-, Chip Chasers-Registered Trademark-, and Butter
Braid Pretzels-Registered Trademark-, most of which are manufactured in a
variety of flavors and sizes.
The Company's products are sold in vending machines, regional supermarket
chains, club stores, regional restaurants, convenience stores and institutional
outlets. Major customers include Kroger's, Dominick's, Cub Foods, Meijers,
Wal-Mart and Vend Society of America. The Company distributes its products
through a national network of distributors, brokers, and potato chip
manufacturers ("chippers"), as well as directly to retailers through the
retailers' warehouse programs. From the commencement of production in February
1996 through May 1997, the Company has generated approximately $17,400,000 in
revenue from continuing operations and a loss from continuing operations of
approximately $1,800,000. As described in this Prospectus, the Company has also
incurred a loss from discontinued operations during that period of approximately
$6,900,000, due to discontinuance of its direct store delivery system of
distribution.
The Company intends to expand its business and achieve profitability by
pursuing the following strategies:
- Broaden distribution of its established, branded products by adding
distributors, regional "chippers" and grocery/discount chains throughout
the country. Prior to its sale by Keebler, one or more of the current
O'Boisie brand products had a presence in approximately 96% of grocery
stores nationwide (commonly referred to as All Commodity Volume) as
measured for Keebler by Information Resources Inc. Syndicated Service,
and, according to Keebler's attitude and usage study, had 90% consumer
awareness nationwide.
- Develop new products based on the Company's established product lines and
licensed process patents.
- Utilize the Company's pretzel manufacturing capacity to expand its sales
in the bulk and private label markets.
- Acquire complementary salty and other snack food processors to broaden the
Company's product line and generate economies of scale in manufacturing,
marketing and distribution.
RECENT DEVELOPMENTS
The Company initially sold its own manufactured products through three
principal channels: (i) a Direct Store Delivery ("DSD") system, (ii) larger
wholesalers and vend distributors (distributors of items for sale in vending
machines), and (iii) directly to stores through warehouse programs. In an
attempt to operate a profitable DSD system, the Company also purchased and
distributed food products manufactured by others. In August 1996, the Company
elected to discontinue distributing other products and focus solely on its own
manufactured products. O'Boisie shut down its DSD system, began selling its
rolling stock (i.e., its Company-owned route trucks), and has added regional
chippers and distributors to its existing sales and distribution network.
Management believes that, strategically, this approach to distribution is a more
efficient way of penetrating the market and enables the Company to achieve a
broader distribution of its products. For instance, previously, 17 Company-owned
trucks serviced the state of Indiana. O'Boisie
35
now distributes through three distributors with 75 routes covering all of
Indiana. The Company has been successful in reaching agreements with chippers
and distributors to distribute its products in the regions previously serviced
by Company-owned trucks, as well as other markets outside those regions. In
addition, the Company has reached agreements with over 100 distributors in the
East, Southeast, Southwest and Great Plaines areas. These distributors service
over 3,000 DSD routes in their respective regions, bringing the total number of
distributors of the Company's products to over 125.
The Company has also recently secured authorization to sell its products to
Wal-Mart Super Centers, Target Stores, Ameristop Stores, and the Subway Sandwich
chain.
INDUSTRY OVERVIEW
The retail salty snack food market is approximately a $13.4 billion industry
and is typically segmented into seven major categories: potato chips, corn and
tortilla chips, fabricated chips, pretzels, popcorn, nuts and other salty
snacks. Salty snacks are principally sold through a variety of retail outlets,
to institutions in bulk and through vending machines. Grocery stores (including
supermarkets) accounted for approximately 65% of all salty snacks sold in 1995
according to Snack Food Industry Magazine. The Company believes the
attractiveness of snack foods to the grocer lies in their relatively higher
profit margins (reported 28% average gross margin in 1995), and the perceived
impulse nature and frequency of consumer decisions to purchase them. Despite the
rapid proliferation of packaged food products in the last decade, grocers have
given an increasing share of their dry goods shelf space to salty snack foods.
It is not uncommon to find a complete supermarket aisle devoted to salty snacks.
Other retailers include convenience stores, drugstores, delis, pizza parlors and
restaurants, taverns and general stores. Institutional customers include, among
others, schools, hospitals, and correctional facilities.
Salty snack foods are also manufactured for supermarket chains, drugstores
and discount merchandisers under private labels or "house brands". House brand
products are usually shipped to the customer's warehouse, with the retailer
assuming responsibility for stocking shelves and rotating stock to ensure
freshness. Because of the volume of warehouse space required by these items,
most retailers devote no more than 25% of their shelf space to house brands.
Potato chips and tortilla chips represent approximately 55% of the retail
dollar sales for salty snack foods. The three fastest growing segments within
the salty snack food category are pretzels, tortilla chips, and fabricated
chips, each of which has grown approximately 8-9% each year since 1992. The
pretzel market is estimated to be $1.5 billion and is one of the fastest growing
categories within salty snacks. Pretzels are sold at retail as well as for use
in other products, such as salty snack mixes and coated pretzels. According to
Snack Food Industry Magazine, the growth in pretzels may be attributed to
consumer perception of pretzels as a more nutritious choice due to the low fat
content.
Tortilla chips sales account for about 26% of all salty snack food sold. Low
fat and baked varieties are leading this growth. All tortilla chips and corn
chips are fabricated chips, but are set aside in a separate category within the
industry.
Fabricated chips called "crisps," such as the kind O'Boisie produces, have
been growing at about 9% per year since 1992. This growth is being driven by
consumers' preference for low fat/no fat products. Because the manufacturing
process for fabricated chips results in inherently lower fat content compared to
potato chips, management believes that "crisps" will continue to be very popular
with consumers.
GROWTH STRATEGY
EXPANDED DISTRIBUTION AND EXPANSION OF NATIONAL SALES. The Company is
continuing to expand its distribution using a two pronged effort: (i) making
presentations directly to retailers; and (ii) selling to major distributors in
key markets to obtain new accounts.
36
Retailers and distributors have been targeted based on the proximity to the
production plant in Bluffton, Indiana. Consequently, the Company has focused its
sales efforts on the following geographical areas in descending order: Midwest,
Northeast, Great Plains, Southeast, Southwest and West Coast. The Company has
successfully placed its products in 38 states in the U.S., concentrated in the
Midwest and Northeast, and the Company has targeted the Southeast and Southwest
to pursue continued gains in distribution.
Examples of key distributors added to the Company's list of contracted
distributors in the past six months include Milwaukee Biscuit (Milwaukee, WI),
Texas Premium (Dallas, TX), Snyders of Berlin (OH and PA), Kramer Foods
(Detroit, MI), Barrel of Fun (MN), Serv-U-Success (Grand Rapids, MI), Hercules
(Miami, FL) and Mid Atlantic Snacks (PA). These distributors are in addition to
the Company's distribution agreement with DSDA Inc., a distribution association
with 1,300 van routes covering a significant portion of the East Coast (from New
York to Florida), as well as the Company's distribution arrangements with
several smaller regional distributors. In total, over 125 distributors are
selling the Company's line of products in a total of 38 states.
The Company also intends to continue to develop a national presence by
expanding relationships with national distribution companies and wholesalers.
O'Boisie's vending business continues to show significant growth. The
Company is currently working with, and selling to, a large vending distributor
in the United States, Vend Society of America. Management believes that the
Company has strong relationships with several other large independent
distributors in the vend business. Currently the Company's best selling product
specifically designed for vending machines is a one-ounce bag of Tato Skins. A
1 3/4 ounce bag has also been developed to capitalize on the industry's move to
larger sizes in vending machines. Management believes that the vending business
not only offers significant growth opportunity but also affords a vehicle for
introducing the product in new markets as O'Boisie pursues expansion into
grocery stores throughout the country.
EXPANSION OF SALES THROUGH EXISTING CHANNELS OF DISTRIBUTION. The Company
intends to increase sales through its existing channels of distribution by (i)
adding new retailers through its existing distributors and wholesalers, (ii)
introducing new products and product line extensions which leverage the
Company's brand awareness and further its strategy of being a manufacturer of
niche snack products, and (iii) acquiring companies with complementary products
which the Company can distribute through its current and growing distribution
network (as described further in "Business--Acquisitions of Companies in Related
Areas" below).
The Company is focusing on adding major new accounts whose operations are
within the Company's existing distribution areas. The Company's sales and
marketing professionals work closely with both retailers and distributors to
support sales efforts at the retail level. This includes meeting directly with
store managers and/or category buyers to present and promote the O'Boisie
product line. Company Management also focuses on supporting and educating
existing distributors to enhance their effectiveness in placing the Company's
products in new and existing retail outlets.
The new product development will focus principally on new sizes and new
flavors of the Company's existing products. For example, the Company has
developed a new $.99 product line to capitalize on the convenience store, mini
mart, and independent grocery store trade. A $1.99 line has also been developed
to bring all of the Company's product offerings under a common price point which
will allow common promotions across the entire line of products. At the higher
price, the Company expects to achieve higher sales volume per purchase.
The Tato Skin product line is the Company's fastest growing category in
terms of sales volume, and management anticipates expanding the product line
with new flavor varieties. One potential example is ham and broccoli, which the
Company believes would complement the cheese and bacon Tato Skins product. The
Company is also considering several new pretzel ideas, including different
shapes and new ingredient configurations (e.g., whole wheat, sour dough).
Pretzels are one of the fastest growing snack food categories, and a category
management believes offers a significant growth opportunity for the Company.
37
LEVERAGE PRETZEL PRODUCTION. Since its inception in January of 1996, the
Company has expanded beyond its own branded pretzel line to produce private
label pretzels for two companies. The Company also produces pretzels for several
other companies for incorporation into their product lines. The Company has
significant pretzel capacity beyond its current branded requirements. The
Company's plant is equipped with four pretzel baking lines and current
utilization is approximately 30%. The Company's strategy is to increase
production by focusing on packaged, private label pretzels and bulk sales. Bulk
sales of pretzels is a growing area of the pretzel category with the increase in
the number of mixes using pretzels as an ingredient. Management believes these
two segments offer significant growth potential.
ACQUISITIONS OF COMPANIES IN RELATED AREAS. The Company's acquisition
strategy is to identify acquisition candidates in the snack food industry that
have high quality branded products with consumer appeal. Management believes
that aside from the Company's two largest competitors, Frito Lay (a subsidiary
of Pepsico, Inc.) and Pringles (a subsidiary of Procter & Gamble), many of the
companies in the snack food industry are small companies with limited production
capabilities. Management will consider acquisition candidates with branded
products and growth potential which could be easily integrated into the
Company's existing distribution network. The Company intends to increase sales
of any acquired companies' products by leveraging its existing distribution
network. Such potential acquisition targets include both manufacturers of salty
snack food products such as potato crisps and pretzels, and manufacturers of
other similarly distributed food items, such as cookies and crackers. The
Company intends to centralize production at its own facility in order to
maximize manufacturing and distribution efficiencies.
The Company's acquisition focus is therefore intended to generate revenue by
leveraging its existing manufacturing capacity, operating and information
systems, and distribution capabilities, while also reducing costs through
elimination of duplicative manufacturing, selling, general and administrative
expenses. Management believes that several regional and niche companies in the
snack food industry provide attractive acquisition opportunities for the
Company. The Company has no existing agreements to acquire any companies or
product lines at this time.
38
PRODUCTS
The Company currently produces salty snacks in five distinct product lines.
The Company maintains consistency in flavor assortment, with rotation in
production of the products in smaller amounts to keep the product line fresh and
to attempt to eliminate under-performing flavors. The table below represents an
overview of the Company's products:
PRODUCT LINE PERCENTAGE OF SALES* FLAVORS DISTRIBUTION CHANNEL
- ---------------------------------------- --------------------- -------------------------- -----------------------
Tato Skins-Registered Trademark-........ 55% Baked, Sour Cream, Retail
Cheese-n-Bacon Convenience Stores
Mass Merchandisers
Vending
Warehouse
O'Boisies-Registered Trademark-......... 14% Reduced Fat, Cheddar, Retail
Original, Sour Cream and Convenience Stores
Onion Mass Merchandisers
Vending
Warehouse
Pizzarias-Registered Trademark-......... 14% Cheese, Supreme, Pepperoni Retail
Convenience Stores
Mass Merchandisers
Vending
Warehouse
Pretzels................................ 12% Fat Free Knots, Butter Retail
Knots, Butter Braids, Mini Warehouse
Knots, Fat Free Mini Wholesalers
Knots, Bavarian Convenience Stores
Mass Merchandisers
Vending
Private Label
Chachos-Registered Trademark-........... 5% Original, Cheese, Cinnamon Retail
Convenience Stores
Mass Merchandisers
Warehouse
- ------------------------
* From inception of the Company through May 24, 1997.
A description of the Company's primary products and new product concepts
is presented below:
Tato Skins-Registered Trademark---Tato Skins-Registered Trademark- are
snack chips that are made from potatoes for "real baked potato" appeal.
They are available in three flavors: Baked Potato, Sour Cream and Chives,
and Cheese-n-Bacon.
O'Boisies-Registered Trademark---O'Boisies-Registered Trademark- and Low
Fat O'Boisies-Registered Trademark- are light potato crisp snacks with a
crunchy, bubbly texture. O'Boisies-Registered Trademark- and Low Fat
O'Boisies-Registered Trademark- are available in Original, Sour Cream and
Onion and Cheddar, and will soon be available in Barbecue and in a fat
free version.
Pizzarias-Registered Trademark---Pizzarias-Registered Trademark- are a
unique snack made with real pizza dough and cheeses. They are available
in three flavors: Cheese Pizza, Zesty Pepperoni and Pizza Supreme.
Pretzels--O'Boisie Pretzels are made from enriched wheat flour and are
double baked for a better crunch and taste. These pretzels are
manufactured under a variety of brand names,
39
including Traditional Knots-Registered Trademark-, Butter
Knots-Registered Trademark-, Butter Mini Knots, Butter
Braid-Registered Trademark-, Traditional Bavarian and Fat-Free Minis.
These brands offer a variety of taste and choice and are aimed at the
"health conscious" buyer, in that they are generally low/no fat and
low/no cholesterol.
Chachos-Registered Trademark---Chachos-Registered Trademark- are flour
tortilla chips flavored with a blend of authentic Mexican seasonings.
They are available in three flavors: Restaurant Style Original, Cheesy
Quesadilla and Cinnamon Crispara.
NEW PRODUCTS
The Company's new product development will focus on three areas of product
expansion: extension of the Company's existing products through new sizes,
shapes and flavors; development of additional niche products; and strategic
acquisitions by the Company of complementary niche products. The criteria used
in evaluating all products is whether the item meets the Company's objective of
providing the consumer with unique snack products.
The line extension into new sizes focuses on providing products to expand
the Company's distribution effort. The Company's new $.99 product line extension
is an example of a line developed to capitalize on the convenience, mini mart,
and independent grocery store distribution channels. The products include Tato
Skins-Registered Trademark-, Pizzarias-Registered Trademark- and
O'Boisies-Registered Trademark-. A $1.99 line extension has been developed to
bring the Company's snack products (Tato Skins-Registered Trademark-,
Pizzarias-Registered Trademark-, O'Boisies-Registered Trademark- and
Chachos-Registered Trademark-) under a common price point.
The Company is also considering several new ideas in its pretzel line.
Management believes that new shapes and ingredient configurations offer an
opportunity to service this growing snack category. The Company introduced Fat
Free Mini Knots in 1996. To complement the Company's pretzel product line,
pretzel rods, pretzel thins, and another pretzel variation, fat free pretzel
thins, will be introduced in the third quarter of 1997. These products are
geared towards the health conscious snacker because they are low/no fat and
low/no cholesterol.
The Company is also developing new flavors for its existing products. Tato
Skins-Registered Trademark-, the Company's fastest growing category in sales
volume, will have several new flavors added to the line and the Company is also
developing several new Pizzarias-Registered Trademark- products utilizing the
concept of product as a pizza crust. Also slated for introduction in 1997 are
Barbecue O'Boisies-Registered Trademark-, Fat Free
O'Boisies-Registered Trademark-, an O'Boisie snack mix, and a corn tortilla
chip.
As described under "Proprietary Patented Process" below, the Miles J.
Willard Company and the Company have been working together to develop new niche
products utilizing the proprietary technology licensed to the Company.
An important part of the Company's strategy is also to locate and acquire
companies which complement the Company's existing product lines. This will allow
the Company to leverage its present and growing distribution system and expand
its market presence.
MANUFACTURING PROCESS AND FACILITIES
PROPRIETARY PROCESS. The process used by the Company to manufacture its
unique line of snacks (Tato Skins-Registered Trademark-,
O'Boisies-Registered Trademark-, Pizzarias-Registered Trademark- and
Chachos-Registered Trademark-) is a patented proprietary process. The Company
maintains the exclusive production rights in North America under licenses with
Miles J. Willard Company, which owns proprietary patents to the manufacturing
process (as further described below under "Business-- Trademarks and Patents").
This proprietary technology gives each of the Company's products a distinction
from many other snack items. The uniqueness is in the appearance of the product
with the surface of the product having a bubbly look. The Company believes this
texture also allows the product's flavor to be released more quickly than in
comparable snack products. The Company is working with the Miles J.
40
Willard Company investigating other snack products which may use the proprietary
technology and to find niche snack products which offer consumers an alternative
to more traditional snack foods.
PRODUCTION PROCESS OVERVIEW. The Company focuses on producing quality
products by using statistical process controls and by placing a strong emphasis
on product freshness. The Company's plant uses a flexible, short-cycle
manufacturing process for production of all of the product lines. This process
allows the Company to manufacture a wider range of products thereby increasing
product freshness. These capabilities enable the Company to use alternate
channels of distribution while maintaining freshness.
QUALITY ASSURANCE PROCESS. The Company monitors and measures key variables
of the production, packaging and distribution of its products to help maintain
quality and consistency in its products. The Company utilizes both its employees
and automated auditing systems to monitor quality during the production process.
Employees audit product freshness, product delivery and overall customer
satisfaction. High speed check weighers, metal detection, computerized ovens,
data processed mixers, computerized batch processing, and automated packing
equipment have been incorporated into the manufacturing process to help ensure
quality.
FACILITIES. O'Boisie's 140,000 square foot Bluffton, Indiana manufacturing
facility is situated on 12.8 acres and is strategically located to service the
Company's national business. Encompassing seven production lines (four for baked
(pretzel) products and three for fried (chips) products) this plant uses bulk
unloading systems, automated raw material handling and mixing systems, dough
handling, sheeting, baking and fry systems. Approximately $50 million dollars
was invested in the plant and in equipment by Keebler from 1979 to 1992. Because
of the investment in automation and production efficiency, management believes
the 140,000 square foot facility is large enough to satisfy the Company's
current and anticipated near term requirements.
When the Company acquired certain non-operating assets of the Keebler salty
snack division, the Bluffton plant had been shut down for approximately three
months (from November 1995 through January 1996). The plant was started again in
February of 1996 and now produces products previously produced at that location
as well as some products that had been produced at the two other Keebler salty
snack plants. The Company believes it has been successful in producing all of
these products. O'Boisie also selectively hired certain former Keebler
management, plant personnel and clerical workers. New employees were hired to
fill open positions.
RAW MATERIAL PURCHASES
The Company purchases raw materials from third parties who meet the
Company's quality standards. The Company's primary materials are flour, yeast,
potato flakes, various oil extracts and seasonings. Key proprietary flavor
systems are purchased from multiple parties to assure price competitiveness and
supply availability.
MANAGEMENT INFORMATION SYSTEM
Since the plant had no stand alone information systems when it was purchased
from Keebler, the Company has made significant investments in systems
capabilities. O'Boisie has installed new computer software and hardware which
has capabilities for capturing sales, order entry, billing, financial data and
inventory control information.
MARKETING, SALES AND DISTRIBUTION
MARKETING. O'Boisie's marketing department develops brand strategies for
the Company's existing and new products, including product development, pricing
strategy, consumer and trade promotion, advertising, publicity and package
design. This department's responsibilities include determining the
41
allocation of resources between consumer and trade spending, pricing and
profitability analysis, and product design and packaging design.
The Company uses a mix of consumer and trade promotions to market its
products. Marketing promotions are designed to promote use of the Company's
products in general, as opposed to promoting sales of one particular product or
variety. This strategy is intended to stimulate brand awareness and facilitate
the introduction of new products. The majority of the Company's sales promotion
expenditures for the retail channel have been trade advertising and promotion,
including slotting fees and feature advertising.
Since the business had been shut down at the Bluffton facility for three
months prior to O'Boisie's purchase of Keebler's salty snack assets, the Company
has had to make significant expenditures to obtain shelf space and anticipates
having to make significant additional expenditure to access additional shelf
space. The Company will continue to evaluate each opportunity and make
appropriate expenditures to expand product presentation.
SALES. The Company also uses its own sales organization, as well as
brokers, in presenting marketing and sales programs, supporting retail stores,
selling new items and establishing sales promotions with customers. Objectives,
plans and programs are designed on a regional account basis by working directly
with key customers. The Company's current policy is to grant its brokers
exclusive rights to sell its products within defined territories.
DISTRIBUTION. The Company also sells through regional chippers and
distributors such as Texas Premium and Barrel of Fun Foods, Inc. In total, over
125 distributors are selling the Company's line of products in a total of 38
states. Warehouse programs allowing the shipment of products directly into
retailer warehouses are another distribution channel utilized by the Company.
Vend sales are a growing segment of the Company's sales and offer an excellent
means to expand the Company's products to consumers throughout the United
States. Bulk sales for use in other products is another segment of Company sales
which continues to grow.
To deliver its brands outside of the Midwest, O'Boisie distributes through a
select group of independent distributors and regional chippers. Currently,
D.S.D.A., a distribution association with 1,300 route vans, delivers the
Company's products to the East Coast. Poore Brothers, Barrel of Fun, Serv-U-
Success, Inc. and Milwaukee Biscuit Food Inc. are the most recent additions to
the distribution network. The Company continually evaluates its existing
distributors and pursues new distributors in its effort to effectively market
and sell the Company's products throughout the United States.
Individual orders are collected daily and transmitted directly to the
manufacturing facility. The product is then delivered directly to the Company's
customers or shipped directly to warehouses. The Company maintains a leased
warehouse in Ft. Wayne, Indiana.
COMPETITION
Snack food manufacturers generally categorize themselves on the basis of the
geographic reach of their brands. The Company believes that with the recent
departure from the market of the "Eagle" snacks business (Anheuser-Busch), only
two companies in the salty snack food industry, other than O'Boisie, can be
generally considered "national," with most other industry participants being
limited to only regional distribution and brand recognition. The Company's
national branded competitors are Frito-Lay, Inc., a subsidiary of PepsiCo, and
Procter & Gamble, manufacturer of Pringles Potato Crisps. With branded market
penetration in 38 states, management believes that The O'Boisie Corporation is
the only other national participant in this industry. All of these national
brands also compete with well established regional brands such as "Wise" in New
York, "Jays" in Chicago, and "Guys" in Kansas City.
The salty snack food business is highly competitive. Manufacturers compete
for consumer acceptance and attempt to gain entry and shelf space in major
supermarket chains with promotions, incentive
42
programs and, when necessary, payment for store authorizations and shelf space.
Once in the store, brands are discounted, featured and displayed periodically to
stimulate purchases. New products or different flavors and sizes of existing
products are introduced to provide variety and "news" in the store. Major
competitors occasionally conduct nationwide advertising programs.
With the exception of its pretzels, O'Boisie positions its product line as
an upscale, niche snack food line that does not compete directly with the potato
chip market so that retailers will view it as an add-on product, much like
tortilla chips or cheese puffs. This positioning facilitates the Company's
gaining shelf space with retailers seeking incremental sales.
TRADEMARKS AND PATENTS
The Company obtains trademarks for its brands to the extent possible. The
Company has trademarks for most of its brands, including
O'Boisies-Registered Trademark-, Butter Knots-Registered Trademark-, Butter
Braids-Registered Trademark-, Tato Skins-Registered Trademark-,
Pizzarias-Registered Trademark- and Chachos-Registered Trademark-. The Company
has made various federal and international filings with respect to its material
trademarks, and intends to keep these filings current to the extent consistent
with business needs. The Company has been informed that there are two cases
pending before the Trademark Trial and Appeal Board of the U.S. Patent and
Trademark Office contesting the validity of the Chachos trademark. The Company
is vigorously defending these cases. The Company is not aware of any other
challenge to the validity of any trademark material to its business.
The Company maintains proprietary production rights with Miles J. Willard
Company to license patents integral to its manufacturing of products. The
Company recently renegotiated its payment terms with Miles J. Willard Company to
provide that the $250,000 of accrued payment, plus certain interest thereon,
owed to that company for 1996 and the first two quarters of 1997 will be paid
from the proceeds of this Offering at the closing. The renegotiated terms
provide that thereafter, the royalty is 1% of net licensed product sales per
year with the minimum royalty amount per year to be $25,000 per licensed product
utilizing the licensed process. Currently the Company utilizes the process for
four products. See "Risk Factors--Dependence on Licensed Patents" and "Risk
Factors--Contested Trademark" and "Use of Proceeds."
EMPLOYEES
The Company employs a total of approximately 120 employees. There are 100
hourly workers at its manufacturing facility. They are represented by two
unions, the Teamsters and the AFL-CIO. The Teamsters contract was renewed in
November 1996 and expires in November 1997. The AFL-CIO contract expires in
December 1997. The Company believes its relationship with both unions is good.
GOVERNMENT REGULATIONS
The Company's products are subject to federal regulations administered by
the FDA and, to a lesser extent, the United States Department of Agriculture.
The FDA enforces the statutory prohibitions against misbranded and adulterated
foods, establishes ingredients and/or manufacturing procedures for certain
standard foods, establishes standards of identity for food and determines the
safety of food substances. The Company's plant is inspected regularly by outside
inspection services retained by the Company and by federal, state and local
officials that have jurisdiction over the Company's facility. The Company's
plant has currently been certified approved by the FDA.
New food labeling regulations required by the Nutrition Labeling and
Education Act of 1990 ("NLE Act") became effective on May 8, 1994 (with the
exception of certain "health dating" provisions as described below which became
effective on May 8, 1993). The regulations, which are administered by the
Secretary of Health and Human Services through the FDA, require all companies
that offer food for sale and have annual gross sales of more than $500,000,
which includes the Company, to place uniform labels disclosing the amount of
specified nutrients on all food products intended for human consumption and
43
offered for sale. The NLE Act contains exemptions and modifications of the
labeling requirement for certain types of food products, such as those served in
restaurants and other institutions, bulk foods, foods in small packages and
foods containing insignificant amounts of nutrients. The NLE Act also
establishes the circumstances in which companies may place nutrient content
claims (such as "low sodium," "light" or "lite") or health claims (such as "a
diet low in total fat may reduce the risk of some cancers") on labels. The
Company has revised its product packaging to comply with the new regulations.
The Company is subject to certain federal, state and local environmental
regulations affecting its operations. The Company believes it is in material
compliance with such regulations.
The Company is subject to various health and safety regulations protecting
its employees, including regulations promulgated pursuant to the Federal
Occupational Safety and Health Act. These regulations require the Company to
comply with certain manufacturing, health and safety standards to protect its
employees from accidents. The Company believes it is in material compliance with
these regulations as well.
LEGAL PROCEEDINGS
The Company is a co-defendant in a suit brought on February 11, 1997 (in
Cuyahoga County, Ohio, Court of Common Pleas) by 41 route sales people against
Keebler and the Company seeking damages of in excess of $1 million and an
additional $2 million in punitive damages. The nature of the complaint is
Keebler's commitment to pay amounts to these drivers in certain circumstances
upon termination of their employment as a result of a change in control of a
specific portion of Keebler's business. A significant majority of the damages
alleged in the complaint relate solely to conduct alleged against Keebler.
Management believes the suit to be without merit with respect to at least the
Company's liability, although there can be no assurance the Company will not be
found to owe damages. The Company has hired counsel in this matter and intends
to vigorously defend this suit. The Company is a co-defendant (with Keebler) and
a defendant, respectively, in two similar lawsuits brought by several other
route sales people. The Company expects that Keebler and the Company will try to
combine these lawsuits. It is possible that other route sales people will file
similar lawsuits, which the Company will also seek to combine with these
lawsuits.
The Company is also a co-defendant in a suit by a Keebler employee (who was
never an employee of the Company) seeking damages of $30,000.
A former employee of the Company, James Schindel, filed suit against the
Company in 1997 (in Bluffton, Indiana), alleging he is owed $110,000 in
severance payments. The Company does not believe Mr. Schindel is entitled to any
severance payment and is vigorously defending this action.
Donald Schumacher and the Company are co-defendants in a suit brought on May
2, 1997 (in U.S. District Court, Eastern District of New York) by one of the
Private Placement Securityholders alleging violations of Florida securities laws
in connection with the Private Placement in which plaintiff invested $100,000,
in particular alleging he had not received appropriate disclosure documents
prior to investing in Private Placement securities. The Company had no reason to
believe the investor had not received those documents prior to the private
placement investment which was offered by a broker-dealer with which the Company
dealt and which is also a defendant in the case. The Company intends to defend
itself vigorously in this case.
See also the description of the trademark litigation regarding its trademark
Chachos-Registered Trademark- as described above in "Business--Trademarks and
Patents." The Company is not a party to any other material pending legal
proceeding.
See "Risk Factors--Legal Proceedings."
44
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information regarding directors and
executive officers of the Company.
NAME AGE POSITIONS
- -------------------------------------- --- --------------------------------------------------------------------
Peter J. Vitulli...................... 44 Chairman of the Board Designee, Chief Executive Officer Designee and
Director Designee
David W. Blue......................... 52 Chief Operating Officer, President, Director
Susan C. Bolin........................ 41 Chief Financial Officer, Executive Vice President, Secretary and
Treasurer, Director
Steven Devick......................... 44 Nominee for Director following this Offering
Robert S. Steel....................... 42 Nominee for Director following this Offering
PETER J. VITULLI, CHAIRMAN OF THE BOARD DESIGNEE AND CHIEF EXECUTIVE OFFICER
DESIGNEE. During 1997, through August 1997, Mr. Vitulli was a Managing Director
of Russell Reynolds Associates, a global executive search firm. Prior to that,
from 1994 through March 1996, he held the position of Chairman, Chief Executive
Officer and President of Everfresh Beverages, Inc., a Chicago-based manufacturer
of juices and juice drinks which filed for reorganization under Chapter 11 of
the bankruptcy code in November 1995. Mr. Vitulli led a sale of that Company in
March 1996 to National Beverage Corp. (a company with over $350 million in
annual sales) and became president of the Everfresh division of National
Beverage through the end of 1996. Prior to working at Everfresh Beverages, Inc.,
Mr. Vitulli was with Quaker Oats Company for over 16 years, most recently as
President of Gatorade U.S. and Canada (a Quaker Oats subsidiary) as well as
corporate vice president, Mr Vitulli ran the Gatorade business as Division
President from 1989 through 1993 during a period of significant growth. Mr.
Vitulli previously held various other positions at Quaker Oats, including
Marketing Manager-Cereals for Quaker Oats Limited in Southall, England;
Marketing Director-Pet Foods Division; Vice President, Marketing-Ready-
To-Eat-Cereals; and President Grocery Specialties Division. Mr. Vitulli has
approximately 20 years of experience in the food and beverage industry.
DAVID W. BLUE, CHIEF OPERATING OFFICER AND PRESIDENT. Mr. Blue has served
as Chief Operating Officer and President of the Company since January 1996 and
as a director of the Company since May 1996. Mr. Blue was an executive officer
of Kelly Food Products, Inc. ("Kelly")(which filed for bankruptcy in October
1996) from October, 1994 until May of 1996. Mr. Blue served as Executive Vice
President of Stella Foods for over three years immediately prior to joining
Kelly. Prior to his employment at Stella Foods, Mr. Blue had over 26 years of
experience with Kraft General Foods. He holds an MBA in Finance from Loyola
University (1975) and a BS in Industrial Engineering from Milikin University
(1966).
SUSAN C. BOLIN, TREASURER AND CHIEF FINANCIAL OFFICER. Ms. Bolin has served
as Chief Financial Officer and Treasurer of the Company since January 1996 and a
director of the Company since May 1996. Ms. Bolin has over ten years of
experience in commercial banking through 1992. From 1992 until January 1996, Ms.
Bolin invested as a principal, for her own account individually or through
Schumacher Capital Corp., in various private companies. Ms. Bolin previously
held positions with the First National Bank of Chicago and the Great Atlantic
and Pacific Food Company. She holds an MBA in finance from Loyola University
(1984) and a BS in Marketing from Northern Illinois University. Ms. Bolin is
married to Mr. Donald F. Schumacher, II, the former Chairman of the Board and
Chief Executive Officer of the Company and currently the controlling shareholder
of the Company.
45
ADDITION OF INDEPENDENT DIRECTORS
The Company's current Board of Directors consists of three members.
Following this Offering, the Company will appoint the following two additional
directors, each of whom has agreed in principle to join the Company's Board and
neither of whom will be employees of the Company.
STEVEN DEVICK. Mr. Devick is the Chief Executive Officer, President and
Chairman of the Board of Platinum Entertainment, Inc., a publicly traded music
company, and has served as its Chairman of the Board and Chief Executive Officer
since January 1992. Mr. Devick is also a director of Platinum Technology, Inc.,
a publicly traded software company. He is also a director of several private
companies.
ROBERT S. STEEL. Mr. Steel is President and Chief Executive Officer of K.A.
Steel Chemicals, Inc. (a chemical distribution and manufacturing company). He
has served in those capacities since 1977. He is also chairman of Montana Metal
Products, L.L.C. (a precision sheet metal fabrication and machining company),
and is a managing Director of Platinum Venture Partners, Inc. He is also a
member of the board of directors of Whittman-Hart, a publicly traded
Chicago-based software consulting company and a member of the board of directors
of Monterey Pasta Company, a publicly traded food manufacturing company.
For a period of four years following this Offering, the Representative will
have the right to designate a member of the Company's Board of Directors.
OTHER KEY EMPLOYEES
In addition to its executive officers, management considers the following
individuals to be key employees:
JIM DENMAN--CORPORATE CONTROLLER. Mr. Denman has served as Controller for
O'Boisie since March 1997. Prior to joining O'Boisie, Mr. Denman was Controller
of Mignone Corporation for two years and prior to that he was with Noll Printing
for approximately 25 years, the last three as General Manager. Mr. Denman has an
accounting degree from Indiana University and is a C.P.A.
TOM GATES--VICE PRESIDENT OF OPERATIONS. Mr. Gates has served as Vice
President of Operations of the Company since April 1997. Previously, Mr. Gates
was the manager of Logistics and Human Resources at the Company since January of
1996. Prior to that time, Mr. Gates was manager of Human Resources for Keebler
from 1991 to 1996. Before his work for Keebler, Mr. Gates was a project manager
for Logistics Management Company.
JOHN KENNA--SALES MANAGER--VENDING. Mr. Kenna joined O'Boisie as Manager of
Route Sales for the Western Region in January 1996. Mr. Kenna was appointed
Account Manager for the Company's Western Region in August 1996 and moved into
his current position as Sales Manager--Vending in April 1997. Prior to joining
O'Boisie, Mr. Kenna worked for Keebler for six years and prior to that, for
Borden and Frito Lay. Mr. Kenna has a B.S. degree from University of South
Dakota.
JOHN KASSAY--BLUFFTON PLANT MANAGER. Mr. Kassay has been Bluffton's plant
manager since January 1996. Prior to that Mr. Kassay held positions with Keebler
as Quality Assurance Manager for eighteen months and with Sunoco Products for
nineteen years, most recently as Plant Superintendent for over three years. Mr.
Kassay has a business management degree from Niagra University.
LIZ KOHLER--MARKETING MANAGER. Ms. Kohler began heading up the Company's
vending sales area in December 1996. Ms. Kohler has an MBA degree from
Northwestern University where she majored in marketing. Following her graduation
Ms. Kohler worked for Keebler as the Sales and Marketing Manager for Vending
Sales for over five years, immediately before joining the Company.
46
FORMER CHAIRMAN AND CHIEF EXECUTIVE OFFICER, AND CURRENT CONTROLLING STOCKHOLDER
DONALD F. SCHUMACHER II. Mr. Schumacher served as Chairman of the Board, a
director and Chief Executive Officer of the Company from the Company's inception
in January 1996 until August 1997. Mr. Schumacher has invested as a principal,
for his own account individually or through affiliates (including Schumacher
Capital Corp.), since 1979 in fifteen companies ranging in size from $15 million
to over $100 million in annual sales. These companies include Esmark Holding,
Inc., Danskin Inc., Penneco and Republic Structural Steel, Inc. In addition, Mr.
Schumacher has invested in Kelly Food Products, Inc., a regional manufacturer of
salty snack foods located in Decatur, Illinois ("Kelly"), which filed a petition
for bankruptcy under Chapter 11 in October of 1996 (Mr. Schumacher was an
executive officer, director and majority stockholder of Kelly in 1996),
Sieferts, Inc. which filed for bankruptcy protection in 1993 and Spurgeon
Holding Corporation which filed for bankruptcy protection in 1991 and again
entered bankruptcy proceedings in 1993 (Mr. Schumacher was the President of
Sieferts, Inc. and Spurgeon Holding Corporation at the time each company filed
for bankruptcy in 1993). Mr. Schumacher's experience includes First Chicago
Corporation, where he was National Director of the Leveraged Finance Group and
Walter E. Heller Company, between which two organizations Mr. Schumacher was
involved in over 100 transactions involving over $1 billion in financings. Mr.
Schumacher is married to Ms. Bolin.
As further described in "Certain Transactions", Kelly, a company controlled
by Mr. Donald Schumacher and of which Mr. Schumacher and Mr. David Blue were
executive officers, filed for bankruptcy protection in October 1996. The Company
had a number of transactions with Kelly, including the Company's receipt of the
rights to acquire the assets purchased by the Company from Keebler, and a
$1,118,989 secured loan for which the Company does not anticipate realizing a
return of its investment. The bankruptcy is a Chapter 7 bankruptcy involving a
complete liquidation of Kelly. See "Risk Factors-- Conflicts of Interest;
Certain Transactions; Bankruptcy of Affiliated Company" and "Certain
Transactions."
ELECTION OF DIRECTORS
The Company's Articles of Incorporation provide that the Company's Board
shall be comprised of four to seven directors, a level it will reach after the
public offering. The Articles of Incorporation also provide that upon
consummation of a public offering, the directors shall be divided into three
classes of approximately equal numbers, which classes will have staggered terms.
One class of directors shall be elected annually by the shareholders. There is
no cumulative voting permitted in the election of directors.
CONSULTING AGREEMENT; DEBT GUARANTEE AGREEMENT
The Company has entered into a consulting agreement for acquisitions and
strategic planning with Donald F. Schumacher, the former Chairman and Chief
Executive Officer of the Company. The agreement calls for annual consulting
payments of $150,000 per year and requires Mr. Schumacher to grant the Company a
right of first refusal to acquire any acquisition candidate identified by Mr.
Schumacher in the snack foods industry. The agreement is for a three-year term
subject to annual renewal thereafter.
In addition, the Company has agreed to pay Mr. Schumacher at the annual rate
of 1.5% of the Company's outstanding indebtedness subject to his guarantee for
continuing his guarantee of the Company's bank debt for so long as that
guarantee remains outstanding.
COMPENSATION OF DIRECTORS
It is anticipated that Directors will receive cash compensation for their
services as Directors, and will be reimbursed for their expenses for each board
and committee meeting attended. It is also anticipated that the Company will
grant Directors options to purchase common stock of the Company under the
Company's Stock Option Plan. See "Management--Stock Option Plan."
47
COMMITTEES
Upon the election of additional directors to the Company's Board of
Directors, the Board intends to elect independent directors to serve on the
Compensation and Audit Committees in addition to the employee directors
currently serving on such committees. The Compensation Committee will review and
recommend to the Board of Directors the compensation and benefits of all
officers of the Company, review general policy matters relating to compensation
and benefits of employees of the Company and administer the issuance of stock
options to the Company's officers, employees, directors and consultants. The
Audit Committee will meet with management and the Company's independent auditors
to determine the adequacy of internal controls and other financial reporting
matters.
EXECUTIVE COMPENSATION
The following table sets forth the annual and other compensation of the
Company's Chief Executive Officer and each of the other executive officers whose
total salary and bonus exceeded $100,000 for the period from January 26, 1996
through December 31, 1996. No other executive officers of the Company had total
salary and bonus which exceeded $100,000 for the period ended December 31, 1996.
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------------
-------------------------------------------------- SECURITIES ALL OTHER
OTHER ANNUAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS (#) ($)(4)
- ------------------------------------------ ---------- --------------- --------------------- ------------------- ------------
Donald F. Schumacher II................... $ 250,000 $ 0 $ 0 0 $ 306,000
Former Chairman and CEO(1)
David W. Blue, President.................. $ 125,000 $ 0 $ 0 0 $ 47,000
and Chief Operating Officer(2)
Susan C. Bolin, Chief Financial........... $ 110,000 $ 0 $ 0 0 $ 47,000
Officer, Executive Vice President,
Treasurer and Secretary(3)
- ------------------------
(1) "All other compensation" includes $10,000 as the estimated value of a
company car provided for the individual's use. Mr. Schumacher ceased serving
as Chairman and Chief Executive Officer of the Company in August 1997. The
$250,000 salary was accrued and not paid during that period and will be paid
from the proceeds of this Offering. See "Use of Proceeds."
(2) "All other compensation" includes $10,000 as the estimated value of a
company car provided for the individual's use.
(3) "All other compensation" includes $10,000 as the estimated value of a
company car provided for the individual's use.
(4) The amounts in excess of $10,000 per individual were payable to respective
parties in January 1996 as compensation for services rendered for the
benefit of the Company in performing due diligence in the acquisition and
negotiating and finalizing the acquisition of the assets from Keebler and
planning for the operation of the Company following the acquisition of the
assets. These amounts were not paid to the parties in cash but were
simultaneously contributed to the Company by the individuals as additional
capital contributions. See "Certain Transactions."
EMPLOYMENT AGREEMENTS
Effective immediately prior to this Offering, the Company intends to enter
into employment agreements with each of Mr. Vitulli, Mr. Blue and Ms. Bolin. It
is anticipated that each employment agreement
48
will have a term of three (3) years and automatically renew for additional one
(1) year periods unless either the employee or the Company elects to terminate
the agreement at the expiration of the term. Each of the employment agreements
will provide for the employee's participation in all executive benefit plans. It
is anticipated that each of the employment agreements will provide that if the
employee's employment is terminated without cause (to be defined in the
agreement), the Company will pay the employee an amount equal to the salary that
would have been payable to the employee for one year. Mr. Vitulli's employment
agreement will provide for his employment as Chief Executive Officer at an
annual base salary of $275,000. Mr. Blue's employment agreement will provide for
his employment as President and Chief Operating Officer at an annual base salary
of $175,000. Ms. Bolin's employment agreement will provide for her employment as
Chief Financial Officer and Treasurer at an annual base salary of $150,000.
In addition to the annual salary of $275,000 per year for Mr. Vitulli, Mr.
Vitulli will receive, as a signing bonus, a grant of 6,250 shares of Common
Stock, valued at $4.00 per share, Mr. Vitulli will receive a $25,000 bonus on
the completion of this Offering, and Mr. Vitulli received 225,000 stock options,
each option to acquire a share of Common Stock at an exercise price of $ (the
initial public offering price) per share (the options vesting one-third each
year over the next three anniversaries of his employment). Mr. Vitulli will be
eligible for performance bonuses as determined by the Board of Directors.
The Company entered into an Employment Agreement with James Schindel
commencing in February of 1996, pursuant to which Mr. Schindel was entitled to a
base salary of $110,000 per year for the first three years of his employment,
plus a bonus based upon certain performance targets. Mr. Schindel resigned his
employment with the Company on December 26, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
The Company did not grant any stock options to its named executive officers
during 1996 and no person has exercised any options since the Company's
inception.
STOCK OPTION PLAN
In September 1997, it is anticipated that the Company's Board of Directors
and shareholders will develop and adopt the Company's Stock Option Plan (the
"Stock Option Plan"). Pursuant to the Stock Option Plan, options can be granted
to employees, non-employee directors and consultants of the Company. The Stock
Option Plan will be administered by the Board of Directors or a committee the
Board may appoint (the "Committee"). Subject to certain limits, options to be
granted under the Stock Option Plan may be incentive stock options ("ISOs")
meeting the requirements of Section 422 of the Internal Revenue Code or may be
options other than ISOs (non-qualified options or "NQSOs"). The exercise price
of an ISO must be at least equal to the fair market value (as defined in the
Stock Option Plan) per share of the Common Stock on the date of the grant, and
must be at least 110% of such value if the grantee is the owner of 10% or more
of the outstanding shares of the Company. The exercise price of NQSOs will be
determined by the Committee and may be greater or less than the fair market
value per share of the Common Stock on the date of grant. The exercise price is
required to be paid in full at the time of exercise in cash or its equivalent
or, upon approval of the Committee, in shares of Common Stock. ISOs and NQSOs
granted under the Stock Option Plan will be exercisable for a term of not more
than 10 years (not more than five years if the grantee is a substantial
shareholder) as determined by the Committee, and will become exercisable at such
time or times during the optionee's employment with the Company as may be
determined by the Committee, subject to acceleration of vesting upon a "change
in control" of the Company. Options that have become exercisable on or prior to
the date of termination of the optionee's employment terminate at the earlier
of: (i) the expiration date of the option; (ii) where such termination of
employment occurs as a result of death or disability, one year after the date of
termination of employment; or (iii) where such termination occurs other than as
a result of death or disability, three months after the date of termination of
employment by resignation with the consent of the Company, or the date of
termination of employment in other cases. Generally, options granted under the
Stock Option
49
Plan are not transferable by the grantee other than by testament or the laws of
descent and distribution. All other terms, including the time or times at which
an option becomes exercisable, may be determined by the Committee in its
discretion.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Article Seven, Paragraph 8, of the Company's Articles of Incorporation
provides that the Company shall indemnify its directors to the full extent
permitted by law, and may indemnify its officers and employees to such extent,
except that the Company shall not be obligated to indemnify any such person (i)
with respect to proceedings, claims or actions initiated or brought voluntarily
by any such person and not by way of defense, or (ii) for any amounts paid in
settlement of an action indemnified against by the Company without the prior
written consent of the Company. Article Seven, Paragraph 9, of the Company's
Articles of Incorporation further provides that the personal liability of the
directors of the Company is eliminated to the fullest extent permitted under the
Illinois Business Corporation Act of 1983, as amended.
The Underwriting Agreement provides that the Underwriters are obligated,
under certain circumstances, to indemnify directors, officers and controlling
persons of the Company against certain limited liabilities, including
liabilities under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
CERTAIN TRANSACTIONS
On November 18, 1995, a Snack Assets Purchase Agreement (as subsequently
amended, the "Purchase Agreement") was executed between Keebler, as seller, and
Kelly as buyer giving Kelly the right to purchase certain assets from Keebler.
The Purchase Agreement was by its terms assignable by Kelly to any other entity
controlled by a person or entity which simultaneously controlled a majority
interest in Kelly. Donald F. Schumacher, II, then the majority stockholder and
presently the controlling shareholder of the Company and the former Chairman of
the Board and Chief Executive Officer of the Company. At the time of execution
of the Purchase Agreement, Mr. Schumacher was also a director, executive officer
and the majority shareholder of Kelly. Mr. Blue was also an executive officer of
Kelly from October 1994 to May 1996. The Company was formed in January 1996, and
Kelly assigned its rights to purchase the assets, and assume the obligations,
under the Purchase Agreement to the Company without payment to Kelly. Mr.
Schumacher determined that Kelly did not have the financial ability to acquire
the assets and the Company acquired those assets as contemplated by the specific
assignment provisions of the Purchase Agreement. Schumacher Capital L.L.C. has
agreed to indemnify the Company for any liability it would incur due to any such
lawsuit related to the assignment of the Purchase Agreement by Kelly to the
Company or the bankruptcy of Kelly and, in furtherance of this indemnity,
Schumacher Capital L.L.C. has agreed to place certain of its shares of Common
Stock in escrow. The purchase of the assets from Keebler is more fully described
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations." See, also, "Risk Factors--Conflicts of Interest; Certain
Transactions; Bankruptcy of Affiliated Company."
From time to time from February 1996 through July 1996, the Company advanced
funds to Kelly totalling $1,118,989, while the Company was evaluating a merger,
acquisition or other similar transaction with Kelly. In May 1996, Kelly executed
a secured promissory note to the Company to reflect these borrowings. Kelly
filed for bankruptcy protection in October 1996 and the Company has reserved
against the loss of the entire amount under such note. The Kelly bankruptcy is
now a Chapter 7 proceeding and, in management's estimation, is not likely to
produce any return of the loan proceeds to the Company as virtually all of the
assets of Kelly have been liquidated for the benefit of a significant portion,
although not all, of Kelly's liability to Kelly's senior secured lender (Mr.
Schumacher had guaranteed a portion of Kelly's
50
senior-lender's loan to Kelly, and a portion of which guarantee remains in
effect). Nonetheless, the Company has filed a proof of claim for its debt in the
case and intends to pursue available collection on the loan.
Prior to Kelly filing for bankruptcy, the Company sold its products to Kelly
totalling $461,203 for the period ended July 27, 1996 and purchased $460,874 of
products from Kelly during that same period.
On June 30, 1996, Mr. Schumacher guaranteed the Company's obligations to the
Lender under its $3,000,000 revolving credit facility, its $5,000,000 term loan
facility and its $2,000,000 overline term loan facility. Any repayments by the
Company of these obligations for so long as Mr. Schumacher remains a guarantor
will indirectly benefit Mr. Schumacher by reducing his risk under that guaranty.
In January 1996, the Company agreed to pay, upon closing the purchase from
Keebler, a total of $370,000 to Mr. Schumacher, Ms. Bolin and Mr. Blue for their
services for the benefit of the Company in performing due diligence on the
acquisition, and negotiating and finalizing the purchase, of assets by the
Company from Keebler and planning for operation of the Company following the
acquisition of the assets. The payments were not paid to the individuals by the
Company but instead, at the instructions of the individuals, payments were
converted by them to capital contributions to the Company in the amounts of
$296,000 by Mr. Schumacher, $37,000 by Ms. Bolin and $37,000 by Mr. Blue.
Mr. Schumacher has entered into a consulting agreement for acquisitions and
strategic planning with the Company, at an annual compensation of $150,000 per
year. In addition, the Company has agreed to pay Mr. Schumacher at the annual
rate of 1.5% of the Company's outstanding indebtedness subject to his guarantee
for continuing his guarantee of the Company's bank debt for so long as that
guarantee remains outstanding. See "Management--Consulting Agreement; Debt
Guarantee Agreement."
Mr. Schumacher's salary from the Company for the period from January 1996
through December 1996 (totalling $250,000) has not been paid to date and has
been included in accrued expenses. It is anticipated that this obligation will
be repaid from the proceeds of this Offering. See "Use of Proceeds."
The Company anticipates entering into employment agreements with Mr.
Vitulli, Ms. Bolin and Mr. Blue effective immediately prior to this Offering.
See "Management--Employment Agreements."
Management believes that all prior transactions between the Company and its
officers, shareholders and affiliates were made on terms no less favorable to
the issuer than those available from unaffiliated parties. The Company has
adopted a policy that all future transactions with affiliated entities or
persons will be no less favorable than could be obtained from unrelated parties
and all future transactions between the Company and its officers, directors,
principal shareholders and affiliates will be approved by a majority of the
Company's Board of Directors. See "Risk Factors--Stock Ownership; Private
Placement Memorandum Correction" for a discussion of a commitment by Mr.
Schumacher to the Company with respect to a difference in stock ownership
reported in the Company's private placement memorandum with reference to its
Private Placement. See also "Risk Factors--Conflicts of Interest; Certain
Transactions, Bankruptcy of Affiliated Company".
51
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of August 28, 1997, and as adjusted to
reflect the sale of shares offered hereby, certain information concerning the
beneficial ownership of the Company's Common Stock by (i) each person, known by
the Company to be the beneficial owner of more than 5% of the outstanding Common
Stock of the Company, (ii) each of the Company's directors and executive
officers and (iii) all directors and executive officers of the Company as a
group.
PERCENTAGE OF OWNERSHIP
----------------------------------------
PRIOR TO OFFERING
SHARES OF COMMON STOCK ------------------------- AFTER
BENEFICIALLY OWNED PERCENTAGE OFFERING
---------------------- PERCENTAGE OF TOTAL -------------
BEFORE THE AFTER THE OF VOTING PERCENTAGE
NAME OF BENEFICIAL OWNER(1) OFFERING OFFERING CLASS(4) POWER(4) OF CLASS(5)
- ---------------------------------------------- ---------- ---------- ------------ ----------- -------------
Donald F. Schumacher II(2).................... 578,614 578,614 76.51% 76.51% 25.64%
David W. Blue................................. 72,327 72,327 9.56% 9.56% 3.21%
Susan C. Bolin(3)............................. 72,327 72,327 9.56% 9.56% 3.21%
Peter J. Vitulli(6)........................... 6,250 6,250 0.83 0.83 0.28%
Directors and executive 6.69%
officers as a group (three persons)......... 150,904 150,904 19.95% 19.95%
- ------------------------
(1) Unless otherwise indicated below, the persons in the table above have sole
voting and investment power with respect to all shares shown as beneficially
owned by them.
(2) Includes the 578,614 shares owned by Schumacher Capital, LLC, which is owned
for the benefit of the Schumacher family, and of which Mr. Schumacher is the
majority equity member and for which Mr. Schumacher has sole voting and
investment power. Excludes the 72,327 shares beneficially owned by Ms.
Bolin, his wife, which are disclosed elsewhere in this table.
(3) Excludes the 578,614 shares beneficially owned by Mr. Schumacher, her
husband, which are disclosed elsewhere in this table. Included in the shares
Schumacher Capital, LLC owns, and thus excluded from the number shown owned
by Ms. Bolin, are the 72,327 additional shares (12.5% of Schumacher Capital,
LLC's shares) to which she has a right to the proceeds, but over which she
does not exercise any investment or voting control.
(4) Does not include (i) 26,526 shares of Common Stock issuable upon exercise of
the Private Placement Warrants issued in the Private Placement, (ii) 150,000
shares of Common Stock reserved for issuance under the Company's Stock
Option Plan, none of which options have been granted to date, (iii) exercise
of the warrant for 12,500 shares of Common Stock, exercisable at $1.00 per
share, granted to Miles J. Willard Company as part of the renegotiation of
the payment terms under the Company's patent license agreements with that
company, (iv) options to Peter J. Vitulli to acquire 225,000 shares of the
Company's Common Stock, and (v) convertible preferred stock anticipated to
be owned by United Biscuits UK Ltd., which is convertible into shares
of Common Stock.
(5) Does not include (i) 225,000 shares of Common Stock issuable upon exercise
of the Underwriters' Over-Allotment Option, (ii) 150,000 shares of Common
Stock issuable upon exercise of the Representative's Warrants, (iii) 26,526
shares of Common Stock issuable upon exercise of the Private Placement
Warrants issued in the Private Placement, (iv) 150,000 shares of Common
Stock reserved for issuance under the Company's Stock Option Plan, none of
which have been granted to date, (v) exercise of options to acquire 225,000
shares of Common Stock of the Company at an exercise price equal to the
initial public offering price of the Common Stock ($ ) issued to the
Company's Chairman Designee and Chief Executive Officer Designee, (vi)
exercise of the warrant for 12,500 shares of Common Stock, exercisable at
$1.00 per share, granted to Miles J. Willard Company as part of the
renegotiation of the payment terms under the Company's patent license
agreements with that company or (vii) conversion of the $4,000,000 of
convertible preferred stock of the Company anticipated to be issued to
United Biscuits UK Ltd. in exchange for that company's subordinated loan
52
to the Company, convertible at % of the initial public offering price
($ ) into shares of Common Stock.
(6) Includes 6,250 shares to be granted to Mr. Vitulli first as a signing bonus.
Does not include options to acquire 225,000 shares of Common Stock, at
$ per share (the initial public offering price of the Common Stock),
vesting one-third on each of the first three anniversaries of Mr. Vitulli's
employment by the Company.
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 30,000,000 shares of common stock, par
value $.01 per share. In addition, the Board of Directors may issue 10,000,000
shares of preferred stock in any class or series and may fix the designation,
powers, preferences and rights of such shares.
As of the date of this Prospectus there were 756,250 shares of Common Stock
outstanding, 26,526 Private Placement Warrants outstanding, 12,500 Warrants
outstanding to Miles J. Willard Company, 225,000 Stock Options outstanding to
Peter Vitulli (Chairman of the Board Designee and Chief Executive Officer
Designee of the Company) and shares of convertible preferred stock are
anticipated to be outstanding to United Biscuits UK Ltd., convertible into
shares of Common Stock.
In addition, the Company has reserved 150,000 shares for issuance under its
stock option plan.
COMMON STOCK
The holders of Common Stock (i) have equal ratable rights to dividends from
funds legally available therefor, when, as and if declared by the Board of
Directors of the Company, subject to the rights of holders of any Preferred
Stock; (ii) are entitled to share ratably in all of the assets of the Company
available for distribution to holders of Common Stock upon liquidation,
dissolution or winding-up of the affairs of the Company, subject to the rights
of holders of any preferred stock; (iii) do not have preemptive, subscription or
conversion rights; and (iv) are entitled to one vote per share on all matters
submitted to a vote of the Company's shareholders. The Common Stock does not
have cumulative voting rights or any redemption or sinking fund provisions. All
shares of Common Stock now outstanding are fully paid and nonassessable.
PREFERRED STOCK
The Company's Articles of Incorporation provide for an authorized class of
undesignated preferred stock consisting of 10,000,000 shares. The preferred
stock may be issued at the direction of the Board of Directors, without the
approval of the holders of Common Stock, in series from time to time with such
designations, relative rights, priorities, preferences, qualifications,
limitations and restrictions thereon, to the extent that such are not fixed in
the Company's Articles of Incorporation, as the Board of Directors determines.
The rights, preferences, limitations and restrictions of different series of
preferred stock may differ with respect to dividend rates, amounts payable on
liquidation, voting rights, conversion rights, redemption provisions, sinking
fund provisions and other matters. The Board of Directors may authorize the
issuance of preferred stock which ranks senior to the Common Stock with respect
to the payment of dividends and the distribution of assets on liquidation. In
addition, the Board of Directors is authorized to fix the limitations and
restrictions, if any, upon the payment of dividends on Common Stock to be
effective while any shares of preferred stock are outstanding. The Board of
Directors, without shareholder approval, can issue preferred stock with voting
and conversion rights which could adversely affect the voting power of the
holders of Common Stock. The issuance of preferred stock to certain holders
under certain circumstances may have the effect of delaying, deferring or
preventing a change in control of the Company and may have a depressive effect
on the market price of the Common Stock.
53
REPRESENTATIVE'S WARRANTS
The Company has also agreed to issue warrants to the Representative (the
"Representative's Warrants") to purchase an aggregate of 150,000 shares of
Common Stock. See "Underwriting."
PRIVATE PLACEMENT WARRANTS
Pursuant to the Private Placement, the Company issued warrants to the
Private Placement Securityholders exercisable commencing twelve months following
the commencement of this Offering and expiring three years after the
commencement of this Offering. Subsequent to the issuance of the Private
Placement Warrants, the Company combined its stock in a reverse stock split,
which would have resulted in the exercise price of the Private Placement
Warrants to be $116.86 per share. The Company, taking into account all dilutive
factors, reduced the exercise price of the Private Placement Warrants to $ ,
the Offering price per share listed on the front page of this Prospectus.
WARRANT ISSUED UNDER LICENSE AGREEMENT
The Company granted to Miles J. Willard Company, as part of the
renegotiation of the payment terms under the Company's patent license agreements
with that company, a warrant entitling the holder to purchase 12,500 shares of
Common Stock, with an exercise price of $1.00 per share.
STOCK OPTIONS
The Company will grant to Peter J. Vitulli 225,000 stock options, each
option entitling the holder to purchase one share of Common Stock at $ per
share (the initial public offering price). The options will vest over three
years, 75,000 on each of the first three anniversaries of Mr. Vitulli's
employment by the Company, based on Mr. Vitulli's continued employment by the
Company at that time.
DESCRIPTION OF CONVERTIBLE PREFERRED STOCK ANTICIPATED TO BE ISSUED TO UNITED
BISCUITS UK LTD.
The anticipated issuance of shares of convertible preferred stock (the "UB
Preferred Stock") would, if approved, be authorized by resolutions adopted by
the Board of Directors and filed with the Secretary of State of the State of
Illinois, which resolutions will contain the designations, rights, powers,
preferences, qualifications and limitations of the UB Preferred Stock. Upon
issuance, the shares of UB Preferred Stock will be fully paid and
non-assessable. The statements in this Prospectus relating to the UB Preferred
Stock are summaries and do not purport to be complete. Investors are referred to
the resolutions relating to the UB Preferred Stock which have been filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
DIVIDENDS. The holders of the UB Preferred Stock will not be entitled to
receive any dividends.
CONVERSION OF PREFERRED STOCK. The holder of any share of UB Preferred
Stock shall have the right, at its option, at any time after the conversion
dates described below, but prior to December 31, 2001, to convert any such share
into shares of Common Stock of the Company, as such conversion rate may be
adjusted (the "Conversion Rate"); provided that the shares of UB Preferred Stock
will automatically convert to Common Stock, if not previously converted, on
December 31, 2001.
The Conversion Rate is subject to adjustment from time to time in the event
of (i) the issuance of Common Stock as a dividend or distribution on any class
of capital stock of the Company; (ii) the combination, subdivision or
reclassification of the Common Stock; (iii) the distribution to all holders of
Common Stock of evidences of the Company's indebtedness or assets (including
securities but excluding cash dividends or distributions paid out of net
profits); or (iv) the sale of Common Stock at a price, or the issuance of
options, warrants or convertible securities with an exercise or conversion rate
per share less than the lower of the then current Conversion Rate or the then
current market price of the Common Stock (except under (a) exercise of the
Representative's Warrants or (b) the issuance of Common Stock or
54
options to employees, officers, directors, shareholders or consultants pursuant
to the Stock Option Plan or any other stock plans). No adjustment in the
Conversion Rate will be required until cumulative adjustments require an
adjustment of at least 5% in the Conversion Rate. No fractional shares will be
issued upon conversion, but any fractions will be adjusted in cash on the basis
of the then current market price of the Common Stock.
In case of any consolidation or merger to which the Company is a party
(other than a consolidation or merger in which the Company is the surviving
party and the Common Stock is not changed or exchanged), or in case of any sale
or conveyance of all or substantially all of the property and assets of the
Company, each share of UB Preferred Stock then outstanding will be convertible
from and after such merger, consolidation or sale or conveyance of property and
assets into the kind and amount of shares of stock or other securities and
property receivable as a result of such consolidation, merger, sale or
conveyance by a holder of the number of shares of Common Stock into which such
share of UB Preferred Stock could have been converted immediately prior to such
merger, consolidation, sale or conveyance.
The outstanding shares of the UB Preferred Stock will be convertible into
Common Stock, 25% on September , 1998 and an additional 25% each six months
thereafter until all shares are convertible on March , 2000.
VOTING RIGHTS. The holders of the UB Preferred Stock are not entitled to
vote, except as required by applicable law. On matters subject to a vote by
holders of UB Preferred Stock, the holders are entitled to one vote per share.
LIQUIDATION PREFERENCE. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company, before payment or
distribution of the assets of the Company (whether capital or surplus), or the
proceeds thereof, may be made or set apart for the holders of Common Stock or
any stock ranking junior to the UB Preferred Stock, the holders of UB Preferred
Stock will be entitled to receive, out of the assets of the Company available
for distribution to shareholders, a per share liquidating distribution equal to
the initial public offering price per share plus any accumulated and unpaid
dividends. If, upon any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the assets of the Company are insufficient to make
the full payment as required in the preceding sentence, plus similar payments on
any other class of stock ranking on a parity with the UB Preferred Stock upon
liquidation, then the holders of UB Preferred Stock and such other shares will
share ratably in any such distribution of the Company's assets in proportion to
the full respective distributable amounts to which they are entitled.
A consolidation or merger of the Company with or into another corporation or
sale or conveyance of all or substantially all of the property and assets of the
Company will not be deemed to be a liquidation, dissolution or winding-up,
voluntary or involuntary, of the Company for the purposes of the foregoing. See
"Conversion".
MISCELLANEOUS. The Company is not subject to any mandatory redemption or
sinking fund provision with respect to the UB Preferred Stock. The holders of
the UB Preferred Stock are not entitled to preemptive rights to subscribe for or
to purchase any shares or securities of any class which may at any time be
created.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common
Stock. Future sales of substantial amounts of Common Stock in the public market
could adversely affect prevailing market prices.
Upon completion of this offering, the Company will have 2,256,250 shares of
Common Stock outstanding (excluding any of the Underwriters' over-allotment
shares). Of these shares, the 1,500,000 shares of Common Stock sold in this
Offering (1,725,000 shares of Common Stock if the Underwriters exercises their
Over-Allotment Option in full) will be freely tradable without restriction under
the
55
Securities Act, except for any such shares which may be acquired by an
"affiliate" of the Company as that term is defined in Rule 144 (an "Affiliate").
The 756,250 remaining shares constitute "restricted securities" within the
meaning of Rule 144, and will only be eligible for sale in the open market
commencing on the first anniversary of the later (if applicable) of the date
such shares were acquired from the Company or from an Affiliate of the Company,
subject to the contractual lockup provisions and applicable requirements of Rule
144 described below. However, of such restricted securities, 26,526 shares
issued to the purchasers in the Private Placement (the "Private Placement
Securityholders") and the shares of Common Stock issuable upon exercise of the
Private Placement Warrants, are subject to registration rights which may entitle
the holder thereof to register such shares for resale under the Securities Act
and to sell such shares, after the lockup period, without regard for the
restrictions of Rule 144. The Private Placement Securityholders have
registration rights permitting them to register their shares whenever the
Company files certain registration statements, including the Registration
Statement of which this Prospectus is a part. The Private Placement
Securityholders have been informed by the Representative that their shares and
warrants will not be registered by the Company to be included in this
Registration Statement. Other than the holders of 5,828 shares of Common Stock,
each of the Private Placement Securityholders has agreed not to publicly sell or
distribute equity securities of the Company (or any securities convertible into
or exchangeable or exercisable for such securities) until November 6, 1997.
The Company, its officers and directors and certain shareholders and warrant
holders of the Company have agreed that they will not directly or indirectly,
offer, sell, offer to sell, grant any option to purchase or otherwise sell or
dispose (or approve any offer, sale, offer of sale, grant of any options to
purchase or sale or disposition) of any shares of Common Stock or other capital
stock of the Company, or any securities convertible into, or exercisable or
exchangeable for, any shares of Common Stock or other capital stock of the
Company without the prior written consent of the Representative, for a period of
13 months from the date of the Prospectus. In addition, most of the Private
Placement Securityholders have agreed that they will not directly or indirectly,
issue, offer to sell, grant an option for the sale of, assign, transfer, pledge,
hypothecate, or otherwise encumber or dispose of any such shares until November
6, 1997.
In general, under Rule 144 as currently in effect, beginning 90 days after
the effective date of the Registration Statement of which this Prospectus is a
part, a shareholder, including an "affiliate" of the Company, as that term is
defined in Rule 144 (an "Affiliate"), who has beneficially owned his or her
restricted securities (as that term is defined in Rule 144) for at least one
year from the later of the date such securities were acquired from the Company
or (if applicable) the date they were acquired from an Affiliate, is entitled to
sell, within any three-month period, a number of such shares that does not
exceed the greater of one percent of the then outstanding shares of Common Stock
(approximately 22,562 shares immediately after this offering) or the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding the date on which notice of such sale was filed under Rule 144,
provided certain requirements concerning availability of public information,
manner of sale and notice of sale are satisfied. Affiliates may sell shares not
constituting restricted securities in accordance with the foregoing volume
limitations and other requirements but without regard to the holding period. In
addition, under Rule 144(k), if a period of at least two years has elapsed
between the later of the date restricted securities were acquired from the
Company and the date they were acquired from an Affiliate of the Company, a
shareholder who is not an Affiliate of the Company at the time of sale and has
not been an Affiliate for at least three months prior to the sale would be
entitled to sell the shares immediately without regard to the volume limitations
and other conditions under Rule 144 described above. Since the outstanding
shares of Common Stock have been outstanding for over one year, Rule 144 will be
available to the Company's shareholders.
As the Company has granted no options under the Company's Stock Option Plan
prior to the date of this Prospectus, an aggregate of 150,000 shares of Common
Stock are available for future option grants under the Company's Stock Option
Plan. See "Management--Stock Option Plan." The Company intends to file a
registration statement under the Securities Act after the effective date of the
Registration
56
Statement covering certain shares of Common Stock reserved for issuance under
the Stock Option Plan and may register the shares underlying the stock options
granted to Mr. Vitulli, the Chairman Designee and Chief Executive Officer
Designee of the Company. Upon the effectiveness of that registration statement,
most of the shares of Common Stock issued under the Stock Option Plan which have
vested, other than shares held by Affiliates, will be immediately eligible for
resale upon exercise in the public market without restriction, subject to the
terms of the agreements described above.
The warrant the Company issued under its license agreement with Miles J.
Willard Company to purchase 12,500 shares of Common Stock at $1.00 per share,
will be subject to a thirteen month lockup agreement where Miles J. Willard
Company, agrees not to directly or indirectly offer, sell, offer to sell, grant
an option to purchase or otherwise dispose of such warrants or the shares of
Common Stock issuable thereunder without the prior written consent of the
Representative.
The shares of convertible preferred stock anticipated to be issued to
United Biscuits UK Ltd in exchange for its $4,000,000 note owed to it by the
Company are anticipated to be convertible in 25% portions, the first 25% to be
convertible on , 1998 with the remaining portions becoming
convertible each six months thereafter. It is anticipated that United Biscuits
UK Ltd. may be able to utilize Rule 144 to sell at least a portion of its shares
of Common Stock issued upon such conversion in each quarter following
conversion.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is LaSalle National
Bank, located in Chicago, Illinois.
57
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (the
Underwriting Agreement") among the Company and the Underwriters named below (the
"Underwriters"), the Company has agreed to sell to the Underwriters for whom
National Securities Corporation is acting as representative (in such capacity,
the "Representative"), and the Underwriters have severally agreed to purchase on
a firm commitment basis the number of shares of Common Stock set forth below
opposite their names.
NUMBER OF
SHARES OF
UNDERWRITERS COMMON STOCK
- ------------------------------------------------------------------------------ --------------
National Securities Corporation...............................................
--------------
Total..................................................................... 1,500,000
--------------
--------------
The Underwriting Agreement provides that the obligations of the several
Underwriters are subject to the approval of certain legal matters by their
counsel and various other conditions. The nature of the Underwriters'
obligations are such that they are committed to purchase all of the above shares
of Common Stock offered hereby if any are purchased.
The Company has been advised by the Representative that the Underwriters
propose to offer the shares of Common Stock to the public at the public offering
prices set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession not in excess of $ per share of Common Stock.
The Underwriters may allow, and such dealers may re-allow, a concession not in
excess of $ per share of Common Stock to certain other dealers. After the
initial public offering, the public offering price, concession and reallowance
may be changed by the Representative.
The Representative has informed the Company that it does not expect sales to
discretionary accounts by the Underwriters to exceed five percent of the shares
of Common Stock offered hereby.
The Company has granted to the Underwriters an over-allotment option (the
"Over-Allotment Option") exercisable during the 45-day period commencing on the
date of this Prospectus to purchase from the Company, at the public offering
price per share of Common Stock, less underwriting discount, up to an aggregate
of 225,000 shares of Common Stock for the sole purpose of covering
over-allotments, if any. To the extent that the Underwriters exercise the
Over-Allotment Option, each Underwriter will have become obligated to purchase
approximately the same percentage shares of Common Stock as the percentage it
was obligated to purchase pursuant to the Underwriting Agreement.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act or to contribute to
payments that the Underwriters may be required to make. The Company has agreed
to pay to the Representative a non-accountable expense allowance equal to 3.0%
of the gross proceeds derived from the sale of the shares of Common Stock
underwritten, $50,000 of which has been advanced as of the date of this
prospectus.
In connection with this Offering, the Company has agreed to sell to the
Representative and their designees, for nominal consideration, Representative's
Warrants to purchase up to 150,000 shares of Common Stock at an initial exercise
price of $ per share (the "Representative's Warrants"). The warrants are
exercisable for a period of four years commencing one year from the date of this
Prospectus. The Representative's Warrants provide for adjustment in the exercise
price of the Representative's Warrants in the event of certain mergers,
acquisitions, stock dividends and capital changes. The Representative's Warrants
may not be sold, transferred, assigned or hypothecated for a period of one year
following the date of this Prospectus, except to officers or directors of the
Representative, Underwriters or members of the selling group. The
Representative's Warrants grant to the holders thereof certain rights with
respect to the registration under the Securities Act of the securities issuable
upon exercise of the Representative's Warrants.
58
The Company, its executive officers and directors, and holders of
substantially all of the Common Stock and other outstanding securities of the
Company have entered into lock-up agreements. See "Shares Eligible for Future
Sale."
The Company and the Representative will enter into a financial advisory
agreement prior to the Offering pursuant to which the Company will be retaining
the Representative as a financial consultant to the Company for a period of 24
months at $2,000 per month. The Representative shall also have the right to
designate one person to the Board of Directors of the Company for a period of
four years following this Offering.
Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price of the Common Stock has
been determined based upon negotiations between the Company and the
Representative and does not necessarily bear any relationship to the Company's
asset value, net worth, or other established criteria of value. Among the
factors considered in determining the price were the history of, and the
prospects for, the Company and the industry in which it competes, its past and
present operations, its past and present earnings and the trend of such
earnings, the present state of the Company's development, the general condition
of the securities markets at the time of this Offering and the recent market
prices of publicly traded common stocks of comparable companies. There can be no
assurance that the Common Stock can be resold at its offering price, if at all.
Purchasers of the Common Stock will be exposed to a substantial risk of a
decline in the market prices of the Common Stock after the Offering, if a market
develops.
In connection with this Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Company's Common
Stock. Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M, pursuant to which such persons may bid
for or purchase Common Stock of the Company for the purpose of stabilizing its
market price. The Underwriters also may create a short position for the account
of the Underwriters by selling more of the Common Stock in connection with the
Offering then they are committed to purchase from the Company, and in such case
may purchase Common Stock of the Company in the open market following completion
of the Offering to cover all or a portion of such short position. The
Underwriters may also cover all or a portion of such short position by
exercising the Over-Allotment Option. In addition, the Representative, on behalf
of the Underwriters, may impose "penalty bids" under contractual arrangements
with the Underwriters whereby it may reclaim from an Underwriter (or dealer
participating in the Offering) for the account of other Underwriters, the
selling concession with respect to the shares of Common Stock that are
distributed in the Offering but subsequently purchased for the account of the
Underwriters in the open market. Any of the transactions described in this
paragraph may stabilize or maintain the price of the Common Stock of the Company
at a level above that which might otherwise prevail in the open market. None of
the transactions described in this paragraph are required and, if they are
undertaken, they may be discontinued at any time.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to copies
of each such agreement which are filed as exhibits to the Registration
Statement, of which this Prospectus forms a part. See "Available Information."
CERTAIN LEGAL MATTERS
The legality of the Common Stock being offered hereby will be passed upon by
Hogan, Marren & McCahill, Ltd., 205 North Michigan Avenue, Suite 4300, Chicago,
Illinois 60601. Camhy Karlinsky & Stein LLP, 1740 Broadway, 16th Floor, New
York, New York 10019 has acted as counsel to the Underwriters in connection with
this Offering.
59
EXPERTS
The financial statements included in this Prospectus have been audited by
BDO Seidman, LLP, independent certified public accountants, to the extent and
for the period set forth in their report (which contains an explanatory
paragraph regarding the Company's ability to continue as a going concern)
appearing elsewhere herein and are included in reliance upon such report given
upon the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed a registration statement on Form SB-2 (the
"Registration Statement") under the Securities Act, with the Securities and
Exchange Commission ("Commission"), with respect to the Common Stock being
offered by this Prospectus. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all the information set forth in, or
annexed as exhibits to, the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and this Offering, reference is
made to the Registration Statement and the exhibits thereto. All of these
documents may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the Commission's Regional Offices at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade
Center, 13th Floor, New York, New York 10048. Copies may be obtained at the
prescribed rates from the Public Reference Section of the SEC at its principal
office in Washington, D.C. 20549. In addition, the Commission maintains a web
site at http://www.sec.gov that contains filings made by the Company. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference.
60
THE O'BOISIE CORPORATION
FINANCIAL STATEMENTS
F-1
THE O'BOISIE CORPORATION
CONTENTS
INDEPENDENT AUDITORS' REPORT................................................... F-3
FINANCIAL STATEMENTS
Balance Sheets............................................................... F-4
Statements of Operations..................................................... F-5
Statements of Shareholders' Equity (Deficit)................................. F-6
Statements of Cash Flows..................................................... F-7--F-8
Notes to Financial Statements................................................ F-9--F-18
F-2
INDEPENDENT AUDITORS' REPORT
[The following is the form of the opinion that BDO Seidman, LLP will be in a
position to issue upon completion of the reverse stock split described in Note
13(a)]
To the Board of Directors
The O'Boisie Corporation
Oak Brook, Illinois
We have audited the accompanying balance sheet of The O'Boisie Corporation
as of July 27, 1996 and the related statements of operations, shareholders'
equity (deficit) and cash flows for the period from inception (January 19, 1996)
to July 27, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The O'Boisie Corporation at
July 27, 1996, and the results of its operations and its cash flows for the
period from inception (January 19, 1996) to July 27, 1996, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered net losses, has a working capital
deficit and has a shareholders' deficit. In addition, as discussed in Note 5,
the Company is required to prepay approximately $5,000,000 of amounts
outstanding under its current credit agreement by September 30, 1997. The
Company does not have the ability to pay these debts should the lender demand
payment. These factors raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also discussed in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
BDO Seidman, LLP
Chicago, Illinois
November 15, 1996, except for Note 5,
which is as of August 25, 1997 and Note 13(a),
which is as of , 1997
F-3
THE O'BOISIE CORPORATION
BALANCE SHEETS
ASSETS
JULY 27, MAY 24,
1996 1997
----------- -----------
(UNAUDITED)
CURRENT ASSETS
Cash............................................................. $ 181,633 $ 8,563
Accounts receivable, net of allowances of $914,362 and $1,555,776
(Notes 4, 5, 6 and 12)......................................... 742,072 951,635
Inventory (Notes 4, 5 and 12).................................... 1,873,956 992,781
Prepaid expenses and other....................................... 191,666 104,789
----------- -----------
TOTAL CURRENT ASSETS............................................... 2,989,327 2,057,768
----------- -----------
PROPERTY AND EQUIPMENT (Notes 4 and 5)
Land............................................................. 208,058 208,058
Building......................................................... 1,040,287 1,040,287
Machinery and equipment.......................................... 7,369,069 7,363,290
Rolling stock (Note 12).......................................... 1,675,450 492,733
----------- -----------
10,292,864 9,104,368
Less accumulated depreciation and amortization................... 389,463 834,631
----------- -----------
NET PROPERTY AND EQUIPMENT......................................... 9,903,401 8,269,737
----------- -----------
INTANGIBLE ASSETS, net of accumulated amortization of $1,500 and
$60,411.......................................................... 51,000 326,835
----------- -----------
$12,943,728 $10,654,340
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current portion of long-term debt (Note 5)....................... $ 5,100,000 $ 5,468,906
Line-of-credit (Note 4).......................................... 2,644,079 1,965,870
Accounts payable................................................. 2,999,900 2,358,220
Accrued expenses (Note 2)........................................ 2,508,437 2,497,189
----------- -----------
TOTAL CURRENT LIABILITIES.......................................... 13,252,416 12,290,185
LONG-TERM DEBT, net of current portion (Note 5).................... 3,900,000 5,600,000
----------- -----------
TOTAL LIABILITIES.................................................. 17,152,416 17,890,185
----------- -----------
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, 10,000,000 shares authorized, none issued and
outstanding.................................................... -- --
Common stock--$.01 par value; 30,000,000 shares authorized;
750,000 shares issued and outstanding.......................... 7,500 7,500
Additional paid-in capital....................................... 1,447,500 1,447,500
Accumulated deficit................................................ (5,663,688) (8,690,845)
----------- -----------
TOTAL SHAREHOLDERS' DEFICIT........................................ (4,208,688) (7,235,845)
----------- -----------
$12,943,728 $10,654,340
----------- -----------
----------- -----------
See accompanying notes to financial statements.
F-4
THE O'BOISIE CORPORATION
STATEMENTS OF OPERATIONS
FROM INCEPTION TEN MONTHS
(JANUARY 19, 1996) TO ENDED
------------------------
JULY 27, MAY 18, MAY 24,
1996 1996 1997
----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
NET SALES (Notes 6 and 12)............................. $ 7,825,146 $ 5,735,215 $ 9,603,400
COST OF SALES.......................................... 3,432,471 2,353,496 6,826,758
----------- ----------- -----------
Gross profit........................................... 4,392,675 3,381,719 2,776,642
OPERATING EXPENSES
Selling, general and administrative.................. 3,881,864 3,086,754 2,441,042
----------- ----------- -----------
Income from operations................................. 510,811 294,965 335,600
----------- ----------- -----------
OTHER INCOME (EXPENSE)
Write-off of advances to affiliate (Note 9).......... (1,118,989) (644,000) --
Interest expense..................................... (320,362) (69,644) (1,125,293)
Other income (expense)............................... 13,090 (26,845) (79,757)
----------- ----------- -----------
Total other expense.................................... (1,426,261) (740,489) (1,205,050)
----------- ----------- -----------
Loss from continuing operations........................ (915,450) (445,524) (869,450)
----------- ----------- -----------
DISCONTINUED OPERATIONS (Notes 6 and 12)
Loss from operations................................. (4,748,238) (3,477,040) --
Loss on disposal..................................... -- -- (2,157,707)
----------- ----------- -----------
Loss from discontinued operations...................... (4,748,238) (3,477,040) (2,157,707)
----------- ----------- -----------
NET LOSS............................................... $(5,663,688) $(3,922,564) $(3,027,157)
----------- ----------- -----------
----------- ----------- -----------
LOSS FROM CONTINUING OPERATIONS PER SHARE.............. $ (1.23) $ (0.60) $ (1.13)
LOSS FROM DISCONTINUED OPERATIONS PER SHARE............ (6.36) (4.69) (2.81)
----------- ----------- -----------
NET LOSS PER SHARE..................................... $ (7.59) $ (5.29) $ (3.94)
----------- ----------- -----------
----------- ----------- -----------
WEIGHTED AVERAGE SHARES OUTSTANDING.................... 746,643 742,224 768,750
----------- ----------- -----------
----------- ----------- -----------
See accompanying notes to financial statements.
F-5
THE O'BOISIE CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
COMMON STOCK
PREFERRED STOCK $.01 PAR VALUE ADDITIONAL SHAREHOLDERS'
-------------------- -------------------- PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT (DEFICIT)
--------- --------- --------- --------- ------------ ------------- -------------
INITIAL CAPITAL CONTRIBUTION, at
January 19, 1996.................... -- $ -- 723,474 $ 7,235 $ 122,765 $ -- $ 130,000
Shareholder capital contribution
(Notes 8 and 9)................... -- -- -- -- 370,000 -- 370,000
Net proceeds from private placement
(Note 7).......................... -- -- 26,526 265 954,735 -- 955,000
Net loss............................ -- -- -- -- -- (5,663,688) (5,663,688)
--------- --------- --------- --------- ------------ ------------- -------------
BALANCE, at July 27, 1996............. -- -- 750,000 7,500 1,447,500 (5,663,688) (4,208,688)
Net loss (unaudited)................ -- -- -- -- -- (3,027,157) (3,027,157)
--------- --------- --------- --------- ------------ ------------- -------------
BALANCE, at May 24, 1997
(unaudited)......................... -- $ -- 750,000 $ 7,500 $ 1,447,500 $ (8,690,845) $ (7,235,845)
--------- --------- --------- --------- ------------ ------------- -------------
--------- --------- --------- --------- ------------ ------------- -------------
See accompanying notes to financial statements.
F-6
THE O'BOISIE CORPORATION
STATEMENTS OF CASH FLOWS
FROM INCEPTION TEN MONTHS
(JANUARY 19, 1996) TO ENDED
------------------------
JULY 27, MAY 18, MAY 24,
1996 1996 1997
----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................................. $(5,663,688) $(3,922,564) $(3,027,157)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization...................... 390,963 255,532 667,296
Write-off of advances to affiliate................. 1,118,989 644,000 --
Increase in allowance for doubtful accounts........ 914,362 694,000 653,431
Shareholder compensation contributed to capital.... 370,000 370,000 --
Changes in assets and liabilities
Increase in accounts receivable.................. (1,656,434) (1,733,039) (862,994)
Advances to affiliate............................ (1,118,989) (644,000) --
(Increase) decrease in inventory................. (573,682) (233,836) 881,175
(Increase) decrease in prepaid expenses.......... (191,666) (109,410) 86,877
Increase (decrease) in accounts payable.......... 2,197,730 2,328,479 (641,680)
Increase (decrease) in accrued expenses.......... 142,584 (9,793) (11,248)
----------- ----------- -----------
Net cash used in operating activities.................. (4,069,831) (2,360,631) (2,254,300)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment.................. (369,025) (137,066) (119,220)
Proceeds from disposition of assets.................. 73,910 -- 1,144,499
----------- ----------- -----------
Net cash (used in) provided by investing activities.... (295,115) (137,066) 1,025,279
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Debt issuance costs.................................. (52,500) -- (223,121)
Deferred offering costs.............................. -- -- (111,625)
Net borrowings (repayments) on revolving notes
payable to banks................................... 2,644,079 1,542,697 (678,209)
Proceeds from issuance of long-term borrowings....... 5,000,000 -- 3,000,000
Principal payments on long-term borrowings........... (4,000,000) -- (931,094)
Proceeds from issuance of common stock and warrants,
net of issuance costs.............................. 955,000 955,000 --
----------- ----------- -----------
Net cash provided by financing activities.............. 4,546,579 2,497,697 1,055,951
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH........................ $ 181,633 $ -- $ (173,070)
CASH, at beginning of period........................... -- -- 181,633
----------- ----------- -----------
CASH, at end of period................................. $ 181,633 $ -- $ 8,563
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest............. $ 168,965 $ 24,311 $ 955,280
----------- ----------- -----------
----------- ----------- -----------
F-7
THE O'BOISIE CORPORATION
STATEMENTS OF CASH FLOWS (CONTINUED)
FROM INCEPTION TEN MONTHS
(JANUARY 19, 1996) TO ENDED
------------------------
JULY 27, MAY 18, MAY 24,
1996 1996 1997
----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
The Company purchased certain nonoperating assets of
the salty snack foods division of the Keebler
Company for a note in the amount of $8,000,000 as
follows:
Fair value of assets acquired.................... $11,298,023 $11,298,023 $ --
Common stock issued as reimbursement for
transaction costs.............................. (130,000) (130,000) --
Liabilities assumed.............................. (3,168,023) (3,168,023) --
----------- ----------- -----------
Note issued...................................... $ 8,000,000 $ 8,000,000 $ --
----------- ----------- -----------
----------- ----------- -----------
See accompanying notes to financial statements.
F-8
THE O'BOISIE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MAY 24, 1997 AND FOR THE TEN MONTHS ENDED
MAY 24, 1997 AND THE FOUR MONTHS ENDED MAY 18, 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The O'Boisie Corporation (the "Company") was formed in January 1996 for the
purpose of acquiring certain nonoperating assets and liabilities of the salty
snack foods division of the Keebler Company (Note 6). The Company is engaged
predominately in the manufacturing of salty snack foods for distribution through
a national network of distributors, brokers and potato chip manufacturers, as
well as directly to retailers through warehouse programs.
BASIS OF PRESENTATION
The Company's financial statements are presented on a going-concern basis,
which contemplates the realization of assets and satisfaction of liabilities in
the normal course of business.
The Company has had net losses since inception. For the period ended July
27, 1996, the Company experienced a loss from continuing operations of $915,450
and a loss from discontinued operations of $4,748,238. (See Note 12 for
discussion of discontinued operations.) At July 27, 1996 the Company had a
working capital deficit of $5,977,377 and a shareholders' deficit of $4,208,688.
In addition, the Company is required to repay approximately $5,000,000 of
amounts outstanding under its current credit agreement by September 30, 1997.
(See Notes 4 and 5.) Without a restructuring of the current credit agreement or
a replacement facility, the Company would not have sufficient funds to pay its
debts should the lender demand payment, and would not be able to continue as a
going concern.
The Company's ability to continue as a going concern is contingent upon its
ability to secure additional financing and attain profitable operations. In
addition, the Company's ability to continue as a going concern must be
considered in light of the problems, expenses and complications frequently
encountered by entrance of a new business into established markets and the
competitive environment in which the Company operates.
Although the Company plans to pursue an initial public offering ("IPO") and
refinance outstanding debt, there can be no assurance that the Company will be
able to secure financing when needed or obtain such on terms satisfactory to the
Company, if at all, or complete a public offering. Failure to secure such
financing or complete a public offering may result in the Company rapidly
depleting its available funds and not being able to comply with its payment
obligations under its bank loans and other long-term debt. In addition, if the
Company is unable to meet its obligations under its credit agreements, such
creditors shall have the right to foreclose on the assets of the Company, and
the rights of such creditors will be prior to the interests of the holders of
common stock.
The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the possible
inability of the Company to continue as a going concern.
UNAUDITED INTERIM FINANCIAL INFORMATION
Interim financial information is reported using 13-week quarters with the
first two months of each quarter including four weeks of operating results and
the third month including five weeks. Interim
F-9
THE O'BOISIE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MAY 24, 1997 AND FOR THE TEN MONTHS ENDED
MAY 24, 1997 AND THE FOUR MONTHS ENDED MAY 18, 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
financial information for the period ended May 18, 1996 represents the period
from the Company's inception (January 19, 1996) to May 18, 1996.
The unaudited balance sheet as of May 24, 1997, the unaudited statements of
operations and cash flows for the periods ended May 18, 1996 and May 24, 1997
and the unaudited statements of shareholders' deficit for the period ended May
24, 1997 include, in the opinion of management, all adjustments necessary to
present fairly the Company's financial position, results of operations and cash
flows. Operating results for the period ended May 24, 1997 are not necessarily
indicative of the results that may be expected for the period ending July 26,
1997. The footnotes related to such periods are also unaudited.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVENTORIES
Inventories are stated at the lower of cost, determined on the first-in,
first-out ("FIFO") method, or market. At July 27, 1996 and May 24, 1997,
inventories consist of the following:
JULY 27,
1996 MAY 24, 1997
------------ ------------
Raw materials.................................................... $ 484,420 $ 251,054
Packaging supplies............................................... 85,446 341,084
Finished goods................................................... 1,304,090 400,643
------------ ------------
$1,873,956 $ 992,781
------------ ------------
------------ ------------
PROPERTY AND EQUIPMENT; DEPRECIATION AND AMORTIZATION
Property and equipment are recorded at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives of
the assets. The estimated useful lives are as follows:
ESTIMATED
ASSET DESCRIPTION USEFUL LIFE
- ------------------------------------------------------------- -----------
Building..................................................... 20 years
Machinery and equipment...................................... 5-15 years
Rolling stock................................................ 7 years
Depreciation expense for the periods ended July 27, 1996, May 18, 1996 and
May 24, 1997 was $389,463, $255,532 and $608,385, respectively.
F-10
THE O'BOISIE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MAY 24, 1997 AND FOR THE TEN MONTHS ENDED
MAY 24, 1997 AND THE FOUR MONTHS ENDED MAY 18, 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Intangible assets are comprised of fees paid relating to bank financing and
legal, accounting and professional fees related to the IPO. The bank fees,
totaling $52,500, $0 and $275,621 at July 27, 1996, May 18, 1996 and May 24,
1997, respectively, are amortized on a straight-line basis over the life of the
loan agreement. Amortization expense for the periods ended July 27, 1996, May
18, 1996 and May 24, 1997 was approximately $1,500, $0 and $59,000,
respectively. The costs associated with the IPO of approximately $110,000 at May
24, 1997, will be offset against the proceeds from the IPO or expensed if the
offering is unsuccessful.
REVENUE RECOGNITION
The Company recognizes revenue and the related costs when product is
shipped.
RECLAMATION ALLOWANCES
It is the Company's policy to grant reclamation and promotional allowances
to its customers. These allowances of $229,408, $229,408 and $500,736 for the
periods ended July 27, 1996, May 18, 1996 and May 24, 1997, respectively, are
included in cost of sales on the accompanying statements of operations.
FINANCIAL INSTRUMENTS
The carrying value of cash, accounts receivable, accounts payable and
accrued expenses approximates the fair value because of the short maturity of
these items.
The carrying amounts of debt approximate fair value because the interest
rates on these instruments reflect current market interest rates, except for the
Company's subordinated note payable for which the fair value is estimated to be
approximately $3,400,000 at July 27, 1996, based on the borrowing rates
available to the Company for loans with similar terms.
NET LOSS PER SHARE
The loss per share calculations give effect to the distribution of common
stock discussed in Note 8 and the reverse split as described in Note 13(a).
Loss per share is based on the weighted average number of shares of common
stock outstanding during each period, as adjusted for the effects of the
application of Securities and Exchange Commission Staff Accounting Bulletin
("SAB") No. 83. Pursuant to SAB No. 83, common stock and common stock
equivalents issued within a one-year period prior to the initial filing of the
Registration Statement, which have a purchase price less than the initial public
offering price, are treated as outstanding for all periods presented.
F-11
THE O'BOISIE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MAY 24, 1997 AND FOR THE TEN MONTHS ENDED
MAY 24, 1997 AND THE FOUR MONTHS ENDED MAY 18, 1996 IS UNAUDITED)
2. ACCRUED EXPENSES
Accrued expenses consist of the following:
JULY 27,
1996 MAY 24, 1997
------------ ------------
Payroll and related expenses (Note 9)......... $ 613,214 $ 554,086
Real estate taxes............................. 478,000 597,719
Reclamations reserve.......................... 227,927 5,000
Employee benefits............................. 129,299 73,588
Royalties..................................... 116,669 266,668
State franchise taxes......................... 85,000 225,000
Interest...................................... 67,538 237,551
Other......................................... 790,790 537,577
------------ ------------
$ 2,508,437 $ 2,497,189
------------ ------------
------------ ------------
3. INCOME TAXES
Income taxes are accounted for under Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes". SFAS No. 109 utilizes
the liability method, and deferred taxes are determined based on the estimated
future tax effects on differences between the financial statement and tax bases
of assets and liabilities given the provisions of the enacted tax laws.
The reasons for the differences between income taxes at the statutory
federal income tax rate and the provision (benefit) for income taxes are
summarized as follows:
PERIOD ENDED
-------------------------------------------
JULY 27, MAY 18, MAY 24,
1996 1996 1997
------------- ------------- -------------
Income tax benefits at statutory rate............ $ 2,266,000 $ 1,569,000 $ 1,211,000
Valuation allowance related to deferred tax
assets......................................... (2,266,000) (1,569,000) (1,211,000)
------------- ------------- -------------
Income tax benefit............................... $ -- $ -- $ --
------------- ------------- -------------
------------- ------------- -------------
The net deferred tax assets are comprised of the following:
JULY 27, MAY 24,
1996 1997
------------- -------------
Net operating loss carryforwards................................ $ 1,800,000 $ 2,840,000
Nondeductible reserves/accruals................................. 466,000 637,000
------------- -------------
2,266,000 3,477,000
Valuation allowance............................................. (2,266,000) (3,477,000)
------------- -------------
$ -- $ --
------------- -------------
------------- -------------
At July 27, 1996, the Company had net operating loss carryforwards of
approximately $4,500,000 which begin to expire in the year 2011.
F-12
THE O'BOISIE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MAY 24, 1997 AND FOR THE TEN MONTHS ENDED
MAY 24, 1997 AND THE FOUR MONTHS ENDED MAY 18, 1996 IS UNAUDITED)
4. LINE-OF-CREDIT
The Company has a credit agreement (the 'Agreement') with a bank to provide
certain extensions of credit. The Agreement includes a revolving note not to
exceed $3,000,000 based on 40% of eligible inventory and 85% of eligible
accounts receivable balances, as specified in the Agreement. Interest is at
prime plus 1.75% and prime plus 3.75% at July 27, 1996 and May 24, 1997,
respectively (10.0% and 12.25% at July 27, 1996 and May 24, 1997, respectively),
and is due monthly. This revolving note is due on August 31, 1997 (Note 5).
All amounts outstanding under the Agreement and the bank term loan (Note 5)
are secured by inventory, accounts receivable, general intangible assets and
machinery and equipment of the Company. The amounts outstanding under the
revolving note and term loan are personally guaranteed by a certain shareholder.
The Agreement contains various covenants and restrictions among which are
limitations on the payment of cash dividends.
At July 27, 1996 and May 24, 1997, $2,644,079 and $1,965,870 of borrowings
are outstanding under the Agreement, respectively. No additional amounts were
available for borrowing under the Agreement at these dates.
See Note 5 for a discussion of amendments to the Agreement dated June 30 and
August 25, 1997.
5. LONG-TERM DEBT
Long-term debt at July 27, 1996 and May 24, 1997 consists of the following:
JULY 27, MAY 24,
1996 1997
------------ ------------
Term note payable to bank, bearing interest at prime plus 1.75% and prime plus 3.75%
at July 27, 1996 and May 24, 1997, respectively (10.0% and 12.25% at July 27, 1996
and May 24, 1997, respectively), with monthly payments of $59,524 plus interest
beginning on August 1, 1996, with a remainder of $2,640,330 due on May 1, 1999. (see
discussion of loan amendment below)................................................. $ 5,000,000 $ 4,068,906
Subordinated note payable to U.B.F.C., Inc., bearing interest at 8%, with quarterly
principal installments of $100,000 plus interest beginning on June 30, 1997 with a
final installment of $2,800,000 due on June 30, 2000................................ 4,000,000 4,000,000
Term note payable to bank, bearing interest at prime plus 5.0% (13.5% at May 24,
1997), with monthly payments of $55,600 plus interest commencing on June 1, 1997
with a final installment of $1,444,000 due on April 1, 1998. (see discussion of loan
amendment below).................................................................... -- 2,000,000
F-13
THE O'BOISIE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MAY 24, 1997 AND FOR THE TEN MONTHS ENDED
MAY 24, 1997 AND THE FOUR MONTHS ENDED MAY 18, 1996 IS UNAUDITED)
5. LONG-TERM DEBT (CONTINUED)
Term note payable to bank, bearing interest at prime plus 5.0% (13.5% at May 24,
1997), with monthly payments of $27,800 plus interest beginning on June 1, 1997 with
a final installment of $722,000 due on April 1, 1998. (see discussion of loan
amendment below).................................................................... $ -- $ 1,000,000
------------ ------------
9,000,000 11,068,906
Less current maturities............................................................... 5,100,000 5,468,906
------------ ------------
$ 3,900,000 $ 5,600,000
------------ ------------
------------ ------------
As the Company was in violation of certain loan covenants at July 27, 1996,
all bank debt has been classified as current.
On June 30, 1997, an amendment was made to the Company's credit agreement.
The Company's outstanding borrowings as of that date were converted into a
$3,000,000 revolving credit agreement (of which approximately $2,000,000 was
outstanding), a $5,000,000 term note and a $2,000,000 over-the-line advance
loan. This amendment was further amended on August 25, 1997. The amounts
outstanding under the revolving credit agreement and the over-the-line revolving
loan are due no later than September 30, 1998. The amounts outstanding under the
term note are due no later than June 30, 1999. The revolving credit agreement
and the term note bear interest at prime plus 3.75% and the over the line
advances bear interest at prime plus 10%. The amendment, as further amended by a
subsequent amendment dated August 25, 1997, has a provision that the Company is
required to prepay the revolving loan and the over-the-line advances by
September 30, 1997 or the term note of $5,000,000 will be payable on September
30, 1997. Because of uncertainties as to whether the Company will be in a
position to repay the revolver and over-the-line advance at September 30, 1997
the term note has been classified as current at May 24, 1997. In conjunction
with this amendment, the Company will pay the bank a success fee of $500,000,
$250,000 of which is payable upon the funding of the IPO or a private placement
and $250,000 of which will be payable in twelve consecutive monthly installments
commencing on September 30, 1997.
Principal payments of long-term debt after the amendment to the credit
agreement discussed above, mature as follows:
JULY 27, MAY 24,
1996 1997
------------ -------------
First year....................................................... $5,100,000 $5,468,906
Second year...................................................... 400,000 2,400,000
Third year....................................................... 400,000 400,000
Fourth year...................................................... 3,100,000 2,800,000
------------ -------------
$ 9,000,000 $ 11,068,906
------------ -------------
------------ -------------
6. ACQUISITION
On January 19, 1996, the Company purchased certain nonoperating assets and
liabilities of the salty snack foods division of the Keebler Company for
$8,000,000. The purchase price was assigned to the net assets acquired based on
their estimated fair value. The fair value of the net assets acquired exceeded
the
F-14
THE O'BOISIE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MAY 24, 1997 AND FOR THE TEN MONTHS ENDED
MAY 24, 1997 AND THE FOUR MONTHS ENDED MAY 18, 1996 IS UNAUDITED)
6. ACQUISITION (CONTINUED)
purchase price by approximately $1,865,000; thus, the amounts assigned to the
long-term assets acquired were reduced to reflect this difference.
The purchase price was financed with an $8,000,000 note payable to U.B.F.C.,
Inc.
In conjunction with this transaction, the Company entered into a transition
agreement with Keebler. Under this agreement Keebler agreed to purchase company
products and provided the Company with data processing and distribution
services. In addition, the Company provided Keebler with sales and in-store
merchandising services. The following transactions were recorded under this
agreement during the periods ended July 27, 1996 and May 18, 1996:
JULY 27,
PERIOD ENDED 1996 MAY 18, 1996
- ------------------------------------------------------------------ ------------ ------------
Charges for data processing services.............................. $ 658,544 $ 638,185
Sales to Keebler.................................................. $ 5,735,215 $ 5,735,215
Purchases from Keebler............................................ $ 7,488,326 $ 7,488,326
The sales to Keebler are included in the Company's continuing operations and
the purchases from Keebler are included in the Company's discontinued operations
(Note 12). This agreement and the Company's relationship with Keebler were
terminated in May 1996. The termination of this relationship may have a material
adverse effect on the Company's operations.
Accounts receivable from Keebler were $286,721 at both July 27, 1996 and May
24, 1997.
7. PRIVATE PLACEMENT
In May and June 1996, the Company issued 26,526 units, each unit consisting
of one share of common stock and one redeemable common stock purchase warrant,
for $46.74 per unit, in a private placement. The warrants entitle the holder to
purchase one share of common stock at an exercise price of $116.86 per share
during the three-year period commencing 12 months from the effective date of a
proposed public offering of the Company's common stock. Issuance costs of
$285,000 related to this stock issuance were offset directly against the
proceeds.
8. COMMON STOCK
In May 1996, the Company amended its Articles of Incorporation to increase
the number of authorized shares of common stock to 30,000,000 shares. In
conjunction with this transaction, the Company distributed 723,431 shares of
common stock to its shareholders. This stock distribution has been reflected
retroactively in the financial statements.
9. RELATED PARTY TRANSACTIONS
The Company made a secured loan to Kelly Foods, Inc. ("Kelly"), a related
party through common ownership. Advances to Kelly totalled $1,118,989 during the
period ended July 27, 1996. Subsequent to year end, Kelly filed for protection
under Chapter 11 Bankruptcy Laws. The advances made to Kelly were written off
since it is probable that the Company will not be reimbursed.
F-15
THE O'BOISIE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MAY 24, 1997 AND FOR THE TEN MONTHS ENDED
MAY 24, 1997 AND THE FOUR MONTHS ENDED MAY 18, 1996 IS UNAUDITED)
9. RELATED PARTY TRANSACTIONS (CONTINUED)
The Company also had the following transactions with Kelly during the period
ended July 27, 1996:
Sales to Kelly.................................................... $ 461,203
Purchases from Kelly.............................................. $ 460,874
The sales to Kelly are included in the Company's continuing operations and
the purchases from Kelly are included in the Company's discontinued operations
(Note 12). Included in additional paid-in capital is $370,000 of compensation to
certain shareholders related to structuring the Keebler acquisition. In
addition, accrued expenses include $150,000 and $250,000 of unpaid wages to a
certain shareholder at July 27, 1996 and May 24, 1997, respectively.
10. COMMITMENTS
The Company leases its warehouse under a lease that expired in November
1996. It was subsequently renewed on a month-to-month basis. Total remaining
minimum lease payments due under this arrangement are approximately $43,000 at
July 27, 1996.
Rent expense for the periods ended July 27, 1996, May 18, 1996 and May 24,
1997 was $556,000, $0 and $191,000, respectively.
11. LITIGATION
The Company is a co-defendant in a suit brought by certain route salespeople
against Keebler seeking damages of $3 million. A significant majority of the
damages alleged in the complaint relate solely to conduct alleged against
Keebler. Management believes the suit to be without merit.
The Company and an officer are co-defendants in a suit brought by one of the
private placement securityholders alleging violations of Florida securities laws
in connection with the private placement in which plaintiff invested $100,000,
in particular alleging he had not received appropriate disclosure documents
prior to investing in Private Placement securities.
The Company is also involved in various litigation in the normal course of
its business. Management intends to vigorously defend these cases. In the
opinion of management, although there can be no such assurance, the litigation
now pending will not have a material adverse effect on the financial position or
results of operations of the Company.
12. DISCONTINUED OPERATIONS
In August 1996, the Company made a decision to discontinue the operations of
its route distribution business. This business consisted primarily of the
distribution of food products, purchased from others, through a fleet of vans
owned by the Company. Sales were made to a large number of small customers.
These operations ceased in October 1996. The Company originally estimated that
the operating losses during the phase-out period would not be significant.
Actual losses during the period ended May 24, 1997 amounted to $2,157,707 and
provisions for loss on disposal have been recognized in this amount.
F-16
THE O'BOISIE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MAY 24, 1997 AND FOR THE TEN MONTHS ENDED
MAY 24, 1997 AND THE FOUR MONTHS ENDED MAY 18, 1996 IS UNAUDITED)
12. DISCONTINUED OPERATIONS (CONTINUED)
The assets of this business consisted primarily of rolling stock (vans) with
a net book value of $1,535,760 and $398,880 at July 27, 1996 and May 24, 1997,
respectively. The Company sold $1,182,717 of these assets during the period
ended May 24, 1997 and expects to dispose of the remaining assets during fiscal
1997.
The loss from discontinued operations is comprised of the amounts shown
below. Cost of sales for the period ended July 27, 1996 includes $1,134,000 of
salty snack foods manufactured by the Company. This amount is also reflected in
net sales from continuing operations on the accompanying statement of operations
for that period. These sales were recognized at prices consistent with sales by
the continuing operations to other distributors. The discontinuation of the
Company's route distribution business may have a material adverse effect on the
Company's continuing operations.
FROM INCEPTION TEN MONTHS
(JANUARY 19, 1996) TO ENDED
---------------------------- -------------
JULY 27, MAY 18, MAY 24,
1996 1996 1997
------------- ------------- -------------
Net sales........................................................... $ 13,966,246 $ 10,802,890 $ 1,487,388
Cost of sales....................................................... 11,832,420 9,656,620 807,678
------------- ------------- -------------
Gross profit........................................................ 2,133,826 1,146,270 679,710
Selling, general and administrative expenses........................ 6,882,064 4,623,310 2,837,417
------------- ------------- -------------
Loss from discontinued operations................................... $( 4,748,238) $( 3,477,040) $( 2,157,707)
------------- ------------- -------------
------------- ------------- -------------
The remaining net assets and liabilities of the discontinued operations
included in the Company's financial statements were as follows:
JULY 27, MAY 24,
1996 1997
------------ ------------
Accounts receivable................................................................... $ 742,072 $ --
Inventory............................................................................. 695,925 --
Rolling stock......................................................................... 1,535,760 398,880
------------ ------------
Total assets...................................................................... $ 2,973,757 $ 398,880
------------ ------------
------------ ------------
Accounts payable...................................................................... $ 927,497 $ 550,796
Accrued expenses...................................................................... 1,208,322 426,019
------------ ------------
Total liabilities................................................................. $ 2,135,819 $ 976,815
------------ ------------
------------ ------------
13. SUBSEQUENT EVENTS
(A) REVERSE STOCK SPLIT
In 1997, the Company declared a 1-for-23.73 reverse split of the
Company's common stock. The reverse stock split has been retroactively reflected
in these financial statements.
F-17
THE O'BOISIE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MAY 24, 1997 AND FOR THE TEN MONTHS ENDED
MAY 24, 1997 AND THE FOUR MONTHS ENDED MAY 18, 1996 IS UNAUDITED)
13. SUBSEQUENT EVENTS (CONTINUED)
(B) INITIAL PUBLIC OFFERING (UNAUDITED)
The Company has entered into a nonbinding letter-of-intent with an
underwriter, on a firm commitment basis for an offering of common stock. The
precise number of shares of common stock and the offering price shall be
determined based upon the capitalization of the Company and the market and
general economic conditions at the time of the offering.
(C) U.B.F.C., INC. DEBT SETTLEMENT (UNAUDITED)
In conjunction with its proposed initial public offering, the Company has
reached an agreement in principle with U.B.F.C., Inc. to settle the Company's
outstanding $4,000,000 note payable to U.B.F.C., Inc. It is anticipated that
this note will be extinguished in exchange for convertible preferred stock.
(D) STOCK WARRANTS (UNAUDITED)
On June 26, 1997, the Company entered into an amended royalty agreement with
a third party whereby the Company issued warrants to purchase 12,500 shares of
common stock, exercisable at any time from July 26, 1998 to June 26, 2002 at a
price of one dollar per share.
(E) EMPLOYMENT AGREEMENT (UNAUDITED)
The Company has reached an agreement in principle with its Chief Executive
Officer Designee (CEO) on the terms of a three-year employment agreement. The
agreement will provide for an annual base salary of $275,000. In connection
therewith, the Company will grant options to purchase 225,000 shares of common
stock at the initial public offering price per share. In addition, the CEO will
receive 6,250 shares of common stock as a signing bonus and is to receive an
additional $25,000 upon consumation of this Offering.
F-18
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, IN CONNECTION WITH THIS OFFERING AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION OF,
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
PAGE
---------
Prospectus Summary............................. 4
Risk Factors................................... 7
Use of Proceeds................................ 19
Dividend Policy................................ 20
Dilution....................................... 20
Capitalization................................. 22
Selected Financial Data........................ 25
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 27
Business....................................... 35
Management..................................... 45
Certain Transactions........................... 50
Security Ownership of Certain Beneficial Owners
and Management............................... 52
Description of Capital Stock................... 53
Shares Eligible for Future Sale................ 55
Underwriting................................... 58
Certain Legal Matters.......................... 59
Experts........................................ 60
Additional Information......................... 60
Index to Financial Statements.................. F-2
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS AN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITER AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
1,500,000 SHARES OF
COMMON SHARES
[LOGO]
The O'Boisie Corporation
---------------------
PROSPECTUS
---------------------
NATIONAL SECURITIES
CORPORATION
, 1997
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Seven, Paragraph 8, of the Registrant's Articles of Incorporation
provides that the Registrant shall indemnify its directors to the full extent
permitted by law, and may indemnify its officers and employees to such extent,
except that the Company shall not be obligated to indemnify any such person (i)
with respect to proceedings, claims or actions initiated or brought voluntarily
by any such person and not by way of defense, or (ii) for any amounts paid in
settlement of an action indemnified against by the Company without the prior
written consent of the Company. Article Seven, Paragraph 9, of the Registrant's
Articles of Incorporation further provides that the personal liability of the
directors of the Registrant is eliminated to the fullest extent permitted under
the Illinois Business Corporation Act of 1983, as amended.
The Company intends to obtain an insurance policy which will entitle the
Company to be reimbursed for certain indemnity payments it is required or
permitted to make to its directors and officers.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the approximate amount of fees and
expenses (other than underwriting commissions and discounts and other than the
Underwriters' Non-Accountable Expense Allowance) payable by the undersigned
small business issuer in connection with the issuance and distribution of the
Securities pursuant to the Prospectus contained in this Registration Statement.
The undersigned small business issuer will pay all of these expenses.
APPROXIMATE
AMOUNT
------------
Securities and Exchange Commission registration fee....................................... $ 7,697
NASD filing fee........................................................................... 3,040
American Stock Exchange listing fees...................................................... *
Blue Sky fees and expenses (including legal fees)......................................... 40,000
Legal fees and expenses................................................................... *
Accounting fees and expenses.............................................................. *
Transfer Agent and Registrar fees and expenses............................................ *
Printing and engraving expenses........................................................... *
Miscellaneous expenses.................................................................... *
Directors' and Officers' Liability Insurance Premiums..................................... *
------------
Total............................................................................... $ 430,000
------------
------------
- ------------------------
* To be completed by amendment.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The Company has issued and sold the following securities within the past
three years without registration under the Securities Act. Except as otherwise
noted, no underwriting discounts or commissions were paid in connection with the
sales. Except as otherwise noted, each of the transactions described below was
undertaken in reliance upon the exemption from registration provided by Section
4(2) of the Securities Act regarding transactions by an issuer not involving a
public offering.
In January 1996, the Company issued 42.75 shares of Common Stock to Donald
F. Schumacher II upon formation of the Company. Subsequently, Mr. Schumacher and
Susan Bolin and David Blue contributed to the Company $296,000, $37,000 and
$37,000, respectively, of compensation otherwise
II-1
payable by the Company to such parties for their services for the benefit of the
Company in connection with performing due diligence on the acquisition and
negotiating and finalizing the acquisition of assets from Keebler and planning
for the operation of the Company following the acquisition of the assets. The
Company issued 578,571.5 shares of Common Stock to Mr. Schumacher, and 72,327
shares of Common Stock to each of Ms. Bolin and Mr. Blue.
During June 1996, the Company issued and sold 26,526 Units at a price of
$46.76 per Unit, each Unit consisting of one share of the Company's Common Stock
and one warrant to purchase a share of the Company's Common Stock, to sixteen
persons who represented they were "accredited investors" as defined in Rule 501
of Regulation D under the Securities Act in a private placement (the "Private
Placement") under Rule 506 under Regulation D. The Company paid $124,000 in
underwriting discounts to Landmark International Equities, Ltd. in connection
with the Private Placement. The Warrants issued in the Private Placement were
originally exercisable at a price of $116.90 per share (although the Company has
unilaterally reduced that exercise price to $ per share) during the three
year period commencing 12 months after the effective date of this Offering.
Purchasers in the Private Placement were also granted piggy-back registration
rights in registration statements filed by the Company under the Securities Act.
The Company will issue 6,250 shares to its Chairman and Chief Executive
Officer Designee, Peter Vitulli, as a signing bonus under Section 4(2) of the
Act.
The Company is anticipated, on a private placement basis under Section 4(2)
of the Act, to convert $4,000,000 of debt owed to United Biscuits UK Ltd. into
convertible preferred stock, convertible at $ per share into shares of
Common Stock.
ITEM 27. EXHIBITS.
(A) EXHIBITS.
1.1* Form of Underwriting Agreement.
3.1** Articles of Incorporation of the Registrant dated January 19, 1996.
3.2** Articles of Amendment to Articles of Incorporation of the Registrant
dated May 14, 1996.
3.3** Articles of Amendment to Articles of Incorporation of the Registrant
dated June , 1996.
3.4* Articles of Amendment to Articles of Incorporation of the Registrant
dated June , 1997.
3.5** Bylaws of the Registrant.
3.6* Certificate of Designations for UB Preferred Stock.
4.1* Form of Warrant issued to the Representative.
4.2 Form of Private Placement Warrant issued to the Private Placement
Securityholders.
4.3 Registration Rights Agreement dated as of June 5, 1996, between the
Registrant and the Private Placement Securityholders.
4.4** Credit Agreement dated July 3, 1996, between the Registrant and
Republic Acceptance Corporation (the "Lender").
4.5** Amendment to Credit Agreement dated October 3, 1996, between the
Registrant and the Lender.
II-2
4.6** Second Amendment to Credit Agreement between the Registrant and the
Lender.
4.7 Security Agreement dated July 3, 1996, between the Registrant and
the Lender.
4.8.1 Third Amendment to Credit Agreement dated June 30, 1997, between the
Registrant and Lender.
4.8.2* Fourth Amendment to Credit Agreement dated August 25, 1997, between
Registrant and Lender.
4.9* Term Note dated August 25, 1997, made by the Registrant to the order
of the Lender.
4.10* Revolving Note dated August 25, 1997, made by the Registrant to the
order of the Lender.
4.11* Over Line Note dated August 25, 1997, made by Registrant to the
order of the Lender.
4.12* Guaranty dated August 25, 1997, made by Donald Schumacher for the
benefit of the Lender.
4.13 Subordination Agreement dated as of July 3, 1996, among the
Registrant, the Lender and U.B.F.C., Inc. ("UBFC").
4.14 Amended and Restated Subordinated Promissory Note dated as of July
5, 1996, made by the Registrant to the order of UBFC.
4.15* Amendment to Amended and Restated Subordinated Promissory Note made
by Registrant and acknowledged by UBFC.
4.16** Real Estate Mortgage, Security Agreement and Fixture Filing dated as
of January 24, 1996, between the Registrant and Keebler Corporation
("Keebler").
5.1* Opinion of Hogan, Marren & McCahill, Ltd. as to the legality of the
securities being registered (including consent).
8.1** Snack Assets Purchase Agreement dated November 18, 1995, between
Kelly Food Products, Inc. ("Kelly") and Keebler.
8.2** Amendment dated December 29, 1995, to Snack Assets Purchase
Agreement between Kelly and Keebler.
8.3** Amendment dated January 22, 1996, to Snack Assets Purchase Agreement
between Kelly and Keebler.
8.4 Transition Agreement dated as of January __, 1996, between Kelly and
Keebler.
8.5** Assignment and Assumption Agreement dated January 24, 1996, between
Keebler and the Registrant.
8.6** Bill of Sale dated as of January 24, 1996, made by Keebler to the
Registrant.
8.7** Assignment of Trademarks dated as of January 24, 1996, by Keebler in
favor of the Registrant.
8.8** Assignment of Pending Trademark Applications dated as of January 24,
1996, made by Keebler in favor of the Registrant.
II-3
8.9 License Agreement dated March 1, 1985, between Keebler and Miles J.
Willard ("Willard").
8.10 Amendment dated January 1, 1993, between Willard and Keebler
amending the License Agreement
8.11 Agreement dated February 17, 1997, between Willard and the
Registrant amending the License Agreement dated March 1, 1985.
8.12* Stock Option Plan adopted by the Registrant.
8.13* Employment Agreement with Peter J. Vitulli.
8.14 Second Agreement for Extension of Payments and Other Consideration
dated June 26,1997, between the Registrant and Willard amending the
payment terms under the license agreement with Willard and granting
Willard a warrant to purchase stock.
8.15* Letter Agreement dated August 1997 between Registrant and
Schumacher Capital LLC regarding potential transfer of stock
8.16* Consulting and Debt Guarantee Agreement dated August , 1997
between Donald F. Schumacher, II and the Company.
8.17* Form of Employment Agreement with David Blue
8.18* Form of Employment Agreement with Susan Bolin
23.1 Consent of BDO Seidman, LLP.
23.2* Consent of Hogan, Marren & McCahill, Ltd. (contained in its opinion
filed as Exhibit 5.1 hereto).
23.3** Consent to inclusion as nominee for directorship of Steven Devick.
23.4** Consent to inclusion as nominee for directorship of Robert S. Steel.
23.5 Consent by Peter J. Vitulli to inclusion as designee as Chairman of
the Board and Chief Executive Officer of the Company.
24.** Power of Attorney (included on signature page of Registration
Statement, as previously filed).
27.* Financial data schedule.
* To be filed by amendment
** Previously filed as part of the Registrant's original registration
statement
ITEM 28. UNDERTAKINGS
The Registrant hereby undertakes:
(1) Rule 415 Offering:
(a) To file, during any period in which it offers or sells securities
under this registration statement, a post-effective amendment to this
Registration Statement to: (i) include any prospectus required by Section
10(a)(3) of the Securities Act; (ii) reflect in the prospectus any facts
or events which, individually or together, represent a fundamental change
in the information in the Registration Statement; and (iii) include any
additional or changed material information on the plan of distribution.
II-4
(b) For determining liability under the Securities Act to treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of such securities at that time as
the initial bona fide offering thereof.
(c) To file a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
(2) To provide to the Underwriter at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the Underwriter to permit prompt delivery to each
purchaser.
(3) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the undersigned small business issuer pursuant to the foregoing
provisions, or otherwise, the undersigned small business issuer has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
undersigned small business issuer of expenses incurred or paid by a
director, officer or controlling person in the successful defense of any
action, suite or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
undersigned small business issuer will, unless in the opinion of its counsel
the matter had been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(4) For purposes of determining any liability under the Securities Act,
to treat the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the undersigned small business issuer pursuant
to Rule 424(b)(1), or (4) or 497(h) under the Securities Act as part of this
Registration Statement as of the time the Commission declared it effective.
For purposes of determining any liability under the Securities Act, to treat
each post effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and the offering of the securities at that time as the initial bona fide
offering of those securities.
II-5
SIGNATURES
In accordance with the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form SB-2 and authorized this Registration Statement
to be signed on its behalf by the undersigned in the City of Chicago, and State
of Illinois on the 29th day of August, 1997.
THE O'BOISIE CORPORATION
By: /s/ SUSAN BOLIN
-----------------------------------------
Susan Bolin
EXECUTIVE VICE PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
Registration statement has been signed by the following persons in the
capacities and on the 29th day of August, 1997.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ SUSAN C. BOLIN Chief Financial and
- ------------------------------ Accounting Officer, August 29, 1997
Susan C. Bolin Director
President, Chief Operating
/s/ DAVID BLUE* Officer, Acting Chief
- ------------------------------ Executive Officer August 29, 1997
David Blue Director
* Pursuant to power of attorney.
II-6
THE O'BOISIE CORPORATION
INDEX TO EXHIBITS
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ---------------------------------------------------------------------------------------- -----------
1.1* Form of Underwriting Agreement.
3.1** Articles of Incorporation of the Registrant dated January 19, 1996.
3.2** Articles of Amendment to Articles of Incorporation of the Registrant dated May 14, 1996.
3.3** Articles of Amendment to Articles of Incorporation of the Registrant dated June ,
1996.
3.4* Articles of Amendment to Articles of Incorporation of the Registrant dated June ,
1997.
3.6* Certificate of Designations for UB Preferred Stock.
3.5** Bylaws of the Registrant.
4.1* Form of Warrant issued to the Representative.
4.2 Form of Private Placement Warrant issued to the Private Placement Securityholders.
4.3 Registration Rights Agreement dated as of June 5, 1996, between the Registrant and the
Private Placement Securityholders.
4.4** Credit Agreement dated July 3, 1996, between the Registrant and Republic Acceptance
Corporation (the "Lender").
4.5** Amendment to Credit Agreement dated October 3, 1996, between the Registrant and the
Lender.
4.6** Second Amendment to Credit Agreement between the Registrant and the Lender.
4.7 Security Agreement dated July 3, 1996, between the Registrant and the Lender.
4.8.1 Third Amendment to Credit Agreement dated June 30, 1997 between Registrant and Lender.
4.8.2* Fourth Amendment to Credit Agreement dated August 25, 1997, between Registrant and
Lender
4.9* Term Note dated August 25, 1997, made by the Registrant to the order of the Lender.
4.10* Revolving Note dated August 25, 1997, made by the Registrant to the order of the Lender.
4.11* Over Line Note dated August 25, 1997, made by Registrant to the order of the Lender.
4.12* Guaranty dated August 25, 1997, made by Donald Schumacher for the benefit of the Lender.
II-7
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ---------------------------------------------------------------------------------------- -----------
4.13 Subordination Agreement dated as of July 3, 1996, among the Registrant, the Lender and
U.B.F.C., Inc. ("UBFC").
4.14 Amended and Restated Subordinated Promissory Note dated as of July 5, 1996, made by the
Registrant to the order of UBFC.
4.15* Amendment to Amended and Restated Subordinated Promissory Note made by Registrant and
acknowledged by UBFC.
4.16** Real Estate Mortgage, Security Agreement and Fixture Filing dated as of January 24,
1996, between the Registrant and Keebler Corporation ("Keebler").
5.1* Opinion of Hogan, Marren & McCahill, Ltd. as to the legality of the securities being
registered (including consent).
8.1** Snack Assets Purchase Agreement dated November 18, 1995, between Kelly Food Products,
Inc. ("Kelly") and Keebler.
8.2** Amendment dated December 29, 1995, to Snack Assets Purchase Agreement between Kelly and
Keebler.
8.3** Amendment dated January 22, 1996, to Snack Assets Purchase Agreement between Kelly and
Keebler.
8.4 Transition Agreement dated as of January __, 1996, between Kelly and Keebler.
8.5** Assignment and Assumption Agreement dated January 24, 1996, between Keebler and the
Registrant.
8.6** Bill of Sale dated as of January 24, 1996, made by Keebler to the Registrant.
8.7** Assignment of Trademarks dated as of January 24, 1996, by Keebler in favor of the
Registrant.
8.8** Assignment of Pending Trademark Applications dated as of January 24, 1996, made by
Keebler in favor of the Registrant.
8.9 License Agreement dated March 1, 1985, between Keebler and Miles J. Willard ("Willard").
8.10 Amendment dated January 1, 1993, between Willard and Keebler amending the License
Agreement
8.11 Agreement dated February 17, 1997, between Willard and the Registrant amending the
License Agreement dated March 1, 1985.
8.12* Stock Option Plan adopted by the Registrant.
8.13* Employment Agreement with Peter J. Vitulli.
8.14 Amendment, dated June 26, 1997, between the Registrant and Willard amending the payment
terms under the license agreement with Willard and granting Willard a warrant to
purchase stock.
8.15* Letter agreement dated August , 1997, between Registrant and Schumacher Capital LLC
regarding potential transfer of stock.
II-8
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ---------------------------------------------------------------------------------------- -----------
8.16* Consulting and Debt Agreement dated August , 1997 between Donald F. Schumacher, II and
the Company.
8.17* Form of Employment Agreement with David Blue
8.18* Form of Employment Agreement with Susan Bolin
23.1 Consent of BDO Seidman, LLP.
23.2* Consent of Hogan, Marren & McCahill, Ltd. (contained in its opinion filed as Exhibit 5.1
hereto).
23.3** Consent to inclusion as nominee for directorship of Steven Devick.
23.4** Consent to inclusion as nominee for directorship of Robert S. Steel.
23.5 Consent by Peter J. Vitulli to inclusion as designee as Chairman of the Board and Chief
Executive Officer of the Company.
24.** Power of Attorney (included on signature page of Registration Statement, as previously
filed).
27.* Financial data schedule.
* To be filed by amendment
** Previously filed as part of the Registrant's original registration statement
II-9