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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 (Fee required) for the fiscal year ended December 31, 1996.
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 (No fee required)
for the transition period from _________________ to ___________________
Commission file number 0-27132
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Terrace Holdings, Inc.
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(Name of Small Business Issuer in Its Charter)
Delaware 65-0594270
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2699 Stirling Road, Suite C-405, Ft. Lauderdale, Florida 33312
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(Address of Principal Executive Office) (Zip Code)
(954) 894-6000
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
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______________________________________ ______________________________________
______________________________________ _______________________________________
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
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(Title of Class)
Redeemable Common Stock Purchase Warrants
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(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days.
Yes X No __________________
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year. $5,497,130.
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Aggregate market value of the voting stock held by non-affiliates computed
by reference to the price of which the stock was sold, or the average bid and
asked prices of such, as of a specified date within the past 60 days.
The aggregate market value on March 25, 1997: $4,968,750.
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As of December 31, 1996, the total number of shares of common stock
outstanding: 3,312,500.
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This is page 1 of 129 sequentially numbered pages.
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PART I
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Item 1 - Description of Business
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(a) Business Development
The Registrant, Terrace Holdings, Inc., was incorporated under the laws of
the State of Delaware on June 15, 1995, to change the state of incorporation of
Bon Adventure Kosher Tours, Inc., a Florida corporation, formerly known as
Embassy Kosher Tours of South Florida, Inc. The Registrant is a holding company
which currently has four wholly-owned operating subsidiaries: (i) The Lasko
Companies, Inc., which owns and operates on leased property the Registrant's
kosher, casual dining restaurant, Terrace Oceanside Restaurant, in Hallandale,
Florida, which opened on October 23, 1995; (ii) A&E Management Corp., which
manages the food and beverage operations of a non-kosher restaurant and catering
operation at The Club at Emerald Hills in Hollywood, Florida; (iii) The Lasko
Family Kosher Tours, Inc., which operates Passover holiday vacations at three
locations within the United States; and (iv) Deering Ice Cream, Inc. which
manufactures frozen desserts in Portland, Maine, under the Deering and Howard
Johnson's name as well as manufactures products for approximately 15 other
unaffiliated companies.
The Registrant is the successor to a business founded in 1988 to operate a
holiday vacation venue in south Florida. From October, 1993 through May, 1995,
management of the Registrant owned and operated the Terrace-on-the-Lake
Restaurant, a casual, upscale kosher restaurant in Hollywood, Florida. In its
short existence, Terrace on the Lake developed a following among tourists
visiting south Florida who observe the Jewish dietary laws. Also, in 1993, the
Registrant commenced managing and operating the food, beverage and restaurant
operations at The Club at Emerald Hills.
In July, 1996, the Registrant disposed of all of the operating assets of
its subsidiary, Prime Concern Kosher Foods, Inc., operating as "The Deli Maven"
restaurant/delicatessen in Boca Raton, Florida. Management of the Registrant
believed that in order to fully realize both revenue and net income potential,
the physical size of The Deli Maven had to be increased. Management could not
increase the physical size of The Deli Maven and accordingly closed the
operation.
Since 1989, the Registrant has operated a kosher Passover holiday vacation
venue at the Bonaventure Resort & Spa, now known as the Registry Resort & Spa,
in Ft. Lauderdale, Florida. Under the Registrant's management and principal
shareholders, this operation has grown from serving approximately 300 guests in
1989 to approximately 1,300 guests for Passover since 1992. Passover occurs each
spring and the Registrant takes over the entire Registry Resort & Spa for the
Passover holiday season.
On January 17, 1996, the Registrant consummated an agreement with an
unaffiliated entity, to assume operation of the annual Passover vacation venues
at the Fontainebleau Hilton Hotel, Miami Beach, the Rye Town Hilton Hotel, Rye,
New York, and the Tamiment Resort & Conference Center, Tamiment, Pennsylvania.
As a result, for the 1996 Passover holiday, the Registrant operated holiday
vacations at four different locations. The contract to operate a Passover
vacation at the Tamiment
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Hotel expired after the 1996 Passover holiday and has not been renewed for the
1997 Passover holiday.
In February, 1997, the Registrant incorporated The Lasko Family Kosher
Tours, Inc., as a wholly-owned subsidiary, for the purpose of managing and
operating its Passover holiday vacations business. Accordingly, the Registrant's
contracts described above have been assigned to this wholly owned subsidiary.
On February 17, 1997, the Registrant's wholly owned subsidiary, Deering Ice
Cream, Inc., acquired all of the assets and related liabilities of DownEast
Frozen Desserts, LLC, a Delaware limited liability company unaffiliated with the
Registrant, which manufactures and markets frozen desserts under the names
Deering Ice Cream and Howard Johnson's, as well as co-packing for others. Its
principal offices and plant are located in Portland, Maine.
(b) Businesses of Issuer.
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Restaurants
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Initially, the Registrant's kosher restaurants, which were to be called
Terrace restaurants, were intended to be located along the Eastern seaboard and
possibly later in the Midwestern United States. During 1996, however, management
determined that the economic feasibility of opening additional kosher Terrace
restaurants would be more difficult, both on an economic and management/employee
basis, than earlier anticipated and decided, instead, to seek possible
acquisitions of going concerns in the food - or leisure - related industries.
Holiday Vacations
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Since 1989, the Registrant has operated kosher Passover holiday vacation
venues. Passover occurs each spring and the Registrant takes over a portion of
or an entire hotel facility, for the Passover holiday season. In January, 1996,
subsequent to the initial public offering of its securities, the Registrant
expanded its Passover vacation venues to four separate sites when it acquired
from an unaffiliated third party, agreements to operate Passover vacations at
three additional sites: The Fontainebleau Hilton Resort & Spa, Miami Beach,
Florida, the Rye Town Hilton, Rye, New York and the Tamiment Resort & Conference
Center, Tamiment, Pennsylvania. For the 1996 Passover holiday, there were 732
guests registered at the Fontainebleau Hilton, 544 guests registered at the
Tamiment Resort, and 356 guests registered at the Rye Town Hilton. As noted
above, the Registrant will not be operating a vacation venue at the Tamiment
Resort & Conference Center for the 1997 Passover holiday.
Food and Beverage Management
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The Registrant, through its wholly-owned subsidiary, A&E Management Corp.,
currently manages a non-kosher restaurant and catering operation at The Club at
Emerald Hills, an upscale country club in Hollywood, Florida.
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Frozen Desserts
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The Registrant, through its wholly-owned subsidiary, Deering Ice Cream,
Inc., with its principal offices located in Portland, Maine, currently operates
the business of manufacturing and marketing frozen desserts under the Deering
and Howard Johnsons brand names, as well as co-packing for approximately 15
other unaffiliated companies. Deering's plant encompasses 55,000 square feet
which is used for the manufacturing and distribution of its products. Deering's
product distribution currently covers the east coast of the United States from
Maine to Florida.
Disposal of Delicatessen Operations
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As noted above, in July, 1996, the Registrant disposed of all of the
operating assets of The Deli Maven and closed its operations.
Terrace Oceanside Restaurant
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(a) Restaurant Overview
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Terrace Oceanside Restaurant, operated by the Registrant's wholly owned
subsidiary, The Lasko Companies, Inc., is a "casual, upscale, tablecloth"
restaurant located on the Atlantic Ocean beach in a residential condominium
complex of approximately 1,400 units. In addition, the area nearby the
Restaurant has many residential condominium complexes. The Hallandale location
for the Restaurant is between Miami Beach and West Palm Beach is readily
accessible by residents of Dade, Broward and Palm Beach Counties, Florida, all
of which have significant Orthodox Jewish populations that observe Jewish
dietary laws.
The designation of the Registrant's Terrace restaurant as "kosher" means
that all the foods are kosher and are prepared in accordance with Jewish dietary
laws. Terrace Oceanside Restaurant in Hallandale, Florida is under the
supervision of the Orthodox Rabbinic Board of Broward and Palm Beach County
("ORB"). The ORB must approve the ingredients, foods, and preparation before it
will certify a restaurant as "kosher". Therefore, the ability of the Registrant
to successfully continue the Terrace Oceanside Restaurant's kosher status is
dependent upon its continued compliance with the requirements of Rabbinic
certification.
The Terrace Oceanside Restaurant has seating for approximately 150 to 180
people. The Restaurant also has a lounge and cocktail area including a full
service bar. Its full service kitchen is approximately 1,500 square feet. The
Restaurant can seat parties of two to forty people comfortably.
(b) Day-to-Day Restaurant Operations
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The Terrace Oceanside Restaurant offers a wide range of moderately priced
food purchased, prepared, plated and served in compliance with applicable kosher
foods laws and regulations. This "tablecloth" Restaurant features full waiter
and bar service, and has a separate and distinct section
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designated as a private catering facility for parties, bar mitzvahs, small
weddings, special family holidays and private dining experiences for groups
ranging in size from 10 to 50.
The Terrace Oceanside Restaurant seeks to deliver quality kosher dining at
affordable prices on a consistent basis. The menu for the Terrace restaurants,
which has been fully developed by the Registrant's corporate chef, is intended
to be uniform and feature basic, but uniquely presented, kosher meals. The menu
is of continental cuisine, with the price of entrees currently ranging from
approximately $11 to $24. Since the Restaurant is located in south Florida, its
operations are seasonal in nature and rely, to a significant degree, on tourism
in the winter months to sustain them. Thus, the third calendar quarter (July-
September) of each year, or the summer "slow" season has and is likely to
continue to generate losses. The Registrant continues to review its Restaurant
operations in light of this seasonality.
Kosher Vacations
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In the spring of 1989, the Registrant offered its first kosher vacation at
the Registry Resort & Spa, f/k/a the Bonaventure Resort & Spa, Fort Lauderdale,
Florida during the Jewish Passover holiday. The Jewish Passover holiday is eight
days in length and occurs in the spring, generally around the Easter season.
During Passover, observant Jews refrain from eating grain and grain-related
products or utilizing utensils normally used with grain or grain-related
products. In the last approximately twenty years, a Passover holiday vacation
"industry" has developed, whereby families who observe the Jewish Passover
rituals may go for the entire holiday and be assured full compliance with the
Passover religious requirements and at the same time enjoy a vacation. The
Registrant's Passover holiday vacation package includes accommodations, food and
beverages, as well as use of all of the Registry's facilities, such as its golf
courses, tennis courts, swimming pools and spa. Today, in addition to vacations
such as the one operated by the Registrant, there are Passover cruise, skiing,
Caribbean, Hawaiian and European vacations, all of which may be deemed to
compete with the Registrant's vacations.
The Registrant's 1989 Passover vacation was attended by approximately 300
persons, its 1990 Passover vacation by approximately 600 persons, and since
Passover 1992, the Registrant has taken over the entire capacity of the Registry
Resort & Spa for its annual Passover vacation operation at which it serves
approximately 1,300 guests. Since 1992, the Registrant has had no difficulty in
selling space for Passover at the full capacity of the Registry Resort & Spa. In
each of the last four years, there has been a waiting list, and potential guests
have had to be turned away. The average family of four pays approximately
$6,000-$8,000 for the entire Passover vacation package, which generally runs 9
to 12 days depending each year upon what day of the week Passover begins.
In February, 1997, the Registrant incorporated The Lasko Family Kosher
Tours, Inc., as a wholly-owned subsidiary of the Registrant, for the purpose of
managing and operating the Registrant's Passover holiday vacations business. All
of the Registrant's agreements to operate Passover vacations, have been assigned
to it wholly owned subsidiary The Lasko Family Kosher Tours, Inc.
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The accommodations at the Registry Resort & Spa include nine guest
buildings, totaling 497 rooms, including suites (approximately 1,300 guests).
The main conference center includes extensive kitchen facilities, three
ballrooms, a substantial number of small meeting rooms and a health spa. On
adjacent property, there are two world-class championship golf courses, as well
as a tennis and racquet club. The Registrant's contract with the Registry
Resort & Spa to use its facilities during the Passover holiday expires after the
1997 Passover holiday, although the Registrant has the option to extend the
contract for an additional five years.
The Fontainebleau Hilton Resort & Spa, located in Miami Beach, Florida, has
over 1,200 guest rooms on 20 acres of oceanside gardens with rooms featuring
magnificent ocean views. The Registrant utilizes approximately 260 of such
rooms for its Passover program at this resort (approximately 700 guests). Each
room has three telephones, a large screen television and a luxury marble bath
and vanity area. There is a tropical lagoon, half acre rock grotto swimming
pool, along with seven lighted tennis courts, two nearby championship golf
courses, wind surfing, and of course, the ocean. The 30,000 square foot
beachside spa features state of the art equipment, aerobics classes and modern
spa facilities.
The Rye Town Hilton is located in Rye, New York, approximately 40 minutes
from New York City on 40 acres of landscaped land with spacious accommodations
in 400 luxury rooms and suites. The facility includes indoor pool, a whirlpool,
sauna, tennis courts and basketball court. Rooms range from a standard room to
one bedroom suites, with views of the garden or pool areas. The Registrant is
responsible for 148 rooms (approximately 400 guests).
Management believes that in addition to providing world-class kosher
vacation destinations, such as these three venues to attract guests, personal
on-site management and operation is necessary for a successful outcome.
Management believes that the Registrant and The Lasko Family Kosher Tours, Inc.,
through the various Lasko family members, has developed the reputation,
expertise and personnel depth to market and operate its kosher Passover or other
vacation sites successfully.
Food and Beverage Management
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A&E Management Corp. ("A&E"), a wholly owned subsidiary of the Registrant,
manages the food and beverage operations at The Club at Emerald Hills in
Hollywood, Florida. Under its agreement with Emerald Golf, Inc., an unrelated
corporation which operates The Club at Emerald Hills, A&E manages Reflections
Restaurant as well as the bar and lounge area and the catering operations at The
Club at Emerald Hills. Reflections is a 165 seat restaurant and lounge.
Reflections is not a kosher facility and none of A&E's other management
activities at The Club at Emerald Hills involve kosher food or facilities.
Neither operating personnel nor food products or preparation handled in
conjunction with the Registrant's Terrace restaurants or Passover holiday
vacations is commingled, at any time or in any manner, with A&E's management
operations at The Club at Emerald Hills. These procedures are to ensure
absolute adherence to Orthodox Jewish requirements to maintain the highest
kosher standards and certifications at the Registrant's Terrace Oceanside
Restaurant and Passover vacation venues.
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Frozen Desserts
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On February 17, 1997, the Registrant acquired all of the assets and related
liabilities of DownEast Frozen Desserts, LLC, a Delaware limited liability
company unaffiliated with the Registrant, which manufactures and markets frozen
desserts under the names Deering Ice Cream and Howard Johnson's with its
principal offices and plant located in Portland, Maine. ("DownEast"). Under the
Asset Acquisition Agreement signed as of December 9, 1996, and as amended as of
February 7, 1997, the Registrant's new wholly-owned subsidiary, Deering Ice
Cream, Inc., ("Deering") acquired such assets and related liabilities to
continue the business of manufacturing and marketing frozen desserts.
DownEast, formed in January, 1996, acquired the assets and some of the
liabilities of Frozen Desserts, Inc., which owned and produced Deering Ice
Cream. The Deering brand of ice cream has been available in the Northeastern
United States since 1886.
Deering currently manufactures and markets ice cream products under the
Deering Ice Cream brand name ("branded products") and manufactures products for
others ("co-packed products"). Both types of products are manufactured in an
approximately 55,000 square foot building in Portland, Maine, which is leased at
a rental of $125,000 per annum.
Subsequent to October 26, 1996, DownEast entered into a Sublicense
Agreement to acquire a license to manufacture and distribute Howard Johnson
brand ice cream. This agreement, which has an initial term of four years and
three three-year renewal periods thereafter, covers manufacturing and
distributing products to stores and restaurants in the entire United States,
excluding Florida and Puerto Rico. Under the terms of this agreement, Deering
pays a royalty of 4% on all net sales of bulk ice cream and 2% on net sales of
pre-packed ice cream. In addition, the agreement gives Deering the right to
manufacture retail pack ice cream for the entire United States, including
Florida. This includes the sale of Howard Johnson brand ice cream in pint and
quart sizes to chain supermarkets, independent food markets, and convenience
stores. The market for the pint and quart sizes is primarily in metropolitan New
York City, the New England states, Florida and in those locations where the
Howard Johnson restaurants exist.
Management of Deering believes that the prior year sales of Howard Johnson
products by the former manufacturer and distributor amounted to approximately
$1,450,000. Howard Johnson restaurants purchased approximately 60% of all such
products, with the remaining approximately 40% being sold to various types of
food retailers. Howard Johnson restaurants are located from Maine to Florida and
as far west as St. Louis, Missouri. Deering has arrangements to deliver Howard
Johnson products to all these stores by common carrier truck or through
distributors, depending on the location. Supermarket sales of Howard Johnson
products are primarily in New England and metropolitan New York. It is Deering's
intention to pursue vigorously increased sales of both bulk ice cream and pre-
packed to all types of customers.
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Deering solicits business directly from supermarkets for its Deering
branded pre-packed products. Except for one major customer, all products are
delivered to supermarkets through two main distributors. These distributors are
located in Maine and Massachusetts. Both handle pre-packed ice cream (quarts,
half gallon and three gallon cans). Deering is substantially dependent on the
distribution services of these two distributors. Prior to the Howard Johnson
brand license acquisition, it was estimated that such distributions of Deering's
product accounted for approximately 70% of its total business. Other
distribution is achieved through a direct sale to one major supermarket chain,
and the use of several smaller distributors in New England and the New York City
metropolitan area.
Deering's manufacturing operations fall into the following three general
areas:
(1) Manufacturing of pre-packed ice cream and bulk ice cream, which
includes rounds, squares, individual servings and the like.
(2) Manufacturing of ice cream specialties, which includes ice cream pies,
cakes and rolls sold primarily under the Deering and Howard Johnson names.
Deering has two separate lines, one to manufacture pies and cakes and the other
for a variety of rolls.
(3) Manufacturing of stickless novelties. These items are manufactured in a
"glacier room," which is a self-contained unit to freeze, form, harden and box
items, such as block bars, brownies bars, chip sandwiches and all other forms of
stickless novelties.
Branded Product: Prior to acquiring the license to manufacture and
distribute Howard Johnson brand ice cream, the Deering ice cream brand business
amounted to 47% of total sales for the first nine months of 1996. Its primary
market area has been in Maine and New Hampshire.
During its year of operation of Deering, the management of DownEast
expanded the distribution of the Deering brand from Maine and New Hampshire into
the six state New England region. Previous to DownEast's acquisition of Frozen
Desserts, Inc., the Deering brand was primarily sold by two supermarket chains;
however, during 1996 its distribution was expanded into every major supermarket
chain in New England.
Deering manufactures both quarts and half gallons of its Deering brand ice
cream. These quarts and half gallons are sold in a "convocan" style round
container. The packaging of Deering brand products, its theme and its format
were all redeveloped during early 1996 to stress "Deering...Maine's Premium Ice
Cream." Deering manufactures approximately twenty-five flavors in this line.
Deering also manufactures bulk ice cream in three gallon cans. These are
sold and distributed to ice cream stands and other food service operators. It
also manufactures approximately twenty-five flavors in this line. Flavors are
updated and changed as management determines according to management's
perceptions on competitive conditions.
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Deering and Howard Johnson brand products are considered to be premium ice
cream since the butterfat content is relatively high (12%), and air content is
relatively low. Both Deering and Howard Johnson ice cream are made using all
natural flavors at a high level of intensity.
Prior to the Howard Johnson brand license acquisition, Deering's line of
ice cream, cakes and rolls amounted to approximately 10% of its total branded
business. Distribution and method of marketing is identical to ice cream
distributed and sold in the convocan style round container. This product line is
more unique since there are substantially fewer manufacturers of these type of
products. Sales of this product line are typically seasonal, with some items
selling during warm weather and others selling during the Thanksgiving and
Christmas seasons.
Deering is highly dependent on its supermarket customers as well as its
distributors. There are approximately six major supermarket customers which buy
Deering brand products from its two distributors. Excluding its Howard Johnson
brand products, these six major supermarket chains currently account for the
bulk of Deering's business. The largest chain accounts for approximately 19% of
total sales, or 38% of total Deering branded sales.
Raw materials, such as dairy products, sugar, corn syrup and flavorings for
Deering's products, are in plentiful supply, although the price can fluctuate
materially depending upon market supply and demand.
Deering owns registered trademarks for the name "Deering" as well as
several other names which are currently not in use. It also has, under the
Sublicense Agreement with Howard Johnson, exclusive use of the Howard Johnson
trademark for its frozen desserts. Nutritional labeling is required by the
Federal government. Also, the Department of Agriculture of the State of Maine
has certain inspection requirements with which Deering must comply at all times.
There are no proposed governmental regulations known to management that could
seriously affect the future business at this time. Deering brand products are
certified kosher by the Union of Orthodox Jewish Congregations of America.
The estimated amount of money spent on research and development during the
past two fiscal years is under $30,000 per annum. Most research and development
for customers is billed at the time it is incurred.
The cost of complying with environmental laws is not specifically
ascertainable; however, it is relatively low compared to the total cost of other
expenditures such as plant and equipment maintenance.
Co-Packing: Deering also manufactures ice cream products for others, which
is commonly referred to as co-packing. This business accounted for approximately
52% of DownEast's business for the first nine months of 1996. Deering
manufactures pre-packed ice cream and novelties for supermarket chains, other
brands, and ice cream distributors. This business is highly competitive and most
competitors are substantially larger and better financed than Deering.
Management believes,
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however, that it has certain unique advantages, since it attracts brands which
desire high quality products or which have products that require special
attention or care.
The bulk of products made in Deering's glacier room are stickless novelties
made for co-packing customers of Deering. These products include brownies,
certain types of ice cream sandwiches, block bar and other products which
generally require enrobing or covering an individual serving of ice cream with
either chocolate or some form of cookie.
Deering services co-packing customers throughout the United States. The
three largest co-packing customers amount to 33% of Deering's total co-packing
sales.
Deering believes it has a somewhat unique position in the co-packing
business, since there are relatively few companies which can make stickless
novelties due to the high cost of the specialized equipment involved. Management
of Deering believes that there are approximately five companies serving this
rapidly growing marketing segment in the eastern United States.
In consideration for the acquisition of DownEast's assets the Registrant
issued to DownEast: (1) 918,900 shares of the Registrant's Common Stock; and (2)
Warrants to purchase 250,000 additional shares of the Registrant's Common Stock
at a exercise price of $1.1875 exercisable commencing February 17, 1997, and
expiring August 31, 2000. The Registrant also paid DownEast approximately
$114,000 in cash.
In connection with the acquisition, the Registrant issued to each of Samuel
H. Lasko and Jonathan D. Lasko (collectively the "Laskos") Warrants to purchase
375,000 shares of the Registrant's common stock at $1.1875 per share. The Laskos
surrendered their respective performance options to purchase up to 750,000
shares of the Registrant's common stock, contained in their respective
Employment Agreements. In addition, the Laskos entered an option agreement to
purchase the businesses, assets or capital stock of three of the Registrant's
wholly owned subsidiaries, The Lasko Family Kosher Tours, Inc., The Lasko
Companies, Inc. and A&E Management, Inc. at the fair market value thereof to be
independently determined. The option is exercisable for approximately three
years commencing April 1, 1998 until February 17, 2001, or earlier under certain
circumstances, and will be presented to the Registrant's shareholders for
approval at the 1997 Annual Shareholders meeting.
Disposal of Delicatessen Operations
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As noted above, in July, 1996, the Registrant disposed of all of the
operating assets of The Deli Maven and closed its operations in Boca Raton,
Florida.
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Advertising and Marketing
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The Registrant currently markets its vacation and restaurant products and
services primarily through local newspapers and the use of mailing lists.
Deering advertises in newspapers, Sunday supplements, on radio and has limited
TV exposure. It also utilizes public relations campaigns in the Portland, Maine,
Boston, Massachusetts and Providence, Rhode Island markets.
The Registrant presently anticipates engaging in the future outside
professional marketing firms to conduct its marketing activities, none of whom
yet have been engaged. Such marketing activities may include an evaluation of
all aspects of the Registrant's products and services. Depending upon the
outcome of any such marketing evaluations, the Registrant may decide to make
changes with respect to the marketing of its products and services.
Competition
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The casual dining restaurant industry is intensely competitive with respect
to price, service, location, themes and food quality. However, the kosher
upscale restaurant dining industry is not nearly as competitive as the non-
kosher restaurant industry. While there are many casual dining and themed
restaurant competitors in the marketplace, there are few kosher casual dining
restaurants. There are, however, several kosher restaurants in the South Florida
area which compete with the Registrant's restaurant operations.
It must be noted that the restaurant business is often affected by
arbitrary changes in consumer tastes, national, regional and local economic
conditions, demographic trends, traffic patterns, the number and locations of
competing restaurants and employment trends.
The Registrant believes that there are many other kosher holiday vacation
packages offered in the United States and Caribbean, all of which provide
intense competition to the Registrant's kosher holiday vacation packages.
The ice cream business is very competitive, and the Registrant's subsidiary
faces competition from other companies which are substantially larger and better
financed. However, Deering competes through intensive marketing, public
relations and in-store demonstrations. Many supermarkets charge slotting fees,
which is a fee imposed by the retailer for placing particular products in their
stores. Slotting fees are high and can be a barrier to entry for those companies
which cannot afford these charges.
Government Regulation
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The Registrant is subject to various federal, state and local laws
affecting its businesses. Each of the Registrant's food service operations is
subject to licensing regulation by numerous governmental authorities which may
include alcohol beverage control, building, health and safety and fire agencies
in the state or municipality in which the restaurant is located. Difficulties in
obtaining
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or failures to obtain the necessary licenses or approvals could delay or prevent
the development of a new Terrace restaurant in a given area.
Alcoholic beverage control regulations generally require that the
Registrant's restaurants apply to the specific authority for a license or permit
to sell alcoholic beverages on the premises. Typically, an alcoholic beverage
license must be renewed annually and may be revoked or suspended for cause at
any time. Alcoholic beverage control regulations relate to numerous aspects of
the daily operations of the Registrant's restaurants, including minimum age of
patrons and employees, hours of operation, advertising, purchasing, inventory
control and handling, storage and dispensing of alcoholic beverages. The failure
of a restaurant to obtain or retain a liquor or food service license would
adversely affect that particular restaurant's operations.
Restaurants in most states are subject to "dram shop" laws and legislation,
which impose liability on licensed alcoholic beverage servers for injuries or
damages caused by their negligent service of alcoholic beverages to a visibly
intoxicated person or to a minor, if such service is the proximate cause of the
injury or damage and such injury or damage is reasonably foreseeable. The
Registrant maintains liquor liability insurance as part of its existing
comprehensive general liability insurance.
In the opinion of Deering's management, it complies with all state and
federal government regulations applicable to the frozen dessert industry.
In addition to federal, state and local laws affecting its businesses, the
Registrant's operations serving kosher foods must adhere to Jewish religious
dietary laws.
Employees
- ---------
The Lasko Family Kosher Tours, Inc. employs 7 full time employees and 2
part time persons to manage the reservations and confirmations for the its
Passover holiday vacations. During the Passover holiday, it temporarily
increases its staff to service the guests at each of the vacation venues it
operates by approximately 75 to 100 people.
A&E Management Corp., managing the food and beverage and restaurant
operations at the Club at Emerald Hills, currently employs a total of 55 people,
full and part time, in its operations, of which all are kitchen, banquet and
wait staff.
At the present time, The Lasko Companies, Inc., operating the Terrace
Oceanside Restaurant, has two administrative employees, a full time kitchen
staff of 5, a wait staff of 12, a Maitre' D, and a corporate chef.
Deering Ice Cream, Inc. currently employs approximately 30 full-time
employees and hires up to 20 temporary employees, as necessary. Eight employees
are in administration and sales, the remainder are in production and shipping.
In addition, as a result of the DownEast acquisition, the Registrant entered
into a three year employment agreement with Mr. Milton Namiot, President of
11
<PAGE>
DownEast, whereby Mr. Namiot serves as the President and Chief Executive Officer
("CEO") of the Deering subsidiary in addition to serving as CEO of the
Registrant.
The Registrant also filled the two vacancies on its Board of Directors with
the appointment of Steven Shulman and Richard Power to its Board. Messrs.
Shulman and Power are members of DownEast and intend to stand for election the
at 1997 Annual Shareholders' meeting.
Item 2 - Description of Property
- --------------------------------
The Registrant has a five-year lease ending in May, 2000, with a five-year
option exercisable under certain circumstances, for the Terrace Oceanside
restaurant facility of approximately 3,750 square feet located on the Atlantic
Ocean beach in Hallandale, Florida, with the condominium association which owns
the facility. The Terrace Oceanside Restaurant opened at this location on
October 23, 1995.
The Lasko Family Kosher Tours, Inc. operates its current kosher holiday
vacations under separate agreements with three different venues which expire at
different times:
1. Registry Resort & Spa, in Ft. Lauderdale, Florida. The Registrant's
agreement to operate a Passover holiday vacation at the Registry
Resort & Spa f/k/a the Bonaventure Resort & Spa extends through the
1997 Passover holiday, and the Registrant has exercised its option to
extend the agreement for an additional five years.
2. The Fontainebleau Hilton Resort & Spa. The Registrant has an agreement
to operate a Passover holiday vacation at The Fontainebleau Hilton
Resort & Spa through Passover, 1999.
3. Rye Town Hilton. The Registrant has an agreement with the Rye Town
Hilton to operate its kosher holiday vacation operations through
Passover 1999.
A&E Management Corp. has a five year lease with Emerald Golf, Inc., to
lease property located at The Club at Emerald Hills to operate a restaurant,
cocktail lounge and a banquet and/or catering operation. A&E has the option to
renew the lease for an additional five years upon the same terms and conditions
provided it is not in default and proper notice of the exercise of the option is
given.
Deering Ice Cream, Inc. leases approximately 55,000 square feet at 135
Walton Street in Portland, Maine, for use as its principal offices and
manufacturing plant. The lease term is for five years at a rate of $125,000 per
year.
The Registrant leases approximately 2,000 square feet at 2699 Stirling Road
in Ft. Lauderdale, Florida, for use as its executive offices and reservation
center. The lease term is for 3
12
<PAGE>
years at a rate of $25,440 per year. Management believes that the above
facilities will be sufficient for its operations in the foreseeable future.
Item 3 - Legal Proceedings
- --------------------------
The Registrant is not currently a party to any material legal proceeding.
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
During the past fiscal year, the Registrant has not submitted any matter to
a vote of security holders other than election of directors and appointment of
independent auditors at its 1996 annual Meeting of Shareholders.
13
<PAGE>
PART II
-------
Item 5 - Market for Common Equity and Related Stockholder Matters
- -----------------------------------------------------------------
(a) Market Information. Since the Registrant's initial public offering in
early December, 1995, the Registrant's common stock and common stock purchase
warrants have been and currently are traded in the NASDAQ SmallCap Market.
Set forth below is the range of high and low sales prices of the common
stock and common stock purchase warrants for each month since the Registrant's
initial public offering as reported by NASDAQ for those periods. The prices
represent quotations between dealers. The quotations do not include retail
markups, markdowns, or commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
Bid Ask
--- ---
Type of Security Quarter Ended High Low High Low
- ---------------- ------------- ----- --- ---- ---
<S> <C> <C> <C> <C> <C>
Common Stock December 29, 1995/(1)/ 6 1/8 2 1/4 7 1/8 4 1/4
High Low
---- ---
March 31, 1996 /(2)/ 6 3/4 4 1/4
June 30, 1996/(2)/ 4 5/8 3
September 30, 1996/(2)/ 4 1/2 2 3/4
December 31, 1996/(2)/ 1 1/16 7/8
Jan. 2, 1997 - Mar. 25/(2)/ 1 1/2 1 5/16
Quarter Ended High Low High Low
------------- ---- --- ---- ---
Purchase Warrants December 29, 1995/(1)/ 1 1/2 3/4 2 1 1/2
High Low
---- ---
March 31, 1996/(2)/ 2 1/2 1 1/4
June 30, 1996/(2)/ 1 3/4 1
September 30, 1996/(2)/ 1 5/8 1/2
December 31, 1996/(2)/ 5/16 5/16
Jan. 2, 1997 - Mar. 25/(2)/ 5/8 5/8
</TABLE>
- -------------------
/(1)/ Includes only the period December 6, 1996 through December 29, 1996.
/(2)/ In February, 1996, NASDAQ changed its reporting system to no longer
including Bid and Ask amounts; therefore, the prices shown for these dates
only reflect the High and Low actual sales price.
14
<PAGE>
(b) Holders. As of December 31, 1996, there were 19 holders of record of
the Registrant's common stock, and 2 holders of record of its common stock
purchase warrants. The Registrant believes that it has a greater number of
shareholders because the Registrant believes that a substantial amount of its
common stock is held of record in street name by broker-dealers for their
customers.
(c) Dividends. As of December 31, 1996, the Registrant has not paid any
dividends on its common stock and does not expect to pay a cash dividend in the
foreseeable future, but intends to devote all funds to the operation of its
business.
Item 6 - Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
Results of Operations -- Terrace Holdings, Inc.
- -----------------------------------------------
Year ended December 31, 1996 compared to year ended December 31, 1995
The Registrant's consolidated net loss for the year ended December 31, 1996
was approximately $1,156,000 compared with its combined net loss of
approximately $591,000 for the year ended December 31, 1995. This substantial
increase is due to the following factors. In 1996, the Registrant purchased
additional Passover holiday contracts the required amortization of which
resulted in a net loss of $185,528. Selling, general and administrative expenses
increased by 221% from $581,200 in 1995 to $1,612,179 in 1996 primarily due to
increases in professional fees, payroll and related expenses, and costs
associated with the purchases of the new holiday venues. In addition, the
Registrant's aggressive attempts at possible acquisition candidates has also
increased the associated fees and other costs even though benefits were not
realized in 1996.
Passover Holiday Vacations Segment
Through Passover 1995, the Registrant operated one Passover vacation venue
at the Registry Resort & Spa, f/k/a the Bonaventure Resort & Spa in Fort
Lauderdale, Florida. In January, 1996, the Registrant purchased additional
Passover holiday contracts for three other venues. Revenues for the year ended
December 31, 1996 were $3,751,700 or 103% higher than the $1,844,000 recorded in
the comparable period of 1995. The substantial increase in revenue resulted from
the addition of three Passover holiday contracts. Cost of sales increased by
138% from $1,315,500 in 1995 to $3,134,500 in 1996. This increase is due to the
three additional venues. The gross profit percentage decreased to 16% from 28%
at December 31, 1995 mainly because increased costs and required amortization
(as noted below) associated with the new venues. Management currently believes
that it can realize maximum profitability potential from these venues through
the remaining contract lives, although no assurance to that effect can be given.
Selling, general and administrative expenses increased by 357% from
$139,060 in 1995 to $636,100 in 1996. The increase is due primarily to the costs
related to the purchase of the additional
15
<PAGE>
holiday venues. These costs include a charge to amortization expense of
$260,000, as well as other costs associated with the new venues, such as travel
expense associated with new locations. Operating expenses also increased due to
professional fees associated with the Registrant's expansion into the pubic
marketplace. As a result of the above, the net loss for the year ended December
31, 1996, was $18,800 as compared to net income of $292,300 for the
corresponding period of 1995.
Restaurant and Catering Segment.
- --------------------------------
The Registrant's operations at The Club at Emerald Hills in Hollywood,
Florida are derived from its wholly owned subsidiary, A&E Management Corp.'s
operation of the Reflections Restaurant and catering private functions. During
1996, the golf club where the restaurant and catering facility are located
changed its membership policies resulting in a slightly higher number of golfers
and, thus, people using the Registrant's food and beverage operations there.
This translated into slightly higher revenues in the restaurant of approximately
$909,200 for the year ended December 31, 1996 compared to approximately $856,800
for the year ended December 31, 1995.
Net loss for the year ended December 31, 1996 was approximately $59,150 as
compared to net loss of approximately $137,886 for the year ended December 31,
1995. This decrease in loss was primarily due to an overall decrease in cost of
sales.
With respect to the Terrace Oceanside Restaurant, net loss for the year
ended December 31, 1996 was $130,000 as compared to a net loss of $137,738 for
the year ended December 31, 1995. The Registrant currently believes that the
costs it has incurred associated with its initial start up have substantially
ended and that the Registrant should be able to increase its profitability with
each coming season, although no assurance to that effect can be given.
Disposal of Delicatessen Operations.
- ------------------------------------
In July, 1996, the Registrant disposed of all of the operating assets of
its subsidiary, Prime Concern Kosher Foods, Inc., operating "The Deli Maven"
delicatessen in Boca Raton, Florida. Management of the Registrant believed that
in order to fully realize both revenue and net income potential, the physical
size of The Deli Maven had to be increased. Management could not increase the
physical size of The Deli Maven and accordingly closed the operation.
New Acquisition -- Frozen Dessert Segment.
- ------------------------------------------
As stated above, in February, 1997, the Registrant's new wholly-owned
subsidiary, Deering Ice Cream, Inc., ("Deering") acquired all of the assets and
related liabilities of DownEast Frozen Desserts, LLC, which manufactures and
markets frozen desserts under the name Deering Ice Cream. ("DownEast").
Due to the lack of comparable audited financial data for the prior year, it
is impossible to compare results of DownEast to the equivalent period of 1995.
Sales for nine month period ended October 26, 1996 totaled $5,008,049. Gross
profit for that period was $431,821, or 8.6% of sales,
16
<PAGE>
yielding a loss of $796,872, which was substantially greater than had been
anticipated. Management believes that this was due to several reasons.
First, cream prices increased from $0.65 to $1.55 per gallon of finished
product during the first nine months of 1996 before starting to recede in
October. The net impact of this additional cost was $202,000 on Deering branded
product and an additional $23,000 on co-packed product, resulting in an
aggregate increase of $225,000 over planned expense.
Second, DownEast's plant sustained excessive down time due to
malfunctioning equipment during the first five months of 1996. Management of
DownEast believes that this accounted for an estimated $100,000 in excess labor
and material costs. The high level of maintenance of $268,000, charged to cost
of sales, can be attributed to equipment problems sustained during the period
February to June, 1996. Management of DownEast believes that the $327,000
expended for capital equipment during the period, plus the high level of
maintenance experienced, will result in future operations of DownEast being less
prone to lost production and more efficient machinery operation.
Sales and marketing expenses of $512,000 for branded product during the
nine month period ended September 30, 1996, although high, were necessary to
complete the DownEast's objective of expanding the Deering brand into the six
state New England area while maintaining market share in the base markets of
Maine and New Hampshire. These expenditures included $156,850 of promotional
discounts and allowances intended to compete with the reduced prices and
aggressive promotion of a large national manufacturer and a leading regional
brand. The effectiveness of these expenditures was partially diminished due to
the later than planned introduction of Deering products by some chains, as well
as "start-up" distributional inefficiencies. Management of DownEast believes
that these problems should not be present in 1997, although no assurances can be
given.
Current market prices for ingredients used in Deering's products have
fallen to their levels of February, 1996. Management believes that if these
prices remain relatively stable in the near future, recent sales price increases
instituted should contribute to improved future performance. Additionally,
DownEast has retained a consulting firm which suggested certain operating
improvements which include reduction of overhead expense, more efficient use of
labor, better production planning techniques and methods to reduce material
shrinkage. These suggestions are currently being implemented.
Management of Deering anticipates that the addition of the Howard Johnson
line will increase branded sales by at least 50% and total sales by 24% from
1996, although these can be no assurance that either or both will occur.
DownEast is in the process of formulating an aggressive marketing plan, which
includes repackaging and representing the line, establishing a larger and
stronger sales representation force and creating broader distribution.
17
<PAGE>
Liquidity and Capital Resources
- -------------------------------
At December 31, 1996, the Registrant had cash of approximately $1,571,000
and working capital of approximately $1,410,000 substantially all of which was a
result of the proceeds received from the Registrant's public offering of its
securities. Prior to its public offering, the Registrant, and its subsidiaries,
relied principally on certain bridge and related party loans and internally
generated funds to fund its working capital expenditures.
Seasonality
- -----------
The Registrant's sales in its restaurant operations in South Florida are
highly seasonal, with the third quarter being substantially lower than the other
quarters of the year, due to weather and the dining habits of the Registrant's
guests. Additionally, the extremely seasonal nature of Passover holiday will
also continue to affect that aspect of the Registrant's business.
Item 7 - Financial Statements
- -----------------------------
The financial statements to this Form 10-KSB are attached commencing on
Page F-1.
Item 8 - Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure
- --------------------
The Registrant did not have any changes in, or any material disagreements
on accounting and financial disclosure with, its accountants in fiscal 1996 or
1995.
18
<PAGE>
PART III
--------
Item 9 - Directors, Executive Officers, Promoters and Control Persons;
- ---------------------------------------------------------------------
Compliance With Section 16(a) of the Exchange Act
- -------------------------------------------------
As of December 31, 1996, and April 14,1997, the Registrant's directors and
executive officers were:
<TABLE>
<CAPTION>
Name Age Position Held
<S> <C> <C>
Milton Namiot 56 Chief Executive Officer /(1)(6)/
Dr. Samuel H. Lasko 52 Chairman of the Board of Directors, Treasurer and
Chief Executive Officer, President and Director
/(2)(6)/
Jonathan S. Lasko 26 Executive Vice-President,/(3) / Secretary, Chief
Operating Officer and Director /(6)/
Bruce S. Phillips 54 Director
Howard Zimmerman 54 Director /(4)/
Bernard Rubin, M.D. 49 Director /(5)/
Steven Shulman 58 Chairman of the Board of Directors /(6)/
Richard Power 48 Director /(6)/
</TABLE>
/(1)/ In connection with, and as of the consummation of the DownEast
transaction, effective February 17, 1997, Mr. Namiot was appointed as
Chief Executive Officer.
/(2)/ Dr. Lasko served Chairman of the Board, Treasurer, Chief Executive Officer
and President from inception. Effective February 17, 1997, he served only
as President, Treasurer and as a Director.
/(3)/ Effective February 17, 1997, the Registrant discontinued the position of
Executive Vice President.
/(4)/ As described below, Mr. Zimmerman voluntarily resigned as of November 4,
1996.
/(5)/ As described below, Dr. Rubin voluntarily resigned as of February 17,
1997.
/(6)/ In connection with the DownEast transaction described above, effective
February 17, 1997, Messrs. Shulman and Power were appointed directors of
the Registrant. Subsequent thereto, the Board of Directors elected Mr.
Shulman as Chairman of the Board, Milton Namiot as Chief Executive
Officer, Samuel Lasko as President and Jonathan Lasko as Chief Operating
Officer. In addition, Milton Namiot was elected the President and Chief
Executive Officer of Deering, the Registrant's wholly owned
19
<PAGE>
subsidiary, and Samuel and Jonathan Lasko were elected as the President
and Chief Executive Officer, and the Executive Vice President and Chief
Operating Officer, respectively, of each of the Registrant's other wholly
owned subsidiaries The Lasko Companies, Inc., A&E Management, Inc. and The
Lasko Family Kosher Tours, Inc.
MILTON NAMIOT, age 56, is currently the President of Deering as well as the
Manager of DownEast. In addition, since consummation of the DownEast
transaction, Mr. Namiot has served as Chief Executive Officer of the Registrant.
From 1989 through 1995, he was president and chief executive officer of
Brigham's, Inc., Arlington, Mass, a manufacturer and marketer of "upscale" ice
cream and yogurt in the Northeast United States and operator of approximately 50
family style restaurants. From 1986 to 1989, he was an independent consultant to
a number of food companies. From 1983 to 1986, Mr. Namiot was a senior vice
president, consumer products and business development at Gulf & Western
Industries, Inc. Prior thereto, he held a number of executive positions in food
and related products companies. Mr. Namiot holds an A. B. in chemistry from
Brandeis University, an M.S. in chemistry from Boston University and an M.S. in
Management from the Massachusetts Institute of Technology.
DR. SAMUEL H. LASKO, age 52, has been President, Treasurer and a director
of the Registrant since its inception in October, 1988, and was Chairman of the
Board of Directors and Chief Executive Officer from August, 1995 until February
17, 1997, immediately following the DownEast transaction. Dr. Lasko has also
been president of A&E Management Corp. since October 27, 1993, The Lasko
Companies, Inc. since May 11, 1995, and Prime Concern Kosher Foods, Inc. since
December, 1995. From 1990 to 1994, Dr. Lasko was also the owner and director of
Just for Kids Academy in Fort Lauderdale, Florida, a private child care and
school facility. From 1983-1985, Dr. Lasko owned and operated Abbott School of
Miami Beach, an educational institution specializing in the care and education
of Jewish children. From 1985-1989, Dr. Lasko served as the Headmaster of the
Beth Shalom Academy in Hollywood, Florida, a Jewish elementary day school
comprised of two campuses. Dr. Lasko holds a B.A. from Yeshiva University in New
York City and received his Ed.D. in 1984 from the University of Maryland. Dr.
Lasko is the father of Jonathan S. Lasko, currently the Secretary and the Chief
Operating Officer of the Registrant and one of its Directors, and the
brother-in-law of Bruce S. Phillips, a director of the Registrant.
JONATHAN S. LASKO, age 26, has been a Director of the Registrant since
September, 1994, and its Chief Operating Officer and Secretary since August,
1995. He was also the Registrant's Executive Vice-President from May, 1993 until
February 17, 1997, immediately following the DownEast transaction, when the
Registrant discontinued that position. Mr. Lasko has also been vice-president of
A&E Management Corp. since October 27, 1993, The Lasko Companies, Inc. since May
11, 1995 and Prime Concern Kosher Foods, Inc. since December, 1995. Mr. Lasko
began in the food service industry in 1985, working for a corporate event
planning firm, Parties by Neil, in Miami, Florida. Mr. Lasko attended Yeshiva
University, New York, New York, in 1988 and 1989, and Bernard Baruch College of
City University of New York, New York in 1990 and 1991. From November, 1989
until October, 1991, Mr. Lasko worked part-time for Ram Caterers, a kosher
caterer in the New York City metropolitan area, as a manager and salesman. In
addition, from January, 1990 until October, 1993, when he became a full-time
employee of the Registrant, Mr. Lasko was a part-time employee of the Registrant
and managed its food and beverage operations for its Passover holiday vacation.
Mr. Lasko is the son of Dr. Samuel H. Lasko, currently the President
20
<PAGE>
and Treasurer of the Registrant and one of its directors, and the nephew of
Bruce S. Phillips, a director of the Registrant.
BRUCE S. PHILLIPS, age 54, has been a director of the Registrant since
August, 1995. He is a graduate of City College of New York. From April, 1988
until August, 1994, Mr. Phillips was president and director of Frem Corp., a
plasticware manufacturer. Since August, 1994, Mr. Phillips has owned PFS Venture
Group, a business management and financial consulting firm. Mr. Phillips is the
brother-in-law of Dr. Samuel H. Lasko, a director of the Registrant and its
President and Treasurer, and the uncle of Jonathan S. Lasko, a director of the
Registrant and its Secretary and Chief Operating Officer.
HOWARD ZIMMERMAN, age 54, was a director of the Registrant from August,
1995 until he voluntarily resigned from that position on November 4, 1996.
BERNARD RUBIN, M.D., age 49, was a director of the Registrant from August,
1995 until he voluntarily resigned from that position on February 17, 1997.
STEVEN SHULMAN, age 58, has been an active independent investment banker
since 1984. He has served as a director of number of public and private
companies and is currently a director of Beacon Properties Corporation, a New
York Stock Exchange listed corporation. Mr. Shulman holds an M.S. in Industrial
Management from the Stevens Institute of Technology, where he currently serves
as Vice Chairman of its Board. In connection with the DownEast transaction
described above, Mr. Shulman was appointed a director of the Registrant and
elected the Chairman of the Board of Directors.
RICHARD POWER, age 48, has been the President of Carlisle Plastics, Inc., a
division of Tyco International Ltd., a New York Stock Exchange listed
corporation, since January, 1997. He served as a consultant to Tyco from 1995
through 1996, Vice President and Chief Financial officer of Abex Inc. a New York
Stock Exchange listed corporation between 1994 and 1995, and was the Managing
Director of a private investment company from 1992 through 1994. Mr. Power holds
a B.S. and an M.B.A. from Boston College. In connection with the DownEast
transaction described above, Mr. Power was appointed a director of the
Registrant.
Directors are elected on an annual basis. All directors of the Registrant
hold office until the next annual meeting of the shareholders or until their
successors are elected and qualified. At present, the Registrant's by-laws
provide for not less than one director nor more than seven. Until the DownEast
transaction there were five directors, and as of February 17, 1997, there are
seven directors. The Registrant's by-laws permit the Board of Directors to fill
any vacancy and such director may serve until the next annual meeting of
shareholders or until his successor is elected and qualified. Officers are
elected to serve, subject to the discretion of the Board of Directors, until
their successors are appointed.
Director Compensation
Directors are reimbursed for expenses actually incurred in connection with
attending meetings of the Board of Directors and commencing in fiscal 1996, non-
employee directors were paid $750
21
<PAGE>
for each directors' meeting attended. The Registrant anticipates that the Board
of Directors will meet at least four times a year.
Item 10 - Executive Compensation
- --------------------------------
The following table sets forth all compensation paid or distributions made
during the fiscal years ended December 31, 1996, 1995 and 1994, by the
Registrant or any of its subsidiaries to the Chief Executive Officer of the
Registrant and to each of its most highly compensated executive officers, other
than the Chief Executive Officer, whose compensation exceeded $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
-------------------- ------
Name and Principal Position Year Ended Salary Other Annual Options
December 31 Compensation
- --------------------------- ----------- ------ ------------ -------
<S> <C> <C> <C> <C>
Samuel H. Lasko 1994 $13,600/(1)/ $274,365/(2)/ ---
Chief Executive Officer and 1995 $31,403 $169,081/(3)/ 750,000/(7)/
President 1996 $95,000 $ 9,517/(4)(5)/
Jonathan S. Lasko 1994 $21,600 $ 40,409/(6)/ ---
Executive Vice President and 1995 $24,592 $169,081/(3)/ 750,000/(7)/
Secretary 1996 $70,000 $ 7,255/(4)/
</TABLE>
/(1)/ Paid by A&E Management Corp. ("A&E").
/(2)/ Represents "S" corporation distributions in the nature of dividends of
$233,957 and $40,409.
/(3)/ Represents combined "S" corporation distributions in the nature of
dividends through December 5, 1995, when the Registrant first offered
and sold its securities to the public.
/(4)/ Represents amounts paid for lease of automobile and automobile
insurance.
/(5)/ Does not include repayments of loans from A&E, the Lasko Companies, Inc.
and the Registrant.
/(6)/ Represents "S" corporation distributions in the nature of dividends.
/(7)/ In connection with the DownEast acquisition, each of Samuel Lasko and
Jonathan Lasko surrendered their respective right to performance
options, contained in their respective Employment Agreements and, in
lieu thereof, the Registrant issued to each of Samuel H. Lasko and
Jonathan D. Lasko warrants to purchase 375,000 shares of the
Registrant's common stock at $1.1875 per share exercisable immediately
and expiring August 31, 2000.
22
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
The following table sets forth options exercised by the Registrant's chief
executive officer and the Registrant's two other most highly compensated
executive officers during fiscal 1996, and the number and value of all
unexercised options at year end. The value of "in-the-money" options refers to
options having an exercise price which is less than the market price of the
Registrant's stock at fiscal year-end. On that date, none of the Registrant's
executive officers held exercisable options which were "in-the-money".
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Options/SARs Options/SARs
at FY-End (#) at FY-End ($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
- ---- --------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Milton Namiot /(1)/ --- --- --- ---
Samuel H. Lasko --- --- 0/750,000 /(2)/ $0/0
Jonathan S. Lasko --- --- 0/750,000 /(2)/ $0/0
</TABLE>
- ---------------------------------------
/(1)/ Mr. Namiot was not an officer of the Registrant in 1996. He was elected
an officer on February 17, 1997, following the DownEast transaction.
/(2)/ Represents options(based on performance by the Registrant) contained in
the Laskos employment agreements. In connection with the DownEast
acquisition, effective February 17, 1997, each of Messrs. Samuel and
Jonathan Lasko voluntarily surrendered their respective right to these
options and, in lieu thereof, the Registrant issued to each of Samuel H.
Lasko and Jonathan D. Lasko warrants to purchase 375,000 shares of the
Registrant's common stock at $1.1875 per share exercisable immediately
and expiring August 31, 2000.
Employment Agreements and Aggregate Options Holdings
The Registrant has entered into 5-year employment agreements, ending
August 31, 2000, with each of Dr. Samuel H. Lasko and Jonathan S. Lasko.
Under his employment agreement, Dr. Samuel H. Lasko receives an annual
base salary of $95,000 for the first two years, $125,000 for the third year,
$150,000 for the fourth year and $175,000 for the fifth year of his employment.
Under his employment agreement, Jonathan S. Lasko receives an annual base salary
of $70,000 for the first two years, $95,000 for the third year, $115,000 for the
fourth year and $125,000 for the fifth year of his employment. In connection
with the DownEast transaction, by amendments dated
23
<PAGE>
February 17, 1997, to their respective employment agreements, Dr. Lasko and
Jonathan Lasko volutarily surrendered their one-time performance based options
under their respective employment agreements to purchase up to an aggregate of
750,000 shares of common stock, and in lieu thereof, the Registrant issued to
each of Samuel Lasko and Jonathan Lasko, warrants to purchase 375,000 shares of
its common stock at an exercise price of $1.1875 per share. The employment
agreements also entitle the individuals to the use of an automobile and to
employee benefit plans, such as group life, health , hospitalization and life
insurance. Under each of these employment agreements, employment terminates
upon death or total disability of the employee and may be terminated by the
Registrant for "cause," which is defined, among other things, as the willful
failure to perform duties, embezzlement, conviction of a felony, or breach of
the employee's covenant not to compete or maintain confidential certain
information. The Registrant maintains a $1 million life insurance policy on the
life of Jonathan Lasko.
In connection with the DownEast transaction, the Registrant entered into a
3-year employment agreement, effective February 17, 1997, and ending August 31,
2000, with Milton Namiot, whereby Mr. Namiot will serve as the President and
Chief Executive Officer of Deering and Chief Executive Officer of the
Registrant. Under his employment agreement, Mr. Namiot receives an annual base
salary of $175,000.
Item 11 - Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The following table provides information concerning the beneficial
ownership of common stock of the Registrant by each director, certain executive
officers, and by all directors and officers of the Registrant as a group as of
December 30, 1996. In addition, the table provides information concerning the
beneficial owners known to the Registrant to hold more than 5 percent of the
outstanding common stock of the Registrant as of December 30, 1996.
<TABLE>
<CAPTION>
Amount and Nature of
Name of Beneficial Owner Beneficial Ownership/(1)/ Percent of Class/(1)(2)/
- ------------------------ ------------------------- ------------------------
<S> <C> <C>
Dr. Samuel H. Lasko/(3)/ 383,750/(4)/ 11.58%
Jonathan S. Lasko/(3)/ 380,000 11.47%
Bruce S. Phillips --- ---
Bernard Rubin --- ---
All Directors and Executive Officers as a
Group (4 persons)/(5)/ 763,750 23.05%
</TABLE>
- --------------------
/(1)/ In each case the beneficial owner has sole voting and investment power
except that shares held by Dr. Samuel H. Lasko are held in joint tenancy
with his wife Arlene Lasko and the shares held by Jonathan S. Lasko are
held in joint tenancy with his wife Ellen J. Lasko.
/(2)/ The calculation of percent of class is based upon the number of shares
of common stock outstanding as of December 30, 1996.
/(3)/ c/o Terrace Holdings, Inc. 2699 Stirling Road, Suite C-405, Fort
Lauderdale, Florida 33312.
/(4)/ Includes 3,750 shares held for the benefit of Dr. Lasko's minor child.
/(5)/ Howard Zimmerman resigned as director of the Registrant effective
November 4, 1996.
24
<PAGE>
Item 12 - Certain Relationships and Related Transactions
- --------------------------------------------------------
In September, 1995, in a tax-free reorganization under federal income tax laws
and rules, Bon Adventure Kosher Tours, Inc. ("BAKT") was merged into the
Registrant. In connection with such merger, Samuel H. Lasko received 672,500
shares of the Registrant in exchange for his shares of common stock of BAKT, and
Jonathan S. Lasko received 632,500 shares of the Registrant in exchange for his
shares of common stock of BAKT.
In December, 1995, in separate tax-free reorganizations, the Registrant
acquired from Samuel Lasko and Jonathan Lasko all of the outstanding stock of
A&E Management Corp. and The Lasko Companies, Inc. In connection with such
reorganizations, Samuel H. Lasko and Jonathan S. Lasko each received 30,000
shares of the Registrant in exchange for his respective shares of A&E Management
Corp. and 25,000 shares of the Registrant in exchange for his respective shares
of The Lasko Companies, Inc.
In December, 1995, the Registrant acquired from Irving Kraut, an unaffiliated
party, all of the issued and outstanding shares of common stock of Prime Concern
Kosher Foods, Inc. in exchange for 250,000 shares of Common Stock of the
Registrant.
Effective July 1, 1995, A&E Management Corp. ("A&E") and Prime Concern Kosher
Foods, Inc. ("Prime Concern") entered into an agreement whereby A&E provided
certain management services to Prime Concern and acted as the primary operator
of the Deli Maven, Prime Concern's retail kosher delicatessen in Boca Raton,
Florida, for a period of six months for a non-refundable fee of $50,000 payable
on the earlier of the closing of the Registrant's public offering or March 31,
1996. As noted, the Registrant's public offering was closed on December 11,
1995.
Samuel Lasko has lent Terrace Holdings, Inc., the Lasko Companies, Inc. and
A&E Management Corp. the sums of $7,276, $42,715 and $235,558, respectively, for
an aggregate of $285,549. Each loan provides that interest is payable at the
prime rate of interest and principal and interest is due on demand. $100,000 of
principal of these loans was repaid from the proceeds of the Registrant's
offering. Pursuant to agreements, the remaining principal of $185,549, together
with all accrued interest, was payable out of the Registrant's working capital
in twelve equal monthly installments commencing in December, 1995. At December
31, 1996, the principal balance of these loans was paid in full.
Item 13 - Exhibits and Reports on Form 8-K
- ------------------------------------------
(a) Exhibits
(3)(i) Articles of Incorporation *
----------------------------------
(3)(ii) By-laws *
-----------------
(3)(iii) Instruments defining the rights of holders *
-----------------------------------------------------
25
<PAGE>
<TABLE>
<CAPTION>
(10) Material Contracts **
-----------------------
The following Material Contracts are filed herewith:
<S> <C>
10.1 Assignment of Passover Contract from Registrant to The Lasko Family
Kosher Tours, Inc. for the Registry Resort & Spa f/k/a the Bonaventure Resort &
Spa
10.2 Assignment of Passover Contract from Registrant to The Lasko Family
Kosher Tours, Inc. for The Fontainebleau Hilton Resort & Spa
10.3 Assignment of Passover Contract from Registrant to The Lasko Family
Kosher Tours, Inc. for the Rye Town Hilton
10.4 Asset Acquisition Agreement and Amendment thereto between Terrace
Holdings, Inc. and DownEast Frozen Desserts, LLC.
10.5 Sublicense Agreement between DownEast Frozen Desserts, LLC and
Franchise Associates, Inc.
10.6 Consent to Assignment of Sublicense Agreement from Franchise
Associates, Inc. and HFS Incorporated to DownEast Frozen Desserts,
LLC.
(21) Subsidiaries of the Registrant
-----------------------------------
The Registrant's four operating wholly owned subsidiaries are:
1. The Lasko Companies, Inc.
2699 Stirling Road
Suite C - 405
Ft. Lauderdale, Florida 33312
2. The Lasko Family Kosher Tours, Inc.
2699 Stirling Road
Suite C - 405
Ft. Lauderdale, Florida 33312
3. A&E Management Corp.
699 Stirling Road
Suite C - 405
Ft. Lauderdale, Florida 33312
4. Deering Ice Cream, Inc.
135 Walton Street
Portland, Maine 04103
______________________________________
* Incorporated by this reference to the Registrant's registration statement #
33-96892-A.
** All material contracts presently in full force and effect and heretofore filed
with the Commission are hereby incorporated by this reference to Registrant's
registration statement #33-96892-A, and to Registrant's Form 10-KSB for the year
ended December 31, 1995, Commission file number 0-27132.
26
</TABLE>
<PAGE>
b) Reports on Form 8-K
The Registrant did not file any Current Reports on Form 8-K for the
last quarter of the period covered by this report.
27
<PAGE>
TERRACE HOLDINGS, INC. AND SUBSIDIARIES
================================================================================
INDEX TO FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
<S> <C> <C>
Report of Independent Auditors...................... F-2 ...
Consolidated Balance Sheet as of December 31, 1996.. F-3 ...
Consolidated Statements of Operations............... F-4 ...
Consolidated Statements of Stockholders' Equity..... F-5 ...
Consolidated Statements of Cash Flows............... F-6 ...
Notes to Consolidated Financial Statements.......... F-7 ... F-15
</TABLE>
. . . . . . . .
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors of
Terrace Holdings, Inc.
We have audited the accompanying consolidated balance sheet of Terrace
Holdings, Inc. and its subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the two years in the period ended December 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Terrace Holdings, Inc. and its subsidiaries as of December 31, 1996,
and the consolidated results of their operations and their cash flows for each
of the two years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
February 17, 1997
F-2
<PAGE>
TERRACE HOLDINGS, INC.
================================================================================
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996.
================================================================================
<TABLE>
<CAPTION>
Assets:
<S> <C>
Current Assets:
Cash and Cash Equivalents $ 1,570,907
Accounts Receivable 123,243
Inventory 27,239
Other Current Assets 70,779
-----------
Total Current Assets 1,792,168
Property and Equipment - Net 392,741
Intangible Assets - [Net of Accumulated Amortization of $259,875] 415,125
Other Assets 190,432
-----------
Total Assets $ 2,790,466
===========
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable and Accrued Expenses $ 168,164
Accrued Payroll and Payroll Taxes 28,024
Deferred Revenue 186,412
-----------
Total Current Liabilities 382,600
-----------
Commitments and Contingencies --
-----------
Stockholders' Equity:
Common Stock - $.001 Par Value, 10,000,000 Shares
Authorized, 3,312,500 Issued and Outstanding 3,313
Additional Paid-in Capital 3,945,948
Retained Earnings [Deficit] (1,541,395)
-----------
Total Stockholders' Equity 2,407,866
-----------
Total Liabilities and Stockholders' Equity $ 2,790,466
===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
TERRACE HOLDINGS, INC.
================================================================================
CONSOLIDATED STATEMENTS OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
Years ended
-------------------------
December 31,
-------------------------
1 9 9 6 1 9 9 5
----------- ----------
<S> <C> <C>
Revenue $ 5,497,130 $3,043,056
Cost of Sales 3,965,512 1,959,863
----------- ----------
Gross Profit 1,531,618 1,083,193
----------- ----------
Operating Expenses:
Selling, General and Administrative Expenses 1,612,792 581,216
Payroll and Related Expenses 1,041,285 686,905
Loss on Disposal 129,826 --
----------- ----------
Total Operating Expenses 2,783,903 1,268,121
----------- ----------
[Loss] from Operations (1,252,285) (184,928)
----------- ----------
Other Income [Expense]:
Interest Income 103,925 10,584
Interest Expense (7,667) (41,810)
Non-Cash Finance Charge -- (375,000)
----------- ----------
Other [Expense] - Net 96,258 (406,226)
----------- ----------
Net [Loss] $(1,156,027) $ (591,154)
=========== ==========
[Loss] Per Share $(.35) $(.33)
=========== ==========
Weighted Average Shares Outstanding 3,312,500 1,791,643
=========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
TERRACE HOLDINGS, INC.
================================================================================
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
================================================================================
<TABLE>
<CAPTION>
Additional Retained Total
----------- -------------- ------------
Common Stock Paid-in Earnings Stockholders'
--------------------- ----------- -------------- ------------
Shares Amount Capital [Deficit] Equity
------------ ------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Balance - January 1, 1994 1,675,000 $1,675 $ (75) $ (230,557) $ (228,957)
S Corp. Distributions -- -- -- (338,162) (338,162)
Initial Public Offering [Net of
Offering Costs of $1,043,459] 1,437,500 1,438 4,345,728 -- 4,347,166
Issuance of Bridge Units 200,000 200 374,800 -- 375,000
Reclassification upon Termination
of Subchapter S Election -- -- (774,505) 774,505 --
Net [Loss] -- -- -- (591,154) (591,154)
------------ ------- ---------- ----------- -----------
Balance - December 31, 1995 3,312,500 3,313 3,945,948 (385,368) 3,563,893
Net [Loss] -- -- -- (1,156,027) (1,156,027)
------------ ------- ---------- ----------- -----------
Balance - December 31, 1996 3,312,500 $3,313 $3,945,948 $(1,541,395) $ 2,407,866
============ ======= ========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
TERRACE HOLDINGS, INC.
================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
Years ended
-----------
December 31,
------------------------
1 9 9 6 1 9 9 5
----------- ----------
<S> <C> <C>
Operating Activities:
Net [Loss] $(1,156,027) $ (591,154)
----------- ----------
Adjustments to Reconcile Net [Loss] to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 340,086 35,635
Non-Cash Finance Charge -- 375,000
Loss on Disposal of Assets 100,326 --
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (18,503) (45,241)
Inventory 4,326 (11,510)
Other Current Assets (38,370) (3,117)
Other Assets (89,726) 4,978
Increase [Decrease] in:
Accounts Payable and Accrued Expenses (135,347) 257,763
Payroll Taxes Payable (10,362) 13,390
Deferred Revenue 22,352 15,749
----------- ----------
Total Adjustments 174,782 642,647
----------- ----------
Net Cash - Operating Activities (981,245) 51,493
----------- ----------
Investing Activities:
Acquisition of Assets (179,308) (381,525)
Acquisition of Intangible Asset (675,000) --
----------- ----------
Net Cash - Investing Activities (854,308) (381,525)
----------- ----------
Financing Activities:
Cash Proceeds from Initial Public Offering -- 4,642,769
Offering Costs -- (295,603)
Proceeds from Demand Notes Payable -- 410,000
Payment of Demand Notes Payable (10,000) (530,000)
Payments of Demand Notes Payable - Stockholders and Related Parties (185,549) --
Proceeds from Demand Notes Payable - Stockholders and Related Parties -- 12,630
S Corp. Distributions -- (338,162)
Bank Overdrafts -- (39,373)
----------- ----------
Net Cash - Financing Activities (195,549) 3,862,261
----------- ----------
Net [Decrease] Increase in Cash and Cash Equivalents (2,031,102) 3,532,229
Cash and Cash Equivalents - Beginning of Years 3,602,009 69,780
----------- ----------
Cash and Cash Equivalents - End of Years $ 1,570,907 $3,602,009
=========== ==========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the years for:
Interest $ 9,020 $ 40,837
Income Taxes $ -- $ --
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
[1] Financial Statement Presentation, Organization and Nature of Operations
The financial statements as of and for the year ended December 31, 1996 are
presented on a consolidated basis and include Terrace Holdings, Inc. [formerly
known as Bon Adventure Kosher Tours, Inc.] ["Terrace"] and its wholly-owned
subsidiaries, A&E Management Corp. ["A&E"], Prime Concern Kosher Foods, Inc.
["Prime"] and The Lasko Companies ["Lasko"] [collectively, the "Company"]. The
consolidated financial statements for the period ended December 31, 1995,
include the results of operations, cash flows and changes in stockholders'
equity for the twelve months then ended with respect to Terrace, A&E and Prime;
and the results of operations, cash flows and changes in stockholders' equity
from May 11, 1995 [date of inception] to December 31, 1995, with respect to
Lasko. In July 1996, the Company disposed of all of the operating assets of
Prime [See Note 14].
As of December 31, 1996, the Company operates kosher Passover holiday vacation
venues, kosher and non-kosher restaurants and a catering operation in southern
Florida and New York.
For the year ended December 31, 1995, the Company operated one Passover holiday
vacation venue. In January 1996, the Company consummated an agreement to assume
operation of the Passover vacation venues at the Fontainbleau ["Fontainbleau"]
Hilton Hotel, Miami Beach, the Rye Town ["Rye Town"] Hilton Hotel, Rye, New
York, and the Tamiment Resort & Conference Center ["Tamiment"], Tamiment,
Pennsylvania. As a result, for the 1996 Passover holiday, the Company operated
holiday vacations at four different locations. The contract at the Fontainbleau
and Rye Town expire after Passover 1999. The contract to operate a Passover
vacation at the Tamiment Hotel expired after the 1996 Passover holiday and has
not been renewed for the 1997 Passover holiday.
The designation of the Company's restaurants and Passover holiday vacation as
"Kosher" means that all the foods are prepared in accordance with Jewish dietary
laws. The ability of the Company to continue successfully to maintain Kosher
status for its restaurants and holiday vacation venue is dependent upon its
continued compliance with the requirements of Rabbinic certification. Loss of
Kosher certification would have a materially adverse effect upon the Company.
[2] Summary of Significant Accounting Policies
Consolidation Policy - The accompanying consolidated financial statements as of
December 31, 1996 and for the two years then ended, include the accounts of
Terrace and its subsidiaries. Intercompany transactions and balances have been
eliminated in consolidation.
Cash and Cash Equivalents - Cash equivalents are comprised of certain highly
liquid investments with a maturity of three months or less when purchased. The
carrying amount of cash and cash equivalents approximates their fair value.
Furniture, Fixtures and Equipment and Depreciation - Furniture, fixtures and
equipment are stated at cost. Depreciation and amortization is provided using
the straight-line method over the estimated useful lives of the related assets
or the remaining lease term. The costs of repairs and maintenance are expensed
as incurred.
Concentration of Credit Risk - Financial instruments that potentially subject
the Company to concentration of credit risk include cash and cash equivalents
and accounts receivable arising from its normal business activities. The Company
places its cash and cash equivalents with high credit quality financial
institutions. At December 31, 1996, the Company had approximately $1,375,500 in
a financial institution subject to normal credit risk beyond insured amounts.
F-7
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
================================================================================
[2] Summary of Significant Accounting Policies [Continued]
Concentration of Credit Risk [Continued] - The Company's restaurant and catering
operation in Hollywood, Florida is leased. The landlord acts as a conduit
between the Company and its customers, and collects the Company's accounts
receivable. Amounts collected by the landlord are then disbursed to the Company.
The Company's credit risk is limited by the financial strength of the landlord
and it believes such credit risk to be limited. An allowance for doubtful
accounts is deemed to be unnecessary based upon this assessment.
The accounts receivable for the Company's other operations consist mostly of
amounts due from credit card companies which are deemed financially sound.
The Company purchases food and beverages from distributors which account for
approximately 50% of total purchases. No formal contracts exist but the Company
believes there is limited business vulnerability regarding this concentration of
purchases as the supply is available from other sources.
The hospitality industry is often affected by changes in consumer tastes,
national, regional and local economic conditions, demographic trends, traffic
patterns and the type, number and location of competing facilities. In addition,
factors such as inflation, increased food, labor and employee benefit costs and
availability of experienced management and hourly employees may also adversely
affect the hospitality industry in general and the Company's restaurants and
holiday vacation venues in particular.
The Company does not require collateral as a condition of sale.
Advertising - The Company expenses advertising costs as incurred. Total
advertising costs charged to expense for the periods ended December 31, 1996 and
1995 amounted to $141,839 and $60,780, respectively.
[Loss] Per Share - [Loss] per share of common stock is based on the weighted
average number of common shares outstanding for each period presented. Such
shares amounted to 3,312,500 and 1,791,643 for the years ended December 31, 1996
and 1995, respectively. Shares issuable upon the exercise of common stock
purchase warrants are excluded from the computations since the effect on net
loss per common share would be anti-dilutive.
Inventories - Inventories consist of food and beverages for the restaurant and
catering operation and are stated at the lower of cost [determined by the first-
in, first-out method] or market.
Deferred Revenue - Deferred revenue consists of deposits collected for future
vacations at the Kosher holiday vacation venues and deposits on hand for future
catering events.
Impairment - Certain long-term assets of the Company are reviewed at least
annually as to whether their carrying value has become impaired, pursuant to
guidance established in Statement of Financial Accounting Standards ["SFAS"] No.
121, "Accounting for the Impairment of Long-Lived Assets." Management considers
assets to be impaired if the carrying value exceeds the future projected cash
flows from related operations [undiscounted and without interest charges]. If
impairment is deemed to exist, the assets will be written down to fair value.
Management also re-evaluates the periods of amortization to determine whether
subsequent events and circumstances warrant revised estimates of useful lives.
As of December 31, 1996, management expects these assets to be fully
recoverable.
[3] Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
F-8
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
================================================================================
[4] Fair Value of Financial Instruments
Effective December 31, 1995, the Company adopted Statement of Financial
Accounting Standards No. 107, "Disclosure About Fair Value of Financial
Instruments," which requires disclosing fair value to the extent practicable for
financial instruments which are recognized or unrecognized in the balance sheet.
The fair value of the financial instruments disclosed herein is not necessarily
representative of the amount that could be realized or settled, nor does the
fair value amount consider the tax consequences of realization or settlement.
In assessing the fair value of these financial instruments, the Company used a
variety of methods and assumptions, which were based on estimates of market
conditions and risks existing at that time. For cash and cash equivalents,
trade receivables and trade payables, it was assumed that the carrying amount
approximated fair value for the majority of these instruments because of their
short maturities.
[5] Property and Equipment
The following is a summary of furniture, fixtures and equipment:
<TABLE>
<CAPTION>
Estimated
---------
Useful Life
-----------
<S> <C> <C>
Furniture, Fixtures and Equipment $451,030 5-7 Years
Leasehold Improvements 27,481 3-5 Years
--------
Total 478,511
Less: Accumulated Depreciation and Amortization 85,770
--------
Net $392,741
--- ========
</TABLE>
Depreciation and amortization expense related to property and equipment amounted
to $80,211 and $35,635 for the years ended December 31, 1996 and 1995,
respectively.
[6] Intangible Assets
In January 1996, the Company entered into an assignment agreement to operate
Passover vacations at hotels located in Miami, Florida, Rye Town, New York and
Tamiment, Pennsylvania. The Company paid $675,000 for these agreements. This
amount net of accumulated amortization is included in intangible assets. The
intangible assets are amortized over four years, the life of the related
contracts. As stated in Note 11, the contract to operate a Passover vacation at
the Tamiment Hotel expired after the 1996 Passover Holiday; therefore, the asset
has been written off in its entirety. Amortization expense amounted to $259,875
for the year ended December 31, 1996.
[7] Public Offering
In December 1995, the Company completed a public offering [the "Offering"] of
1,437,500 units ["Units"] of its securities at $3.75 per Unit.
F-9
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
================================================================================
[7] Public Offering [Continued]
Each Unit consisted of one share of common stock and one redeemable common stock
purchase warrant exercisable at $4.00 per share during the four year period
commencing one year after the December 5, 1995 effective date of the Offering.
The warrants are redeemable under certain conditions. The Offering resulted in
net proceeds of approximately $4,347,000 to the Company. In connection with the
Offering, the underwriter purchased an option from the Company to purchase up to
125,000 Units [each Unit identical to the Units sold in the Offering] and up to
16,500 shares of common stock. The option is exercisable for a four-year period
commencing one year from the effective date of the Offering and entitles the
underwriter to purchase each unit and each share of common stock at an exercise
price of $4.50, subject to adjustment in certain events.
[8] Income Taxes
Under generally accepted accounting principles, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
temporary differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which temporary differences are expected to be
recovered or settled. Temporary differences include different tax and book
bases of property and equipment. Generally accepted accounting principles
requires the establishment of a deferred tax asset for all deductible temporary
differences and operating loss carryforwards. The operating loss carryforwards
at December 31, 1996, [assuming all operating loss carryforwards will be
available] amount to approximately $1,550,000. Such loss carryforwards will
expire at the rate of $350,000 in 2011 and $1,200,000 in 2010. At December 31,
1996, based on the amount of operating loss carryforwards, the Company would
have a deferred tax asset of approximately $526,000. Because of the uncertainty
that the Company will generate income in the future sufficient to fully or
partially utilize these carryforwards, a valuation allowance of $526,000 has
been established. Accordingly, no deferred tax asset is reflected in these
financial statements.
[9] Related Parties Transactions
During 1996, the Company paid off an outstanding loan due to a stockholder,
which was payable on demand plus interest at the prime rate of a bank in
Southern Florida. The interest rate on the loan was 8.5%. Interest expense
related to this loan amounted to $7,667 and $15,123 for the periods ended
December 31, 1996 and 1995, respectively.
[10] Bridge Financing - Non Cash Finance Charge
During 1995, prior to the Offering, the Company received an aggregate of
$400,000 in bridge loans. The loans were repaid from the proceeds of the
Offering. Interest expense related to the loans amounted to approximately
$16,300 for the year then ended.
As additional consideration, solely for making the loans, the Company granted
the lenders the right to receive an aggregate of 200,000 units ["Bridge Units"]
which were substantially similar to the units sold in the Offering. The Company
valued these units at $1.87 per unit. This valuation represented a fifty
percent discount from the $3.75 Offering price. Such discount was reflected due
to restrictions imposed on the holders of the Bridge Units as to the salability
of the Bridge Units issued. Accordingly, the statement of operations for the
year ended December 31, 1995, includes a non-cash finance charge of $375,000.
[11] Commitments
[A] Operating Leases - The Company conducts some of its operations using
facilities classified as operating leases. These facilities are primarily
restaurants and catering premises and office premises and vehicles, which expire
during the next three years. The leases for the restaurant and office space
contains renewal options set forth in the lease agreements.
F-10
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
================================================================================
[11] Commitments [Continued]
[A] Operating Leases [Continued] - Annual rent for its restaurant and catering
facility located in Hollywood, Florida, includes use of the entire premises, and
is subject to increases for utility charges in excess of a stipulated amount.
Future minimum rentals payments under the agreements are approximately as
follows:
<TABLE>
<CAPTION>
Year ending Amount
- -------------- --------
December 31,
- --------------
<S> <C>
1997 $101,700
1998 84,700
1999 1,300
--------
Total $187,700
----- ========
</TABLE>
Rent expense related to the leases for the years ended December 31, 1996 and
1995 was approximately $148,079 and $87,000, respectively.
[B] Vacation Venues - In August 1992, the Company entered into a five-year
contract with an unrelated resort in Southern Florida for exclusive rights to
the entire premises for the Passover holiday seasons for 1993 through 1997. The
contract includes a five-year renewal option which expired in January 1997. The
guaranteed annual rental for the use of the resort is based on the 1993 holiday
season minimum of $860,000 increased in each subsequent year by increases in the
Consumer Price Index ["CPI"]. The maximum increase in any one year is four
percent. The estimated minimum payment under the contract, based on an
anticipated annual increase in the CPI of two percent, is $950,000 for the year
ended December 31, 1997.
For the year ended December 31, 1995, the Company operated one Passover holiday
vacation venue. In January 1996, the Company consummated an agreement to assume
operation of the annual Passover vacation venues at the Fontainbleau Hilton
Hotel ["Fontainbleau"], Miami Beach, the Rye Town Hilton Hotel ["Rye Town"],
Rye, New York, and the Tamiment Resort & Conference Center ["Tamiment"],
Tamiment, Pennsylvania. As a result, for the 1996 Passover holiday, the Company
operated holiday vacations at four different locations. The contract at the
Fontainbleau and Rye Town expire after Passover 1999. The agreements include
guest room commitments of 250 and 890 rooms per year for the Fontainbleau and
Rye Town, respectively. The contract to operate a Passover vacation at the
Tamiment Hotel expired after the 1996 Passover holiday and has not been renewed
for the 1997 Passover holiday.
[C] Employment Agreements - Effective September 1, 1995, the Company entered
into 5-year employment agreements with two executives, through August 31, 2000
for an aggregate base salary of $165,000 for the first two years, $220,000 for
the third year, $265,000 for the fourth year and $300,000 in the fifth year.
The employment agreements were amended on February 14, 1997. The amendment
eliminates options in such agreements in consideration of the issuance of
warrants to purchase 1,500,000 shares of the Company's common stock in
connection with a business acquisition [See Notes 16 and 17B]. Additionally, the
agreements were amended to provide that certain other benefits are made
available to the executives.
F-11
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
================================================================================
[12] Description of Securities
[A] Common Stock - The Company is authorized to issue 10,000,000 shares of
common stock, par value $.001 per share.
Holders of common stock are entitled to dividends when, as and if declared by
the Board of Directors out of funds available therefrom, subject to any priority
as to dividends for any preferred stock that may be outstanding. There
currently is no preferred stock authorized or outstanding. Holders of common
stock are entitled to cast one vote for each share held at all stockholder
meetings for all purposes, including the election of Directors.
[B] Warrants - At December 31, 1996, the Company had outstanding warrants [the
"Public Warrants"] to purchase 1,762,500 shares of the Company's common stock at
four dollars [$4.00] per share issued in conjunction with the public offering.
The Public Warrants became exercisable, for a period of four years on December
5, 1996. Each Public Warrant is redeemable by the Company for $.05 per warrant,
at any time after that date, upon thirty days' prior written notice under
certain conditions.
Additionally, at December 31, 1996, the Company had outstanding warrants [the
"Bridge Warrants"] to purchase 200,000 shares of its common stock at ten dollars
[$10.00] per share. The terms and conditions of the Bridge Warrants [other than
the exercise price] are identical to the terms and conditions of the Public
Warrants [See Note 10].
[13] Industry Segments
The Company operates predominantly in the hospitality industry which are
segmented into two categories for reporting purposes. Kosher holiday vacations
includes the Company's activities related to its Passover vacation venue.
Restaurant and catering represent the Company's restaurant, catering and
delicatessen operations.
The relative contributions to net sales, income from operations and identifiable
assets of the Company's two industry segments for the two-year period ended
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 5
---------- ----------
<S> <C> <C>
Net Sales [1]:
Kosher Holiday Vacations $3,751,651 $1,844,021
Restaurant and Catering 1,745,479 1,199,035
---------- ----------
Consolidated Net Sales $5,497,130 $3,043,056
---------------------- ========== ==========
Depreciation and Amortization:
Kosher Holiday Vacations $ 284,819 $ 3,782
Restaurant and Catering 55,267 31,853
---------- ----------
Consolidated Depreciation and Amortization $ 340,086 $ 35,635
------------------------------------------ ========== ==========
Capital Expenditures:
Kosher Holiday Vacations $ 150,352 $ 35,291
Restaurant and Catering 28,956 346,234
---------- ----------
Consolidated Capital Expenditures $ 179,308 $ 381,525
--------------------------------- ========== ==========
</TABLE>
F-12
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7
================================================================================
<TABLE>
<CAPTION>
[13] Industry Segments [Continued]
1 9 9 6 1 9 9 5
----------- ----------
<S> <C> <C>
[Loss] Income From Operations:
Kosher Holiday Vacations $ (18,819) $ 292,323
Restaurant and Catering (413,728) (477,251)
----------- ----------
Totals (432,547) (184,928)
Less: Corporate and Other [2] (723,480) (406,226)
----------- ----------
Consolidated [Loss] Income $(1,156,027) $ (591,154)
-------------------------- =========== ==========
Identifiable Assets [3]:
Kosher Holiday Vacations $ 875,628 $ 141,173
Restaurant and Catering 439,312 794,342
----------- ----------
Totals 1,314,940 935,515
Add: Corporate and Other 1,475,526 3,306,820
----------- ----------
Consolidated Assets $ 2,790,466 $4,242,335
------------------- =========== ==========
</TABLE>
[1] There were no sales between separate lines of business.
[2] Corporate and other includes corporate general and administrative expenses,
net interest expense and non-cash finance charge.
[3] Identifiable assets by industry segment exclude intercompany loans. There
were no intercompany trade receivables between segments. Corporate assets
consist of cash and cash equivalents.
[14] Loss on Disposal
In July 1996, the Company disposed of all of the operating assets of Prime,
which operated a kosher delicatessen/fast food operation in Boca Raton, Florida
incurring a loss of $129,826. Other subsidiaries of the Company continue to
service customers in the restaurant and catering business.
[15] New Authoritative Accounting Pronouncements
The Financial Accounting Standards Board ["FASB"] issued Statement of Financial
Accounting Standards ["SFAS"] No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities." SFAS No. 125 is
effective for transfers and servicing of financial assets and extinguishment of
liabilities occurring after December 31, 1996. The provisions of SFAS No. 125
must be applied prospectively; retroactive application is prohibited, and early
applications is not allowed. SFAS No. 125 is not expected to have a material
impact on the Company. Some provisions of SFAS No. 125, which are unlikely to
apply to the Company, have been deferred by the FASB.
The Financial Accounting Standards Board ["FASB"] has issued Statement of
Financial Accounting Standards ["SFAS"] No. 128, "Earnings per Share," and SFAS
No. 129, "Disclosure of Information about Capital Structure," in February 1997.
F-13
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8
================================================================================
[15] New Authoritative Accounting Pronouncements [Continued]
SFAS No. 128 simplifies the earnings per share ["EPS"] calculations required by
Accounting Principles Board ["APB"] Opinion No. 15, and related interpretations,
by replacing the presentation of primary EPS with a presentation of basic EPS.
SFAS No. 128 requires dual presentation of basic and diluted EPS by entities
with complex capital structures. Basic EPS includes no dilution and is computed
by dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution of securities that could share in the earnings of an entity,
similar to the fully diluted EPS of APB Opinion No. 15. SFAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods; earlier application is not permitted. When
adopted, SFAS No. 128 will require restatement of all prior-period EPS data
presented; however, the Company has not sufficiently analyzed SFAS No. 128 to
determine what effect SFAS No. 128 will have on its historically reported EPS
amounts.
SFAS No. 129 does not change any previous disclosure requirements, but rather
consolidates existing disclosure requirements for ease of retrieval.
[16] Business Acquisition
On December 9, 1996, the Company entered into an asset acquisition agreement
[the "Agreement"] with DownEast Frozen Desserts, LLC ["DownEast"] to acquire all
of DownEast assets and liabilities related to such assets. The Agreement was
contingent upon a number of significant factors and was substantially amended in
February 1997 [See Note 17B].
[17] Subsequent Events
[A] Incorporation of New Subsidiaries - On February 14, 1997, the Company
incorporated The Lasko Family Kosher Tours, Inc., as a wholly-owned subsidiary
for the purpose of managing and operating its Passover holiday vacations
business. Accordingly, the Company's contracts related to that business segment
have been assigned to this wholly-owned subsidiary. Additionally, on February
10, 1997, Deering Ice Cream ["Deering"] [See Note 17B] was incorporated by the
Company as a wholly-owned subsidiary.
[B] Business Acquisition - On February 17, 1997, the Company acquired all of the
assets and related liabilities of DownEast. DownEast, with principal offices
and plant located in Portland, Maine, manufactures and markets frozen desserts
under the name Deering Ice Cream. Under the Agreements signed originally on
December 9, 1996, and as substantially amended on February 7, 1997, the Company
acquired such assets and related liabilities to continue the business of
manufacturing and marketing frozen desserts through Deering.
Such assets include all accounts receivable of the business, inventories, and
certain furniture and equipment. The stated liabilities assumed were
principally trade payables to suppliers of the business and certain long-term
debt.
In consideration for the acquisition, the Company issued to DownEast: (1)
918,900 shares of its common stock; and (2) warrants to purchase 250,000
additional shares of its common stock at an exercise price of $1.1875 per share,
exercisable commencing February 17, 1997, through August 31, 2000. The
Registrant also paid DownEast approximately $114,000 in cash.
F-14
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #9
================================================================================
[17] Subsequent Events [Continued]
[B] Business Acquisition [Continued] - The acquisition will be accounted for as
a purchase, effective February 17, 1997. The operations of Deering will be
included in the Company's results of operations from that date.
In connection with the business acquisition, the Company entered into an
employment agreement with an executive who became the President and CEO of
Deering. The three year renewable employment agreement provides for an annual
base salary of $175,000 and certain other benefits including severance pay.
In connection with the acquisition, the Company issued to each Samuel H. Lasko
and Jonathan D. Lasko [collectively the "Laskos"] warrants to purchase 375,000
shares of the Company's common stock at $1.1875 per share. The Laskos
surrendered their respective performance options to purchase up to 750,000
shares of the Company's common stock, contained in their respective employment
agreements. In addition, the Laskos entered an option agreement to purchase the
businesses, assets or capital stock of three of the Registrant's wholly-owned
subsidiaries, The Lasko Family Kosher Tours, Inc., The Lasko Companies, Inc. and
A&E Management, Inc. at the fair market value thereof, to be independently
determined. The option is exercisable for three years commencing April 1, 1998
until February 17, 2001, or earlier under certain circumstances, and will be
presented to the Company's shareholders for approval at the 1997 annual
shareholders meeting.
. . . . . . . . . .
F-15
<PAGE>
SIGNATURES
In accordance with Section 13 of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TERRACE HOLDINGS, INC.
- -------------------------------------------------------------------------------
By: /s/ Samuel H. Lasko, President
----------------------------------------------------------------------------
Samuel H. Lasko, President
Date: April 14, 1997
-------------------------------------------------------------------------
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C>
/s/ Milton Namiot Chief Executive officer April 14, 1997
- -----------------------------
Milton Namiot
/s/ Samuel H. Lasko President April 14, 1997
- -----------------------------
Samuel H. Lasko
/s/ Jonathan S. Lasko Vice President and April 14, 1997
- ----------------------------- Chief Operating Officer
Jonathan S. Lasko
/s/ Joseph Dane Corporate Controller April 14, 1997
- -----------------------------
Joseph Dane
/s/ Bruce S. Phillips Director April 14, 1997
- -----------------------------
Bruce S. Phillips
/s/ Richard Power Director April 14, 1997
- -----------------------------
Richard Power
/s/ Steven Shulman Director April 14, 1997
- -----------------------------
Steven Shulman
</TABLE>
<PAGE>
EXHIBIT 10.1
ASSIGNMENT
----------
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Terrace Holdings, Inc. (formerly known as Bon
Adventure Kosher Tours) ("Assignor") does hereby assign, transfer, convey, and
deliver unto its wholly owned subsidiary, The Lasko Family Kosher Tours, Inc.,
("Assignee") and its respective successors and assigns, all of the rights,
obligations, title, and interest of Assignor in and with respect to that certain
contract and addendum thereto between Assignor and Registry Resort (formerly
known as Bonaventure Resort & Spa) (the "Hotel") relating to the Assignor's
management and administration of a Passover vacation program with the Hotel,
dated August 12, 1992, including all of the terms and conditions set forth
thereunder (the "Passover Contract") (attached hereto as an Exhibit to this
Assignment).
Assignee hereby accepts the assignment and transfer to it of the rights,
obligations, title, and interest in the Passover Contract, and, in consideration
of such transfer and assignment, agrees to be responsible for the management and
administration, from and after the date of this Assignment, of any and all
aspects of the Passover Contract, including any and all costs and expenses
related to Assignee's performance under said contract.
Assignor hereby covenants with Assignee and their respective successors and
assigns to execute, acknowledge, and deliver to, or to cause to be done,
executed, acknowledged and delivered to, Assignee and their respective
successors and assigns all such further acts, deeds, assignments, transfers,
conveyances, powers of attorney and assurances as may be reasonably requested by
Assignee or such successor or assign to manage or otherwise perform Assignee's
obligations under the Passover Contract.
This Assignment shall be binding upon the successors and assigns of
Assignor and shall inure to the benefit of the successors and assigns of each
Assignee.
IN WITNESS WHEREOF, Assignor has caused this Assignment to be duly executed
and delivered this 13th day of February, 1997
TERRACE HOLDINGS, INC.
By: /s/ Dr. Samuel Lasko
---------------------------
Dr. Samuel Lasko
ACCEPTED:
THE LASKO FAMILY KOSHER TOURS, INC.
Dated: February 13, 1997 By: /s/ Dr. Samuel Lasko
---------------------------
Dr. Samuel Lasko
CONSENT TO ASSIGNMENT
---------------------
The undersigned, being the Managing Director of the Registry Resort
(formerly known as the Bonaventure Resort & Spa), hereby consents and agrees to
the foregoing Assignment of Contract.
Dated: February 14, 1997 REGISTRY RESORT
By: /s/ Greg Horeth
---------------------------
Greg Horeth
<PAGE>
EXHIBIT 10.2
ASSIGNMENT
----------
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Terrace Holdings, Inc., ("Assignor"), having on
January 16, 1996, been assigned by International Tours & Catering by Ambassador,
Inc., ("International"), all rights, title, and interest in a contract dated
April 19, 1994, (the "Passover Contract") by and between International and the
Fontainebleau Hilton Resort & Spa, (the "Hotel"), (A copy of the January 16,
1996 Assignment of Contract is attached hereto as Exhibit A), does hereby
assign, transfer, convey, and deliver unto its wholly owned subsidiary, The
Lasko Family Kosher Tours, Inc., ("Assignee") and its respective successors and
assigns, all of the rights, obligations, title, and interest of Assignor in and
with respect to the Passover Contract, a copy of which is attached hereto as
Exhibit B.
Assignee hereby accepts the assignment and transfer to it of the rights,
obligations, title, and interest in the Passover Contract, and, in consideration
of such transfer and assignment, agrees to be responsible for the management and
administration, from and after the date of this Assignment, of any and all
aspects of the Passover Contract, including any and all costs and expenses
related to Assignee's performance under said contract.
Assignor hereby covenants with Assignee and its respective successors and
assigns to execute, acknowledge, and deliver to, or to cause to be done,
executed, acknowledged and delivered to, Assignee and their respective
successors and assigns all such further acts, deeds, assignments, transfers,
conveyances, powers of attorney and assurances as may be reasonably requested by
Assignee or such successor or assign to manage or otherwise perform Assignee's
obligations under the Passover Contract.
This Assignment shall be binding upon the successors and assigns of
Assignor and shall inure to the benefit of the successors and assigns of each
Assignee.
IN WITNESS WHEREOF, Assignor has caused this Assignment to be duly executed
and delivered this 13 day of February, 1997.
TERRACE HOLDINGS, INC.
By: /s/ Dr. Samuel Lasko
---------------------------
Dr. Samuel Lasko
ACCEPTED:
THE LASKO FAMILY KOSHER TOURS, INC.
Dated: February 13, 1997 By: /s/ Dr. Samuel Lasko
---------------------------
Dr. Samuel Lasko
CONSENT TO ASSIGNMENT
---------------------
The undersigned, being the General Manager of The Fountainebleau Hilton
Resort & Spa, hereby consents and agrees to the foregoing Assignment of
Contract.
Dated: February 20, 1997 THE FONTAINEBLEAU HILTON RESORT & SPA
By: /s/ Leo Salom
---------------------------
Leo Salom
<PAGE>
EXHIBIT 10.3
ASSIGNMENT
----------
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Terrace Holdings, Inc., ("Assignor"), having on
January 16, 1996, been assigned by International Tours & Catering by Ambassador,
Inc. ("International") all rights, title, and interest in a contract dated
December 21, 1995, (the "Passover Contract") between International and Rye Town
Hilton, (the "Hotel"), (A copy of the January 16, 1996 Assignment of Contract is
attached hereto as Exhibit A), does hereby assign, transfer, convey, and deliver
unto its wholly owned subsidiary, The Lasko Family Kosher Tours, Inc.,
("Assignee") and its respective successors and assigns, all of the rights,
obligations, title, and interest of Assignor in and with respect to the Passover
Contract, a copy of which is attached hereto as Exhibit B.
Assignee hereby accepts the assignment and transfer to it of the rights,
obligations, title, and interest in the Passover Contract, and, in consideration
of such transfer and assignment, agrees to be responsible for the management and
administration, from and after the date of this Assignment, of any and all
aspects of the Passover Contract, including any and all costs and expenses
related to Assignee's performance under said contract.
Assignor hereby covenants with Assignee and their respective successors and
assigns to execute, acknowledge, and deliver to, or to cause to be done,
executed, acknowledged and delivered to, Assignee and their respective
successors and assigns all such further acts, deeds, assignments, transfers,
conveyances, powers of attorney and assurances as may be reasonably requested by
Assignee or such successor or assign to manage or otherwise perform Assignee's
obligations under the Passover Contract.
This Assignment shall be binding upon the successors and assigns of
Assignor and shall inure to the benefit of the successors and assigns of each
Assignee.
IN WITNESS WHEREOF, Assignor has caused this Assignment to be duly executed
and delivered this 13th day of February, 1997
TERRACE HOLDINGS, INC.
By: /s/ Dr. Samuel Lasko
---------------------------
Dr. Samuel Lasko
ACCEPTED:
THE LASKO FAMILY KOSHER TOURS, INC.
Dated: February 13, 1997 By: /s/ Dr. Samuel Lasko
---------------------------
Dr. Samuel Lasko
CONSENT TO ASSIGNMENT
---------------------
The undersigned, being the Director of Sales of the Rye Town Hilton, hereby
consents and agrees to the foregoing Assignment of Contract.
Dated: February14, 1997 RYE TOWN HILTON
By: /s/ Susan Marano
----------------------------
Susan Marano
<PAGE>
EXHIBIT 10.4
ASSET ACQUISITION AGREEMENT
BY AND BETWEEN
TERRACE HOLDINGS, INC.
A DELAWARE CORPORATION,
AND
DOWNEAST FROZEN DESSERTS, LLC
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
- ---------
<C> <S> <C>
1. DEFINITIONS.................................................. 1
1.1 Affiliate......................................... 1
1.2 Ancillary Documents............................... 1
1.3 Assets............................................ 1
1.4 Code.............................................. 3
1.5 Commitments....................................... 3
1.6 Rights............................................ 3
1.7 Liabilities....................................... 3
2. SALE OF ASSETS AND EXCHANGE OF STOCK......................... 3
2.1 Purchase and Sale of Assets and Rights............ 3
2.2 Delivery of Possession and Instruments
of Transfer....................................... 3
3. EXCHANGE OF STOCK............................................ 4
3.1 Issuance of THI Shares of Common Stock............ 4
3.2 Exchange of Notes................................. 4
3.3 Other Consideration............................... 4
3.4 Allocation of Consideration for Tax Purposes...... 4
4. CLOSING...................................................... 5
4.1 Closing and Closing Date.......................... 5
4.2 Effect of Not Closing............................. 5
5. REPRESENTATIONS AND WARRANTIES OF DE......................... 5
5.1 Organization, Good Standing, Power, Etc........... 5
5.2 Capital Position.................................. 6
5.3 Certificate of Formation and Operating Agreement.. 6
5.4 Subsidiaries, Divisions and Affiliates............ 6
5.5 Equity Investments................................ 6
5.6 Authorization of Agreement.......................... 6
5.7 Effect of Agreement............................... 7
5.8 Restrictions; Burdensome Agreements............... 7
5.9 Governmental and Other Consents................... 7
5.10 Financial Statements.............................. 7
5.11 Absence of Certain Changes or Events.............. 8
5.12 Title to Assets; Absence of Liens
and Encumbrances.................................. 8
5.13 Equipment......................................... 9
5.14 Insurance......................................... 9
5.15 Agreements, Arrangements, Etc..................... 10
5.16 Patents, Trademarks, Copyrights, Etc.............. 12
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
5.17 Permits, Licenses, Etc............................ 13
5.18 Compliance with Applicable Laws................... 13
5.19 Litigation........................................ 13
5.20 No Interest in Competitors........................ 14
5.21 Customers, Suppliers, Distributors and Agents..... 14
5.22 Books and Records................................. 14
5.23 Employee Benefit Plans............................ 15
5.24 Powers of Attorney................................ 15
5.25 Sufficiency of Assets and Commitments............. 15
5.26 Labor Disputes, Unfair Labor Practices............ 16
5.27 Past Due Obligations.............................. 16
5.28 Environmental Compliance.......................... 16
5.29 Tax and Other Returns and Reports................. 17
5.30 Recent Dividends and Other Distributions.......... 18
5.31 Inventory......................................... 18
5.32 Purchase and Sale Obligations..................... 18
5.33 Other Information................................. 18
5.34 Knowledge of DE and Its Members................... 18
5.35 Approval of Transaction by Members................ 18
6. REPRESENTATIONS AND WARRANTIES OF THI........................ 19
6.1 Organization...................................... 19
6.2 Authorization of Agreement........................ 19
6.3 Effect of Agreement............................... 19
6.4 Litigation........................................ 19
6.5 Submission of Transactions to Stockholder Vote.... 19
6.6 Capital Position.................................. 20
6.7 Certificate of Incorporation and By-Laws.......... 20
6.8 Subsidiaries, Divisions and Affiliates............ 20
6.9 Equity Investments................................ 20
6.10 Restrictions; Burdensome Agreements............... 20
6.11 Governmental and Other Consents................... 21
6.12 Financial Statements.............................. 21
6.13 Absence of Certain Changes or Events.............. 21
6.14 Insurance......................................... 22
6.15 Agreements, Arrangements, Etc..................... 22
6.16 Patents, Trademarks, Copyrights, Etc.............. 24
6.17 Permits, Licenses, Etc............................ 25
6.18 Compliance with Applicable Laws................... 25
6.19 No Interest in Competitors........................ 26
6.20 Books and Records................................. 26
6.21 Employee Benefit Plans............................ 26
6.22 Powers of Attorneys............................... 27
6.23 Tax and Other Returns and Reports................. 27
6.24 Recent Dividends and Other Distributions.......... 27
6.25 Other Information................................. 27
6.26 Knowledge of THI.................................. 28
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C> <C>
7. PRE-CLOSING COVENANTS OF DE.................................. 28
7.1 Conduct of Business Until Closing Date............ 28
7.2 Approvals, Consents and Further Assurances........ 29
7.3 Access to Properties, Records, Suppliers,
Agents, Etc....................................... 29
7.4 Advice of Changes................................. 29
7.5 Conduct........................................... 30
7.6 Employee Benefit Plans............................ 30
7.7 Satisfaction of Conditions by DE.................. 30
7.8 Non-Disclosure of Negotiations and
Non-Usage of Documents of THI..................... 30
8. PRE-CLOSING COVENANTS OF THI................................. 30
8.1 Conduct of Business Until Closing Date............ 31
8.2 Access to Properties, Records, Suppliers,
Agents, Etc....................................... 32
8.3 Advice of Changes................................. 32
8.4 Conduct........................................... 32
8.5 Employee Benefit Plans............................ 32
8.6 Satisfaction of Conditions by THI................. 32
8.7 Confidentiality................................... 33
9. POST-CLOSING COVENANTS....................................... 33
9.1 Further Assurances................................ 33
9.2 Composition of Board.............................. 33
9.3 Confidentiality................................... 33
9.4 Cooperation....................................... 34
9.5 Registration of Certain Shares.................... 34
10. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THI............... 34
10.1 Accuracy and Representations and Warranties....... 34
10.2 Performance of Agreements......................... 34
10.3 Litigation, Etc................................... 35
10.4 Approvals and Consents............................ 35
10.5 Manager's Certificate............................. 35
10.6 Officer's Certificate............................. 35
10.7 Good Standing Certificates........................ 36
10.8 No Material Adverse Change........................ 36
10.9 Actions, Proceedings, Etc......................... 36
10.10 Opinion of Counsel to DE.......................... 36
10.11 Licenses, Permits, Consents, Etc.................. 36
10.12 Documentation of Rights........................... 36
10.13 Employment of Namiot.............................. 36
10.14 Officers' Financial Certificate................... 37
10.15 Accountants Letter................................ 37
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C> <C>
10.16 Net Worth......................................... 37
10.17 Completion of Due Diligence....................... 37
10.18 Update of Exhibits................................ 37
10.19 Agreement to Sell or Purchase Certain Businesses.. 38
10.20 Assignments of Passover Contracts................. 38
11. CONDITIONS PRECEDENT TO THE OBLIGATION
OF DE........................................................ 38
11.1 Accuracy of Representations and Warranties........ 39
11.2 Performance of Agreements......................... 39
11.3 Secretary's Certificate........................... 39
11.4 Actions, Proceedings, Etc......................... 39
11.5 No Injunction..................................... 39
11.6 Opinion of Counsel to Buyer....................... 39
11.7 Completion of Schedules and Exhibits.............. 39
11.8 No Material Adverse Change........................ 39
12. SURVIVAL OF REPRESENTATIONS AND
WARRANTIES; INDEMNIFICATION.................................. 40
12.1 Survival.......................................... 40
12.2 Indemnification by DE............................. 40
12.3 Indemnification by THI............................ 40
12.4 Right to Defend................................... 41
12.5 Subrogation....................................... 41
13. MISCELLANEOUS................................................ 41
13.1 Expenses.......................................... 41
13.2 Termination of Agreement.......................... 42
13.3 Waivers........................................... 42
13.4 Binding Effect; Benefits.......................... 42
13.5 Assignment........................................ 42
13.6 Notices........................................... 42
13.7 Entire Agreement.................................. 43
13.8 Headings; Certain Terms........................... 43
13.9 Counterparts...................................... 44
13.10 Governing Law..................................... 44
13.11 Severability...................................... 44
13.12 Amendments........................................ 44
13.13 Transaction Taxes................................. 44
13.14 Disclosures....................................... 44
13.15 Section References................................ 44
13.16 Brokers and Finders; Consultant................... 44
</TABLE>
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SCHEDULE AND EXHIBIT INDEX
--------------------------
1. Exhibit 1.3(b) Inventory
2. Exhibit 1.3(c) Equipment
3. Exhibit 1.3(d) Rights (Patents, Trademarks, Copyrights, etc.)
4. Exhibit 1.3(g) Accounts Receivable
5. Exhibit 1.3(h) Real Property (owned or leased)
6. Exhibit 1.3(j) Excluded Assets
7. Exhibit 3.2 Promissory Notes - Holders and Amounts
8. Exhibit 3.3 Form of "Class C" Warrant
9. Exhibit 3.4 Allocation of Consideration
10. Exhibit 4.1 Form of Closing Memorandum
11. Exhibit 5.1 Good Standing Certificates - DE
12. Exhibit 5.2(a) Equity Securities of DE Reserved for Issuance
or Outstanding
13. Exhibit 5.2(b) Outstanding Offers, Options, Warrants, Equity
Securities, Etc.
14. Exhibit 5.2(c) Membership Interests
15. Exhibit 5.3 Certificate of Formation and Operating
Agreement of DE
16. Exhibit 5.4 Subsidiaries, Divisions and Affiliates of DE
17. Exhibit 5.5 Equity Investments
18. Exhibit 5.10 Financial Statements of DE
19. Exhibit 5.11 Material Adverse Changes
20. Exhibit 5.12 Liens and Encumbrances of DE
21. Exhibit 5.14 Insurance Policies
22. Exhibit 5.15.1 Commitments
23. Exhibit 5.16 Patents, Trademarks, Copyrights
24. Exhibit 5.17 Permits, Licenses, Etc.
25. Exhibit 5.19 Material Litigation
26. Exhibit 5.20 5% Interest Ownership Table
27. Exhibit 5.21 Interest in Competitors
28. Exhibit 5.23 Employee Benefit Plans
29. Exhibit 5.24 Powers of Attorney
30. Exhibit 5.25 Sufficiency of Assets & Commitments
31. Exhibit 5.26 Material Labor Disputes
32. Exhibit 5.27 Past Due Obligations
33. Exhibit 5.28.A Environmental Compliance
34. Exhibit 5.28.B Assignment of Indemnification
35. Exhibit 5.29.A Tax Examination Dates
36. Exhibit 5.29.B Examinations of Tax Returns by Governmental
Agency
37. Exhibit 5.29.C Proposal by Governmental Entity of Deficiency,
Assessment or Claim of Taxes
38. Exhibit 5.31.A Inventory
39. Exhibit 5.31.B Non-useable Inventory
40. Exhibit 6.6.A Equity Securities of THI that are Reserved for
Issuance
41. Exhibit 6.6.B Outstanding Offers, Options, Warrants, Rights,
Calls, Commitments, Obligations
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42. Exhibit 6.7 Certificate of Incorporation and By-Laws of
THI
43. Exhibit 6.8 Subsidiaries, Divisions, or Affiliates of THI
44. Exhibit 6.9 Equity Investments
45. Exhibit 6.12 Form 10-KSB, Forms 10-QSB
46. Exhibit 6.13 Material Adverse Changes
47. Exhibit 6.14 Insurance Policies
48. Exhibit 6.15.1 Agreements, Etc.
49. Exhibit 6.16 Patents, Trademarks, Etc.
50. Exhibit 6.17 Permits, Licenses, Etc.
51. Exhibit 6.19 Interest in Competitors
52. Exhibit 6.21 Employee Benefit Plans
53. Exhibit 6.22 Powers of Attorney
54. Exhibit 6.23.A Tax Examination Dates
55. Exhibit 6.23.B Examined Tax Returns of THI
56. Exhibit 6.23.C Proposed by Governmental Entity of Tax
Deficiency
57. Exhibit 10.10 Opinion of Counsel to DE
58. Exhibit 10.13 Milton Namiot Employment Agreement
59. Exhibit 10.14 Officer's Financial Certificate
60. Exhibit 10.15 Accountant's Letter
61. Exhibit 10.18 Amendment to Exhibits
62. Exhibit 10.19 Agreement to Sell and Purchase
63. Exhibit 10.20 Assignment of Passover Agreements
64. Exhibit 11.3 Secretary's Certificate of THI
65. Exhibit 11.4(a) Consent of Biltmore Securities, Inc.
66. Exhibit 11.4(b) "Fairness Opinion" of M.H. Meyerson & Co.,
Inc.
67. Exhibit 11.6 Opinion of Counsel to THI
68. Exhibit 13.16.2.A Settlement Agreement and General Release of
All Claims between DE and Barclay Partners,
LLC
69. Exhibit 13.16.2.B Letter Agreement between THI and Barclay
Partners, LLC
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ASSET ACQUISITION AGREEMENT
---------------------------
THIS ASSET ACQUISITION AGREEMENT ("Agreement") is made and entered into as
of this 9th day of December, 1996, by and between Terrace Holdings, Inc., a
Delaware corporation, or its assignee under Section 13.5 of this Agreement
("THI") and DownEast Frozen Desserts, LLC, a Delaware limited liability company
whose sole business is the ownership and operation of Deering Ice Cream Company
of Portland, Maine (collectively "DE").
RECITALS:
---------
WHEREAS, DE owns and operates the Assets (as hereinafter defined);
WHEREAS, THI desires to purchase from DE, and DE desires to sell to THI,
the Assets on the terms and conditions set forth in this Agreement;
NOW THEREFORE, in consideration of the foregoing the mutual covenants and
agreements of the parties hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
1. DEFINITIONS
-----------
1.1 "Affiliate". As used in this Agreement, the term "Affiliate" shall
mean, as applied to any person, any other person directly or indirectly
controlling, controlled by, or under common control with, that person. For
purposes of this definition, "control" (including with correlative meanings, the
terms "controlling", "controlled by", and "under common control with") as
applied to any person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of that
person or entity, whether through the ownership of voting securities, by
contract, or otherwise.
1.2 "Ancillary Documents" shall have the meaning set forth in Section 9.1
hereof.
1.3 "Assets". As used in this Agreement, the term "Assets" shall mean the
assets of DE (as of the Closing) as follows:
(a) the business of DE as a going concern, the goodwill pertaining
thereto and all of DE's right, title and interest in and to the name
"Deering Ice Cream", and all other names used by DE, as well as all logos
relating thereto;
(b) all items of inventory owned by DE including, without limitation,
all raw materials, work-in-progress and
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finished products of DE (all of which are collectively referred to
hereinafter as "Inventory"), including those items of Inventory set forth
in Exhibit 1.3(b);
(c) all vehicles, machinery, equipment (including equipment which has
previously been fully depreciated by DE and all equipment loaned to
customers), furniture, fixtures and non-inventory supplies of DE (including
containers, packaging and shipping material, tools and spare parts and
other similar tangible personal property owned by DE, which are listed on
Exhibit 1.3(c), all of which are collectively referred to hereinafter as
the "Equipment");
(d) all of DE's right, title and interest in and to the United States
and foreign rights of DE currently owned or used by DE (and the rights
proposed to be used) which are set forth on Exhibit 1.3(d), in the conduct
of the business of DE, with respect to copyrights, licenses, trademarks,
trademark rights, service mark rights, and trade secrets, shop rights,
know-how, technical information, techniques, discoveries, designs,
proprietary rights and non-public information and registrations, reissues
and extensions thereof and applications and licenses therefor, including
the items listed on Exhibit 1.3(d) (all of such rights being collectively
referred to hereinafter as the "Rights");
(e) all books and records of DE including all in-house mailing lists,
other customer and supplier lists, trade correspondence, production and
purchase records, promotional literature, data storage tapes and computer
disks, computer software, order forms, accounts payable records (including
invoices, correspondence and all related documents), accounts receivable
ledger from January 1, 1996 through the Closing Date, all documents
relating to uncollected invoices, and all shipping records from January 1,
1996 through the Closing Date;
(f) all contracts, agreements and orders for goods;
(g) all trade receivables of DE ("Accounts Receivable") and all
advance payments, prepaid items, rights to offset and credits of all kinds
of DE, including those items listed in Exhibit 1.3(g);
(h) all real property owned or leased by DE together with all
fixtures attached thereto, including those items listed in Exhibit 1.3(h)
(the "Real Property");
(i) all real property and all tangible personal property owned by DE
which is not specifically included in, or specifically excluded by, the
foregoing subsections (a) through (j); and
2
<PAGE>
(j) all other assets of DE, including rights arising from Commitments
and Rights, except as specifically excluded on Exhibit 1.3(j) ("Excluded
Assets").
1.4 "Code" shall mean the Internal Revenue Code of 1986, as amended,
and/or superseded.
1.5 "Commitments" shall mean all agreements, indentures, mortgages, plans,
policies, arrangements, and other instruments, including all amendments thereto
(or where they are verbal, written summaries of the materials terms thereof),
fixed or contingent, required to be disclosed on Exhibit 5.15.1.
1.6 "Rights" shall mean copyrights, licenses, patents, trademarks,
trademark rights, tradenames, service marks, service mark rights, and trade
secrets, shop rights, know-how, technical information, techniques, discoveries,
designs, proprietary rights and non-public information of DE and registrations,
reissues and extensions thereof and applications and license therefor.
1.7 "Liabilities" shall mean all indebtedness, liabilities, obligations
and Commitments of DE directly related to the Assets and shown on the balance
sheet of DE included in the Financial Statements (as defined in Section 5.10)
and which are outstanding at the time of Closing, and all such indebtedness,
liabilities, obligations and Commitments incurred by DE since the date of the
aforesaid Financial Statements in the ordinary course of business and consistent
with the terms and provisions of this Agreement which remain outstanding at the
time of Closing hereunder.
2. SALE OF ASSETS AND EXCHANGE OF STOCK
------------------------------------
2.1 Purchase and Sale of Assets and Rights. In exchange for the shares of
Common Stock of THI and other consideration set forth in Section 3 specified
herein, and upon and subject to the terms and conditions of this Agreement, THI
agrees to purchase and acquire from DE, and DE agrees to sell, assign, transfer,
convey and deliver to THI or its assignee under Section 13.5 at the Closing, all
rights, title and interest in and to the Assets subject to the Liabilities.
2.2 Delivery of Possession and Instruments of Transfer. At the Closing,
DE shall deliver to THI warranty bills of sale and such other instruments of
transfer requested by and satisfactory to THI and its counsel for the
consummation of the transactions contemplated under this Agreement and as are
necessary to vest in THI all of DE's rights, title and interest in and to the
Assets, free and clear of any lien, encumbrance, security agreement, equity,
option, claim, charge or restriction other than the applicable Liabilities to
which the Assets are subject.
3
<PAGE>
3. EXCHANGE OF STOCK
-----------------
3.1 Issuance of THI Shares of Common Stock. Subject to the conditions
precedent set forth in this Agreement, at the Closing, THI shall issue to DE an
aggregate of up to 1,000,000 shares of THI common stock, par value $.001 per
share ("Shares"). Except as otherwise expressly provided in this Agreement,
none of such shares shall be registered. Except as otherwise expressly provided
for in this Agreement, certificates evidencing the Shares shall have stop
transfer orders placed against them on the books of THI's transfer agent and
each shall bear substantially the following legend:
"The securities represented by this Certificate were acquired on
_________________________ without registration under the Securities Act of
1933, as amended, or any applicable state securities law. No transfer, sale
or other disposition of these securities or any interest therein may be
made except under an effective registration statement under said Act
covering such securities unless the Corporation has received an opinion of
counsel satisfactory to it that such transfer or resale does not require
registration under said Act."
3.2 Exchange of Notes. Of the 1,000,000 Shares to be issued under Section
3.1 above, up to 400,000 Shares shall be issued to those Members of DE holding
DE Promissory Notes in the aggregate of $525,000 principal amount, plus accrued
but unpaid interest thereon (approximately $37,000) in exchange therefor, as
their interests appear (on Exhibit 3.2 hereto). To the extent any Member of DE
notifies THI in writing at least thirty days prior to Closing that such Member
of DE desires to be repaid on the applicable Member's Note, then, THI at Closing
shall pay such Member the full unpaid principal amount, plus accrued but unpaid
interest of such Member's Note, and the number of Shares to be issued by THI
shall be reduced one share of THI Common Stock for each $1.405 of principal plus
interest so paid at Closing.
3.3 Other Consideration. In further consideration of the sale by DE, and
the purchase by THI, of the Assets, subject to the condition precedent set forth
in this Agreement, at the Closing, THI shall issue to DE warrants to purchase
250,000 shares of THI common stock at an exercise price of $2.50 per share
("Warrants") and shall reserve such number of shares of its common stock for
issuance upon exercise thereof. The Warrants shall be in the form and contain
the terms and conditions attached hereto as Exhibit 3.3. Except as otherwise
expressly provided in this Agreement or Exhibit 3.3, none of such Warrants or
the shares issuable upon exercise thereof shall be registered and certificates
evidencing such Warrants or shares shall bear a legend substantially similar to
that set forth in Section 3.1.
3.4 Allocation of Consideration for Tax Purposes. The parties agree to
allocate the consideration paid pursuant to this
4
<PAGE>
Agreement in the manner and in accordance with the values specified in Exhibit
3.4 for tax purposes. None of the parties shall, at any time hereafter, in any
tax or information return filed with any state or federal agency or in any
audit, other tax proceeding or otherwise, take a position which is contrary to
such allocation.
4. CLOSING
-------
4.1 Closing and Closing Date. Subject to the provisions of this
Agreement, the consummation of the transactions contemplated by this Agreement
(the "Closing") shall be held at the offices of Terrace Holdings, Inc., at 2:00
p.m. (local time), February 17, 1997, or at such later date, place or time as
the parties shall otherwise mutually agree upon or as shall be necessitated by
Section 6.5 (the date of the Closing being referred to herein as the "Closing
Date"). All Closing transactions shall be deemed to take place simultaneously,
and no Closing transaction shall be deemed consummated until all transactions to
take place at the Closing have been consummated. Provided the Closing Date is
on or prior to the date set forth in Section 13.2(b), the effective date of the
Closing of the transactions contemplated by this Agreement shall be as of
January, 1997. The actions and documents necessary for the consummation of
transactions contemplated by this Agreement shall be set forth in the Closing
Memorandum attached hereto as Exhibit 4.1.
4.2 Effect of Not Closing. If there is no Closing and consummation
hereunder solely because (i) the Members of DE have not affirmatively approved
as required by Section 5.35, or (ii) the stockholders of THI have not
affirmatively approved as required by Section 6.5, then the party whose Members
or stockholders do not so approve, as the case may be, thereupon shall pay to
the other party $50,000 as a "break-up" fee and this Agreement shall be deemed
terminated.
5. REPRESENTATIONS AND WARRANTIES OF DE
------------------------------------
As an inducement to THI to enter into this Agreement and perform its
obligations hereunder, DE hereby represents and warrants to THI as follows, each
of which representation and warranty is material and is being relied upon by
THI, and each of which is true as of the date hereof and shall be true as of the
Closing, with the same effect as if said representations and warranties had been
made at and as of the Closing Date:
5.1 Organization, Good Standing, Power, Etc. DE is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of Delaware. DE is authorized or licensed to do business as a foreign
limited liability company and is in good standing in each jurisdiction (set
forth in Exhibit 5.1) in which the character and location of its Assets or the
nature of the business transacted by DE makes such qualification
5
<PAGE>
necessary. DE has all requisite power and authority to (i) execute, deliver and
perform its obligations under this Agreement and to consummate the transactions
contemplated hereby and (ii) to own or lease and operate its properties and
assets, and carry on its business as it is presently being conducted.
5.2 Capital Position.
----------------
(a) DE has authorized ten Membership Interests, all of which are issued
and outstanding, duly authorized, validly issued, fully paid, and were issued in
compliance with all federal and applicable state securities laws. Except as set
forth in Exhibit 5.2(a), there are no equity securities of DE that are reserved
for issuance or are outstanding.
(b) Except as set forth in Exhibit 5.2(b) hereof, there are no outstanding
offers, options, warrants, rights, calls, commitments, obligations (verbal or
written), conversion rights, plans or other agreements (conditional or
unconditional) of any character providing for, requiring or permitting the
offer, sale, purchase or issuance of any Membership Interests of DE or any other
securities (as such term is defined in the Securities Act of 1933, as amended).
(c) Except as set forth in Exhibit 5.2(c) hereof, Membership Interests are
owned by the Members of DE free and clear of all liens, charges, encumbrances or
claims of any kind whatsoever.
5.3 Certificate of Formation and Operating Agreement. Attached as Exhibit
5.3 hereto are correct and complete copies of the Certificate of Formation of
DE, as amended to date, and the Operating Agreement of DE, as amended to date.
Such Certificate of Formation and Operating Agreement are in full force and
effect.
5.4 Subsidiaries, Divisions and Affiliates. Except as set forth on
Exhibit 5.4, there are no subsidiaries, divisions or Affiliates of DE. Except
as set forth on Exhibit 5.4, the business of DE has been conducted solely by DE
and not through any Affiliate, joint venture or other entity, person or under
any other name.
5.5 Equity Investments. Except as set forth in Exhibit 5.5, DE does not
own or have any rights to any equity interest, directly or indirectly, in any
corporation, partnership, joint venture, firm or other entity.
5.6 Authorization of Agreement. The execution, delivery and performance
of this Agreement has been, and the Ancillary Documents will be, duly and
validly executed and delivered by DE. This Agreement constitutes a valid and
binding obligation of DE enforceable in accordance with its terms, except that
such enforcement may be limited by bankruptcy, insolvency or other
6
<PAGE>
similar laws affecting the enforcement of creditor's rights generally.
5.7 Effect of Agreement. The execution, delivery and performance of this
Agreement by DE, and the consummation by DE of the transactions contemplated
hereby, will not, with or without the giving of notice and the lapse of time, or
both, (a) violate any provision of law, statute, rule, regulation or executive
order to which DE is subject; (b) violate any judgment, order, writ or decree of
any court applicable to DE; or (c) result in the breach of or conflict with any
term, covenant, condition or provision of, result in the modification or
termination of, constitute a default under, or result in the creation or
imposition of any lien, security interest, charge or encumbrance upon any of the
Assets pursuant to, any corporate charter, organizational document, operating
agreement, by-law, commitment, contract or other agreement or instrument,
including any of the Commitments, to which DE is a party or by which any of the
Assets is or may be bound or affected or from which DE derives benefit, which
breach, conflict, modification, termination, default or encumbrance described in
this clause (c) would be material to the business of DE or any of the Assets.
5.8 Restrictions; Burdensome Agreements. DE is not a party to any
contract, commitment or agreement, nor is DE or the Assets subject to, or bound
or affected by, any provision of the Articles of Organization, Operating
Agreement or other company restriction, or any order, judgment, decree, law,
statute, ordinance, rule, regulation or other restriction of any kind or
character, which would, individually or in the aggregate, materially adversely
affect DE's business or any of the Assets.
5.9 Governmental and Other Consents. No consent, authorization or
approval of, or exemption by, any governmental or public body or authority is
required in connection with the execution, delivery and performance by DE of
this Agreement or of any of the instruments or agreements herein referred to, or
the taking of any action herein contemplated.
5.10 Financial Statements. DE has delivered to THI, and included in
Exhibit 5.10 hereto are, correct and complete copies of financial statements of
DE for the period from inception through October 31, 1996 (the "Financial
Statements"). The Financial Statements were audited by Hamel, Asselin & Sweat.
The Financial Statements are in accordance with the books and records of DE,
have been prepared in accordance with generally accepted accounting principles
and practices consistently applied and accurately present and financial position
of DE at their respective dates and the results of operations and cash flows for
the respective periods covered thereby, and all items that could have a material
adverse effect on the willingness of a prospective purchaser to acquire DE
7
<PAGE>
have been disclosed in the Financial Statements or in the Exhibits to this
Agreement.
5.11 Absence of Certain Changes or Events. Except as set forth on Exhibit
5.11, since January 1, 1996, DE has not: (a) suffered any adverse change in, or
the occurrence of any events which, individually or in the aggregate, has or
have had, or might reasonably be expected to have, a material adverse effect on,
DE's financial condition, results of operations or business or the value of the
Assets; (b) incurred damage to or destruction of any material Asset or material
portion of the Assets, whether or not covered by insurance; (c) incurred any
material obligation or liability (fixed or contingent) except (i) current trade
or business obligations incurred in the ordinary course of business, none of
which were entered into for grossly inadequate consideration, (ii) obligations
or liabilities under the Commitments to the extent required thereby, and (iii)
obligations and liabilities under this Agreement; (d) made or entered into
contracts or commitments to make any capital expenditures in excess of Five
Thousand Dollars ($5,000.00); (e) mortgaged, pledged or subjected to lien or any
other encumbrance any of the Assets (except for purchase money liens used in the
acquisition of the Assets, as set forth on Exhibit 5.11); (f) sold, transferred
or leased any material Asset or material portion of the Assets, or canceled or
compromised any debt or material claims, except in each case, in the ordinary
course of business; (g) sold, assigned, transferred or granted any rights under
or with respect to any licenses, agreements, patents, inventions, trademarks,
trade names, copyrights or formulae or with respect to know-how or any other
intangible asset including, but not limited to, the Rights; (h) amended or
terminated any of the contracts, agreements, leases or arrangements which
otherwise would have been set forth on Exhibit 5.15.1 hereto; (i) waived or
released any other rights of material value; (j) entered into any transactions
not in the ordinary course of business which would, individually or in the
aggregate, materially adversely affect the Assets or the business of DE; or (k)
done or suffered anything material to invalidate or jeopardize its plant's or
products' kosher certification by The Union of Orthodox Jewish Congregations of
America.
5.12 Title to Assets; Absence of Liens and Encumbrances. Except as set
forth on Exhibit 5.12, (a) DE has good title to, and owns outright, the Assets,
which include substantially all of DE's assets reflected in the Financial
Statements (except (i) as sold, used or otherwise disposed of in the ordinary
course of business, and (ii) as disclosed in the Financial Statements), free and
clear of all mortgages, claims, liens, charges, encumbrances, security
interests, restrictions on use or transfer or other defects as to title; and (b)
immediately following the Closing, THI will have good and marketable title to
all Assets, free and clear of all mortgages, claims, liens, charges,
encumbrances, security interests, restrictions on use or transfer, or other
defects of any
8
<PAGE>
nature. The leases and other agreements or instruments under which DE holds,
leases or is entitled to the use of any real or personal property included in
the Assets (a correct and complete list of such leases and other agreements or
instruments being set forth on Exhibit 5.15.1) are in full force and effect and
all rentals, royalties or other payments accruing thereunder prior to the date
hereof have been duly paid. DE enjoys peaceable and undisturbed possession under
all such leases, and the change in ownership of the Assets will not adversely
affect such leases, other agreements and instruments.
5.13 Equipment. Set forth on Exhibit 1.3(c) is a correct and complete
list as of October 31, 1996 of all of the Equipment (as defined in Section
1.3(c)), indicating for each piece of Equipment whether it is owned or leased
and setting forth where it is located. None of the Equipment has been disposed
of since June 1, 1996. Except as noted on Exhibit 1.3(c), all of the Equipment
(a) is in good working condition, with no material defects, and generally has
been suitable to DE for the uses for which it was designed or has been employed
by DE, and (b) conforms in all material respects with any laws, ordinances,
regulations, orders or other similar governmental requirements relating to its
use, as the same are currently in effect.
5.14 Insurance. There are no outstanding or unsatisfied written
requirements or repeated verbal recommendations imposed or made by any of DE's
current insurance companies with respect to current policies covering any of the
Assets, or by any governmental authority requiring or recommending, with respect
to any of the Assets, that any repairs or other work be done on or with respect
to, or requiring or recommending any equipment or facilities be installed on or
in connection with, any of the Assets. DE carries, and (with respect to any
period for which a claim against DE may still arise) has always carried product
liability insurance, worker's compensation insurance in reasonable amounts, and
other insurance which is reasonably necessary to the conduct of the DE's
business. On Exhibit 5.14 is set forth a correct and complete list of (a) all
currently effective insurance policies and bonds covering the Assets or the
business of DE, and their respective annual premiums (as of the last renewal or
purchase of new insurance), and (b) for the five-year period ending on the date
hereof, (i) all accidents, casualties or damage occurring on or to the Assets or
relating to the business or products of DE which in the aggregate are in excess
or One Thousand Dollars ($1,000.00), and (ii) claims for product liability,
damages, contribution or indemnification and settlements (including pending
settlement negotiations) relating thereto which in the aggregate are in excess
of one Thousand Dollars ($1,000.00). Except as set forth on Exhibit 5.14, as of
the date hereof there are no disputes with underwriters of any such policies or
bonds, and all premiums due and payable have been paid. There are no pending or
threatened terminations or premium increases with respect to any of such
9
<PAGE>
policies or bonds and there is no condition or circumstance applicable to the
business of DE which may result in such termination or increase. DE and the
Assets are in compliance with all conditions contained in such policies or
bonds, except for non-compliance which, individually or in the aggregate, would
not have a material adverse affect on the business of DE or the Assets.
5.15 Agreements, Arrangements, Etc.
-----------------------------
5.15.1 Except as set forth on Exhibit 5.15.1, DE is not a party to, nor
are DE or any of the Assets bound by any:
(a) lease agreement (whether as lessor or lessee) of the Assets;
(b) license agreement, assignment or contract (whether as licensor or
licensee, assignor or assignee) relating to trademarks, trade names,
patents, or copyrights (or applications therefor), unpatented designs or
processes, formulae, know-how or technical assistance, or other proprietary
rights;
(c) employment or other contract or agreement with an employee or
independent contractor which (i) may not be terminated without liability to
DE upon notice to the employee or independent contractor of not more than
30 days, or (ii) provides payments (contingent or otherwise) of more than
$10,000 per year (including all salary, bonuses and commissions);
(d) agreement, contract or order with any buying agent, supplier or
other individual or entity who assists, provides or is otherwise involved
in the acquisition, supplying or providing Assets or other goods to DE;
(e) non-competition, secrecy or confidentiality agreements;
(f) agreement or other arrangement for the sale of goods or services
by DE to any third party (including the government or any other
governmental authority);
(g) agreement with any labor union;
(h) policy of insurance (including bonds) in force with respect to DE
or any of its operations, properties, assets or executive officers;
(i) agreement, contract or order with any distributor, dealer, sales
agent or representative, other than contracts or orders for the purchase,
sale or license of goods made in the usual and ordinary course of business
at an aggregate price
10
<PAGE>
per contract or more than $5,000 and a term of more than six months under
any such contract or order;
(j) agreement, contract or order with any manufacturer, supplier or
customer (including those agreements which allow discounts or allowances or
extended payment terms);
(k) agreement with any food distributor or brokerage company,
management company or any other individual or entity who assists, places,
brokers or otherwise is involved with the marketing or distribution of DE's
products to its customers;
(l) joint venture or partnership agreement with any other person;
(m) agreement guaranteeing, indemnifying or otherwise becoming liable
for the obligations or liabilities of another;
(n) agreement with any banks or other persons, other than its
employees or its Members (as listed on Exhibit 3.2), for the borrowing or
lending of money or payment or repayment of draws on letters of credit or
currency swap or exchange agreements (other than purchase money security
interests which may, under the terms of invoices from its suppliers, be
granted to suppliers with respect to goods so purchased);
(o) agreement with any bank, finance company or similar organization
which acquires from DE receivables or contracts for sales on credit;
(p) agreement granting any person a lien, security interest or
mortgage on any of the Assets, including, without limitation, any factoring
or agreement for the assignment of receivables or inventory;
(q) agreement for the incurrence of any capital expenditure in excess
of $5,000;
(r) advertising, publication or printing agreement;
(s) agreement which restricts DE from doing business anywhere in the
world;
(t) agreement or statute or regulation giving any party the right to
renegotiate or require a reduction in prices or the repayment of any amount
previously paid; or
(u) other agreement or contract, not included in or expressly
excluded from the terms of the foregoing clauses (a) through (t),
materially affecting the Assets or DE's business, except contracts or
purchase orders for the purchase or sale
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of goods or services made in the usual and ordinary course of business.
Correct and complete copies of all Commitments required to be shown on Exhibit
5.15.1 have been separately delivered to THI prior to the date hereof.
5.15.2 Each of the Commitments is valid, in full force and effect and
enforceable by DE in accordance with its terms.
5.15.3 Except as set forth on Exhibit 5.15.1, DE has fulfilled, or has
taken all action reasonably necessary to enable it to fulfill when due, all of
its obligations under the Commitments and Liabilities, except where the failure
to do so would not, individually or in the aggregate, have a material adverse
affect on the business of DE or the Assets. Furthermore, there has not occurred
any default by DE or any event which, with the lapse of time or the election of
any person other than DE, will become a default, nor has there occurred any
default by others or any event which, with the lapse of time or the election of
DE, will become a default under any of the Commitments or Liabilities, except
for such defaults, if any, which (a) have not resulted and will not result in
any material loss to or liability of DE or any of its successors or assigns or
(b) have been indicated on Exhibit 5.15.1. DE is not in arrears in any material
respect with respect to the performance of satisfaction of the terms or
conditions to be performed or satisfied by it under any of the Commitments or
Liabilities and no waiver or variance has been granted by any of the parties
hereto.
5.15.4 After the Closing, except as set forth on Exhibit 5.15.1, each of
the Commitments and Liabilities related to the Assets does not require the
consent of the other parties thereto and, with respect to any of the Commitments
or Liabilities which do require the consent of the other parties thereto, DE has
obtained such consent and has provided or will provide THI with copies thereof.
5.16 Patents, Trademarks, Copyrights, Etc. Exhibit 1.3(d) sets forth (i)
the registered and beneficial owner and the expiration date, to the extent
applicable, for each of the Rights set forth on such Exhibit and (ii) the
product, service, or products or services of DE which make use of, or are sold,
licensed or made under, each such Right. All of the Rights are included in the
Assets and constitute all Rights necessary for the conduct of the business of
DE, as such business is currently being conducted. Except as set forth on
Exhibit 5.16, DE has not sold, assigned, transferred, licensed, sub-licensed or
conveyed the Rights, or any of them, or any interest in the Rights, or any of
them, to any person, and has the entire right, title and interest (free and
clear of all security interests, liens and encumbrances of every nature) in and
to the Rights necessary to the conduct of the
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business of DE as currently being conducted; neither has the validity of such
items been, nor is the validity of such items, nor the use thereof by DE, the
subject of any pending or threatened opposition, interference, cancellation,
nullification, conflict, concurrent use, litigation or other proceeding. The
conduct of the business of DE as currently operated, and the use of the Assets
does not and will not conflict with, or infringe, legally enforceable rights of
third parties. Except as set forth on Exhibit 5.16, the Rights owned by or
licensed to DE have not been used, and no use is now being made, by any entity
except DE and other entities duly licensed to use the same. Except as set forth
on Exhibit 5.16, there is no infringement of any proprietary right owned or
licensed by DE.
5.17 Permits, Licenses, Etc. There are no permits, licenses,
registrations, memberships, orders or approvals of governmental or
administrative authorities or required to permit DE to carry on its business as
currently conducted (other than (i) permits, licenses, registrations, trade
memberships, orders or approvals which are set forth on Exhibit 5.17, all of
which are in full force and effect, and (ii) other permits, licenses, orders or
approvals, the failure to obtain which would not, individually or in the
aggregate, have a material adverse affect on the Assets or on DE's business).
5.18 Compliance with Applicable Laws. The conduct of DE of its business
does not violate or infringe, and there is no basis for any claims of violation
or infringement of, any law, statute, ordinance, regulation or executive order
(including, without limitation, the Federal Food, Drugs and Cosmetics Act, as
amended, the Occupational Safety and Health Act, the National Environmental
Policy Act and the Foreign Corrupt Practices Act and the respective regulations
thereunder and similar applicable state laws and regulations, including but not
limited to agriculture) currently in effect, except in each case for violations
or infringements which do not and will not, individually or in the aggregate,
have a material adverse affect on the Assets or DE's business. DE is not in
default under any governmental or administrative registration, membership or
license issued to it, under any governmental or administrative order or demand
directed to it, or with respect to any order, writ, injunction or decree of any
court which, in any case, materially adversely affects the financial condition,
results of operations or business of DE or the value of the Assets.
5.19 Litigation. Except as set forth on Exhibit 5.19, there is no claim,
action, suit, proceeding, arbitration, reparation, investigation or hearing or
notice of hearing, pending or threatened, before any court or governmental,
administrative or other competent authority or private arbitration tribunal
against or relating to or affecting (directly or indirectly, including by way of
indemnification) the business of DE or any of the Assets, or the transactions
contemplated by this Agreement; nor are any facts known to DE, which it believes
could reasonably give rise to any
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such claim, action, suit, proceeding, arbitration, investigation or hearing,
which may have any adverse affect, individually or in the aggregate in excess of
Five Thousand Dollars ($5,000) upon the business of DE, the value of the Assets
or the transactions contemplated by this Agreement. DE has not waived any
statute of limitations or other affirmative defense with respect to any of its
obligations. There is no continuing order, injunction or decree of any court,
arbitrator or governmental, administrative or other competent authority to which
DE is a party, or to which DE is subject. Neither DE nor any current officer,
director, Member, partner or employee of DE or any Affiliate of DE has been
permanently or temporarily enjoined or barred by order, judgment or decree of
any court or other tribunal or any agency or other body from engaging in or
continuing any conduct or practice in connection with the business engaged in by
DE. DE's worker's compensation experience rating for the five-year period ending
on the Closing Date is set forth in Exhibit 5.19.
5.20 No Interest in Competitors. Set forth on Exhibit 5.20 is a list
describing the extent to which DE, any of its Members or any officer, manager or
director of DE or any Affiliate of any of the foregoing, directly or indirectly,
owns more than a five percent (5%) interest in or controls or is an employee,
officer, director, or partner of or participant in (but only to the extent such
a participation exceeds one percent), or consultant to any corporation,
partnership, limited partnership, limited liability company, joint venture,
association or other entity which is a competitor, supplier or customer of DE or
has any type of business or professional relationship with DE.
5.21 Customers, Suppliers, Distributors and Agents. Except as set forth
on Exhibit 5.21, DE has no knowledge or reason to believe that any customer,
client, distributor, supplier or any other person or entity with material
business dealings with DE, will or may cease to continue such relationship with
DE, or will or may substantially reduce the extent of such relationship, at any
time prior to or after the Closing Date. Except for such common public
information, DE has no knowledge of (1) any other existing or contemplated
modification or change in the business relationship of DE with, or (2) any
existing condition or state of facts or circumstances which has affected
adversely, will adversely affect (in more than a minimal manner), or has a
reasonable likelihood of adversely affecting the business of DE with its
customers, clients, suppliers or other persons or entities with material
business dealings with DE or which has prevented or will prevent such business
from being carried on by DE under its new ownership after the Closing in
essentially the same manner as it is currently carried on.
5.22 Books and Records. The books of account and other financial and
corporate records of DE are in all material respects complete, correct and up to
date, with all necessary signatures,
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and are in all material respects accurately reflected in the Financial
Statements.
5.23 Employee Benefit Plans. Except as described in Exhibit 5.23, DE does
not have any hospitalization, health insurance, pension, retirement, profit
sharing, stock option or similar plans. Exhibit 5.23 sets forth a correct and
complete list of each and every employee benefit plan, including each pension,
profit sharing, stock bonus, bonus, deferred compensation, severance, stock
option or purchase plan, or other retirement plan or arrangement, covering
employees of DE (the "Employee Benefit Plans"). For each such employee pension
plan, multi-employer plan or welfare plan as those terms are defined in Section
3 of the Employee Retirement Income Security Act of 1974 ("ERISA") and for each
Employee Benefit Plan with respect to which DE is a "party in interest" as
defined in Section 3 of ERISA, or a "disqualified person" as defined in Section
4975 of the Code, DE has delivered to THI complete and accurate copies of (i)
all Employee Benefit Plans and all amendments thereto; (ii) the trust instrument
or insurance contract, if any, forming a part of the plans, and all amendments
thereto; (iii) the most recent and preceding year's Internal Revenue Service
Form 5500 and all schedules thereto; (iv) the most recent Internal Revenue
Service determination letter, or if no letter has been issued, any pending
application to the Internal Revenue Service for a determination letter regarding
qualified status; (v) any bond required by Section 412 of ERISA; and (vi) the
summary plan description. DE has complied with all of the rules and regulations
governing each of the Employee Benefit Plans maintained for the benefit of DE's
employees, including, without limitation, rules and regulations promulgated
pursuant to ERISA and the Code, by the Department of Treasury, Department of
Labor, and the Pension Benefit Plans Guaranty Corporation, and each of the
Employee Benefit Plans now operated has since its inception been operated in
accordance with its provisions and is in compliance with such rules and
regulations. Neither DE nor any Employee Benefit Plans maintained by DE or any
fiduciaries thereof have engaged in any prohibited transaction, as that term is
defined in Section 406 of ERISA or Section 4975 of the Code, nor have any of
them committed any breach of fiduciary responsibility with respect to any of the
Employee Benefit Plans, and DE does not have any knowledge that any other person
has not complied with these rules and regulations.
5.24 Powers of Attorney. Except as set forth on Exhibit 5.24, no person
has any power of attorney to act on behalf of DE in connection with any of DE's
properties or business affairs other than such powers to so act as normally
pertain to the officers of DE.
5.25 Sufficiency of Assets and Commitments. Except as set forth in
Exhibit 5.25, the Assets and the Commitments, taken in the aggregate, are
sufficient, and constitute all of the property and
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Rights necessary, for the continuation of the business and operations of DE on a
basis consistent with past operations.
5.26 Labor Disputes, Unfair Labor Practices. Except as set forth on
Exhibit 5.26, neither DE nor any Shareholder is engaged in any labor practice
which would have a material adverse affect on the Assets or DE's business. There
is no pending or affirmatively threatened (i) unfair labor practice complaint,
charge, labor dispute, strike, slowdown, walkout or work stoppage before the
National Labor Relations Board or any other authority or (ii) grievance or
arbitration proceeding arising out of or under a collective bargaining agreement
involving employees of DE. There have been no strikes, labor disputes, slow-
downs, walkouts, or work stoppages involving employees of DE. No union
representation question exists with respect to the employees of DE and no union
organizing activities are taking place. DE has not received notice from any of
its employees of such employee's intent to terminate his or her employment or
bring any action against DE or any Shareholder for any reason related to the
transactions contemplated by this Agreement or for any other reason.
5.27 Past Due Obligations. Except as set forth on Exhibit 5.27, no past
due obligations of DE over $500 have given rise or shall give rise within 5 days
after the Closing Date (except as such will be performed by DE prior to the
Closing so as to relieve THI of all liability therefor) to any additional
liability to THI on account of their being past due.
5.28 Environmental Compliance. Except as set forth in Exhibit 5.28.A, (i)
DE has not generated, used, transported, treated, stored, released or disposed
of, nor has suffered or permitted anyone else to generate, use, transport,
treat, store, release or dispose of any Hazardous Substance in violation of any
laws or governmental regulation; (ii) there has not been any generation, use,
transportation, treatment, storage, release or disposal of any Hazardous
Substance in connection with the conduct of the business of DE or the use of any
property, facility or Assets of DE or to the knowledge of DE any nearby or
adjacent properties or facilities, which has created or might reasonably be
expected to create any liability under any laws or governmental regulation or
which would require reporting to or notification of any governmental entity;
(iii) no asbestos or polychlorinated biphenyl or underground storage tank is
contained in or located at any facility of DE; and (iv) any Hazardous Substance
handled or dealt with in any way in connection with the business of DE has been
and his being handled or dealt with in all respects in compliance with
applicable local, state and federal laws. For purposes of this Section,
"Hazardous Substance" means (but shall not be limited to) substances that are
defined or listed in, or otherwise classified pursuant to, any applicable Laws
as "hazardous substances", "hazardous materials", "hazardous wastes" or "toxic
substances", or any other formulation intended to define, list or
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classify substances by reason of deleterious properties such as ignitibility,
corrosivity, toxicity or "EP toxicity", and petroleum and drilling fluids,
produced waters and other wastes associated with the exploration, development,
or production or crude oil, natural gas or geothermal energy.
Each item listed on Exhibit 5.28.A occurred/existed prior to or at the time
the facility at 135 Walton Street, Portland, Maine, was first leased to DE by
Cooper, Inc. (the "Lessor"). Except where otherwise indicated, DE has no
knowledge about any of the listed items, and reports only that which has been
conveyed to it by the Lessor and other sources. The Lessor of the property has
represented and warranted to DE that no hazardous substances or hazardous wastes
were on the property as of the date of the lease, except as may be listed on
Exhibit 5.28.A. The Lessor has also agreed to indemnify, defend and hold DE
harmless from and against any and all environmental claims, demands, damages,
environmental liabilities, and costs, actions, orders, expenses, liens or any
other liability, and for any resulting judgments, settlements, fines, penalties,
attorney's fees, and other litigation expenses arising from and caused by any
and all adverse environmental conditions whether known or unknown, existing on
or at the leased premises prior to the date of the lease, so long as DE, its
employees, agents and contractors, did not contribute to any such liabilities,
and the assignment of such indemnification to THI from and after Closing is
attached hereto as Exhibit 5.28.B.
5.29 Tax and Other Returns and Reports. DE has timely filed or will file
all federal, state and local tax returns and information returns ("Tax Returns")
required to be filed by DE and has paid all taxes due for all periods ending on
or before December 31, 1995. Adequate provision has been made in the books and
records of DE and in the Financial Statements referred to in Section 5.10 above,
for all taxes whether or not due and payable and whether or not disputed.
Exhibit 5.29.A lists the date or dates through which the IRS and any other
governmental entity have examined the United States federal income tax returns
and any other Tax Returns of DE. All required Tax Returns, including amendments
to date, have been prepared in good faith without negligence or willful
misrepresentation and are complete and accurate and in all material respects.
Except as set forth in Exhibit 5.29.B, no governmental entity has, during the
past three years, examined or is in the process of examining any Tax Returns of
DE. Except as set forth on Exhibit 5.29.C, no Governmental Entity has proposed
(tentatively or definitively), asserted or assessed or threatened to propose or
assert, any deficiency, assessment, lien, or other claim for taxes and there
would be no basis for any such delinquency, assessment, lien or claim. There are
no agreements, waivers or other arrangements providing for an extension of time
with respect to the assessment of any tax or deficiency against DE or with
respect to any tax return filed or to be filed by DE.
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5.30 Recent Dividends and Other Distributions. There has been no dividend
or other distribution of assets or securities whether consisting or money,
property or any other thing of value, declared, issued or paid to or for the
benefit of DE's Members subsequent to the date of the most recent financial
statements described in Section 5.10 by DE.
5.31 Inventory. Except as set forth in Exhibits 5.31A and B, all of the
Inventory has been received within 18 months of December 1, 1996 and is of a
quantity and quality saleable at regular prices or usable in the ordinary course
of business during 1996. Exhibit 5.31A shall specify all Inventory that was
received more than 18 months before the Closing Date, including the calendar
month in which such Inventory was received, by quantity and product family.
Exhibit 5.31B shall specify all Inventory which is not of a quality or quantity
saleable or usable in the ordinary course of business during 1996.
5.32 Purchase and Sale Obligations. All purchase, sales and orders and
all other commitments for purchases, sales and orders made by or on behalf of DE
have been made in the usual and ordinary course of its business in accordance
with normal practices. On the Closing Date, DE shall deliver to THI a schedule
of all such uncompleted purchase and sale orders and other commitments with
respect to any of DE's obligations as of a date not earlier than ten (10) days
prior to the Closing.
5.33 Other Information. None of the information which has been or may be
furnished by DE or any of its representatives to THI or any of its
representatives in connection with the transactions contemplated hereby, which
is contained in this Agreement (including the Exhibits hereto) or any Ancillary
Document or any certificate or instrument delivered or to be delivered by or on
behalf of DE in connection with the transactions contemplated hereby, does or
will contain any untrue statement of a material fact or omit a material fact
necessary to make the information contained herein or therein not misleading.
5.34 Knowledge of DE and its Members. As to each representation and
warranty made by DE under this Article 5, any fact or information known to any
Member of DE or notice received by any Member of DE related to the business and
operations of DE, shall be imputed to DE as if such fact or information were
known to DE or such notice received by DE.
5.35 Approval of Transaction by Members. Within ten (10) days of the
execution of this Agreement, the transactions contemplated in this Agreement
shall be submitted to the Members of DE to consider and vote thereon and the
Closing hereunder shall be subject to such Members' affirmative vote as required
under its Certificate of Formation and Operating Agreement.
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6. REPRESENTATIONS AND WARRANTIES OF THI
-------------------------------------
THI hereby represents and warrants to DE as follows, each of which
representation and warranty shall be true as of the Closing Date:
6.1 Organization. THI is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. THI has all
requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement and to consummate the transactions contemplated
hereby.
6.2 Authorization of Agreement. The execution, delivery and performance
of this Agreement by THI, and the consummation of the transactions contemplated
hereby have been duly and effectively authorized by THI's Board of Directors.
Subject to Section 6.5, this Agreement has been duly and validly authorized,
executed and delivered on behalf of THI. Subject to Section 6.5, this Agreement
constitutes a valid and binding obligation of THI, enforceable in accordance
with its terms, except that such enforcement may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors, rights
generally.
6.3 Effect of Agreement. The execution, delivery and performance of this
Agreement by THI and consummation by THI of the transactions contemplated hereby
will not, with or without the giving or notice and the lapse of time, or both,
(a) violate any provision of law, statute, rule, regulation or executive order
to which the THI is subject; (b) violate any judgment, order, writ or decree of
any court applicable to THI; or (c) result in the breach of or conflict with any
term, covenant, condition or provision of the Certificate of Incorporation of
THI or any commitment, contract or other agreement on instrument to which THI is
a party.
6.4 Litigation. To the best knowledge of THI, there are no actions,
suits, proceedings or governmental investigations or inquiries pending or
threatened against it which, in its reasonable judgment, would prevent the
consummation of the transactions contemplated hereby.
6.5 Submission of Transactions to Stockholder Vote. THI has been advised
that it is required to submit the acquisition transactions contemplated herein
to its stockholders for approval. As soon as is practicable hereafter, and
consistent with applicable state corporate and federal securities law and
regulation, the transactions contemplated in this Agreement shall be submitted
to the THI stockholders to consider and vote thereon and the Closing hereunder
shall be subject to such stockholder consideration. DE hereby agrees fully to
cooperate with THI and at its expense provide all reasonable assistance and
documentation as may be necessary for THI fully to comply with the applicable
requirements under the proxy or other applicable reporting rules promulgated by
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the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended, and for the NASDAQ SmallCap Market, with respect to any such
submission to stockholders, any required reporting of the transactions
contemplated in this Agreement and for continued NASDAQ eligibility.
6.6 Capital Position.
----------------
(a) THI has authorized 10,000,000 shares of common stock, par value $.001,
of which 3,312,000 are issued and outstanding, duly authorized, validly issued,
fully paid, and were issued in compliance with all federal and applicable state
securities laws. Except as set forth in Exhibit 6.6(a), there are no equity
securities of THI that are reserved for issuance or are outstanding.
(b) Except as set forth in Exhibit 6.6(b) hereof, there are no outstanding
offers, options, warrants, rights, calls, commitments, obligations (verbal or
written), conversion rights, plans or other agreements (conditional or
unconditional) of any character providing for, requiring or permitting the
offer, sale, purchase or issuance of any shares of THI or any other securities
(as such term is defined in the Securities Act of 1933, as amended).
6.7 Certificate of Incorporation and By-Laws. Attached as Exhibit 6.7
hereto are correct and complete copies of the Certificate of Incorporation of
THI, as amended to date, and the By-Laws of THI, as amended to date. Such
Certificate of Incorporation and By-Laws are in full force and effect.
6.8 Subsidiaries, Divisions and Affiliates. Except as set forth on
Exhibit 6.8, there are no subsidiaries, divisions or Affiliates of THI. Except
as set forth on Exhibit 6.8, the business of THI has been conducted solely by
THI and not through any Affiliate, joint venture or other entity, person or
under any other name.
6.9 Equity Investments. Except as set forth in Exhibit 6.9, DE does not
own or have any rights to any equity interest, directly or indirectly, in any
corporation, partnership, joint venture, firm or other entity.
6.10 Restrictions; Burdensome Agreements. THI is not a party to any
contract, commitment or agreement, nor is THI subject to, or bound or affected
by, any provision of the Certificate of Incorporation, By-Laws or other company
restriction, or any order, judgment, decree, law, statute, ordinance, rule,
regulation or other restriction of any kind or character, which would,
individually or in the aggregate, materially adversely affect THI's business or
any of the Assets.
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6.11 Governmental and Other Consents. Except in connection with Section
6.5, no consent, authorization or approval of, or exemption by, any governmental
or public body or authority is required in connection with the execution,
delivery and performance by DE of this Agreement or of any of the instruments or
agreements herein referred to, or the taking of any action herein contemplated.
6.12 Financial Statements. THI has delivered to DE, and included in
Exhibit 6.12 hereto are, correct and complete copies of its Form 10-KSB for the
year ended December 31, 1995, and its Forms 10-QSB for the periods ended March
31, 1996, June 30, 1996 and September 30, 1996. THI has also delivered to DE the
separate unaudited financial statements of its wholly owned subsidiaries The
Lasko Companies, Inc., A&E Management, Inc., and Prime Concern Kosher Foods,
Inc. for the same periods as the aforesaid Forms 10-QSB (the "Stand Alone
Financials"). The Forms 10-QSB and the Stand Alone Financials are in accordance
with the books and records of THI, have been prepared in accordance with
generally accepted accounting principles and practices consistently applied and
accurately present and financial position of THI (or the separate subsidiaries,
as the case may be) at their respective dates and the results of operations for
the respective periods covered thereby.
6.13 Absence of Certain Changes or Events. Except as set forth on Exhibit
6.13, since October 1, 1996, THI has not: (a) suffered any adverse change in, or
the occurrence of any events which, individually or in the aggregate, has or
have had, or might reasonably be expected to have, a material adverse effect on,
THI's financial condition, results of operations or business; (b) incurred
damage to or destruction of any material asset, whether or not covered by
insurance; (c) incurred any material obligation or liability (fixed or
contingent) except (i) current trade or business obligations incurred in the
ordinary course of business, none of which were entered into for grossly
inadequate consideration, and (ii) obligations and liabilities under this
Agreement; (d) made or entered into contracts or commitments to make any capital
expenditures in excess of Five Thousand Dollars ($5,000.00); (e) mortgaged,
pledged or subjected to lien or any other encumbrance any material assets of THI
(except for purchase money liens used in the acquisition of the such assets, as
set forth on Exhibit 6.13); (f) sold, transferred or leased any material asset,
or canceled or compromised any debt or material claims, except in each case, in
the ordinary course of business; (g) sold, assigned, transferred or granted any
rights under or with respect to any licenses, agreements, patents, inventions,
trademarks, trade names, copyrights or formulae or with respect to know-how or
any other intangible asset; (h) amended or terminated any material contracts,
agreements, leases or arrangements; (i) waived or released any other rights of
material value; (j) entered into any transactions not in the ordinary course of
business which would, individually or in the aggregate, materially adversely
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affect the business of THI; or (k) done or suffered anything material to
invalidate or jeopardize its kosher certification by Orthodox Rabbinical Board
of Broward and Palm Beach Counties.
6.14 Insurance. There are no outstanding or unsatisfied written
requirements or repeated verbal recommendations imposed or made by any of THI's
current insurance companies with respect to current policies covering its
assets, or by any governmental authority requiring or recommending, with respect
to any of its assets, that any repairs or other work be done on or with respect
to, or requiring or recommending any equipment or facilities be installed on or
in connection with, any of its assets. THI carries, and (with respect to any
period for which a claim against THI may still arise) has always carried product
liability insurance, worker's compensation insurance in reasonable amounts, and
other insurance which is reasonably necessary to the conduct of the THI's
business. On Exhibit 6.14 is set forth a correct and complete list of (a) all
currently effective insurance policies and bonds covering the business of THI,
and their respective annual premiums (as of the last renewal or purchase of new
insurance), and (b) for the five-year period ending on the date hereof, (i) all
accidents, casualties or damage occurring relating to the business or products
of THI which in the aggregate are in excess or One Thousand Dollars ($1,000.00),
and (ii) claims for product liability, damages, contribution or indemnification
and settlements (including pending settlement negotiations) relating thereto
which in the aggregate are in excess of one Thousand Dollars ($1,000.00). Except
as set forth on Exhibit 6.14, as of the date hereof there are no disputes with
underwriters of any such policies or bonds, and all premiums due and payable
have been paid. There are no pending or threatened terminations or premium
increases with respect to any of such policies or bonds and there is no
condition or circumstance applicable to the business of THI which may result in
such termination or increase. THI IS in compliance with all conditions contained
in such policies or bonds, except for non-compliance which, individually or in
the aggregate, would not have a material adverse affect on the business of THI.
6.15 Agreements, Arrangements, Etc.
-----------------------------
6.15.1 Except as set forth on Exhibit 6.15.1, THI is not a party to, nor
is THI bound by any:
(a) lease agreement (whether as lessor or lessee);
(b) license agreement, assignment or contract (whether as licensor or
licensee, assignor or assignee) relating to trademarks, trade names,
patents, or copyrights (or applications therefor), unpatented designs or
processes, formulae, know-how or technical assistance, or other proprietary
rights;
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(c) employment or other contract or agreement with an employee or
independent contractor which (i) may not be terminated without liability to
THI upon notice to the employee or independent contractor of not more than
30 days, or (ii) provides payments (contingent or otherwise) of more than
$10,000 per year (including all salary, bonuses and commissions);
(d) agreement, contract or order with any buying agent, supplier or
other individual or entity who assists, provides or is otherwise involved
in the acquisition, supplying or providing goods to THI;
(e) non-competition, secrecy or confidentiality agreements;
(f) agreement or other arrangement for the sale of goods or services
by THI to any third party (including the government or any other
governmental authority);
(g) agreement with any labor union;
(h) policy of insurance (including bonds) in force with respect to
THI or any of its operations, properties, assets or executive officers;
(i) agreement, contract or order with any distributor, dealer, sales
agent or representative, other than contracts or orders for the purchase,
sale or license of goods made in the usual and ordinary course of business
at an aggregate price per contract or more than $5,000 and a term of more
than six months under any such contract or order;
(j) agreement, contract or order with any manufacturer, supplier or
customer (including those agreements which allow discounts or allowances or
extended payment terms);
(k) agreement with any food purveying company, management company or
any other individual or entity involved with the marketing or distribution
of THI's products or services to its customers;
(l) joint venture or partnership agreement with any other person;
(m) agreement guaranteeing, indemnifying or otherwise becoming liable
for the obligations or liabilities of another;
(n) agreement with any banks or other persons, other than its
employees, for the borrowing or lending of money or payment or repayment of
draws on letters of credit or currency swap or exchange agreements (other
than purchase money
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security interests which may, under the terms of invoices from its
suppliers, be granted to suppliers with respect to goods so purchased);
(o) agreement with any bank, finance company or similar organization
which acquires from THI receivables or contracts for sales on credit;
(p) agreement granting any person a lien, security interest or
mortgage on any of THI's material assets, including, without limitation,
any factoring or agreement for the assignment of receivables;
(q) agreement for the incurrence of any capital expenditure in excess
of $5,000;
(r) advertising, publication or printing agreement;
(s) agreement which restricts THI from doing business anywhere in the
world;
(t) agreement or statute or regulation giving any party the right to
renegotiate or require a reduction in prices or the repayment of any amount
previously paid; or
(u) other agreement or contract, not included in or expressly
excluded from the terms of the foregoing clauses (a) through (t),
materially affecting THI's business, except contracts or purchase orders
for the purchase or sale of goods or services made in the usual and
ordinary course of business.
6.15.2 Except as set forth on Exhibit 6.15.1, THI has fulfilled, or has
taken all action reasonably necessary to enable it to fulfill when due, all of
its obligations under the agreements or arrangements therein listed, except
where the failure to do so would not, individually or in the aggregate, have a
material adverse affect on the business of THI. Furthermore, there has not
occurred any default by THI or any event which, with the lapse of time or the
election of any person other than THI, will become a default, nor has there
occurred any default by others or any event which, with the lapse of time or the
election of THI, will become a default under any of them, except for such
defaults, if any, which (a) have not resulted and will not result in any
material loss to or liability of THI or any of its successors or assigns or (b)
have been indicated on Exhibit 6.15.1. THI is not in arrears in any material
respect with respect to the performance of satisfaction of the terms or
conditions to be performed or satisfied by it under any of its material
obligations and no waiver or variance has been granted by any of the parties
hereto.
6.16 Patents, Trademarks, Copyrights, Etc. Exhibit 6.16 sets forth (i) the
registered and beneficial owner and the expiration
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date, to the extent applicable, for each of the patents, trademarks, copyrights,
etc., set forth on such Exhibit and (ii) the product, service, or products or
services of THI which make use of, or are sold, licensed or made under, each
such right. All of said rights constitute all such rights necessary for the
conduct of the business of THI, as such business is currently being conducted.
Except as set forth on Exhibit 6.16, THI has not sold, assigned, transferred,
licensed, sub-licensed or conveyed any such rights, or any interest in them, to
any person, and has the entire right, title and interest (free and clear of all
security interests, liens and encumbrances of every nature) in and to them
necessary to the conduct of the business of THI as currently being conducted;
neither has the validity of such items been, nor is the validity of such items,
nor the use thereof by THI, the subject of any pending or threatened opposition,
interference, cancellation, nullification, conflict, concurrent use, litigation
or other proceeding. Except as set forth on Exhibit 6.16, such rights owned by
or licensed to THI have not been used, and no use is now being made, by any
entity except THI and other entities duly licensed to use the same. Except as
set forth on Exhibit 6.16, there is no infringement of any proprietary right
owned or licensed by THI.
6.17 Permits, Licenses, Etc. There are no permits, licenses,
registrations, memberships, orders or approvals of governmental or
administrative authorities or required to permit THI to carry on its business as
currently conducted (other than (i) permits, licenses, registrations, trade
memberships, orders or approvals which are set forth on Exhibit 6.17, all of
which are in full force and effect, and (ii) other permits, licenses, orders or
approvals, the failure to obtain which would not, individually or in the
aggregate, have a material adverse affect on THI's business).
6.18 Compliance with Applicable Laws. The conduct of THI of its business
does not violate or infringe, and there is no basis for any claims of violation
or infringement of, any law, statute, ordinance, regulation or executive order
(including, without limitation, the Federal Food, Drugs and Cosmetics Act, as
amended, the Occupational Safety and Health Act, the National Environmental
Policy Act and the Foreign Corrupt Practices Act and the respective regulations
thereunder and similar applicable state laws and regulations, including but not
limited to agriculture) currently in effect, except in each case for violations
or infringements which do not and will not, individually or in the aggregate,
have a material adverse affect on THI's business. THI is not in default under
any governmental or administrative registration, membership or license issued to
it, under any governmental or administrative order or demand directed to it, or
with respect to any order, writ, injunction or decree of any court which, in any
case, materially adversely affects the financial condition, results of
operations or business of THI.
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6.19 No Interest in Competitors. Set forth on Exhibit 6.19 is a list
describing the extent to which THI, or any officer, or director of THI or any
Affiliate of any of the foregoing, directly or indirectly, owns more than a five
percent (5%) interest in or controls or is an employee, officer, director, or
partner of or participant in (but only to the extent such a participation
exceeds one percent), or consultant to any corporation, partnership, limited
partnership, limited liability company, joint venture, association or other
entity which is a competitor, supplier or customer of THI or has any type of
business or professional relationship with THI.
6.20 Books and Records. The books of account and other financial and
corporate records of THI are in all material respects complete, correct and up
to date, with all necessary signatures, and are in all material respects
accurately reflected in its filings with the Securities and Exchange Commission.
6.21 Employee Benefit Plans. Except as described in Exhibit 6.21, THI
does not have any hospitalization, health insurance, pension, retirement, profit
sharing, stock option or similar plans. Exhibit 6.21 sets forth a correct and
complete list of each and every employee benefit plan, including each pension,
profit sharing, stock bonus, bonus, deferred compensation, severance, stock
option or purchase plan, or other retirement plan or arrangement, covering
employees of THI (the "Employee Benefit Plans"). For each such employee pension
plan, multi-employer plan or welfare plan as those terms are defined in Section
3 of the Employee Retirement Income Security Act of 1974 ("ERISA") and for each
Employee Benefit Plan with respect to which THI is a "party in interest" as
defined in Section 3 of ERISA, or a "disqualified person" as defined in Section
4975 of the Code, THI has delivered to THI complete and accurate copies of (i)
all Employee Benefit Plans and all amendments thereto; (ii) the trust instrument
or insurance contract, if any, forming a part of the plans, and all amendments
thereto; (iii) the most recent and preceding year's Internal Revenue Service
Form 5500 and all schedules thereto; (iv) the most recent Internal Revenue
Service determination letter, or if no letter has been issued, any pending
application to the Internal Revenue Service for a determination letter regarding
qualified status; (v) any bond required by Section 412 of ERISA; and (vi) the
summary plan description. THI has complied with all of the rules and
regulations governing each of the Employee Benefit Plans maintained for the
benefit of THI's employees, including, without limitation, rules and regulations
promulgated pursuant to ERISA and the Code, by the Department of Treasury,
Department of Labor, and the Pension Benefit Plans Guaranty Corporation, and
each of the Employee Benefit Plans now operated has since its inception been
operated in accordance with its provisions and is in compliance with such rules
and regulations. Neither THI nor any Employee Benefit Plans maintained by THI
or any fiduciaries thereof have engaged in any prohibited transaction, as that
term is defined
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in Section 406 of ERISA or Section 4975 of the Code, nor have any of them
committed any breach of fiduciary responsibility with respect to any of the
Employee Benefit Plans, and THI does not have any knowledge that any other
person has not complied with these rules and regulations.
6.22 Powers of Attorney. Except as set forth on Exhibit 6.22, no person
has any power of attorney to act on behalf of THI in connection with any of
THI's properties or business affairs other than such powers to so act as
normally pertain to the officers of THI.
6.23 Tax and Other Returns and Reports. THI has timely filed or will file
all federal, state and local tax returns and information returns ("Tax Returns")
required to be filed by THI and has paid all taxes due for all periods ending on
or before December 31, 1995. Adequate provision has been made in the books and
records of THI, for all taxes whether or not due and payable and whether or not
disputed. Exhibit 6.23.A lists the date or dates through which the IRS and any
other governmental entity have examined the United States federal income tax
returns and any other Tax Returns of THI. All required Tax Returns, including
amendments to date, have been prepared in good faith without negligence or
willful misrepresentation and are complete and accurate and in all material
respects. Except as set forth in Exhibit 6.23.B, no governmental entity has,
during the past three years, examined or is in the process of examining any Tax
Returns of THI. Except as set forth on Exhibit 6.23.C, no Governmental Entity
has proposed (tentatively or definitively), asserted or assessed or threatened
to propose or assert, any deficiency, assessment, lien, or other claim for taxes
and there would be no basis for any such delinquency, assessment, lien or claim.
There are no agreements, waivers or other arrangements providing for an
extension of time with respect to the assessment of any tax or deficiency
against THI or with respect to any tax return filed or to be filed by THI.
6.24 Recent Dividends and Other Distributions. There has been no dividend
or other distribution of assets or securities whether consisting or money,
property or any other thing of value, declared, issued or paid to or for the
benefit of THI's stockholders subsequent to the date of the most recent
financial statements described in Section 6.12 by THI.
6.25 Other Information. None of the information which has been or may be
furnished by THI or any of its representatives to DE or any of its
representatives in connection with the transactions contemplated hereby, which
is contained in this Agreement (including the Exhibits hereto) or any Ancillary
Document or any certificate or instrument delivered or to be delivered by or on
behalf of THI in connection with the transactions contemplated hereby, does or
will contain any untrue statement of a material
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fact or omit a material fact necessary to make the information contained herein
or therein not misleading.
6.26 Knowledge of THI. As to each representation and warranty made by THI
under this Article 6, any fact or information known to any executive officer of
DE or notice received by any executive officer of THI related to the business
and operations of THI, shall be imputed to THI as if such fact or information
were known to THI or such notice received by THI.
7. PRE-CLOSING COVENANTS OF DE
---------------------------
DE hereby covenants and agrees with THI that DE shall do, or cause to be
done, the following, between the date of this Agreement and the Closing Date or
date of termination of this Agreement, as the case may be:
7.1 Conduct of Business Until Closing Date. Except as permitted or
required hereby or as THI may otherwise consent in writing, DE shall:
7.1.1 operate the business of DE only in the usual, regular and
ordinary manner, and use its best efforts to (a) preserve the present
business organization of DE intact, (b) keep available the services of the
present employees of DE, and (c) preserve the current business
relationships of DE with customers, clients, suppliers, distributors and
others having business dealings with it;
7.1.2 bear the risk of loss or damage to the Assets on and prior to
the Closing where such risk of loss is not the legal obligation of another,
and maintain all properties necessary for the conduct of the business of
DE, whether owned or leased;
7.1.3 maintain the books, records and accounts of DE in the usual,
regular and ordinary manner, on the basis consistent with prior periods;
7.1.4 duly comply with all laws, rules and regulations applicable to
DE and to the conduct of its business;
7.1.5 perform all of the obligations of DE without default, unless
such default is of no significance to DE and could have no adverse impact
on DE, its Assets or business;
7.1.6 neither (a) amend DE's Articles of Organization or Operating
Agreement; (b) merge with or into, consolidate, amalgamate or otherwise
combine with, any other entity; nor (c) change the character of the
business of DE;
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7.1.7 neither (a) encumber, mortgage, or voluntarily subject to lien
any of the existing Assets; (b) transfer, sell, lease, license or otherwise
dispose of any of, or any part of, the Assets (other than in the ordinary
course of business); (c) convey, transfer or acquire any material Asset or
property to, for or on behalf of DE other than in the ordinary course of
business; (d) enter into any arrangement, agreement or undertaking, with
respect to any of the employees relating to the payment of bonus,
severance, profit-sharing or special compensation or any increase in the
compensation payable or to become payable to any such employee; nor (e)
incur any material fixed or contingent obligation or enter into any
agreement, commitment, contract or other transaction or arrangement
relating to the business of DE or the Assets;
7.1.8 not make any distributions or dividends of Assets or
securities, nor any changes to the capital structure of DE; and
7.1.9 neither modify, change or terminate any of its material
obligations other than in the ordinary course of business, nor grant any
power of attorney with respect to the business of DE or the Assets to any
party except THI.
7.2 Approvals, Consents and Further Assurances. DE shall use its best
efforts to obtain in writing as promptly as possible all approvals, consents and
waivers required in order to effectuate the transactions contemplated hereby,
including but not limited to the consents of any lessors to or co-packer
customers of DE, and shall deliver to THI copies, reasonably satisfactory in
form and substance to counsel to THI, of such approvals and consents. DE shall
use its best efforts to assist THI, its counsel and accountants fully to comply
with the matters described in Section 6.5. DE shall also use its best efforts
to assure that the other conditions set forth in Article 10 hereof are satisfied
by the Closing Date.
7.3 Access to Properties, Records, Suppliers, Agents, Etc. DE shall give
to THI and to THI's counsel, financiers, accountants and other representatives
access to and copies of such of DE's properties, personnel, books, tax returns,
contracts, commitments and records as relate to the Assets, suppliers, agents,
distributors, etc. or other aspects of the business of DE; and shall furnish to
THI and such representatives all such additional instruments, contracts,
documents or other written obligations (certified by officers of DE, if so
requested) and financial and other information concerning such business, Assets,
suppliers, agents, etc. as THI or its representatives may from time to time
request.
7.4 Advice of Changes. If DE becomes aware of any fact or facts which, if
known at the date hereof, would have been required
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<PAGE>
to be set forth or disclosed in or pursuant to this Agreement or which,
individually or in the aggregate, could materially adversely affect the business
or Assets of DE, it shall promptly advise THI in writing thereof.
7.5 Conduct. Except as permitted or required hereby or as THI may
otherwise consent in writing, neither DE nor any of its Members shall enter into
any transaction or take any action which would result in any of the
representations and warranties of DE contained in this Agreement or in any
Ancillary Document not being true and correct as of the time immediately after
such transaction has been entered into or such event has occurred and on the
Closing Date.
7.6 Employee Benefit Plans. Except for payment of DE's current
obligations, DE shall not incur any additional obligations or liabilities,
including (i) all liabilities for all claims incurred, whether or not reported,
on or before the Closing Date under all "employee welfare benefit plans," within
the meaning of Section 3(l) of ERISA, (ii) all liabilities or obligations for
vacations or sick leave or retiree, medical or life benefits to employees or
former employees of DE, and (iii) all liabilities of DE for all benefits accrued
under any "employee pension benefit plan," within the meaning of Section 3(2) of
ERISA under each Employee Benefit Plan.
7.7 Satisfaction of Conditions by DE. DE hereby covenants and agrees with
THI that, between the date of this Agreement and the Closing Date or date of
termination of this Agreement, as the case may be, it shall use its best efforts
to assure that the conditions set forth in Article 10 hereof are satisfied by
the Closing Date.
7.8 Non-Disclosure of Negotiations and Non-Usage of Documents of THI. DE
hereby covenants and agrees with THI that it shall not use, show, display,
describe or otherwise disclose, directly or indirectly, in any manner, this
Agreement, any Exhibits hereto or any other document created by THI's counsel,
in whole or in part, which was the subject of negotiations between THI and the
Shareholders, or any of the terms or other aspects of the negotiations between
THI and DE, in the event that the Closing shall not occur for any reason. DE
further agrees that it will return and cause all of its advisors,
representatives and other parties, over which it has control, to return to THI
all documents or other written materials regarding this transaction that were
obtained from THI or its counsel during the course of the negotiations
(including all drafts of all documents).
8. PRE-CLOSING COVENANTS OF THI
THI hereby covenants and agrees with DE that THI shall do, or cause to be
done, the following, between the date of this Agreement
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and the Closing Date or date of termination of this Agreement, as the case may
be:
8.1 Conduct of Business Until Closing Date. Except as permitted or
required hereby or as DE may otherwise consent in writing, THI shall:
8.1.1 operate the businesses of THI only in the usual, regular and
ordinary manner, and use its best efforts to (a) preserve the present
business organization of THI intact, (b) keep available the services of the
present employees of THI, and (c) preserve the current business
relationships of THI with customers, clients, suppliers, distributors and
others having business dealings with it;
8.1.2 provide DE with copies of unaudited pro forma combined
statements of operations of THI and DE as of December 31, 1995 and
September 30, 1996 and an unaudited pro forma combined balance sheet of DE
and THI as of September 30, 1996, as well as unaudited consolidated
statements of cash flows of THI for each calendar month between the date of
this Agreement and the Closing Date;
8.1.3 maintain the books, records and accounts of THI in the usual,
regular and ordinary manner, on the basis consistent with prior periods;
8.1.4 duly comply with all laws, rules and regulations applicable to
THI and to the conduct of its businesses;
8.1.5 neither (a) amend THI's Certificate of Incorporation or By-
Laws; (b) merge with or into, consolidate, amalgamate or otherwise combine
with, any other entity; nor (c) change the character of the business of
THI;
8.1.6 neither (a) materially encumber, mortgage, or voluntarily
subject to material lien any of its material assets; (b) transfer, sell,
lease, license or otherwise dispose of any of, or any part of, its material
assets (other than in the ordinary course of business); (c) convey,
transfer or acquire any material asset or property to, for or on behalf of
THI other than in the ordinary course of business; (d) enter into any
arrangement, agreement or undertaking, with respect to any of the employees
relating to the payment of bonus, severance, profit-sharing or special
compensation or any increase in the compensation payable or to become
payable to any such employee; nor (e) incur any material fixed or
contingent obligation or enter into any agreement, commitment, contract or
other transaction or arrangement relating to the business of THI;
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8.1.7 not make any distributions or dividends in kind or of
securities, nor any changes to the capital structure of THI; and
8.1.8 neither modify, change or terminate any of its material
obligations other than in the ordinary course of business, nor grant any
power of attorney with respect to the businesses of THI to any party.
8.2 Access to Properties, Records, Suppliers, Agents, Etc. THI shall give
to DE and to DE's counsel, financiers, accountants and other representatives
access to and copies of such of THI's properties, personnel, books, tax returns,
contracts, commitments, records, suppliers, agents, distributors, etc. or other
aspects of the business of THI; and shall furnish to DE and such representatives
all such additional instruments, contracts, documents or other written
obligations (certified by officers of THI, if so requested) and financial and
other information concerning such business, suppliers, agents, etc. as DE or its
representatives may from time to time request.
8.3 Advice of Changes. If THI becomes aware of any fact or facts which,
if known at the date hereof, would have been required to be set forth or
disclosed in or pursuant to this Agreement or which, individually or in the
aggregate, could materially adversely affect the business of THI, it shall
promptly advise DE in writing thereof.
8.4 Conduct. Except as permitted or required hereby or as DE may
otherwise consent in writing, neither THI nor any of its Members shall enter
into any transaction or take any action which would result in any of the
representations and warranties of THI contained in this Agreement or in any
Ancillary Document not being true and correct as of the time immediately after
such transaction has been entered into or such event has occurred and on the
Closing Date.
8.5 Employee Benefit Plans. Except for payment of THI's current
obligations, THI shall not incur any additional obligations or liabilities,
including (i) all liabilities for all claims incurred, whether or not reported,
on or before the Closing Date under all "employee welfare benefit plans," within
the meaning of Section 3(l) of ERISA, (ii) all liabilities or obligations for
vacations or sick leave or retiree, medical or life benefits to employees or
former employees of THI, and (iii) all liabilities of THI for all benefits
accrued under any "employee pension benefit plan," within the meaning of Section
3(2) of ERISA under each Employee Benefit Plan.
8.6 Satisfaction of Conditions by THI. THI hereby covenants and agrees
with DE that, between the date of this Agreement and the Closing Date or date of
termination of this Agreement, as the case
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may be, THI shall use its best efforts to assure that the conditions set forth
in Article 11 hereof are satisfied by the Closing Date.
8.7. Confidentiality. Prior to the Closing, THI will use its best efforts
to keep confidential any and all information furnished to it by DE in the course
of negotiations, except (i) to the extent any such information must be disclosed
to any lenders interested in the transaction, (ii) to the extent such
information must be disclosed to comply with the applicable securities laws,
rules and regulations, and (iii) for information that is available to THI from
sources other than DE without violating the law. If for any reason the Closing
shall not occur, THI, to the extent such information has not then already been
publicly disclosed, will continue to use its best efforts to keep such
information confidential, to the extent that it is protectable by law, and will
not use it and will return to DE all documents or other written materials
regarding DE and any copies thereof obtained from DE or made by it through DE
during the course of the negotiations.
9. POST-CLOSING COVENANTS
----------------------
9.1. Further Assurances. After the Closing hereunder, DE, at the request
of THI, shall execute, acknowledge and deliver to THI, without further
consideration, all such further assignments, conveyances, endorsements, deeds,
powers of attorney, consents and other documents (together with the instruments
referred to in Section 1.3, referred to herein collectively as the "Ancillary
Documents") and take such other action as THI may reasonably request (a) to
confirm the transfer to and fully vest in THI, and protect THI's right, title
and interest in and to all of DE's right, title and interest in and to the
Assets, and (b) otherwise to consummate the transactions contemplated by this
Agreement.
9.2. Composition of Board. Following the Closing hereunder, Messrs.
Milton Namiot and Steven Shulman shall be appointed additional members of the
Board of Directors of THI. Thereupon, the Board of Directors shall designate
and appoint Samuel Lasko as Chairman of the Board, Milton Namiot as President
and Chief Executive Officer and Jonathan Lasko as Executive Vice President and
Chief Operating Officer.
9.3 Confidentiality. DE shall use its best efforts to keep confidential
any and all information concerning THI and its principals and Affiliates, except
for information that may be available from sources generally available to the
public. If for any reason the Closing shall not occur, DE will continue to use
its best efforts to keep the information concerning THI and its principals and
Affiliates confidential and will not use it for any purpose and will return to
THI all documents or other written materials and any copies thereof obtained or
made by it during the
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course of the negotiations concerning THI and its principals and Affiliates.
9.4 Cooperation. DE shall cooperate with THI and shall cause its Members
to cooperate with THI in arranging or participating in meetings between THI and
suppliers, co-packing customers, agents, distributors and others who have or
have had a business relationship with DE, at times that are non-injurious in a
material way to the operations of DE.
9.5 Registration of Certain Shares. As soon as is practicable following
the Closing, THI shall use its best efforts to register for public sale (i) the
shares of Common Stock underlying the Warrants described in Section 3.3, (ii)
the shares of Common Stock underlying the Warrants described in Section 13.16,
(iii) 250,000 shares beneficially owned by Samuel H. Lasko, (iv) 250,000 shares
beneficially owned by Jonathan S. Lasko, and (v) the shares of Common Stock
underlying the Warrants described in Section 10.19. With the exception of the
shares described in clauses (iii), (iv) and (v) above, all of such shares, if
and when registered, shall be subject to acceptable lock-up provisions and sale
restrictions for up to 18 months with Biltmore Securities, Inc.
10. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THI
The obligations of THI pursuant to this Agreement are subject to the
satisfaction at the Closing of each of the following conditions, any or all of
which conditions may be waived by THI in its sole discretion:
10.1 Accuracy of Representations and Warranties. All representations and
warranties made by DE (contained in this Agreement, any Exhibit or Schedule
hereto, or any certificate or instrument delivered to THI or its representatives
by DE or its representatives) shall be true on and as of the Closing Date with
the same force and effect as though made on and as of the Closing Date (i.e.,
with respect to representations that a state of facts exists on or as of the
date hereof, it is a condition that such state of facts exists on or as of the
Closing Date; and with respect to a representation that a state of facts has or
has not changed between a date prior to the date hereof and the date hereof, it
is a condition that such state of facts has or has not changed between such
prior date and the Closing Date), except as affected by transactions
contemplated hereby.
10.2 Performance of Agreements. DE shall have performed and complied with
all covenants, obligations and agreements to be performed or complied with by it
on or before the Closing Date pursuant to this Agreement.
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10.3 Litigation, Etc.
10.3.1 Except as set forth on Exhibit 5.19, no claim, action, suit,
proceeding, arbitration, investigation or hearing or note of hearing shall
be pending or threatened against or affecting THI or DE or any of the
Assets, which (a) might result either in an action or enjoin or prevent the
consummation of the transactions contemplated by this Agreement; (b) in the
reasonable judgment of THI would materially adversely affect the business
of DE or the ability of THI to consummate the transactions contemplated by
this Agreement or to own the Common Stock or to operate the business of DE.
10.3.2 DE shall not be in violation of any law, statute, ordinance,
rule, regulation or executive order, the enforcement of which would,
individually or in the aggregate, materially adversely affect the Assets or
the business of DE; or which would individually or in the aggregate,
materially adversely affect the ability of THI to consummate the
transactions contemplated by this Agreement or to own the Assets or to
operate the business of DE.
10.3.3 No law, regulation or decree shall have been proposed, adopted
or promulgated, or have become effective, the enforcement of which would
materially adversely affect the ability of THI to consummate the
transactions contemplated by this Agreement or to own the Assets or to
operate any such business.
10.4 Approvals and Consents. DE shall have obtained, and THI shall have
received copies of, all of the approvals and consents referred to in Section
7.2, each of which approvals and consents shall be in full force and effect and
reasonably satisfactory in form and substance to THI and its counsel.
10.5. Manager's Certificate. THI shall have received an accurate
certificate of the Manager of DE, dated the Closing Date, satisfactory in form
and substance to THI and its counsel, certifying (a) as to the fulfillment of
the matters specified in Sections 10.1 through 10.3, and (b) any changes that
THI is required to be notified of pursuant to Section 7.4, or that previously
had not been disclosed to THI.
10.6 Officer's Certificate. THI shall have received an accurate
certificate, dated the Closing Date, of Milton Namiot, President and Chief
Executive Officer of DE, dated as of the Closing Date, stating, among other
things, that he is not aware of any material omissions or facts that would
materially alter any of the Financial Statements, nor is he aware of any facts
or factors that are reasonably likely to occur, or if known to other parties,
that could have a material adverse effect on the financial
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condition, business, operations, Assets, liabilities, management or prospects of
DE.
10.7 Good Standing Certificates. THI shall have received (a) a certificate
of the office of the Secretary of State of Delaware, dated within 5 days before
the Closing Date, certifying that the records of such state regarding DE
organized in such state reflect neither a certificate of dissolution, a court
order declaring dissolution, a business combination which terminated its
existence, nor suspension of its powers, rights and privileges, and that in
accordance with the records of such state, such company is authorized to
exercise all of its powers, rights and privileges in such state and (b) a
telegram or other document from one or more appropriate officials of the State
of Delaware or an affidavit of counsel with respect to telephone conversations
with such officials, dated within two days before the Closing Date, to the same
effect.
10.8 No Material Adverse Change. THI shall confirm to its sole
satisfaction that (i) there have been no material adverse changes in the
financial condition, business, operations, assets, liabilities, management or
prospects of DE; and (ii) there are no material adverse tax consequences to any
of the parties to the agreement described in Section 10.19.
10.9 Actions, Proceedings, Etc. All actions, proceedings, instruments and
documents required to carry out the transactions contemplated by this Agreement
shall have been completed in a manner reasonably satisfactory to THI, such
approval not to be unreasonably withheld.
10.10 Opinion of Counsel to DE. THI shall have received an opinion of
Messrs. Sanders and McDermott, counsel to DE, addressed to THI, dated the
Closing Date, to the effect set forth in, and substantially in the form, of
Exhibit 10.10.
10.11 Licenses, Permits, Consents, Etc. THI shall have received evidence,
in form and substance reasonably satisfactory to counsel for THI, that such
licenses, permits, consents, approvals, authorizations or orders of governmental
authorities as are necessary to the consummation of the transactions
contemplated by this Agreement and the continued operation of the business of DE
have been obtained.
10.12 Documentation of Rights. DE shall have delivered to THI true and
complete copies of all of the documentation held by DE relating to each of the
Rights.
10.13 Employment of Namiot. THI shall have entered into an Employment
Agreement with Milton Namiot of Portland, Maine ("Namiot"), under which Namiot
from and after Closing shall be the President and Chief Executive Officer of THI
and DE for at least
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three years at a base salary of $175,000 per annum. Said Employment Agreement
shall be substantially in the form of Exhibit 10.13 attached hereto.
10.14 Officers' Financial Certificate. THI shall have received an
accurate certificate as set forth in Exhibit 10.14 from Namiot and Steven
Shulman, officers of DE, dated as of the Closing Date, satisfactory in form and
substance to THI and its counsel, certifying that the Financial Statements are
true and correct, and accurately present the financial position of DE during
that interim period.
10.15 Accountants Letter. THI shall have received, to THI's sole
satisfaction, a "comfort" letter in the form as set forth in Exhibit 10.15 from
Asselin, Sweat & Hamil, independent public accountants for DE, dated as of the
Closing Date, stating, among other things, that such accountants are not aware
of any material omissions or facts that would materially alter any of the
Financial Statements, nor are they aware of any as of the Closing Date, or the
breach of any agreement, covenant or condition required by this Agreement to be
performed or complied with by DE prior to the Closing Date.
10.16 Net Worth. The net worth (net assets - net liabilities) of DE at
the Closing shall be a deficit not greater than $(180,000). For purposes of
calculation under this Section 10.16, the Promissory Notes (plus accrued unpaid
interest thereon) listed on Exhibit 3.2 shall be deemed a part of Members'
Equity and not Liabilities of DE.
10.17 Completion of Due Diligence. To THI's sole satisfaction, THI shall
have received sufficient information and access to such information on a timely
basis regarding DE. As of the date of this Agreement, certain Exhibits or
Schedules required of DE to be attached hereto have not yet been prepared or
assembled. Receipt and approval by THI and its counsel in THI's sole discretion
at or prior to Closing, of all Exhibits and Schedules hereto is a further
condition to the obligations of THI hereunder and the Closing hereof.
10.18 Update of Exhibits. DE shall have furnished to THI as Exhibit
10.18, immediately prior to the Closing Date, an amendment to the Exhibits to
this Agreement which shall update as of the Closing Date all information
specifically required to be contained in the Exhibits as of the date hereof
together with complete originals or copies of the documents of the kinds
referred to in Section 1.2 which have come into existence between the date
hereof and the Closing Date, and the information supplied in the amendment to
the Exhibits shall not show the incorrectness or untruthfulness or lack of
completeness in any respect of any representation or warranty made by DE as of
the date hereof or as of the Closing Date, or the breach of any agreement,
covenant or condition
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required by this Agreement to be performed or complied with by DE prior to the
Closing Date.
10.19 Agreement to Sell and Purchase Certain Businesses. At the Closing,
THI shall have received an executed agreement executed by Samuel H. Lasko and
Jonathan S. Lasko substantially in the form of Exhibit 10.19 attached hereto
under which THI shall sell to Messrs. Lasko or their designee the businesses,
assets or capital stock of those entities, as the case may be, currently
conducting the businesses of THI under the name "The Lasko Family Kosher Tours"
or "Terrace-Oceanside Restaurant" or in THI's wholly-owned subsidiaries, The
Lasko Family Kosher Tours, Inc. The Lasko Companies, Inc., and A&E Management,
Inc., and at Closing shall issue to each of Samuel H. Lasko and Jonathan S.
Lasko Warrants to purchase 150,000 shares of THI Common Stock, such Warrants to
be of like form and tenor as is set forth in Exhibit 3.3 attached hereto. In
consideration therefor, Messrs. Lasko, and each of them, shall surrender their
respective current THI Employment Agreements including but not limited to their
respective options thereunder to purchase shares of THI Common Stock. The
foregoing Agreement to Sell and Purchase shall be subject to the prior approval
and recommendation thereof by a committee of disinterested directors of THI
appointed therefor ("Committee"), the Committee's receipt of a "fairness
opinion" rendered by an independent investment banking or other firm of similar
expertise in appraising and evaluating such transactions, the acceptance of such
"fairness opinion" by Messrs. Lasko and the affirmative vote of a majority of
the THI shares voting at a meeting where such Agreement to Sell and Purchase and
the Committee's recommendations are considered. The cost or expense of securing
such fairness opinion shall be borne solely by THI.
The Agreement to Sell and Purchase shall also provide that all direct
revenues and expenses of the subject businesses, operations or corporations
shall be allocable thereto except that no more than 80% of compensation paid to
or accrued for Messrs. Lasko and none of the legal or accounting fees or
expenses incurred in connection therewith shall be allocable to such businesses,
assets or subsidiary corporations.
10.20 Assignments of Passover Contracts. At or prior to Closing the
current agreements under which THI operates Passover programs at the Bonaventure
Resort & Spa, the Fountainebleu Hilton and the Rye Town Hilton Hotels shall have
been transferred and assigned to THI's wholly owned subsidiary The Lasko Family
Kosher Tours, Inc. without objection or with approval therefor from each of the
respective contraparties thereto.
11. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF DE
---------------------------------------------
The obligations of DE under this Agreement are subject to the satisfaction
at the Closing of each of the following conditions,
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any or all of which conditions may be waived by DE in its sole discretion.
11.1 Accuracy of Representations and Warranties. All representations and
warranties by THI in this Agreement shall be true as of the Closing Date with
the same force and effect as though made on and as of the Closing Date.
11.2 Performance of Agreements. THI shall have performed and complied in
all material respects with all covenants, obligations and agreements to be
performed or complied with by it on or before the Closing Date pursuant to this
Agreement.
11.3 Secretary's Certificate. DE shall have received a certificate from
the Secretary of THI, substantially in the form of Exhibit 11.3 dated the
Closing Date.
11.4 Actions, Proceedings, Etc. All actions, proceedings, instruments and
documents required to carry out the transactions contemplated by this Agreement
shall have been completed in a manner reasonably satisfactory to DE and approved
by its counsel, including but not limited to receipt by THI of the written
consent to Biltmore Securities, Inc. to this Agreement as may be required under
that certain Underwriting Agreement dated December 5, 1995 between THI and
Biltmore Securities, Inc., the affirmative vote of a majority of the THI
shareholders voting at a meeting called for such purpose, and the securing of a
"fairness opinion"; and such counsel shall have been furnished with such other
instruments and documents as they shall have reasonably requested.
11.5 No Injunction. No third party injunction, stay or restraining order
shall be in effect prohibiting the consummation of the transactions contemplated
hereby.
11.6 Opinion of Counsel to Buyer. DE shall have received an opinion of
Fishman & Merrick, P.C., counsel to THI, addressed to DE and dated as of the
Closing Date, to the effect set forth in, and substantially in the form, of
Exhibit 11.6.
11.7 Completion of Schedules and Exhibits. As of the date of this
Agreement, certain Exhibits or Schedules required of THI to be attached hereto
have not yet been prepared or assembled. Receipt and approval by DE and its
counsel, in DE's sole discretion, at or prior to Closing, of all such Exhibits
and Schedules hereto is a further condition to the obligations of DE hereunder
and the Closing hereof.
11.8 No Material Adverse Change. DE shall confirm to its sole
satisfaction that (i) there have been no material adverse changes, business,
operations, assets, liabilities, management or prospects of THI; and (ii) there
are no material adverse tax
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consequences to any of the parties to the agreement described in Section 10.19.
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION
12.1 Survival. The representations and warranties set forth in this
Agreement, in any Exhibit or Schedule hereto and in any certificate or
instrument delivered in connection herewith shall survive for a period of two
(2) years after the Closing Date and shall thereupon terminate and expire and
shall be of no force or effect thereafter, except (a) with respect to any claim,
written notice of which shall have been delivered to THI, the Shareholders or
DE, as the case may be, such claim shall survive the termination of such period
and shall survive for as long as such claim is unsettled, and (b) with respect
to any litigation which shall have been commenced to resolve such claim on or
prior to such date. Notwithstanding the foregoing, with respect to taxes, the
period shall be the applicable statute of limitations, and with respect to
customer claims, the period shall be five (5) years.
12.2 Indemnification by DE. DE hereby covenants and agrees with THI that,
regardless of any investigation made at any time by or on behalf of THI or any
information THI may have and, regardless of the Closing hereunder, DE shall
indemnify THI and its respective directors, officers, employees and Affiliates
of THI, and each of their successors and assigns (individually, a "THI
Indemnified Party"), and hold them harmless from, against and in respect of any
and all costs, losses, claims, liabilities, fines, penalties, damages and
expenses (including interest which may be imposed in connection therewith, court
costs and reasonable fees and disbursements of counsel) incurred by any of them
resulting from any misrepresentation, breach of warranty or nonfulfillment of
any agreement, covenant or obligation by DE made in this Agreement (including
without limitation any Exhibit hereto and any certificate or instrument
delivered in connection herewith) or any taxes of any kind whatsoever, or
expenses, interest or penalties relating thereto, including those that arise out
of or result from the transactions contemplated by this Agreement, other than
taxes relating to the conduct of the business using the Assets after the Closing
Date.
If, by reason of the claim of any third party relating to any of the
matters subject to indemnification under this Section 12.2, a lien, attachment,
garnishment or execution is placed upon any of the property or assets of any THI
Indemnified Party, the Shareholders shall promptly furnish an indemnity bond
reasonably satisfactory to THI to obtain the prompt release of such lien,
attachment, garnishment or execution. THI shall be entitled to set off amounts
owed to THI or DE under this Section 12.2 against any amounts owed, owing to or
held by THI or DE to or on behalf of DE.
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12.3 Indemnification by THI. Subject to the limitations set forth in
Section 12.1, THI hereby covenants and agrees with DE that THI shall indemnify
DE and hold it harmless from, against and in respect of any and all costs,
losses, claims, liabilities, fines, penalties, damages and expenses (including
interest which may be imposed in connection therewith and court costs and
reasonable fees and disbursements of counsel) incurred by it resulting from any
misrepresentation, breach of warranty or the nonfulfillment of any agreement,
covenant or obligation by THI made in this Agreement (including without
limitation any Exhibit hereto and any certificate or instrument delivered in
connection herewith).
12.4 Right to Defend. If the facts giving rise to any such
indemnification shall involve any actual claim or demand by any third party
against a THI Indemnified Party or DE (referred to hereinafter as an
"Indemnified Party"), the indemnifying parties shall be entitled to notice of
and entitled (without prejudice to the right of any Indemnified Party to
participate at its own expense through counsel of its own choosing) to defend or
prosecute such claim at their expense and through counsel of their own choosing
if they give written notice of their intention to do so no later than the time
by which the interest of the Indemnified Party would be materially prejudiced as
a result of its failure to have received such notice; provided, however, that if
the defendants in any action shall include both the indemnifying parties and an
Indemnified Party, and the Indemnified Party shall have reasonably concluded
that counsel selected by the indemnifying parties has a conflict of interest
because of the availability of different or additional defenses to the
Indemnified Party, the Indemnified Party shall cooperate fully in the defense of
such claim and shall make available to the indemnifying parties pertinent
information under its control relating thereto, but shall be entitled to be
reimbursed, as provided in this Article 12, for all costs and expense incurred
by it in connection therewith.
12.5 Subrogation. If the Indemnified Party receives payment or other
indemnification from the indemnifying party hereunder, the indemnifying party
shall be subrogated to the extent of such payment or indemnification to all
rights in respect of the subject matter of such claim to which the Indemnified
Party may be entitled, to institute appropriate action for the recovery thereof,
and the Indemnified Party agrees reasonably to assist and cooperate with the
indemnifying party at no expense to the Indemnified Party in enforcing such
rights.
13. MISCELLANEOUS
13.1 Expenses. Except as and to the extent otherwise provided in this
Agreement, whether or not the transactions contemplated by this Agreement are
consummated, DE and THI shall each pay their own respective expenses and the
fees and expenses of their respective counsel and other experts.
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13.2 Termination of Agreement. This Agreement may be terminated and the
transaction contemplated hereby may be abandoned at any time, but not later than
the Closing Date:
(a) by mutual consent of the parties; or
(b) by DE or THI if, through no material fault of such party so
electing to terminate, the Closing shall not have occurred on or prior to
March 31, 1997.
In the event of the termination of this Agreement by any party as above
provided, without material fault of any party, no party shall have any liability
hereunder, including any liability for damages. In the event that a condition
precedent to a party's obligation is not met, nothing contained herein shall be
deemed to require any party to terminate this Agreement rather than to waive
such condition precedent and proceed with the Closing.
13.3 Waivers. No action taken pursuant to this Agreement, including any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representation,
warranty, covenant or agreement contained herein or in any other documents. The
waiver by any party hereto of a breach of any provision of this Agreement shall
not operate or be construed as a waiver of any subsequent breach. Any party
hereto may, at or before the Closing, waive any conditions to its obligations
hereunder which are not fulfilled.
13.4 Binding Effect; Benefits. This Agreement shall inure to the benefit
of the parties hereto and shall be binding upon the parties hereto and their
respective successors and assigns. Except as otherwise set forth herein, nothing
in this Agreement, expressed or implied, is intended to confer on any person
other than the parties hereto or their respective successors and assigns any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement.
13.5 Assignment. Without limitation, and without the consent, prior,
written or otherwise, of DE, this Agreement and all of the rights and
obligations hereunder may be assigned by THI to any entity owned or controlled
by, or affiliated with it. DE shall consent in writing to any such assignment.
13.6 Notices. All notices, requests, demands and other communications
which are required to be or may be given under this Agreement shall be in
writing and shall be deemed to have been duly given when delivered in person or
upon receipt when transmitted by facsimile or telex or after dispatch by
certified or registered first class mail, postage prepaid, return receipt
requested, to the party to whom the same is so given or made:
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If to THI, to:
Terrace Holdings, Inc.
2699 Stirling Road
Suite C-405
Fort Lauderdale, Florida 33312
Facsimile: (954) 894-0993
With a copy to:
Gerald L. Fishman, Esq.
Fishman & Merrick, P.C.
30 North LaSalle Street
Suite 3500
Chicago, Illinois 60602
Facsimile: (312) 726-2649
If to the Shareholders or DE, to:
DownEast Frozen Desserts, LLC
135 Walton Street
Portland, Maine 04103
Facsimile: (207) 773-2376
With a copy to:
Wilfred L. Sanders, Jr., Esq.
Sanders & McDermott
234 Lafayette Road
P.O. Box 5070
Hampton, New Hampshire 03843
Facsimile: (603) 926-0564
13.7 Entire Agreement. This Agreement (including the Exhibits hereto) and
the Ancillary Documents constitute the entire agreement and supersede all prior
agreements and understandings, oral and written, among the parties hereto with
respect to the subject matter hereof and supersede all prior agreements,
representations, warranties, statements, promises and understandings, whether
written or oral, with respect to the subject matter hereof. No party hereto
shall be bound by or charged with any written or oral arguments,
representations, warranties, statements, promises or understandings no
specifically set forth in this Agreement or in any Exhibit hereto or any
Ancillary Documents, or in certificates and instruments to be delivered pursuant
hereto on or before the Closing.
13.8 Headings; Certain Terms. The section and other headings contained in
this Agreement are for reference purposes only and shall not be deemed to be a
part of this Agreement or to affect the meaning or interpretation of this
Agreement. As used in this Agreement, the term "including" means "including, but
not limited
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to" unless otherwise specified; the word "or" means "and/or," and the word
"person" means and refers to any individual, corporation, trust, partnership,
joint venture, government or governmental authority, or any other entity; and
the plural and singular forms are used interchangeably. As used in this
Agreement, the term "DE" means collectively DownEast Frozen Desserts, LLC and
Deering Ice Cream Company, unless the context otherwise requires.
13.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when executed, shall be deemed to be an original and
all of which together shall be deemed to be one and the same instrument.
13.10 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Florida, without giving effect to the choice of law
principles or rules thereof.
13.11 Severability. If any term or provision of this Agreement shall to
any extent be invalid or unenforceable, the remainder of this Agreement shall
not be affected thereby, and each term and provision of the agreement shall be
valid and enforced to the fullest extent permitted by law.
13.12 Amendments. This Agreement may not be modified or changed except by
an instrument or instruments in writing signed by the party or parties against
whom enforcement of any such modification or amendment is sought.
13.13 Transaction Taxes. The Shareholders shall pay any and all taxes
imposed upon the sale and exchange of the Common Stock and transfer of ownership
thereof.
13.14 Disclosures. Any disclosure by either party hereto pursuant to any
specific provision of this Agreement shall be deemed a disclosure for all other
purposes of this Agreement.
13.15 Section References. All references contained in this Agreement to
any section number are references to sections of this Agreement unless otherwise
specifically stated.
13.16 Brokers and Finders; Consultant.
13.16.1 At or immediately after the Closing, THI shall issue Warrants
to purchase 250,000 shares of its Common Stock to Biltmore Securities, Inc.
as its investment banking fee in connection with this transaction.
Furthermore, in recognition of his efforts successfully to negotiate and
consummate this transaction, THI shall also thereupon issue Warrants to
purchase 50,000 shares of its Common Stock to Bruce S. Phillips, a director
of THI. The aforesaid Warrants shall be of like terms and tenor as set
forth in Exhibit 3.3 attached hereto. Each party represents and warrants
that except as set
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forth in this Section 13.16, there are no other brokers, finders or similar
persons to whom compensation will be due or owing as a result of
consummation of the transactions contemplated by this Agreement and each
party hereby agrees to indemnify and hold the other party harmless against
any such claims.
13.16.2 Within five days after the execution and delivery of this
Agreement, DE shall pay Barclay the sum of $75,000 in accordance with that
certain Settlement Agreement and General Release of All Claims dated as of
_______________, 1996 by and between them, a copy of which is attached
hereto as Exhibit 13.16.2.A. At or immediately after the Closing, THI shall
issue 75,000 shares of its common stock to Barclay Partners, LLC as and for
an investment banking or finder's fee as required under that certain
agreement by and between THI and Barclay Partners, LLC as set forth in
Exhibit 13.16.2.B. With respect to such shares so issued, THI shall cause
them to be covered by a registration statement subject to the terms and
conditions contained in said Exhibit 13.16.2.B.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement, or have
caused this Agreement to be signed in their respective names by an officer
thereunder duly authorized, on the date first above written.
TERRACE HOLDINGS, INC.
By:/s/ Samuel H. Lasko
--------------------------------------
Samuel H. Lasko, President
DOWNEAST FROZEN DESSERTS, LLC
By:/s/ Milton Namiot
--------------------------------------
Milton Namiot, Manager
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AMENDMENT TO ASSET ACQUISITION AGREEMENT
BY AND BETWEEN TERRACE HOLDINGS, INC.,
A DELAWARE CORPORATION,
AND DOWNEAST FROZEN DESSERTS LLC
This Amendment ("Amendment") to the Asset Acquisition Agreement dated as of
December 9, 1996 ("Agreement") is made and entered into as of the 7th day of
February, 1997, by and between Terrace Holdings, Inc., a Delaware corporation,
or its assignee under Section 13.5 of the Agreement ("THI"), and DownEast Frozen
Desserts LLC, a Delaware limited liability company whose sole business is the
ownership and operation of Deering Ice Cream Company of Portland, Maine
(collectively "DE").
Terms not defined herein shall have the meanings ascribed to them in the
Agreement.
RECITALS
WHEREAS, subsequent to the execution of the Agreement, the parties have
determined that it is in their best interests and in the interests of their
respective shareholders and members to amend and modify certain of the terms and
conditions of the Agreement;
WHEREAS, the parties desire to proceed with the transactions contemplated
by the Agreement subject to and as modified by the terms and conditions of this
Amendment;
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and
agreements of the parties in the Agreement and hereinafter set forth, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby amend the Agreement as follows:
WITNESSETH:
I. Section 3.3 of the Agreement and Exhibit 3.3 thereto are each hereby
amended to provide that the exercise price of the Warrants described therein
shall not be $2.50 but shall be the greater of $1.00 per share or the closing
sale price for THI common stock in the NASDAQ SmallCap Market on the day
immediately prior to Closing.
1. Section 4.1 of the Agreement is hereby amended to make the time of the
Closing at 10:00 a.m. (local time), February 17, 1997, as therein stated.
2. Section 6.5 of the Agreement is deleted in its entirety and the
following inserted in its place and stead:
"6.5 Submission of Transactions to Stockholder Vote Not Required. THI
has been advised that it is not required to submit the acquisition transaction
contemplated herein to its stockholders for approval. DE hereby agrees fully to
cooperate with THI and, at its expense, provide all reasonable
<PAGE>
assistance and documentation as may be necessary for THI fully to comply
with the applicable requirements of reporting rules promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended, and for the NASDAQ SmallCap Market with respect to any
required reporting of the acquisition transaction contemplated in the
Agreement for continued NASDAQ eligibility."
3. Section 6.6(a) is amended to state that 3,312,500 shares of THI common
stock are issued and outstanding.
4. Section 9.2 of the Agreement is hereby deleted in its entirety and the
following inserted in its place and stead:
"Following the Closing hereunder, Messrs. Steven Shulman and Richard
Power shall be appointed additional members of the Board of Directors of
THI. Thereupon, the Board of Directors shall designate and appoint Steven
Shulman as Chairman of the Board, Milton Namiot as Chief Executive Officer,
Samuel Lasko as President and Jonathan Lasko as Chief Operating Officer.
"The parties agree that at the 1997 annual meeting of THI shareholders
they will nominate for election as directors the following seven persons:
Samuel H. Lasko, Jonathan S. Lasko, Milton Namiot, Steven Shulman, Bruce
Phillips, Richard Power and Bernard Rubin.
"Following the Closing hereunder, Milton Namiot shall have direct
responsibility and authority to operate the THI subsidiary owning and
operating the Assets of DE and shall be the President and Chief Executive
Officer of such subsidiary. Following the Closing hereunder, Messrs. Samuel
and Jonathan Lasko shall have the direct authority and responsibility to
operate the current THI operating subsidiaries or divisions (i.e., The
Lasko Companies, Inc., A&E Management, Inc. and "The Lasko Family Kosher
Tours"). Samuel Lasko shall be the President and Chief Executive Officer of
each thereof and Jonathan Lasko shall be the Executive Vice President and
Chief Operating Officer of each thereof."
5. Clauses (iii) and (iv) of Section 9.5 shall each be amended to delete
the number "250,000" and insert the word "all" in each place and stead thereof.
In addition, the following sentence shall be added to the end of Section 9.5:
"With respect to the shares described in clauses (iii), (iv) and (v)
above, all of such shares, if and when registered, shall be subject to
acceptable lock-up provisions and sale restrictions for up to twelve months
with Biltmore Securities, Inc."
6. Section 10.19 of the Agreement is hereby deleted in its entirety and
the following is inserted in its place and stead:
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"10.19 Certain Agreements and Arrangements.
-----------------------------------
"10.19.1. At the Closing, THI shall issue to each of Samuel H. Lasko
and Jonathan S. Lasko Warrants to purchase 375,000 shares of THI common
stock, such Warrants to be of like form and tenor as set forth in Exhibit
3.3 (as amended) attached hereto. In consideration thereof, upon issuance
of such Warrants, Messrs. Lasko, and each of them, shall be deemed to have
surrendered their respective options to each purchase up to 750,000 shares
of THI common stock, each contained in their respective Employment
Agreements, and the right to receive such options contained in their
respective Employment Agreements shall be of no further force or effect.
"10.19.2 At the Closing, THI, Samuel H. Lasko and Jonathan S. Lasko
shall each have executed an option agreement substantially in the form of
Exhibit 10.19.2 attached hereto under which THI shall grant to Messrs.
Lasko or their designee(s), the option to purchase the businesses, assets
or capital stock of those entities currently conducting the businesses of
THI under the names "The Lasko Family Kosher Tours" or "Terrace-Oceanside
Restaurant" or in THI's current wholly owned subsidiaries, The Lasko Family
Kosher Tours, Inc., The Lasko Companies, Inc. and A&E Management, Inc. Such
option shall be exercisable by the Laskos, or either of them, at the
earlier of (i) termination of either of their employment by THI; (ii) the
regular time for the filing of the 1997 THI annual report on Form 10-KSB
(i.e., March 31, 1998); (iii) at such time as THI securities are no longer
listed on the NASDAQ Stock Market, or (iv) upon any attempt by THI to sell
any such businesses, assets or capital stock to third parties. The option
price shall be subject to the prior approval and recommendation thereof by
a committee of disinterested directors of THI appointed therefor
("Committee") based upon the Committee's receipt of a "fairness opinion"
rendered by an independent investment banking or other firm of similar
expertise in appraising and evaluating such transactions and the acceptance
of such "fairness opinion" by Messrs. Lasko. The cost and expense of
securing such fairness opinion shall be borne by THI. The option agreement
shall be presented at the 1997 annual meeting of THI shareholders for the
affirmative vote of the majority of the shares present and voting at such
meeting.
"The option agreement further shall provide that if, under clause (iv)
above, THI shall attempt to sell such businesses to any third party (after
Messrs. Lasko shall have declined to exercise their option in connection
therewith) and such third party offers to purchase for an amount less than
the Laskos would have paid had they so exercised, then THI shall
immediately offer the same to Messrs. Laskos at such lesser amount and if
Messrs. Lasko accept, they shall be entitled to so purchase.
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"The option agreement shall also provide that all direct revenues and
expenses of the subject businesses, operations or corporations shall be
allocable thereto, except for the following:
"(a) no more than 80% of compensation paid or accrued for Samuel
Lasko and Jonathan Lasko shall be allocable to The Lasko Family Kosher
Tours, The Lasko Companies, Inc. and A&E Management, Inc.; and
"(b) a percentage of the legal and accounting fees and overhead
equal to the percentage that the revenues of the subject businesses,
operations or corporations bear to the total of such revenues of THI,
including DE operations, shall be allocable to such businesses,
operations or corporations."
7. Exhibit 10.19 is hereby deleted in its entirety and Exhibit 10.19.2
inserted in its place and stead.
8. As hereby amended, the terms, conditions, rights and obligations of
the Agreement remain in full force and effect. Except as expressly provided in
this Amendment, any conflict or contradiction between this Amendment and the
Agreement shall be controlled by the relevant provisions of the Agreement.
IN WITNESS WHEREOF, the parties hereof have signed this Amendment to the
Agreement, or have caused this Amendment to the Agreement to be signed in their
respective names by an officer thereunder duly authorized on the date and year
first above written.
TERRACE HOLDINGS, INC.
By:/s/ Samuel H. Lasko
--------------------------------------
Samuel H. Lasko, President
DOWNEAST FROZEN DESSERTS, LLC
By:/s/ Milton Namiot
--------------------------------------
Milton Namiot, Manager
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EXHIBIT 10.5
SUBLICENSE AGREEMENT
--------------------
This Sublicense Agreement is made as of the day of December, 1996 by and
between FRANCHISE ASSOCIATES, INC., a Delaware corporation (hereinafter "FAI")
and DOWNEAST FROZEN DESSERTS, L.L.C. a Delaware Limited Liability Company,
(hereinafter "Licensee").
WHEREAS, FAI has received a license from Howard Johnson Company, Inc.
(hereinafter "HJ"), a Delaware corporation and a wholly-owned subsidiary of
Prime Motor Inns, Inc., to use certain service marks, trade names, trademarks,
letters patent, licensed works and the copyrights therein, and trade secrets,
all in accordance with that certain Service Mark and Trademark License Agreement
and that certain Patent, Copyright and Trade Secret License Agreement between HJ
and FAI, and that certain Definitive Agreement between Marriott Family
Restaurants, Inc., HJ, FAI, and others, all of which agreements are dated May
22, 1986 and are incorporated herein by reference (hereinafter, collectively,
the "License Agreements"), and copies of which are herewith provided and
initialed by the parties hereto;
WHEREAS, FAI desires to sublicense to Licensee certain rights received by FAI
under the License Agreements, and Licensee desires to obtain such rights; and
WHEREAS, HFS Incorporated, previously known as Hospitality Franchise Systems,
Inc. ("Hospitality") is the successor in interest of HJ with respect to certain
of HJ's rights and obligations under the License Agreements;
NOW, THEREFORE, FAI and Licensee, in consideration of the mutual agreements and
promises contained and expressed herein and for other good and valuable
consideration acknowledged by each of them to be satisfactory and adequate, do
hereby agree as follows:
1. DEFINITIONS
(a) "Licensed Trademarks" shall mean those marks set forth in Exhibit A.
(b) "Licensed Trade Secrets" shall mean all recipes and formulae contained
in Exhibit B attached hereto together with recipes and formulae
specified by FAI from time to time for products made using ice cream,
yogurt, sherbet, lites/ice milk and frozen ice.
(c) "Licensed Products" shall mean those products which are made using the
Licensed Trade Secrets.
<PAGE>
(d) "Licensed Territory,, shall mean the United States, excluding
Florida and Puerto Rico.
(e) "Licensed Works" shall mean those literary and pictorial works,
graphic works of applied art, sound recordings and the copyrights
therein and the copyright registrations therefor which are related
solely to HOWARD JOHNSON food products.
(f) "Licensed Labels and Advertising" shall mean all packaging, labels,
advertising and promotional material and other media forms of
advertising which contain or make reference to one or more of the
Licensed Trademarks.
(g) "Day(s)" shall mean calendar day or days.
(h) "Related Parties" or "Affiliates" shall mean with respect to any
party, any person or entity controlled by, in control of, or under
common control with such party, whether directly or indirectly.
(i) "Agreement" shall mean this Agreement.
"Prime Purchase and Ancillary Agreement" shall mean the Prime Asset
Purchase Agreement between Marriott Corporation and HJ Acquisition
Corp., dated September 23, 1985, including the Ancillary Agreement
attached thereto.
2. GRANT OF SUBLICENSES
(a) To the extent that FAI now has or may later acquire the right to do
so, FAI hereby grants to Licensee exclusive license to manufacture,
market and deliver all Licensed Products in the Licensed Territory and
the exclusive license to use the Licensed Trademarks to identify
Licensed Products in the Licensed Territory, subject to the rights of
FAI, Hospitality, and Marriott Corporation and their Related Parties
and grantees under the terms of the Prime Purchase and Ancillary
Agreement and the License Agreements.
Licensee may also use the Licensed Trademarks to identify new products
in the Licensed Territory in accordance with the following provisions:
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In the event that Licensee wishes to use the Licensed Trademarks to
identify a new product, Licensee shall submit to FAI a written request
identifying the proposed new product (hereinafter a "New Product"),
together with the recipe or formula that Licensee proposes to use and
a sample of the proposed New Product, together with the proposed
Licensed Labels to be used in connection with such New Product. FAI
shall give Licensee written notice of its approval or disapproval,
together with the reasons therefor, within fifteen (15) days after
receipt of the request from Licensee. FAI's approval shall not be
unreasonably withheld. Licensee, when practical, shall also submit,
prior to use by Licensee, all proposed advertising of any New Product
for review by FAI.
If FAI approves the New Product, FAI shall, within five (5) working
days of its approval, notify Hospitality of its approval and provide
Hospitality with all documentation provided by Licensee relating to
the New Product. Hospitality shall give FAI and Licensee written
notice of approval or disapproval, together with the reasons therefor,
within twenty (20) days after receipt of the notification from FAI.
Hospitality will approve unless Hospitality believes its approval will
adversely affect the image, reputation or business of Hospitality and
presents reasons which satisfy that standard.
In connection with such New Products, Licensee shall provide to FAI
and Hospitality any additional information reasonably requested by
either, provided that if any request for additional information occurs
within the approval periods described above for each party, each
approval period will extend for a one time twenty (20) day extension
after the receipt of such information by either FAI or Hospitality.
All New Products developed by Licensee approved in accordance with
this Paragraph 2(a) shall be owned by Licensee and shall be deemed to
be Licensed Products subject to the provisions of this Agreement.
Notwithstanding the foregoing, FAI shall continue, after the
expiration or termination of this Agreement, to have a non-exclusive
right to manufacture and deliver such New Products, using Licensee's
formulae or recipes therefor, and to identify such New Products with
the Licensed Trademarks.
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(b) To the extent that FAI now has or may later acquire the right to do
so, FAI hereby grants to Licensee the exclusive license to use the
Licensed Trade Secrets in the Licensed Territory for the sole purpose
of manufacturing the Licensed Products. No other use may be made of
the Licensed Trade Secrets.
(c) To the extent that FAI now has or may later acquire the right to do
so, FAI hereby grants to Licensee a non exclusive license to use and
make use of the Licensed Works in the Licensed Territory for the
Licensed Products, including but not limited to the right to
reproduce, to distribute, to perform and/or display publicly, and to
prepare derivative works from the Licensed Works.
(d) Licensee shall not have the right to use any Licensed Trademark as all
or part of the name of any company, partnership, or any other entity.
(e) Licensee shall have the right to use the Licensed Trademarks, Licensed
Works and Licensed Trade Secrets only in the manner and to the extent
specifically permitted by this Agreement. No right, title or interest
in and to the Licensed Trademarks, Licensed Works or Licensed Trade
Secrets, except for the right to use the same as and only to the
extent specifically permitted under this Agreement, is or will be
transferred to Licensee by this Agreement. Without limiting the
foregoing: (i) Licensee shall not have the right to use any variation
of the Licensed Trademarks without the prior written approval of FAI
and Hospitality, which approval may be withheld by FAI or Hospitality
in its sole discretion. In the event that approval is granted for the
use of any variation of a Licensed Trademark, such mark shall become a
Licensed Trademark owned by Hospitality and governed by the terms of
this Agreement; (ii) Licensee shall not have the right to use, in
association with the Licensed Trademarks, any mark other than a
Licensed Trademark without the prior written approval of FAI and
Hospitality, which approval may be withheld by FAI or Hospitality in
its sole discretion; (iii) Licensee shall not, without the prior
written approval of FAI and Hospitality, which approval may be
withheld by FAI or Hospitality in its sole discretion, have the right
to use any form of Licensed Labels or Advertising containing any
Licensed Trademarks except as shown on
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Exhibit C attached hereto or which has been expressly authorized in
writing by Hospitality. Licensee may make such changes in Licensed
Labels and Advertising as may be required by governmental rules or
regulations and to accommodate for changes in product content approved
by Hospitality and FAI.
(f) Licensee recognizes that Hospitality may request changes in existing
Licensed Labels and Advertising of the Licensed Trademarks. If such
changes are requested in writing, Licensee shall adopt such changes
(or, in the alternative, discontinue further production of the
Licensed Products) as soon as practical, not to exceed one (1) year
from the date of such request by Hospitality. Upon any such request,
FAI shall request of Hospitality, in writing, that Hospitality
reimburse Downeast for all costs Downeast incurs in connection with
complying with any and all changes to the Licensed Labels and
Advertising of the Licensed Trademarks requested by Hospitality, it
being understood that Hospitality has no obligation to pay such costs.
3. OWNERSHIP
(a) Except as hereinafter provided, the licenses herein granted by FAI:
are without warranty or representation whatsoever; include only
whatever right, title and interest FAI has acquired from HJ under the
License Agreements or later acquires; and are subject to whatever
claims, if any, third parties may have now or in the future. Licensee
shall bear the risks, if any, that accompany the right to use the
Licensed Trademarks, Licensed Works and Licensed Trade Secrets. FAI
does represent and warrant to Licensee that:
(i) FAI is the "Licensee" under the aforementioned Service Mark and
Trademark License Agreement and the Patent, Copyright and Trade Secret
License Agreement and accordingly has the right and authority to enter
into this Sublicense Agreement and perform its terms;
(ii) to the knowledge of FAI, none of the Licensed Trademarks or
Trade Secrets has been adjudged invalid or unenforceable;
(iii) FAI's right to use the Licensed Trademarks to identify the
Licensed Products in the Licensed Territory is not encumbered by any
lien, charge or encumbrance
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except the security interest granted to Hospitality as security for
the performance of its obligations as "Licensee" under the Agreements
referred to in Paragraph 3(a)(i) hereof;
(iv) To the knowledge of FAI, Hospitality has succeeded to all rights
in or to the Licensed Trademarks and Licensed Works; and
(v) To the knowledge of FAI, FAI is not in default under any
contract or other obligation with or to Hospitality which would
threaten the continued existence of its License(s) granted in the
License Agreements. FAI agrees to promptly provide Licensee with any
notice of termination or notice threatening termination of any such
License(s).
Where used in this Agreement, "To the knowledge of FAI" shall be
limited to the knowledge of Arthur Barrett and Barbara Leveroni.
(b) Licensee shall not disclose to any third party -- i.e., one who is not
an employee or agent of Licensee -- at any time either during or
subsequent to the Term of this Sublicense Agreement, any of the
Licensed Trade Secrets without the prior written consent of FAI.
Licensee shall require all of its employees, agents, sublicensees and
any other party to whom the Licensed Trade Secrets are to be disclosed
to agree to maintain the confidentiality of the Licensed Trade
Secrets. If any of the Licensed Trade Secrets is ever finally
determined by a court of competent jurisdiction not to rise to the
level of a trade secret, such information, formula, recipe, or process
will be considered to be confidential information (hereinafter
"Licensed Confidential Information") and the confidentiality
requirement discussed above will be deemed to be modified to the
extent that Licensee shall be under an obligation, and will impose
such obligation on their respective employees, agents, and any other
person to whom disclosure of any of the Licensed Confidential
Information has been permitted and made, not to disclose any Licensed
Confidential Information to the full extent allowed by applicable law.
(c) Licensee acknowledges that it has read and understands the provisions
contained in Paragraphs 4(b), (c), (d), (e) and (f) of said Service
Mark and Trademark License
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Agreement between HJ and FAI, and to the extent applicable, agrees to
perform and be bound by the obligations of "Licensee" in said
paragraphs. All references in said paragraphs to "Licensed Marks"
shall mean "Licensed Trademarks".
(d) Licensee shall use all reasonable commercial efforts to (i) ensure
that the prices of the Licensed Products shall at all times be
competitive and (ii) to market, distribute and maximize the sale
thereof. For the first year of the Term, Licensee agrees to maintain
prices of bulk ice cream at levels in effect on November 15, 1996
except that such prices may be increased during said first year to the
extent that the cost of material or packaging increases by more than
ten percent (10%) over the cost in effect on November 15, 1996.
(e) To the extent that FAI may legally do so and Licensee is in compliance
with its obligations under this Agreement, FAI shall use all
reasonable commercial efforts to cause each Howard Johnson's
Restaurant in the Licensed Territory to purchase Licensed Products
from Licensee but only for so long as Licensee provides for the timely
delivery of Licensed Products to any such Restaurant and the quality
and prices of such Licensed Products are competitive.
(f) Throughout the Term of this Agreement, Licensee shall sell at least
the following quantities of non-bulk ice cream, yogurt, sherbet and
other frozen desserts or novelty items which are Licensed Products:
(i) for the first year of the Term, 61,000 gallons;
(ii) for the second year of the Term, 77,000 gallons;
(iii) for the third year of the Term, 89,000 gallons; and
(iv) for the fourth year of the Term, 100,000 gallons.
(g) Notwithstanding the exclusion of Florida from the Licensed Territory,
Licensee shall supply non-bulk Licensed Products to Florida according
to demand therefor from the date of commencement of the Term until the
date occurring sixty (60) days after written notice from FAI to cease
such supply. Such supply shall be subject to all terms, conditions and
obligations of this Agreement, except that the freight charges for all
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<PAGE>
orders of Licensed Product to be shipped to Florida may be adjusted by
Downeast for the size and frequency of shipment.
4. ROYALTIES
---------
(a) In consideration of the sublicenses granted hereby, Licensee shall pay
to FAI the greater of: (i) the sum of $15,000.00 per year; or (ii) the
Licensed Product royalties paid under Paragraph 4(b) during each year
of the Term. If said Licensed Product royalties are less than $15,000
during any such year, Licensee shall pay FAI the difference within
thirty (30) days after the end of such year.
(b) Licensee agrees to pay to FAI a royalty ("Royalty") of Four Percent
(4%) of all "Sales" (as herein defined) of all Licensed Products of
all bulk ice cream products (eg. Three (3) gallon containers) and Two
Percent (2%) of all non-bulk ice cream products. Licensee further
agrees to pay to FAI a Royalty of Two Percent (2%) of all "Sales" (as
hereinafter defined) of products other than Licensed Products ("Non-
Licensed Products") made by Licensee, its Affiliates or Subcontractors
to (i) FAI and its Affiliates and (ii) to franchisees of FAI. "Sales"
as used herein shall mean the gross invoice prices less "bill backs"
(as known in the ice cream industry) and returns. A sale shall be
deemed to be made when the amount of the Sale is collected by
Licensee.
(c) Sales royalties shall be due and payable within thirty (30) days after
the end of each calendar month with respect to Sales made during the
month. A written royalty statement for each calendar month setting
forth the Sales shall accompany each payment. An opening inventory and
closing inventory of the Licensee certified by a corporate officer of
Licensee to be true and complete with, if available, a computer
summary of all applicable invoices for Sales, of returns and bill
backs and of inventories of Licensed Products during that period shall
also be delivered by the Licensee to FAI within thirty (30) days after
the end of each calendar quarter. Acceptance of payments or statements
shall not be deemed to be a waiver of any of FAI's rights.
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(d) Licensee agrees to keep at its principal office, all invoices relating
to Licensed Products and Non-Licensed Products subject to royalty
payment hereunder and a separate record of its Sales and inventories
of the Licensed Products and Non-Licensed Products subject to royalty
payment hereunder in a suitable record form, in sufficient detail to
enable FAI to determine or verify the Sales, royalties due and
inventories of the Licensed Products and further agrees that it will
permit such invoices and records to be examined and copied by FAI and
its auditors at reasonable times during ordinary business hours to the
extent necessary to verify the Sales, royalties due and inventories of
the Licensed Products. Notwithstanding the foregoing, FAI may not
disclose to others any information deemed confidential by Licensee.
Such records shall not be destroyed before expiration of two (2) years
after the submission of any royalty statement relating thereto, or in
the event that FAI questions the payment during such two year period,
until such dispute is resolved.
5. MARKETING
---------
(a) Licensee shall pay FAI a Marketing Fee of $2,500.00 per year
("Marketing Fee"), such payment to be made in monthly installments of
$208.33 at the same time as royalties are paid to FAI. FAI shall
contribute to the Marketing Fee the sum of $2,500.00 per year. FAI
shall use the Marketing Fee exclusively to promote the sale of
Licensed Products to Howard Johnson's Restaurants.
(b) Commencing April 1, 1997 and annually on April lst each year
thereafter during the Term of this Agreement, Licensee shall submit to
FAI a marketing plan ("Marketing Plan") to promote the sale of non-
bulk Licensed Products, and Licensee and FAI shall jointly review each
such Marketing Plan.
6. QUALITY CONTROL AND STANDARDS OF QUALITY
----------------------------------------
(a) All Licensed Products will meet uniform standards of high quality and
appearance and will be produced in strict accordance with the Licensed
Trade Secrets. No change in the formula or recipe of any Licensed
Trade Secret shall be made without FAI's prior written consent. In the
event of any such change Licensee shall immediately provide FAI with
such changed formula or recipe. Licensee shall annually manufacture,
market and
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deliver a minimum of four (4) special and/or holiday flavors of ice
cream products, each of which shall be subject to the approval of FAI
and Hospitality as provided in Section 2(a) of this Agreement.
(b) In the event Licensee is allowed to use the Licensed Trademarks to
identify new varieties of existing Licensed Products or New Products
in accordance with Paragraph 2(a) above, such new varieties and New
Products shall be produced in compliance with all quality control
standards contained herein and pursuant to recipes submitted to FAI.
All Licensed products shall be manufactured and produced in accordance
with all applicable local, state, and federal health standards, laws,
and regulations and in accordance with high standards of cleanliness
and health safety in the food manufacturing industry.
(c) To control and monitor effectively the quality of the Licensed
Products, FAI or Hospitality may: purchase at its expense a
representative number of any such Licensed Products found in the
marketplace that in FAI's or Hospitality's judgment are inconsistent
with quality standards as contained herein; require Licensee to
furnish to FAI or Hospitality for testing at any time and at
Licensee's expense a reasonable number of such Licensed Products; and
inspect, during regular business hours, the premises of all facilities
operated by Licensee for the manufacture and distribution of the
Licensed Products.
(d) If Hospitality determines, in its sole discretion, or FAI determines,
in its reasonable opinion, that any of the Licensed Products (i) do
not meet the quality standards for such Licensed Products, (ii)
present a health or safety risk to the public or (iii) will damage the
image and/or goodwill of the Licensed Trademarks, FAI or Hospitality
may demand that Licensee take all reasonable steps to recall all such
Licensed Products. In such event, Licensee shall comply with said
quality standards and eliminate any such health or safety risk for
such recalled Licensed Products before permitting further distribution
thereof.
(i) If Licensee fails to take all reasonable steps to comply with
such demand, FAI or Hospitality, in the sole discretion of
either, shall have the right to terminate Licensee's
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rights to use the licensed Trademarks, Licensed Works and
Licensed Trade Secrets under this Agreement with respect to the
non-complying products.
(ii) If Licensee cannot reasonably comply with FAI's or
Hospitality's demand as specified in this sub-paragraph (d),
Licensee shall be granted only such additional time as is
necessary to so comply, provided that Licensee has undertaken
all reasonable steps to begin compliance and diligently
continue to do so as specified in this subparagraph (d).
(e) Licensee shall at all times remain in compliance with all applicable
local, state and federal statues and regulations.
(f) Beginning one year following the date of this Agreement and continuing
every year thereafter on the anniversary hereof, Licensee shall
provide to FAI and Hospitality a list of all Licensed Products
manufactured or sold during the preceding 12 month period, such list
to be accompanied with the formula or recipe of each such Licensed
Product.
(g) Licensee agrees that compliance with the quality standards contained
herein is a material and essential condition of this Agreement and
that the failure by Licensee to take actions required under this
Agreement in a timely manner shall constitute a material breach of
this Agreement.
(h) FAI and Hospitality reserve the right to prohibit Licensee from using
the Licensed Trademarks in any manner or in connection with any
products that it believes are inconsistent with or detrimental to the
HOWARD JOHNSON'S name or image.
7. ASSIGNMENT AND SUBLICENSE
-------------------------
(a) Except as otherwise specifically authorized by this Agreement,
Licensee shall not, without the express written consent of FAI and
Hospitality, which may be granted or withheld, in the sole discretion
of either, (i) assign, transfer or otherwise alienate, directly or
indirectly (by operation or law or otherwise) this
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Agreement or any of its rights or obligations hereunder or (ii)
sublicense or subcontract any of the rights or obligations granted
hereunder. Notwithstanding the foregoing, Licensee may assign this
Agreement to any company which may acquire Licensee or substantially
all of Licensee's assets or with which Licensee may merge provided
Licensee shall have received the prior written approval of FAI and
Hospitality, such approval not to be unreasonably withheld and based
solely on the financial condition, experience in the food
manufacturing business and professional reputation of such company.
(b) Licensee shall not at any time engage one or more subcontractors to
manufacture any Licensed Product without the prior written approval of
FAI, such approval not to be unreasonably withheld and based solely on
the financial condition, experience in the manufacture of ice cream
products and professional reputation of such subcontractors).
Notwithstanding the foregoing, Licensee may engage one or more
subcontractors to manufacture one or more "Novelty Items" according to
specifications or brand name approved in writing by FAI.
Subcontractors manufacturing any Licensed Product bearing a Licensed
Trademark must assume in writing, prior to such manufacture, all
obligations of Licensee under this Agreement including, without
limitation, all obligations of insurance and indemnity. "Novelty
Items" consist of such items as Sundae Cups, Bars, Sticks, Cones and
Sandwiches and such other similar items as from time to time specified
by FAI which are made using ice cream, yogurt, sherbet, lites, ice
milk or frozen ice.
(c) Subject to the terms and conditions of the License Agreements and this
Paragraph 7(c), FAI may assign its rights and/or its obligations under
this Agreement provided, however, that FAI shall give Licensee written
notice of any such assignment together with a right of first refusal
to obtain such assignment at the price and on the terms offered by the
prospective assignee, which right of first refusal, to be effective,
must be accepted by delivery of written notice of acceptance to FAI
within ten (10) days after Licensee's receipt of notice of assignment
from FAI.
(d) Notwithstanding any sublicense or subcontracting by Licensee of any of
its rights, duties or obligations hereunder, Licensee shall remain
primarily liable for
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the performance of all obligations of every subcontractor and
sublicensee.
8. DURATION AND TERMINATION
------------------------
(a) This Agreement and the license herein granted shall continue for a
Term of four (4) years from the date when all conditions specified in
Paragraph 22 have been satisfied ("Term"), except that FAI or
Hospitality may terminate this Agreement as follows:
(i) If Licensee assigns, sublicenses, or subcontracts any of its
rights or delegates any of its duties or responsibilities under
this Agreement without obtaining all consents called for
herein, FAI may terminate this Agreement effective immediately
upon giving notice to Licensee;
(ii) If any of the License Agreements (upon which this Agreement is
based) is validly terminated for any reason, this Agreement
shall be terminated at the same time and to the same extent as
the termination of any of said License Agreements;
(iii) If FAI reasonably believes that Licensee is or will become
unable to meet its relevant financial obligations when due, FAI
may demand written assurance that Licensee will be able to meet
any future relevant financial obligations when such obligations
become due. If Licensee fails to give said assurance within
five (5) business days after actual receipt of written demand,
and if FAI in the exercise of its reasonable judgment believes
that Licensee cannot meet its relevant obligations as they
become due, FAI may terminate this Agreement effective
immediately upon giving notice to Licensee;
(iv) If and when Licensee ceases to manufacture the Licensed
Products as a result of the closure of its plant(s) for the
manufacture of same and does not provide for the continued
supply of all Licensed Products, within thirty (30) days after
such closure, by one or more subcontractors) approved in
writing by FAI in
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accordance with the provisions of Paragraph 7(b) hereof.
Licensee shall be required to provide FAI with not less than
one hundred twenty (120) days prior written notice of intention
to close said plant(s) when closure is voluntary, at which time
all licenses granted hereby shall be deemed non-exclusive and
FAI shall be free to grant other licenses for the Licensed
Products and to use the Licensed Trademarks with respect to
same.
(v) If Licensee fails to meet the quality standards for Licensed
Products, FAI may terminate this Agreement after complying with
the requirements of paragraph 6, effective thirty (30) days
after giving notice of termination;
(vi) If Licensee breaches any condition, covenant or obligation
contained anywhere in this Agreement, FAI may terminate this
Agreement effective thirty (30) days after giving notice of
termination if Licensee fails to remedy or take such steps as
are herein provided to correct any such breach within thirty
(30) days after FAI's notice of such breach;
(vii) If any of the Licensed Products are not sold for eighteen (18)
consecutive months in the ordinary course of business, FAI may
terminate Licensee's right to use the Licensed Trademarks to
identify said Licensed Product(s) not sold during such period
and terminate Licensee's license to use the Licensed Trade
Secrets for said Licensed Product(s), such termination to be
effective thirty (30) days after giving notice of such
termination; provided that such period shall not include any
period of non-sale that is caused by circumstances beyond the
control of Licensee; or
(viii) If Licensee fails to use the Licensed Trademark "Howard
Johnson's" for a period of twelve (12) consecutive months, in
the ordinary course of business, FAI may terminate Licensee's
right and license to use such
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Licensed Trademark effective thirty (30) days after giving
notice of such termination.
(b) This Agreement shall automatically renew for successive three (3) year
Terms ("Renewal Term(s)") on the same terms and conditions as herein
contained provided that the amounts and percentages specified in
Paragraphs 3(f) and 4 and the amount of the Marketing Fee specified in
Paragraph 5 must be mutually agreed upon for each Renewal Term, but
shall never be less than the amounts and percentages during the Term.
If such amounts and percentages cannot be mutually agreed upon for any
Renewal Term in writing signed by FAI and Licensee, this Agreement
shall not be renewed for such Renewal Term. Additionally, either party
may terminate this Agreement without cause at the end of the Term or
any Renewal Term by giving the other party written notice of
termination at least one hundred twenty (120) days before the end of
the Term or any Renewal Term.
(c) Licensee shall continue to supply or cause to be supplied all Licensed
Products in the Licensed Territory according to demand therefor up to
and including the date of termination of this Agreement whether such
termination results from plant closure or other condition specified in
Paragraph 8(a) or from non-renewal under Paragraph 8(b).
9. RIGHTS AND DUTIES UPON TERMINATION
----------------------------------
(a) Upon termination of this Agreement for any cause (including, without
limitation expiration of the Term of this Agreement), Licensee shall:
(i) not exercise or attempt to exercise any rights or privileges
hereunder; (ii) immediately discontinue the use of all Licensed
Trademarks, Licensed Works and Licensed Trade Secrets and immediately
cease the manufacture of all Licensed Products; (iii) immediately
forward to FAI all copies of relevant documents pertaining to the
Licensed Products Licensed Works, and Licensed Trade Secrets; and (iv)
continue to maintain the obligations of confidentiality of the
Licensed Trade Secrets or, if applicable, the Licensed Confidential
Information, by not disclosing and by taking all legal action
reasonably necessary to enforce the obligations imposed on its
employees, agents, and other affiliates not to disclose any
information pertaining to the Licensed Trade Secrets or, if
applicable, the Licensed Confidential Information.
15
<PAGE>
(b) Licensee acknowledges that its failure to cease use of the Licensed
Trademarks, Licensed Works and Licensed Trade Secrets and to cease the
manufacture of the Licensed Products at the termination of this
Agreement as provided above will result in immediate and irreparable
damage to FAI, that money damages may not be an adequate remedy for
the breach of such obligations and that FAI shall be entitled to
injunctive relief if necessary to enforce this Agreement or any
provision hereof.
(c) Upon termination of this Agreement Licensee shall have the right to
distribute and/or sell inventories of Licensed Products or components
thereof and packaging materials in existence on the date of
termination, but empty packaging materials bearing a Licensed
Trademark may only be distributed and/or sold to a party approved by
FAI, such approval not to be unreasonably withheld or delayed.
Notwithstanding the foregoing, no Licensed Product or component hereof
may be distributed and/or sold if same does not meet the quality
standards specified herein.
10. INSURANCE AND INDEMNITY
-----------------------
(a) Licensee agrees to place with a domestic United States insurance
company rated A or better by A.M. Best Co., and keep in effect during
the Term of this Agreement comprehensive general liability insurance
(including but not limited to product liability, contractual liability
and personal liability and any other type of insurance generally
applicable to food manufacturing operations) all on an occurrence
basis naming "HFS Incorporated,, and all Related Entities", and
"Franchise Associates, Inc. , and all Related Entities" as additional
insureds, with combined coverage of at least ten million dollars
($10,000,000). In the event that Licensee fails to comply with its
obligations of insurance as set forth in this subparagraph 10(a), FAI
or Hospitality, in the sole discretion of either, shall have the right
to terminate this Agreement. The types and amount of insurance
required under this subparagraph may be established, modified or
increased by FAI or Hospitality as reasonably necessary and as
reasonably available in the normal course of the food manufacturing
business from time to time, but no more frequently than once in any
calendar year.
16
<PAGE>
(b) All insurance required hereunder shall be issued for period of not
less than one year. Licensee shall deliver to FAI a certificate of the
insurance company issuing each such policy of insurance required
herein at or prior to the commencement of the term of this Agreement,
and thereafter, a renewal certificate at least ten (10) days prior to
the expiration of each such policy of insurance. All certificates of
insurance will grant thirty (30) days notice of cancellation to FAI
and to Hospitality and will name "HFS Incorporated and All Related
Entities", and "Franchise Associates, Inc. and All Related Entities"
as additional insureds.
(c) Licensee hereby agrees to indemnify and hold harmless FAI and
Hospitality and their respective affiliates against and from any and
all liability, damage, loss and expense resulting from claims by any
person or entity arising after the date of this Agreement and arising
out of Licensee's food manufacturing operations and the related sale
operations licensed under this Agreement except for claims arising
solely from the negligence or willful misconduct of Hospitality or its
respective affiliates which occurs after the date of this Agreement,
and except to the extent of claims arising from the negligence or
willful misconduct of FAI which occurs after the date of this
Agreement. These indemnities shall include, but shall not be limited
to, personal injury claims.
(d) FAI hereby agrees to indemnify and hold harmless Licensee and its
affiliates from any and all liability, damage, loss and expense
resulting from the claims of any person or entity which arise from the
negligence or willful misconduct of FAI.
11. LICENSEE'S OBLIGATION TO MANUFACTURE AND DELIVER
LICENSED PRODUCTS
-------------------------------------------------------------
(a) Licensee agrees that it will manufacture and deliver or cause to be
delivered by distributors a sufficient quantity of each of the
Licensed Products to meet the needs of all HOWARD JOHNSON'S
Restaurants, Ice Cream Shops and all other restaurants, shops or
outlets operated by FAI, its Affiliates and their franchisees in the
Licensed Territory, in packaging determined by FAI from time to time,
as being sized and designed for sales to such restaurants, shops or
outlets, provided however,
17
<PAGE>
that no delivery for less than $350.00 need be made by Licensee.
Deliveries will be made within the time periods specified in Exhibit
D, as adjusted from time to time with FAI's approval. If Licensee is
unable or unwilling to comply with the requirements of this
subparagraph (a), FAI may take the action spelled out in subparagraph
(b) below, but only that action.
(b) In the event that Licensee fails or is unwilling after thirty (30)
days written notice from FAI, to manufacture or deliver or cause to be
delivered any one or more of the Licensed Products, in the manner and
quantity set forth in subparagraph (a) above, Licensee shall no longer
have the right to manufacture and sell such Licensed Product(s)
without FAI's written consent. Furthermore, FAI shall have the right
to grant appropriate licenses to any other entity to manufacture such
Licensed Product(s) which Licensee has failed to manufacture in
accordance with subparagraph (a) above, together with the right to
license said other entities to manufacture and sell such Licensed
products under the Licensed Trademarks, all on such terms as FAI, in
its sole discretion, shall determine.
12. GOVERNING LAW
-------------
This License Agreement shall be construed in accordance with the laws
of the State of Massachusetts.
13. ENTIRE AGREEMENT
----------------
This Agreement between the parties hereto sets forth the entire
agreement between the parties, and fully supersedes any and all prior agreements
or understandings between the parties, oral or written, pertaining to the
subject matter hereof. This Agreement may not be amended or modified, in whole
or in part, except by an instrument in writing duly executed by the parties.
14. PARTIAL INVALIDITY
------------------
Should any part of this Agreement, for any reason, be declared invalid,
such decision shall not affect the validity of any remaining portion, which
remaining portion shall remain in force and effect as if this Agreement had been
executed without the invalid portion, and it is hereby declared the intention of
the parties that they would have executed the remaining portion of this
Agreement without including therein any such portion which may, for any reason,
be hereafter declared invalid; provided,
18
<PAGE>
however, that if such declaration of invalidity shall impair either FAI's
ability to exert quality control over the Licensed Products or to receive
royalties due hereunder, FAI and Licensee will in good faith attempt to
negotiate an alternative provision for the portion declared invalid. If such
negotiations are not successful within thirty (30) days from the date the
provision is declared invalid, FAI may thereafter terminate this Agreement
effective immediately upon giving written notice to Licensee. In addition, if
the insurance and/or indemnification provisions contained in paragraph 10 are
declared invalid for any reason, FAI or Hospitality may at any time thereafter
terminate, at their option, this Agreement by written notice to Licensee.
15. PARAGRAPH HEADINGS
------------------
The paragraph headings throughout this Agreement are for convenience and
reference only, and the words contained in the headings shall in no way be held
to explain, modify, amplify, or aid in the interpretation, construction or
meaning of the provisions of this Agreement.
16. WAIVER OF DEFAULT
-----------------
Waiver by any party hereto or by Hospitality of any particular default by
any other party shall not affect or impair the party's or Hospitality's rights
with respect to any subsequent default of the same or a different kind; nor
shall any delay or omission of any part or Hospitality to exercise any right
arising from any default affect or impair the parties or Hospitality's rights as
to the same or any future default.
17. TERMINOLOGY
-----------
All terms and words in this Agreement, regardless of the number in which
they are used, shall be deemed and construed to include any other number,
singular or plural, as the context or sense of this Agreement or any paragraph
or clause herein may require, the same as if such words had been fully and
properly written.
18. COUNTERPARTS
------------
This Agreement may be executed in any number of counterparts, each of
which, when so executed and delivered, shall be deemed an original, but such
counterparts together shall constitute but one and the same instrument.
19
<PAGE>
19. RELATIONSHIP 0F PARTIES
-----------------------
Licensee is an independent contractor. Nothing herein contained shall be
construed to place the parties in the relationship of joint venturers, partners,
associates, or principal and agent, and both parties are acting as principals.
Licensee is granted no right or authority to assume or create any obligation or
responsibility for or on behalf of FAI or Hospitality or otherwise to bind FAI
or Hospitality other than as may be expressly authorized by FAI or Hospitality
in writing. Neither FAI nor Hospitality is granted any right or authority to
assume or create any obligation or responsibility for or on behalf of Licensee
or otherwise to bind Licensee other than as may be expressly authorized by
Licensee in writing.
20. SUCCESSORS AND ASSIGNS
-----------------------
This Agreement shall benefit and be binding upon FAI, Hospitality, Licensee
and their respective legal representatives and permitted successors and assigns.
21. SURVIVAL
--------
All obligations of FAI and Licensee which expressly or by their nature
survive termination or expiration or transfer of this Agreement shall continue
in full force and effect subsequent to and notwithstanding such termination or
expiration and until they are satisfied or by their nature expire.
22. CONDITIONS PRECEDENT
---------------------
This Term of this Agreement and the rights and obligations of the parties
specified in this Agreement shall commence on such date as FAI and Licensee
shall have obtained to their satisfaction:
(i) An uncontested termination of the exclusive rights of Basic
American Acquisition Corporation with respect to the Licensed Products; and
(ii) The written consent of Hospitality Franchise Systems, Inc. to
this Sublicense Agreement, such consent to be in the form contained on Page 18
hereof.
FAI agrees to use reasonable efforts to obtain as soon as reasonably possible
the above mentioned termination and consent. If said termination and consent are
not obtained by January 1.
20
<PAGE>
1997, either party shall have the right, effective upon written notice to the
other, to terminate this Agreement.
23. NOTICES
-------
All notices and statements ("notices") to be given hereunder shall be given
or made at the respective addresses of the parties as set forth below unless
notification of a change of address is given in writing as required herein,
whereupon such notice of change of address shall become effective upon actual
receipt by the addressee. All notices shall be in writing and shall be given
only by (i) telex with a confirmed answer back or other means of same day
delivery message service with receipt confirmation; (ii) express courier service
on a next day delivery basis; or (iii) registered or certified U.S. mail,
postage prepaid.
FOR HOSPITALITY:
- ----------------
HFS INCORPORATED Attention: General Counsel
- ----------------
6 Sylvan Way
P. 0. Box 656
Parsippany, NJ 07054
FOR FAI:
- --------
FRANCHISE ASSOCIATES, INC.
Attention: Arthur P. Barrett, President
541 Main Street
So. Weymouth, MA 02190
COPY TO:
- --------
John D. Dougherty, Jr.
Dougherty & Associates
60 Howe Road
Cohasset, MA 02025
FOR LICENSEE:
- -------------
DownEast Frozen Desserts, L.L.C.
Attention: Milton Namiot, President
135 Walton Street
Portland, ME 04103
21
<PAGE>
COPY TO:
- --------
Sanders & McDermott
234 Lafayette Road
Hampton, N.H. 03843
Attention: Wilfred L. Sanders, Esq.
All notices shall be deemed to have been given upon the earlier of (a) actual
receipt or (b) the time of dispatch if delivered by same-day delivery or sent by
telex with confirmed answer back; on the day following dispatch if sent by an
express courier service on a next-day delivery basis; and ten days after the
date of mailing if sent by registered or certified U.S. mail, postage prepaid
unless actually received earlier.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on the
date first above written.
ATTEST: FRANCHISE ASSOCIATES, INC.
- -------
By:
- ----------------------- ----------------------------
, Asst. Secretary A.P. Barrett, President
CORPORATE SEAL
DOWNEAST FROZEN DESSERTS, L.L.C.
By:
----------------------------
Milton Namiot, President
- -----------------------
, Secretary
CORPORATE SEAL
22
<PAGE>
CONSENT
-------
HFS incorporated ("Hospitality") hereby consents to the terms of the
foregoing Sublicense Agreement between Franchise Associates, Inc. ("FAI") and
DownEast Frozen Desserts, L.L.C. ("Licensee"), is agreeable to all of the terms
and conditions hereof and consents to FAI's entering into the same.
HFS INCORPORATED
By:
- ------------------------ ------------------------
,Asst. Secretary
CORPORATE SEAL
23
<PAGE>
EXHIBIT A
HOWARD JOHNSON TRADEMARKS
-------------------------
TO BE SUBLICENSED
-----------------
<TABLE>
<CAPTION>
Mark Reg./App.No. Reg.Date
- ------------------ ------------ -----------------
<S> <C> <C>
HOWARD JOHNSON'S 807,579 APRIL 26, 1966
SIMPLE SIMON PIE 537,778 FEBRUARY 13, 1951
MAN DESIGN
</TABLE>
THE FOLLOWING MARKS FOR "LICENSED PRODUCTS" WHETHER OR NOT
REGISTERED:
a. HOWARD JOHNSON'S
b. SIMPLE SIMON PIE MAN DESIGN
24
<PAGE>
EXHIBIT 10.6
ASSIGNMENT AND ASSUMPTION OF
----------------------------
SUBLICENSE AGREEMENT
--------------------
AGREEMENT made this 17th day of February, 1997 by and between Downeast
Frozen Desserts, L.L.C., ("DE") a Delaware Limited Liability Company with a
place of business in Portland, Maine and Deering Ice Cream, Inc., a Delaware
corporation with a place of business in Portland, Maine ("Deering") a wholly
owned subsidiary of Terrace Holdings, Inc. a Delaware Corporation with a
principle place of business in Fort Lauderdale, Florida.
WITNESSETH
WHEREAS, DE is a party to a certain Sublicense Agreement dated December 24,
1996 by and between it and Franchise Associates, Inc. (the "Agreement);
WHEREAS, DE has or will sell its assets, including its rights and
obligations under said Agreement to Deering;
WHEREAS, Deering desires to acquire the assets and assume the Agreement;
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and
agreements herein contained, the parties agree and act as follows:
1. DE hereby assigns, sets over and transfers to Deering all of DE's
rights, title and interests under the Agreement.
2. Deering hereby assumes and agrees to perform, fulfill and observe all
of the covenants, agreements, warranties, obligations and liabilities of
Downeast Frozen Desserts, LLC under the Agreement.
3. This Assignment and Assumption of Sublicense Agreement shall inure to
the benefit and be binding upon the parties and their successors and assigns.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Assumption to be executed by their respective duly authorized officers as of the
day and year first above written.
DOWNEAST FROZEN DESSERTS, L.L.C.
By:
- ------------------- ------------------------------------
Witness Milton Namiot
DEERING ICE CREAM, INC.
By:
- ------------------- ------------------------------------
Witness Duly Authorized
Franchise Associates, Inc. ("FAI") hereby consents to the Assignment and
Assumption of the Sublicense Agreement between FAI and Downeast Frozen Desserts,
L.L.C. as set forth herein.
FRANCHISE ASSOCIATES, INC.
- ------------------- ---------------------------------------
Witness A.P. Barrett, President
H.F.S., Inc. (HFS) hereby consents to the Assignment and Assumption of
Sublicense Agreement between FAI and Downeast Frozen Desserts, L.L.C. as set
forth herein.
H.F.S., Inc.
By:
- ------------------ ------------------------------------
Witness Duly Authorized
