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Exhibit 10.3  

Execution Copy  

 
 

MANAGEMENT AGREEMENT    
    

        THIS MANAGEMENT AGREEMENT (this "Agreement"), dated as of August 20, 2002 is made
by and between CHS Management IV LP, a Delaware limited partnership ("CHS"), and Otis Spunkmeyer, Inc., a Delaware corporation (the
"Company"). 

        WHEREAS,
the Company desires to receive financial and management consulting services from CHS, and thereby obtain the benefit of the experience of CHS in business and financial
management generally and its knowledge of the Company and the Company's financial affairs in particular. CHS is willing to provide financial and management consulting services to the Company.
Accordingly, the compensation arrangements set forth in this Agreement are designed to compensate CHS for such services; 

        NOW,
THEREFORE, in consideration of the foregoing premises and the respective agreements hereinafter set forth and the mutual benefits to be derived herefrom, CHS and the Company hereby
agree as follows: 

 
 

TERMS    
    

	1.
	Engagement. The Company hereby engages CHS as a financial and management consultant, and CHS hereby agrees to provide financial and
management consulting services to the Company, all on the terms and subject to the conditions set forth below.

	2.
	Services of CHS. CHS hereby agrees during the term of this engagement to consult with the board of directors (the
"Board") and the management of the Company in such manner and on such business and financial matters as may be reasonably requested from time to time by
the Board, including but not limited to: (a) business strategy; (b) budgeting of future business investments; (c) acquisition and divestiture strategies; and (d) debt and
equity financings.

	3.
	Compensation. 
	(a)
	Monthly Fee. The Company agrees to pay to CHS as compensation for services to be rendered by CHS hereunder, a monthly fee equal to
$83,333.33, payable monthly in arrears on the last day of each month, commencing with the month during which the closing of the Purchase (as defined below) occurs, with the monthly payment for the
month in which the Purchase is closed being pro rated for the number of days between the date of such closing and the end of such month.

	(b)
	Purchase. As compensation for services rendered by CHS to the Company in connection with the transactions contemplated by the Agreement
and Plan of Merger, dated as of June 27, 2002 by and among Otis Spunkmeyer Holdings, Inc., Otis Spunkmeyer Merger Sub, Inc., Otis Spunkmeyer, Inc. and certain other parties
listed on the signature page thereto, and in connection with the financing of such transaction (the "Purchase"), the Company agrees to pay to CHS on the
date hereof an amount equal to four percent (4%) of the fair value of the total aggregate equity investment made by CHS and any other party in connection with the Purchase.

	(c)
	Future Acquisitions. When and as the Company or any of its affiliates consummates the acquisition of any other business, company,
product line or enterprise (each, an "Acquisition"), the Company will pay to CHS a fee equal to the greater of (i) one percent (1%) of the
Acquisition Price (as defined below) of such Acquisition and (ii) four percent (4%) of the fair value of the total aggregate equity investment made by CHS and any other party in connection with
such Acquisition, as compensation for services to be rendered by CHS to the Company in connection with the consummation of such Acquisition. "Acquisition
Price" means, with respect to a given Acquisition, the fair value of the total sale proceeds and other consideration received by the target company and its stockholders upon
consummation of such Acquisition, including cash, securities, notes, consulting agreements, noncompete agreements, contingent payments, plus the fair value of all liabilities assumed.

	4.
	Expense Reimbursement. The Company shall promptly reimburse CHS for such reasonable travel expenses and other
out-of-pocket fees and expenses as may be incurred by CHS, its partners and employees in connection with the Purchase and future Acquisitions, and in connection with the
rendering of services hereunder.

	5.
	Term. This Agreement shall be in effect for an initial term of five years commencing on the date hereof, and shall be automatically
renewed thereafter on a year to year basis unless one party gives 30 days' prior written 

 

notice
of its desire to terminate this Agreement; provided, however, that this Agreement shall terminate on the first to occur of a Sale of the Corporation or a Qualified Public Offering (each as
defined in the Company's Certificate of Incorporation as in effect as of the date hereof). No termination of this Agreement, whether pursuant to this paragraph or otherwise, shall affect the Company's
obligations with respect to the fees, costs and expenses incurred by CHS in rendering services hereunder and not reimbursed by the Company as of the effective date of such termination. 

	6.
	Indemnification. The Company agrees to indemnify and hold harmless CHS, its officers and employees against and from any and all loss,
liability, suits, claims, costs, damages and expenses (including attorneys' fees) arising from their performance hereunder, except as a result of their gross negligence or intentional wrongdoing.

	7.
	CHS an Independent Contractor. CHS and the Company agree that CHS shall perform services hereunder as an independent contractor,
retaining control over and responsibility for its own operations and personnel. Neither CHS nor its partners or employees shall be considered employees or agents of the Company as a result of this
Agreement nor shall any of them have authority to contract in the name of or bind the Company, except as expressly agreed to in writing by the Company.

	8.
	Notices. Any notice, report or payment required or permitted to be given or made under this Agreement by one party to the other shall be
deemed to have been duly given or made if personally delivered or, if mailed, when mailed by registered or certified mail, postage prepaid, to the other party at the following addresses (or at such
other address as shall be given in writing by one party to the other): 

If
to CHS: 

CHS
Management IV LP

10 South Wacker Drive

Suite 3175

Chicago, IL 60606

Facsimile: (312) 876-3854

Attn: Andrew W. Code 

with
a copy to: 

Kirkland &
Ellis

200 East Randolph Drive

Chicago, IL 60601

Facsimile: (312) 861-2200

Attn: Sanford E. Perl 

If
to the Company: 

Otis
Spunkmeyer, Inc.

14490 Catalina Street

San Leandro, California 94577

Facsimile: (510) 352-5680

Attn: John S. Schiavo, Chief Executive Officer;

	9.
	Entire Agreement; Modification. This Agreement (a) contains the complete and entire understanding and agreement of CHS and the
Company with respect to the subject matter hereof; (b) supersedes all prior and contemporaneous understandings, conditions and agreements, oral or written, express or implied, respecting the
engagement of CHS in connection with the subject matter hereof; and (c) may not be modified except by an instrument in writing executed by CHS and the Company.

	10.
	Waiver of Breach. The waiver by either party of a breach of any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach of that provision or any other provision hereof.

	11.
	Assignment. Neither CHS nor the Company may assign its rights or obligations under this Agreement without the express written consent
of the other.

	12.
	Choice of Law. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Illinois, without
giving effect to any choice of law or conflict of law provision or rule (whether of 

2

 

the
State of Illinois or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Illinois. 

*
* * * 

        IN
WITNESS WHEREOF, CHS and the Company have caused this Management Agreement to be duly executed and delivered on the date and year first above written. 

	 	 	CHS MANAGEMENT IV LP
	    	 	 	 	 
	    	 	By:	 	Code Hennessy & Simmons LLC
	 	 	Its:	 	General Partner
	 	 	 	 	 
	 	 	By:	 	/s/  ANDREW CODE      

	 	 	Name:	 	    

	 	 	Its:	 	    

	    	 	 	 	 
	 	 	OTIS SPUNKMEYER, INC.
	    	 	 	 	 
	 	 	By:	 	/s/  JOHN SCHIAVO      

	 	 	Name:	 	    

	 	 	Its:	 	    

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MANAGEMENT AGREEMENT

TERMSExhibit 10.4  

          Execution Copy  

EXECUTIVE SECURITIES AGREEMENT  

        THIS AGREEMENT is made as of August 20, 2002 by and among Otis Spunkmeyer Holdings, Inc. a Delaware corporation (the
"Company"), John S. Schiavo (the "Executive") and the Schiavo Family Revocable Trust, a California trust
(the "Trust"). Capitalized terms used but not otherwise defined herein shall have the meaning set forth in Section 6 hereof. 

        WHEREAS,
the Executive is the owner of fully vested and exercisable stock options to acquire 17,236.00 shares of Otis Spunkmeyer, Inc.
("Target") Class B Common Stock, par value $.01 per share ("Target Class B Common"), with
an aggregate strike price of $410,044.44 (the "Old Options"); 

        WHEREAS,
the Trust is the owner of 69,364.00 shares of Target Class A Common Stock, par value $.01 per share (the "Target Class A
Common" and together with the Target Class B Common, the "Target Stock"); 

        WHEREAS,
(i) the Trust desires to contribute a portion of the shares of Target Class A Common held by the Trust pursuant to this Agreement, (ii) certain other
executives of Target ("Other Executives") desire to contribute a portion of the shares of Target Class A Common held by such Other Executives,
each pursuant to an Executive Securities Agreement between such Other Executive and the Company and (iii) Code Hennessy & Simmons IV LP
("CHS") desires to contribute cash to the Company pursuant to a Stock Purchase Agreement among the Company, CHS and others, all in exchange for the
Company's issuance to each of the Executive, the Trust, the Other Executives and CHS shares of capital stock of the Company in a transaction intended to qualify under Section 351 of the
Internal Revenue Code of 1986, as amended (the "Code"). 

        WHEREAS,
(i) the Executive desires to contribute a portion of the Old Options held by the Executive pursuant to this Agreement, (ii) the Other Executives desire to
contribute a portion of the Old Options held by such Other
Executives, each to the Company in exchange for the Company's issuance to each of the Executive and the Other Executives of certain options to acquire the capital stock of the Company pursuant to the
Otis Spunkmeyer Holdings, Inc. 2002 Rollover Option Plan, as approved by the board of directors and the stockholders of the Company (a copy of which is attached hereto as  Exhibit A) (the
"Plan"); 

        WHEREAS,
the Company and the Executive have entered into a letter agreement dated as of June 27, 2002 whereby each has agreed to enter into this Agreement in connection with the
merger between Otis Spunkmeyer Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of the Company, and Target (the "Merger")
pursuant to an Agreement and Plan of Merger dated as of June 27, 2002 (the "Merger Agreement"). Certain provisions of this Agreement are intended
for the benefit of, and shall be enforceable by CHS. 

        NOW
THEREFORE, in consideration of the terms and conditions contained herein as well as other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows: 

        1.     Exchange
of Stock and Substitution of Options. 

        (a)   Immediately
prior to the consummation of the Merger, the Trust shall present, contribute, and deliver, free and clear of all liens, to the Company certificates
evidencing 4,839.00 shares of Target Class A Common, and such certificates shall be duly endorsed in blank or accompanied by stock powers or other instruments of transfer duly executed in blank
and bearing or accompanied by all requisite stock transfer stamps, and, thereupon, the Company will, and in consideration thereof, issue and deliver to the Trust certificates representing 246,721
shares of Company Common Stock, par value $.01 per share ("Company Common Stock") and 246.721 shares of Company Class A Preferred Stock, par
value $.01 per share, ("Company Class A Preferred"). The shares of Company Common Stock and Company Class A Preferred issued pursuant to
this Section 1(a), as well as the Rollover Common Option (as defined below) (and the Company Common Stock issuable upon the exercise thereof),
the Rollover Preferred Option (as defined below) (and the Company Class A Preferred issuable upon the exercise thereof) and any other capital stock of the Company the Trust and/or the Executive
may otherwise acquire shall be referred to herein as the "Executive Securities." 

        (b)   Immediately
prior to the consummation of the Merger, the Executive shall present, contribute, and deliver, free and clear of all liens, to the Company instruments
evidencing Old Options to acquire 17,236.00 shares of Target Class B Common, and such instruments shall be accompanied by instruments of transfer duly 

 

executed
in blank, and, thereupon, the Company will, and in consideration thereof, grant and deliver to the Executive, pursuant to the Company's 2002 Rollover Stock Option Plan, options to purchase
(i) 878.793 shares of Company Class A Preferred (the "Rollover Preferred Option") at a strike price of $233.300 per share (the
"Preferred Exercise Price") and (ii) 878,793 shares of Company Common Stock (the "Rollover Common
Option", and together with the Rollover Preferred Option, the "Rollover Options") at a strike price of $0.233 per share (the
"Common Exercise Price"). The Rollover Options shall expire at the close of business on December 29, 2008 (the
"Expiration Date"), subject to earlier expiration as provided in Section 2 below. The Rollover
Options are intended to be "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended. 

        (c)   All
shares of Target Class A Common held by the Trust and not contributed pursuant to Section 1(a) above
and all Old Options held by the Executive and not contributed pursuant to Section 1(b) above shall be cancelled pursuant to the Merger and shall
be entitled to the applicable consideration described in the Merger Agreement. 

        (d)   Within
30 days after the Trust and/or the Executive purchases any Executive Securities from the Company, Executive may make an effective election with the
Internal Revenue Service under Section 83(b) of the Internal Revenue Code and the regulations promulgated thereunder in the form of Annex A
attached hereto. 

        (e)   The
parties acknowledge that the value of the Target Class A Common and the Old Options contributed by the Trust and the Executive, respectively, to the Company
pursuant to this Agreement will be adjusted to reflect the additional payments described in this paragraph; provided, however, that such adjustments
shall be made by payments in cash pursuant to this Section 1(e) and not by adjusting the number or value of the Executive Securities issued
hereunder. Specifically, each of the Trust and the Executive shall be entitled to receive from the Company in respect of each share of Target Class A Common contributed hereunder and each share
of Target Class B Common underlying an Old Option contributed hereunder, (i) the Per Share Additional Amount (as such term is defined in the Merger Agreement) when and if such amount is
paid to the other former owners of the Target pursuant to the Merger Agreement and (ii) the Per Share Escrow Amount within 10 days after the Company receives such Per Share Escrow Amount
from the Seller's Representative (as defined in the Merger Agreement) pursuant to the terms of the Escrow Agreement. 

        (f)    In
connection with the issuance of the Executive Securities hereunder, each of the Trust and the Executive jointly and severally represents and warrants to the Company
that: 

        (i)    The
Executive Securities to be acquired by each of the Trust and the Executive pursuant to this Agreement shall be acquired for each of the Trust's and the Executive's
own account and not with a view to, or intention of, distribution thereof in violation of the 1933 Act, or any applicable state securities laws, and the Executive Securities shall not be disposed of
in contravention of the 1933 Act or any applicable state securities laws. 

        (ii)   Executive
is an executive officer of the Company and is sophisticated in financial matters and is able to evaluate the risks and benefits of the investment in the
Executive Securities. The Trust is an "accredited investor" as such term is defined under Rule 501(a) of the rules promulgated under the 1933 Act. The Trust is within the definition of "Family
Group" as set forth in Section 8 of the Stockholders Agreement (as defined below). 

        (iii)  Each
of the Trust and the Executive is able to bear the economic risk of its and his investment in the Executive Securities for an indefinite period of time because
the Executive Securities has not been registered
under the 1933 Act and, therefore, cannot be sold unless subsequently registered under the 1933 Act or an exemption from such registration is available. 

        (iv)  Each
of the Trust and the Executive has had an opportunity to ask questions and receive answers concerning the terms and conditions of the offering of Executive
Securities and, to his knowledge, has had full access to such other information concerning the Company as he has requested. Each of the Trust and the Executive has reviewed, or has had an opportunity
to review, a copy of the Merger Agreement and each of the Trust and the Executive is familiar with the transactions contemplated thereby. Each of the Trust and the Executive has also reviewed, or has
had an opportunity to review, the following documents in the form that each was provided to him by the Company: (A) the 

2

 

Company's
Certificate of Incorporation and Bylaws and (B) the loan agreements, notes and related documents with the Company's lenders. 

        (v)   This
Agreement constitutes the legal, valid and binding obligation of each of the Trust and the Executive, enforceable in accordance with its terms (except as may be
limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or other similar laws affecting the enforcement of creditors' rights generally and general equitable principles), and the
execution, delivery and performance of this Agreement by each of the Trust and the Executive do not violate or cause a breach of any agreement, contract or instrument to which the Trust or the
Executive is a party or any judgment, order or decree to which the Trust or the Executive is subject. 

        (vi)  Neither
the Trust nor the Executive has taken any action that constitutes a conflict with, violation or breach of, and the execution and delivery of this Agreement and
the other agreements contemplated hereby will not conflict with, violate or cause a breach of, any noncompete, nonsolicitation or confidentiality agreement to which the Trust or the Executive is a
party or by which Executive is bound. 

        (vii) The
trust was formed pursuant to the laws of the State of California and each of its trustee(s) is a resident of such state. The Executive is a resident of the state
of California. 

        (g)   As
an inducement to the Company to issue the Executive Securities to each of the Trust and the Executive, as a condition thereto, Executive acknowledges and agrees that
neither the issuance of the Executive Securities to the Trust or the Executive nor any provision contained herein shall entitle Executive to remain in the employment of the Company and its
Subsidiaries or affect the right of the Company to terminate Executive's employment at any time. 

        (h)   The
Trust owns the Target Stock referred to in Section 1(a) above beneficially and of record, free and clear of
all liens, encumbrances, security interests, voting agreements, voting trusts or other arrangements or restrictions (other than any agreement or restriction between the Target and the Trust that shall
be terminated in connection with the Merger), and upon delivery of such shares of Target Stock as provided in Section 1(a) above, the Trust shall
transfer to the Company good and valid title thereto, free and clear of all liens, encumbrances, security interests, adverse claims, voting agreements, voting trusts and other arrangements or
restrictions. 

        (i)    Executive
owns the Old Options referred to in Section 1(b) above, free and clear of all liens, encumbrances,
security interests, voting agreements, voting trusts or other arrangements or restrictions (other than any agreement or restriction between the Target and the Executive that shall be terminated in
connection with the Merger), such Old Options have not been exercised, and upon delivery of the instruments evidencing the Old Options as provided in  Section 1(b) above, Executive shall transfer to
the Company good and valid title thereto, free and clear of all liens, encumbrances, security
interests, adverse claims, voting agreements, voting trusts and other arrangements or restrictions. 

        (j)    In
connection with the issuance of the Executive Securities hereunder, the Company represents and warrants to the Trust and the Executive that: 

        (i)    The
Company is duly organized, validly existing and in good standing under the laws of the State of Delaware. 

        (ii)   The
Company has or prior to the Closing Date will have taken all corporate action required to authorize the execution and delivery of this Agreement and the issuance of
the Executive Securities. 

        (iii)  The
Executive Securities, when issued and upon payment of the purchase price therefor, will be duly authorized, validly issued, fully paid and
non-assessable. 

        (iv)  This
Agreement constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms (except as may be limited by bankruptcy,
insolvency, reorganization, fraudulent conveyance or other similar laws affecting the enforcement of creditors' rights generally and general equitable principles), and the execution, delivery and
performance of this Agreement by the Company do not violate or cause a breach of any agreement, contract or instrument to which the Company is a party or any judgment, order or decree to which the
Company is subject other than to the extent that any such conflict, violation or breach which would not individually or in the aggregate have a 

3

 

material
adverse effect on the Company's ability to consummate the issuance of the Executive Securities and the other transactions contemplated herein. 

        (v)   As
of the Closing Date and immediately thereafter, the authorized capital stock of the Company shall consist of (a) 100,000 shares of Company Class A
Preferred of which 49,292.149 shares shall be issued and outstanding, (b) 97,600,000 shares of Company Common Stock, of which 46,292,149 shares shall be issued and outstanding,
(c) 3,000,000 shares of Nonvoting Common Stock, par value $.01 per share (the "Company Nonvoting Common Stock"), of which 3,000,000 shares shall
be issued and outstanding, (d) 3,338,692 of Company Common Stock shall be reserved for issuance upon exercise of the options issued pursuant to the Otis Spunkmeyer Holdings, Inc. 2002
Stock Option Plan (the "Stock Option Plan"), as approved by the Board and the holders of at least a majority of the outstanding capital stock of the
Company entitled to vote on the matter and (e) 3,014,031 shares of Company Common Stock and 3,014.031 shares of Company Class A Preferred shall be reserved for issuance upon exercise of
the options issued pursuant to the Plan. As of the Closing Date, the Company shall not have outstanding any stock or securities convertible or exchangeable for any shares of its capital stock or
containing any profit participation features, nor shall it have outstanding any rights or options to subscribe for or to purchase its capital stock or any stock or securities convertible into or
exchangeable for its capital stock or any stock appreciation
rights or phantom stock plans except for those options to purchase shares of Company Class A Preferred or shares of Company Common Stock issued pursuant to the Stock Option Plan and the Plan. 

        (vi)  The
offer, sale and issuance of the Executive Securites hereunder do not require registration under the Securities Act of 1933, as amended, or any applicable state
securities laws. 

        2.     Terms of Rollover Options

        (a)   Procedure for Exercise. The Executive may exercise all or any portion of the outstanding Rollover Common Options or
Rollover Preferred Options held by the Executive, at any time and from time to time prior to the Expiration Date, by (a) delivering written notice to the Company (to the attention of the
Company's Secretary), (b) paying to the Company an amount in cash (the "Rollover Option Price") equal to the product of (i) the Preferred
Exercise Price or Common Exercise Price, as applicable, multiplied by (ii) the number of shares Executive shall acquire pursuant to the exercise of the Rollover Preferred Option or the Rollover
Common Option, as applicable, and (c) delivering the Executive's written acknowledgement that the Executive has read and has been afforded an opportunity to ask questions of management of the
Company regarding all financial and other information provided to the Executive regarding the Company. The Rollover Option Price shall be paid by certified check or wire transfer of immediately
available funds. As a condition to any exercise of a Rollover Option, the Executive shall permit the Company to deliver to the Executive all financial and other information regarding the Company it
believes necessary to enable the Executive to make an informed investment decision, and the Executive shall make all customary investment representations which the Company requires. 

        (b)   Sale of the Company. Any portion of the Rollover Options which is not exercised prior to or in connection with the Sale
of the Company shall be forfeited, unless otherwise determined by the Board; provided, however, that the Executive's right to exercise any portion of
the Rollover Options prior to a Sale of the Company shall in all events be suspended during the period commencing 10 days prior to the proposed effective date of such Sale of the Company and
ending immediately prior to the effective date of such transaction or upon receipt of notice from the Company that such a transaction will not occur. The Company agrees to give the Executive at least
20 days prior written notice of any proposed Sale of the Company. 

        (c)   Non-Transferability of Option. The Rollover Options are personal to the Executive and are not transferable by
the Executive other than by will or the laws of descent and distribution. During the Executive's lifetime only the Executive (or the Executive's guardian or legal representative) may exercise the
Rollover Options. In the event of the Executive's death, the Rollover Options may be exercised only by the executor or administrator of the Executive's estate or the Person or Persons to whom the
Executive's rights under the Rollover Options shall pass by will or the laws of descent and distribution. 

        (d)   Conformity with Plan. The Rollover Options are intended to conform in all respects with, and is subject to all applicable
provisions of, the Plan (which is incorporated herein by reference). Inconsistencies between this Agreement and the Plan shall be resolved in accordance with the terms of the Plan. The Executive
acknowledges his receipt of the Plan and agrees to be bound by all of the terms of the Plan. 

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        (e)   Withholding of Taxes. The Company shall be entitled, to the extent required by law, to withhold from the Executive from
any amounts due and payable by the Company to the Executive (or secure payment from the Executive in lieu of withholding) the amount of any withholding or other tax due from the Company with respect
to any shares issuable upon exercise of the Rollover Options, and the Company may defer such issuance unless indemnified by the Executive to its satisfaction. 

        (f)    Adjustments. In the event of a reorganization, recapitalization, stock dividend or stock split, or combination or other
change in the shares of the Company's Common Stock or Class A Preferred (an "Adjustment Transaction"), the Board shall, in order to prevent the
dilution or enlargement of rights under the Rollover Options, make proportional adjustments in the number and type of shares covered by the Rollover Options and the exercise price specified herein, so
that (i) the Rollover Options (or any replacements thereof) represent the right to purchase the shares of stock, securities or other property (including cash) as may be issuable or payable as a
result of such Adjustment Transaction with respect to or in exchange for the number of shares of Company Common Stock or Company Class A Preferred, as the case may be, purchasable and
receivable upon exercise of the Rollover Options had such exercise occurred in full immediately prior to such Adjustment Transaction, and (ii) the aggregate Rollover Option Price for all
Rollover Options remains unchanged. The issuance by the Company of shares of stock of any class, or options or securities exercisable or convertible into shares of stock of any class, for cash or
property, or for labor or services either upon direct sale, or upon the exercise of rights or warrants to subscribe therefor, or upon exercise or conversion of other securities, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock or Company Class A Preferred then subject to any Rollover Options. 

        (g)   Automatic Termination of Rollover Options. The unexercised portion of any Rollover Option shall automatically terminate
and shall become null and void and be of no further force or effect upon the first to occur of the following: 

        (i)    December 29,
2008; 

        (ii)   the
expiration of three months from the date which is first to occur of (A) the Executive ceasing to be an employee of the Company or any of its subsidiaries
(other than as a result of Involuntary Termination (as defined in subparagraph (iii) below)) or (B) a Termination for Cause (as defined in subparagraph (iv) below);  provided, however, that if the Executive shall die during such three-month period, the time of
termination of the unexercised portion of such Rollover Option shall be the expiration of 12 months from the date that such Executive ceased to be an employee or director of, or independent
consultant to, the Company or any of its subsidiaries; 

        (iii)  the
expiration of 12 months from the date that the Executive ceases to be an employee of the Company or any of its subsidiaries, if such termination is due to
such Executive's death or Disability; 

        (iv)  immediately
if the Executive ceases to be an employee of the Company or any of its subsidiaries, if such termination is pursuant to a Termination for Cause;
"Termination for Cause" shall mean any termination of the Executive initiated by the Company or any of its subsidiaries or affiliates as a result of the
Executive's taking any action constituting Cause as defined herein; or 

        (v)   the
date on which the Rollover Option or any part thereof or right or privilege relating thereto is transferred in violation of  Section2(c) hereof. 

        The
Rollover Options shall not be affected by any change of duties or position of the Executive (including a transfer to or from the Company or one of its subsidiaries), so long as such
Executive continues to be an employee of the Company or one of its subsidiaries. 

        3.     Repurchase Option.

        (a)   Repurchase Option. In the event Executive ceases to be employed by the Company and its Subsidiaries (the
"Company Group") for any reason, the Executive Securities (whether held by the Trust, Executive or one or more of the Trust's or Executive's
transferees) shall be subject to repurchase by the Company and CHS (or any of its affiliates) pursuant to the terms and conditions set forth in this  Section 3 (the "Repurchase Option"). 

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        (b)   Repurchase Price. 

        (i)    If
the Executive's employment is terminated (i) by the Company without Cause, (ii) by the Executive for Good Reason, (iii) due to the death or
Disability of the Executive or (iv) after the third anniversary of the Merger for any reason, the purchase price for each share of Executive Securities shall equal the Fair Market Value
(measured at the Repurchase Date (as defined below)) for such security. Furthermore, if Executive's employment is terminated pursuant to (i) or (ii) above, the Repurchase Option has been
exercised, and there shall have been a Liquidity Event within four months after the Date of Termination, then the Trust or the Executive, as the case may be, shall be entitled to receive on a
per-share basis an amount equal to the excess (if any) of the price per share paid pursuant to such Liquidity Event over the price per share paid in connection with such termination. 

        (ii)   If
the Executive's employment is terminated on or before the third anniversary of the Merger (i) by the Executive without Good Reason or (ii) by the
Company for Cause, then the purchase price for each share of Executive Securities shall equal the lower of (x) the Original Cost of such share of Executive Securities or (y) Fair Market
Value (measured at the Repurchase Date (as defined below)). 

        (c)   Repurchase Procedure. 

        (i)    In
connection with any exercise of the Repurchase Option, the Board may elect to purchase all or any portion of the Executive Securities by delivering written notice
(the "Repurchase Notice") to the holder or holders of the Executive Securities no earlier than the later of (a) the Date of Termination and
(b) the date that is six months after Executive exercised the Rollover Options (such later date, the "Trigger Date"), but no later than
90 days after the Trigger Date. The Repurchase Notice shall set forth the number of shares of Executive Securities to be acquired from each holder of Executive Securities, the aggregate
consideration to be paid for such shares and the time and place for the closing of the transaction. 

        (ii)   If
for any reason the Company does not elect to purchase all of the Executive Securities pursuant to the Repurchase Option, CHS shall be entitled to exercise the
Repurchase Option for the shares of Executive
Securities the Company has not elected to purchase (the "Available Shares"). As soon as practicable after the Company has determined that there will be
Available Shares, but in any event within 30 days after the expiration of the 90-day period after the Trigger Date, the Company shall give written notice (the
"Option Notice") to CHS setting forth the number of Available Shares and the purchase price for the Available Shares. CHS may elect to purchase any or
all of the Available Shares by giving written notice to the Company within 15 days after the Option Notice has been given by the Company setting forth the number of shares CHS shall purchase,
the aggregate purchase price and the time and place of the closing of the transaction (the "CHS Option Notice"). 

        (iii)  The
closing of the purchase of the Executive Securities pursuant to the Repurchase Option shall take place on the date designated by the Company in the Repurchase
Notice or CHS Option Notice, which date shall not be more than 30 days nor less than five days after the delivery of the later of either such notice to be delivered. Notwithstanding the date
upon which the closing occurs, the date upon which the repurchase shall be effective (the "Repurchase Date") shall be the Date of Termination. The
Company and/or CHS shall pay for the Executive Securities to be purchased pursuant to the Repurchase Option by delivery of a check or wire transfer of funds;  provided that if a cash payment would
violate any loan agreement with a lender of the Company Group, then (provided the Company has used and continues
to use reasonable efforts to obtain a waiver or other relief from such violation) such payment will be paid in a manner that does not violate the loan agreement, including by a subordinated promissory
note bearing interest at a rate per annum equal to the "prime rate" as listed in The Wall Street Journal in its "Money Rates" section on the Date of Termination. The purchasers of Executive Securities
hereunder shall be entitled to receive customary representations and warranties from the sellers regarding such sale of shares (including representations and warranties regarding good title to such
shares, free and clear of any liens or encumbrances) and to require all sellers' signatures be guaranteed by a national bank or reputable securities broker. 

        (d)   The
right of the Company and CHS to repurchase Executive Securities pursuant to this Section 3 shall terminate
upon the first to occur of the Sale of the Company or a Qualified Public Offering. 

6

 

        4.     Restrictions on Transfer.

        (a)   General. Neither the Trust nor the Executive shall sell, transfer, assign, pledge or otherwise dispose of (whether with
or without consideration and whether voluntarily or involuntarily or by operation of law) (a "Transfer") any interest in any shares of Executive
Securities without the prior written consent of the Company; except, the Trust and the Executive shall be entitled to Transfer Executive Securities pursuant to the terms and conditions of  Sections 2(c),
2(d) or 4the Stockholders Agreement. This
Section 4(a) shall terminate upon the first to occur of the Sale of the Company or a Qualified Pubic Offering. 

        (b)   Legend. The certificates representing the Executive Securities shall bear the following legend: 

"THE
SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON AUGUST 20, 2002, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION
THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN AN EXECUTIVE
SECURITIES AGREEMENT BETWEEN THE COMPANY AND THE EXECUTIVE NAMED THEREIN DATED AS OF AUGUST 20, 2002, AS AMENDED AND MODIFIED FROM TIME TO TIME. A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER
HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE." 

        (c)   Opinion of Counsel. No holder of Executive Securities may sell, transfer or dispose of any Executive Securities (except
pursuant to an effective registration statement under the 1933 Act) without first delivering to the Company an opinion of counsel (reasonably acceptable in form and substance to the Company) that
neither registration nor qualification under the 1933 Act and applicable state securities laws is required in connection with such transfer; provided
that no such opinion is required for sales pursuant to Rule 144 under the 1933 Act. 

        5.     Open
Market Transactions. If the Board, CHS and the holders of a majority of the outstanding shares of Common Stock approve an initial public offering of Common Stock
(the "Initial Public Offering") pursuant to an effective registration statement under the Securities Act, for a period beginning on the effective date (the "Effective Date") of such Initial Public
Offering and ending on the second anniversary thereof, neither the Trust nor the Executive shall sell any shares of Executive Securities in Public Sales; provided that, notwithstanding anything to the
contrary herein, if CHS or its Affiliates (the "CHS Group") sells any shares of Common Stock or Company Series A Preferred it or they then holds (the "CHS Shares") during such period in Public
Sales, each of the Trust and the Executive may also sell shares of Executive Securities held by the Trust and the Executive, respectively, in Public Sales in a percentage equal to or less than the
percentage of CHS Shares so sold by the CHS Group. For the year beginning on the second anniversary of the Effective Date and ending on the third anniversary thereof, the Trust and the Executive may
sell in Public Sales, in the aggregate, the greater of (i) 30% of the shares of Executive Securities held by the Trust or the Executive on the Effective Date and (ii) the percentage of
CHS Shares sold by the CHS Group during such 12 month period. For the year beginning on the third anniversary of the Effective Date and ending on the fourth anniversary thereof, the Trust and
the Executive may sell in Public Sales, in the aggregate, the greater of (i) 30% of the shares of Executive Securities held by the Trust or the Executive on the Effective Date and
(ii) the percentage of CHS Shares sold by the CHS Group during such 12 month period. For the year beginning on the fourth anniversary of the Effective Date and ending on the fifth
anniversary thereof, the Trust and the Executive may sell in Public Sales, in the aggregate, the greater of (i) 40% of the shares of Executive Securities held by the Trust or the Executive on
the Effective Date and (ii) the percentage of CHS Shares sold by the CHS Group during such 12 month period, and thereafter no restrictions under this Section 5 shall apply.
Notwithstanding anything herein to the contrary, if (a) the Executive is terminated by the Company without Cause, (b) the Executive resigns for Good Reason, (c) the Executive's
employment is terminated because the Executive dies, (d) the Executive's employment is terminated due to Executive's Disability or (e) CHS distributes all or a portion of the CHS Shares
to its investors, then neither the Trust nor the Executive shall longer be bound by the restrictions of this Section 5, or, in the event of a partial distribution by CHS to its investors, shall
be bound only with respect to an amount of Executive Securities proportionate to the CHS Shares that CHS retained after such distribution relative to the amount of CHS Shares that CHS had before such
distribution. 

7

 

        6.     Definitions.

        "Affiliate" means, as to any specified Person, (i) any shareholder, equity owner, officer, or director of such Person and their
family members or (ii) any other Person which, directly or indirectly or indirectly, controls, is controlled by, employed by or is under common control with, any of the foregoing. For the
purposes of this definition,
"control" means the possession of the power to direct or cause the direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise. 

        "Board" means the Company's Board of Directors. 

        "Cause" means, and shall be limited to, the Executive's (A) taking any action constituting "cause" as defined in Executive's
Employment Agreement or, (B) if and only if no such definition within such Employment Agreement is in effect on the date hereof, the Executive's (i) engaging in gross misconduct or fraud
in the performance of his employment, (ii) conviction or guilty plea with respect to any felony, (iii) material breach of any agreement between the Executive and the Company or willful
neglect of his duties to the Company after written notice to Executive of such breach or neglect (provided Executive shall have an opportunity to cure such breach or neglect if curable within
30 days after such written notice) or (iv) failure to comply with any material written policy of the Company after written notice to Executive of such failure (provided Executive shall
have an opportunity to cure such failure if curable within 30 days after such written notice). 

        "Common Stock" means, in the aggregate, the Company Common Stock and the Company Nonvoting Common Stock. 

        "Date of Termination" means (i) if the Executive's employment is terminated by the Company, the effective date of termination as
specified in the written notice from the Company to the Executive terminating the Executive's employment, (ii) if the Executive's employment is terminated by the Executive, the date the Company
receives notice from the Executive terminating the Executive's employment or (iii) if Executive's employment is terminated other than pursuant to (i) or (ii), then the date determined in
good faith by the Board. 

        "Disability" has the meaning given to it in Section 22(e)(3) of the Code. 

        "Employment Agreement" means the Employment Agreement, if any, between the Company and Executive, as amended. 

        "Escrow Agreement" means that certain Indemnification Escrow Agreement dated as of the date of the Merger among the Company, the Target,
the Sellers' Representative (as defined therein) and the Escrow Agent (as defined therein). 

        "Executive Securities" shall continue to be Executive Securities in the hands of any holder other than the Trust or Executive (except for
the Company and CHS and except for transferees in a Public Sale), and except as otherwise provided herein, each such other holder of Executive Securities shall succeed to all rights and obligations
attributable to the Trust and Executive as a holder of Executive Securities hereunder. Executive Securities shall also include shares of the Company's capital stock issued with respect to Executive
Securities by way of a stock split, stock dividend or other recapitalization. By way of clarification, notwithstanding any implication to the contrary herein, the Rollover Options shall be treated as
shares of Executive Securities for purposes of this Agreement. 

        "Fair Market Value" of each share of Executive Securities that is Common Stock means the average of the closing prices of the sales of the
Company's Common Stock on all securities exchanges on which the Common Stock may at the time be listed, or, if there have been no sales on any such exchange on any day, the average of the highest bid
and lowest asked prices on all such exchanges at the end of such day, or, if on any day the Common Stock is not so listed, the average of the representative bid and asked prices quoted in the NASDAQ
System as of 4:00 P.M., New York time, or, if on any day the Common Stock is not quoted in the NASDAQ System, the average of the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau Incorporated, or any similar successor organization, in each such case averaged over a period of
21 days consisting of the day as of which the Fair Market Value is being determined and the 20 consecutive business days prior to such day. If at any time the Common Stock is not listed on any
securities exchange or quoted in the NASDAQ System or the over-the-counter market, the Fair Market Value shall be the fair value of the Common Stock determined in good faith by
the Board; provided that if the Original Cost of securities purchased (or rolled over) by the Trust and Executive as of the closing was $250,000 or
greater and the Trust or the Executive disagrees with the Board's determination of the Fair Market Value hereunder, then the Trust or Executive, as the case may be, may seek a determination of fair
market value by an 

8

 

independent
investment bank, and such investment bank's determination shall be final and binding among the Trust or Executive, as the case may be, and the Company and the fees for which will be split
equally between the Trust or the Executive, as applicable, and the Company. If the Trust or the Executive and the Company cannot agree on an independent investment bank, the Company and the Trust or
the Executive, as applicable, shall each name an investment bank and those two investment banks shall name a third investment bank that shall be used to make the valuation. The Trust or the Executive,
as the case may be, and the Company shall each pay 50% of the fees and expenses of such investment bank. The Fair Market Value of each share of Executive Securities that is Company Class A
Preferred is the Liquidation Value of such share plus all accrued and unpaid dividends thereon. For purposes of determining the Fair Market Value of any Rollover Option, such Fair Market Value shall
be equal to the excess of the Fair Market Value of the Common Stock or Company Class A Preferred acquirable upon exercise of such Rollover Option over the Exercise Price of such Rollover
Option. 

        "Good Reason" (A) has the meaning given to such term under Executive's Employment Agreement or (B) if and only if no such
definition within such Employment Agreement is in effect on the date hereof, means, in connection with a voluntary termination by the Executive, that without his written consent (i) the
Executive ceases to have the same title as of the date hereof, (ii) there shall have occurred a reduction of the Executive's base salary by more than 10% or (iii) the Company shall have
materially breached this Agreement. 

        "Liquidity Event" shall mean a Sale of the Company or a Public Offering. 

        "1933 Act" means the Securities Act of 1933, as amended from time to time. 

        "Original Cost" of each share of Company Common Stock purchased hereunder shall be equal to $1.00 (as proportionately adjusted for all
subsequent stock splits, stock dividends and other recapitalizations) and of each share of Company Class A Preferred shall be equal to $1,000.00 (as proportionately adjusted for all subsequent
stock splits, stock dividends and other recapitalizations). The Original Cost of each Rollover Common Option shall be equal to $1.00 minus the Common Exercise Price (each as proportionately adjusted
for all subsequent stock splits, stock dividends and other recapitalizations), and the Original Cost of each Rollover Preferred Option shall be equal to $1,000.00 minus the Preferred Exercise Price
(each as proportionately adjusted for all subsequent stock splits, stock dividends and other recapitalizations). 

        "Public Offering" means the sale, in an underwritten public offering registered under the 1933 Act, of shares of the Company's Common
Stock. 

        "Public Sale" means any sale pursuant to a registered public offering under the Securities Act or any sale to the public pursuant to
Rule 144 or Rule 144A promulgated under the Securities Act effected through a broker, dealer or market maker at a time when the Company is a reporting company under the Securities
Exchange Act of 1934 and has filed all reports required thereunder. 

        "Registration Agreement" shall mean that certain Registration Agreement, dated as of August 20, 2002, by and among the Company and
certain investors as amended from time to time. 

        "Sale of the Company" means (i) any sale, transfer or issuance or series of sales, transfers and/or issuances of capital stock of
the Company by the Company or any holders thereof (including without limitation, any merger, consolidation or other transaction or series of related transactions having the same effect) which results
in any Person or group of Persons (as the term "group" is used under the Securities Exchange Act), other than CHS or its Affiliates, owning capital stock of the Company possessing the voting power
(under ordinary circumstances) to elect a majority of the Board, and (ii) any sale or transfer of all or substantially all of the assets of the Company and its subsidiaries in any transaction
or series of transactions (other than sales in the ordinary course of business) to any Person or group of Persons (as the term "group" is used under the Securities Exchange Act), other than CHS or its
Affiliates. 

        "Stockholders Agreement" shall mean that certain Stockholders Agreement, dated as of August 20, 2002, by and among the Company and
certain investors as amended from time to time. 

        7.     Notices.
Any notice provided for in this Agreement must be in writing and must be either personally delivered, mailed by first class mail (postage prepaid and return
receipt requested) or sent by reputable overnight courier service (charges prepaid) to the recipient at the address below indicated: 

To the Company:

Otis
Spunkmeyer Holdings, Inc.

14490 Catalina Street

9

 

San
Leandro, California 94577

Facsimile: (510) 352-5680

Attention: John S. Schiavo, Chief Executive Officer; 

To Executive:

John
S. Schiavo

1560 Rancho Del Hambre

Lafayette, CA 94549 

To the Trust:

Schiavo
Family Revocable Trust

c/o John S. Schiavo

1560 Rancho Del Hambre

Lafayette, CA 94549 

To CHS:

Code
Hennessy & Simmons LLC

10 South Wacker Drive, Suite 3175

Chicago, Illinois 60606

Facsimile: (312) 876-3854

Attention: Andrew W. Code and Steven R. Brown 

With a copy to:

Kirkland &
Ellis

200 E. Randolph Dr.

Chicago, IL 60601

Facsimile: (312) 861-2200

Attention: Sanford E. Perl 

or
such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party. Any notice under this Agreement shall be deemed
to have been given when so delivered or sent or, if mailed, five days after deposit in the U.S. mail. 

        8.     General
Provisions. 

        (a)   Transfers in Violation of Agreement. Any Transfer or attempted Transfer of any Executive Securities in violation of any
provision of this Agreement shall be void, and the Company shall not record such Transfer on its books or treat any purported transferee of such Executive Securities as the owner of such stock for any
purpose. 

        (b)   Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein. 

        (c)   Complete Agreement. This Agreement, those documents expressly referred to herein and other documents of even date
herewith embody the complete agreement and understanding among the parties and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral,
which may have related to the subject matter hereof in any way. 

        (d)   Counterparts. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all
of which taken together constitute one and the same agreement. 

        (e)   Successors and Assigns. Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be
enforceable by the Trust, Executive, the Company, CHS and their respective successors and assigns (including subsequent holders of Executive Securities); provided that the rights and obligations of
the Trust and Executive under this Agreement shall not be assignable except in connection with a permitted transfer of Executive Securities hereunder. 

10

 

        (f)    Choice of Law. The corporate law of the State of Delaware shall govern all questions concerning the relative rights of
the Company and its stockholders. All other questions concerning the construction, validity, enforcement and interpretation of this Agreement and the exhibits hereto shall be governed by the internal
law, and not the law of conflicts, of the State of Illinois. 

        (g)   Remedies. Each of the parties to this Agreement and CHS shall be entitled to enforce its rights under this Agreement
specifically, to recover damages and costs (including reasonable attorney's fees) caused by any breach of any provision of this Agreement and to exercise all other rights existing in its favor. The
parties hereto agree and acknowledge that money damages would not be an adequate remedy for any breach of the provisions of this Agreement and that any party may in its sole discretion apply to any
court of law or equity of competent jurisdiction (without posting any bond or deposit) for specific performance and/or other injunctive relief in order to enforce or prevent any violations of the
provisions of this Agreement. 

        (h)   Amendment and Waiver. The provisions of this Agreement may be amended and waived only with the prior written consent of
the Company, the Trust, the Executive and CHS. 

        (i)    Third-Party Beneficiaries. Certain provisions of this Agreement are entered into for the benefit of and shall be
enforceable by CHS as provided herein. 

        (j)    Special Notices for Holders of Rollover Options. The Company shall give to each holder of Rollover Options the same
notice, and at the same time, as such notices are given to holders of "Class A Preferred" and, if applicable, "Voting Common Stock", as provided under the Company's Amended and Restated
Certificate of Incorporation. In addition, in the event the Company proposes to redeem any shares of "Class A Preferred" pursuant to Section 4(a) of the Company's Amended and Restated
Certificate of Incorporation, it shall, prior thereto, give the holders of Rollover Options at least 10 days written notice in order to afford them the opportunity to exercise such options
prior to such redemption (and any such exercise may be conditional upon consummation of the redemption). 

*
* * * 

11

 

        IN
WITNESS WHEREOF, the parties hereto have executed this Executive Securities Agreement on the date first written above. 

	 	 	OTIS SPUNKMEYER HOLDINGS, INC.
	

 	
 	

By	

/s/  STEVE BROWN      

	

 	
 	

Name:	

	

 	
 	

Its	

	

 	
 	

/s/  JOHN S. SCHIAVO      
John S. Schiavo
	

 	
 	
SCHIAVO FAMILY REVOCABLE TRUST
	

 	
 	

By	

/s/  JOHN S. SCHIAVO      

	

 	
 	

Name:	

John S. Schiavo

	

 	
 	

Its	

President/CEO

Agreed
and Accepted: 

CODE HENNESSY & SIMMONS IV LP

	By:	 	CHS Management IV LP	 
	Its:	 	General Partner	 
	

By:	
 	

Code Hennessy & Simmons LLC	

 
	Its:	 	General Partner	 
	

By:	
 	

/s/  ANDREW CODE      
	

 
	

Its:	
 	

	

 

12

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