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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, 1997.
[_] 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.)
1325 N.W. 22nd Street, Pompano Beach, Florida 33069
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(Address of Principal Executive Office) (Zip Code)
(954) 917-7272
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
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Name of Each Exchange
Title of Each Class on Which Registered
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_____________________________________ _____________________________________
_____________________________________ _____________________________________
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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. $8,929,464.
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 April 13, 1998: $8,389,207.
As of December 31, 1997, the total number of shares of common stock
outstanding: 5,006,400.
This is page 1 of ________ 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
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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. As of the date of this filing, the Registrant has
three wholly-owned operating subsidiaries, having sold two in the "hospitality"
group and two in the "food services and distribution" group in the first quarter
of 1998. The sold hospitality subsidiaries are 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; and The Lasko
Family Kosher Tours, Inc., which operates Passover holiday vacations at three
locations within the United States. The Lasko Companies, Inc., which owns and
operates on leased property the Registrant's kosher, casual dining restaurant.
The food services and distribution subsidiaries are: A-One-A Produce &
Provisions, Inc. which is a Pompano Beach, Florida based produce distributor
that sells and distributes fresh fruit and vegetables and "dry" grocery products
to hotels, restaurants and other businesses in the southern Florida region; and
Terrace Fresh Inc., which was organized to operate as an affiliate of Terrace's
A-One-A Produce & Provisions, Inc. subsidiary. In December, 1997, the
Registrant disposed of its frozen desserts manufacturing business. See "Frozen
Desserts."
Food Services and Distribution
Produce. In August, 1997, but effective as of July 1, 1997, the
Registrant's wholly-owned subsidiary, A-One-A Produce & Provisions, Inc. ("A-
One-A Produce") acquired the assets and related liabilities of A-One-A Wholesale
Produce, Inc. ("A-One-A Wholesale"). Effective January, 1998, the Registrant
acquired the assets and related liabilities of A One A Wholesale's affiliate,
Fresh, Inc. Both corporations were unaffiliated with the Registrant. A-One-A
Produce distributes fresh produce, fruits and vegetables to restaurants, country
clubs, hotels, airline food service, and other institutional food service
providers in the south Florida region. A-One-A Produce's warehouse encompasses
55,000 square feet on 3.5 acres, with 24 loading docks, 1,700 pallet locations
and includes 30,000 square feet of refrigerated warehouse space. A-One-A
Produce also operates a fleet of 28 refrigerated delivery trucks.
Frozen Desserts. In February, 1997, in consideration of the issuance of
918,900 shares of the Registrant's Common Stock, warrants to purchase an
additional 250,000 shares of Common Stock at $1.1875 per share and approximately
$114,000 in cash, 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, as well as co-packing for approximately 15
other unaffiliated companies. The Registrant also issued warrants to purchase
250,000 shares at $1.1875 to Biltmore Securities, Inc., and 75,000 shares of
Common Stock to Barclay Partners, L.L.C. as investment banking and finder's
fees, and warrants to purchase 50,000 shares at $1.1875 to Bruce Phillips, a
director of the Registrant, in recognition of his efforts successfully to
negotiate and consummate the acquisition. In December, 1997, however, the
Registrant consummated the sale of the assets and certain liabilities of its
wholly-
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owned subsidiary, Deering Ice Cream, Inc. to a subsidiary of Fieldbrook Farms,
Inc., Dunkirk, New York, for approximately $613,000 cash at closing, subject to
later adjustment, plus certain royalties over four years. Further, based on
post-closing accounting, the Company has released to the buyer the $200,000 of
the purchase price held in escrow and is in discussions with the buyer to
finalize the purchase price. The Registrant presently estimates it may have to
refund approximately $50,000 more of the purchase price. During the relatively
short period in which the Registrant owned and operated Deering Ice Cream, Inc.,
it became evident that the Registrant could not effect profitable operations
there without a substantial increase in the commitment of financial resources to
frozen dessert manufacturing, which resources have not been available to the
Registrant. Additionally, the Registrant's management determined that
concentrating on food distribution and processing would better serve its overall
goals over time. Accordingly, management determined to dispose of its frozen
dessert manufacturing operations as soon as practicable and concentrate on its
food distribution businesses in an attempt to enhance shareholder value over the
longer term. There is no assurance, however, that the Registrant will be
successful in accomplishing this.
In August, 1997, the Registrant guaranteed payment on a Loan and Security
Agreement between Foothill Capital Corporation of Mechanicsville, Virginia and
the Registrant's wholly-owned subsidiaries, Deering Ice Cream, Inc. and A-One-A
Produce & Provisions, Inc. under which Foothill has provided revolving loans in
a total amount of approximately $3,200,000, which were being used to refinance
the principal accounts receivable and inventory financing with respect to
Deering Ice Cream, Inc., and also to provide for the ongoing working capital
needs of A-One-A Produce & Provisions, Inc. In connection with the sale of the
Deering subsidiary's business in December, 1997, these loans were paid down in
the amount of $1,396,913, leaving a principal balance of approximately
$1,400,000. As a result of the foregoing transaction, the Registrant's guaranty
was adjusted accordingly.
Hospitality
Restaurant. From October, 1993 through May, 1995, the founders 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. Because both the kitchen and the
facilities were not large enough to serve adequately the needs of this
restaurant, it was closed at the end of May, 1995, and in October, 1995, the
Registrant opened a new restaurant, "Terrace Oceanside Restaurant", in
Hallandale, Florida. The Registrant's initial plan was to establish a chain of
kosher restaurants, which were to be called Terrace restaurants, along the
Eastern seaboard and possibly later in the Midwestern United States. During
1996, however, management of the Registrant 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 food distribution - related industries.
Terrace Oceanside Restaurant, in Hallandale, Florida, is the subject of an
agreement of sale with an unaffiliated third party scheduled to close on or
about June 15, 1998. See "Subsequent Events."
Food and Beverage Management. The Registrant, until March 13, 1998,
through its wholly-owned subsidiary, A&E Management Corp., managed a non-kosher
restaurant and catering
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operation at The Club at Emerald Hills, an upscale country club in Hollywood,
Florida. See "Subsequent Events."
Holiday Vacations. In 1989, the Registrant began operating a kosher
Passover holiday vacation venue at the Bonaventure Resort & Spa, now known as
the Wyndham Resort & Spa, in Fort Lauderdale, Florida. Passover occurs each
spring and the Registrant takes over the entire Registry Resort & Spa for the
Passover holiday season. See "Subsequent Events."
In January, 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 Hotel expired after the 1996 Passover holiday and was
not renewed for the 1997 Passover holiday.
During the second half of 1997, the Board of Directors of the Registrant
determined that its initial strategy of attempting to expand by establishing
additional kosher dining facilities and Passover vacation venues geographically
dispersed would entail substantial costs both economically and in executive
personnel. Accordingly, the Board determined to seek company growth by
acquisition of existing food services and distribution operations. Thus, on
November 12, 1997, the Board of Directors determined to discontinue the
"hospitality" segments of its business and shortly thereafter Dr. Lasko notified
the Board of his intention to acquire those segments. In connection with that
transaction, Dr. Lasko has submitted his resignation as President of the
Registrant effective immediately upon the affirmative vote of the Registrant's
stockholders at its upcoming Annual Meeting ratifying the transaction. In
accordance with the agreement, Dr. Lasko ceased drawing salary from the
Registrant effective as of January 1, 1998.
(b) Businesses of Issuer.
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Food Services and Distribution
A-One-A Produce & Provisions, Inc. Effective July 1, 1997, the
Registrant's wholly-owned subsidiary, A-One-A Produce & Provisions, Inc. ("A-
One-A Produce") acquired the assets and related liabilities of A-One-A Wholesale
Produce, Inc. ("A-One-A Wholesale") for a purchase price of $3,100,000 in cash
and the issuance of a total of 500,000 shares of Common Stock to the two
shareholders of A-One-A Wholesale. Effective January, 1998, the Registrant
purchased all of the outstanding stock of A-One-A Wholesale's affiliate, Fresh,
Inc. for a purchase price of $105,000 and the issuance of a total of 138,948
shares of the Registrant's Common Stock to three former shareholders of Fresh,
Inc. Both corporations were unaffiliated with the Registrant. A-One-A Produce
distributes fresh produce, fruits and vegetables to restaurants, country clubs,
hotels, airline food service, and other institutional food service providers in
the South Florida region.
A-One-A Wholesale was founded in 1987 by Virgil D. Scarbrough and Scott
Davis. Messrs. Scarbrough and Davis are now Co-Chief Operating Officers of
A-One-A Produce under employment agreements expiring on June 30, 2002. See
"Management - Employment Agreements and Aggregate Options Holdings." The
business is located in Pompano Beach, Florida and is currently housed in 55,000
square feet of rented space. In addition, the Registrant incorporated Terrace
Fresh, Inc. to operate the business of A-One-A Wholesale's affiliate, Fresh,
Inc. Revenue
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in 1996, prior to the Registrant's acquisition, for A-One-A Wholesale was
approximately $14.5 million dollars. A-One-A Produce employs approximately 105
people.
A-One-A Produce delivers seven days per week and its customers rely on
daily deliveries. The served area reaches southward to Homestead, Florida, and
as far as Jupiter, Florida, to the north, principally on the east coast of the
state. Service is a major component of the business' competitive strength. A-
One-A Produce does not attempt to be the low cost provider, but, rather, seeks
to distinguish itself as a provider of high quality products and exceptional
service. Most orders are received in the afternoon and delivered the next
morning. Customers are supported by a sales manager and nine regional sales
representatives to ensure optimum service and communication. A-One-A Produce
operates a fleet of 28 delivery trucks, all of which are refrigerated and
equipped with two-way radios.
Mr. Davis is primarily responsible for buying produce, pricing the produce
to the customers and identifying and selling the new larger accounts. Mr.
Scarbrough generally is responsible for office administration, personnel,
warehouse and delivery operations. For the most part, each of Messrs. Davis and
Scarbrough is capable of performing the other's basic day-to-day duties.
Jonathan S. Lasko, Executive Vice-President and Chief Operating Officer of the
Registrant is the President and Chief Executive Officer of A-One-A Produce.
Produce is purchased on an international basis through approximately six
brokers. All purchases are made on an F.O.B. basis to A-One-A Produce's
warehouse. The Registrant has also recently joined a produce buying co-
operative, Pro*Act, and is currently buying a portion of its requirements
through it. Purchasing is also performed directly with farmers in the Florida
market depending upon seasonal availability. Pricing to customers is set on a
weekly basis in accordance with market conditions. The pricing scheme is very
complex and takes into effect a number of qualitative factors. Pricing is set
at a detailed item by item level for each type of produce by customer. A small
number of the larger accounts in terms of sales have pricing arrangements that
represent a margin above market price as an approximation of cost. Some of the
Registrant's larger customers currently include Boston Market, TGI Friday's,
Darden (Red Lobster and Olive Garden), and Applebee's. No individual customer
accounts for more than 7% of the Registrant's produce sales.
Fresh, Inc. supplies cut produce to A-One-A Produce's customers through A-
One-A Produce and also to process food manufacturers directly. This business is
approximately two years old. Its revenues in 1996 were approximately
$1,500,000; approximately $1,000,000 of which represents sales to A-One-A for
resale. The produce is processed by Fresh primarily by means of washing or
peeling and cutting. The produce is then vacuum sealed in dated plastic bags
and boxed for immediate delivery. The pre-cut, pre-packaged produce market is
currently in its infancy in southern Florida. Although there can be no
assurance, it is anticipated that this business segment will contribute material
growth in revenues and profits in the future.
A-One-A Produce leases a building housing its offices, warehouse and
processing operations in Pompano Beach, Florida. This property is a 55,000
square foot warehouse on 3.5 acres and should allow for further expansion. The
building has 24 loading docks (approximately half of which are refrigerated),
1,700 pallet locations, and includes 30,000 square feet of refrigerated
warehouse space. The building is leased from an affiliate of Messrs. Scarbrough
and Davis. The lease was
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negotiated in connection with the acquisition of A-One-A Wholesale and Fresh, to
become effective on the property's purchase by the affiliate of Messrs. Davis
and Scarbrough.
In September, 1997, the Registrant acquired the assets of Dry Dock
Distributors, Inc. a Florida corporation d/b/a Bay Purveyors ("Bay Purveyors"),
which distributes "dry" grocery items in the south Florida region. The purchase
price was $340,000. The business of Bay Purveyors is conducted as part of A-
One-A Produce.
In January, 1998, the Registrant acquired the assets of D.M.S. Food
Distributors, Inc., a Florida corporation, d/b/a Gourmet Distributors ("Gourmet
Distributors"), which distributes "dry" grocery items in the south Florida
region. The purchase price was $125,000. The business of Gourmet Distributors
is conducted as part of A-One-A Produce.
Sale of Frozen Desserts Business
Deering Ice Cream, Inc. In December, 1997, the Registrant's wholly-owned
subsidiary, Deering Ice Cream, Inc. ("Deering"), sold substantially all of its
assets and related liabilities to a subsidiary of Fieldbrook Farms, Inc.
("Fieldbrook"), for an aggregate purchase price of $1,000,000, subject to later
adjustment. In conjunction with the sale, Milton Namiot, Chief Executive
Officer of the Registrant and President of Deering, and Joseph Dane, Controller
of the Registrant and Chief Financial Officer of Deering, resigned their
respective positions with the Registrant.
Under the agreement with Fieldbrook, $200,000 of the purchase price was
placed in escrow for 60 days pending receipt by the parties of an independent
post-closing audit of Deering, any third party claims against Deering relating
to matters prior to the closing and certain other matters. In addition, there
was a downward adjustment of the purchase price made at closing of $387,142 as a
result of the working capital deterioration at Deering from September 30, 1997
to closing. On March 20, 1998, the Registrant released the full escrow amount
to Fieldbrook and is currently in discussion to finalize the purchase price
based on the post-closing audit. The Registrant presently estimates it may have
to refund approximately $50,000 more of the purchase price.
The Registrant will receive annual royalties from Fieldbrook for four years
at the rates of 2%, 2%, 1% and 1%, respectively, of net sales by Fieldbrook of
products under the Howard Johnsons and Deering labels. At this time, the
Registrant cannot estimate whether or if such royalties, if received, will be
material.
Subsequent Events
Sale of Hospitality Segments. In November, 1997, Samuel H. Lasko,
President, notified the Registrant of his intention to exercise his option to
purchase the hospitality subsidiaries of the Registrant at a purchase price
equal to the "fair value" of the subsidiaries. Dr. Lasko's exercise of his
option is subject to the Registrant securing an independent fairness opinion and
the affirmative vote of the majority of the Registrant's shareholders. The
Board of Directors retained an independent accounting, consulting and valuation
firm to render such an opinion and that opinion was acceptable to Dr. Lasko.
Accordingly, on March 12, 1998, the A&E Management, Inc., and The Lasko Family
Kosher Tours, Inc. subsidiaries of the Registrant were sold to him effective as
of January 1, 1998, subject to the affirmative shareholder vote required for
consideration aggregating $575,000 in accordance with the independent fairness
opinion received by the Registrant. The
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consideration consisted of Dr. Lasko giving up the approximately three years
remaining under his employment agreement with the Registrant (independently
valued at $417,807) and 114,322 of his warrants to purchase Common Stock at
$1.1875 per share (independently valued at $157,193). Additionally, Dr. Lasko
agreed to manage the business of The Lasko Companies, Inc. (The Terrace
Oceanside Restaurant) for the Registrant, without fee, until the Registrant
consummates the sale thereof to an unaffiliated third party.
On March 23, 1998, an agreement was entered into under which the restaurant
business will be sold to an unaffiliated third party for an aggregate purchase
price of $90,000. Closing of the sale is scheduled for June 15, 1998. Pending
such closing, Dr. Samuel H. Lasko is managing the restaurant, without fee, on
behalf of the Registrant. If for any reason this sale is not completed, Dr.
Lasko will continue his management of the restaurant until the earlier of
approximately one year or a new buyer is found and purchases the Restaurant.
Advertising And Marketing
The Registrant currently markets its products and services through the use
of mailing lists and various trade publications. The Registrant presently is
considering 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
The wholesale fresh produce and grocery businesses are also very
competitive, and the Registrant's subsidiaries face competition from other low-
cost produce providers. However, A-One-A Produce and Fresh strive to maintain
high quality and exceptional service in the market by making quality products
and efficient service its priority.
It must be noted that food related businesses are often affected by
arbitrary changes in consumer tastes, national, regional and local economic
conditions, demographic trends, traffic patterns, the number and locations of
competing businesses and employment trends.
Government Regulation
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 building, health and safety and fire agencies. Difficulties in obtaining
or failures to obtain or maintain the necessary licenses or approvals could have
a material adverse effect on the Registrant's operations.
A-One-A Produce and Fresh maintain licenses under the Perishable
Agricultural Commodities Act ("PACA") which regulates "commission merchants,"
"brokers," and "dealers" engaged in the business of shipping or receiving
perishable agricultural commodities in interstate commerce.
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Employees
The Registrant employs approximately 105 people which includes
administrative, transportation and warehouse personnel, as well as executive
management.
Item 2 - Description of Property
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A-One-A Produce & Provisions, Inc. leases approximately 55,000 square feet
at 1351 N.W. 22nd Street, Pompano Beach, Florida, for use as its principal
offices and warehouse. The lease term is for ten years with three five year
options to extend expiring June 30, 2007, at a rental of approximately $222,000
per year. The Pompano Beach facility is owned by an affiliate of Messrs.
Scarbrough and Davis. A lease for this facility was negotiated as part of the
A-One-A transaction. Under the lease, the Registrant has an option to purchase
the land and building in Pompano Beach, Florida at a purchase price of
$2,000,000 until December, 1998, though there is no assurance that such will be
the case.
Until August 1, 1997, the Registrant leased approximately 2,000 square feet
at 2699 Stirling Road in Ft. Lauderdale, Florida, for use as its executive
offices and reservations center. The Registrant's executive offices are now
located in the A-One-A Produce facility in Pompano Beach, Florida. Management
believes that the above facilities will be sufficient for its operations in the
foreseeable future.
Item 3 - Legal Proceedings
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The Registrant is not currently a party to any material legal proceeding.
Item 4 - Submission of Matters to a Vote of Security Holders
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During the fourth quarter of the past fiscal year, the Registrant has not
submitted any matter to a vote of security holders, through solicitation of
proxies or otherwise.
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PART II
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Item 5 - Market for Common Equity and Related Stockholder Matters
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(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 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.
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Bid Ask
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Type of Security Quarter Ended High Low High Low
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Common Stock December 29, 1995/(1)/ 6 1/8 2 1/4 7 1/8 4 1/4
High/(2)/ Low/(2)/
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March 31, 1996 6 3/4 4 1/4
June 30, 1996 4 5/8 3
September 30, 1996 4 1/2 2 3/4
December 31, 1996 1 1/16 7/8
March 31, 1997 1 1/2 1 5/16
June 30, 1997 1 7/8 1 7/8
Sept. 30, 1997 2 1/8 2
December 31, 1997 1 1/4 1 1/8
Quarter Ended High Low High Low
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Warrants December 29, 1995/(1)/ 1 1/2 3/4 2 1 1/2
High/(2)/ Low/(2)/
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March 31, 1996 2 1/2 1 1/4
June 30, 1996 1 3/4 1
September 30, 1996 1 5/8 1/2
December 31, 1996 5/16 5/16
March 31, 1997 5/8 5/8
June 30, 1997 3/4 3/4
September 30, 1997 2 1/8 1 7/8
December 31, 1997 1 3/16 1
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/(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.
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Holders
As of January 7, 1997, there were 40 and 39 holders of record of the
Registrant's Common Stock and Public Warrants, respectively. The Registrant
believes that it has a greater number of shareholders and Public Warrant holders
because the Registrant believes that a substantial amount of its Common Stock
and Public Warrants are held of record in street name by broker-dealers for
their customers.
Dividends
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.
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Item 6 - Management's Discussion and Analysis of Financial Condition and Results
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of Operations
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Results of Operations:
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Terrace Holdings, Inc. (Consolidated)
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Year ended December 31, 1997, compared to year ended December 31, 1996.
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The Registrant's consolidated net loss for 1997 was approximately
$4,300,000, compared to a net loss of approximately $1,156,000 for 1996. The
substantial increase was due to several factors. The primary factor was the loss
on the disposition of several of the Registrant's operating subsidiaries. In
November, 1997, Management and the Board restructured the focus and objective of
the Registrant going forward. A major part of this restructuring included the
concentration on the processing and distribution of produce and other food
related items. The Registrant's plan called for the sale of its ice cream and
hospitality units. The sale of these operations (the ice cream business in
December, 1997, and the two major hospitality units effective January, 1998)
resulted in losses on disposal of approximately $ 2,789,000. The balance of the
operating losses primarily resulted from the underperformance of the ice cream
unit due to increased cost associated with production as well as increased
selling, general, and administrative costs.
In addition, the Registrant incurred losses from its A-One-A Produce and
Provisions, Inc. subsidiary in the six-months it owned the Registrant in 1997.
These losses were due primarily to costs associated with its moving into its new
facility and increased labor costs. See Below.
Continuing Operations:
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A-One-A Produce & Provisions, Inc., the Registrant's subsidiary that
distributes produce, dairy, and other grocery items, operates in Pompano Beach,
Florida, out of its 55,000 sq. ft. warehouse. There are no comparable results
for 1996, as the company was not part of the Registrant's organization. For the
other six-month period ended December 31, 1997, A-One-A Produce and Provisions,
Inc. sustained a loss of approximately $437,000. This loss, was primarily due to
the increased cost in selling, general, and administrative expenses due to the
Registrant's plan to develop the business in a very aggressive manner. In
addition, the Registrant moved into its new facility September 7, 1997, and
incurred additional costs of approximately $150,000 as a result of inefficiency
within its operations. The Registrant has taken steps to increase efficiency,
both with technology as well as internal procedures in order to overcome initial
inefficiencies and realize greater profitability from its distribution sector.
The Registrant also purchased two small distribution companies in late 1997 to
expand and consolidate with A-One-A's current operation. Management believes
that as it continues to attempt to increase value, both through increased
produce sales as well as varying its product lines, the Registrant will realize
greater profitability.
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Discontinued Operations:
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Passover Holiday Segments:
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For the Passover season in 1997, the Registrant operated three venues, the
Registry Resort & Spa in Fort Lauderdale, Florida, the Fontainebleau Hotel in
Miami Beach, Florida, and the Rye Town Hilton in Westchester, New York. Revenue
for this segment was approximately $3,475,000, compared to $3,750,000 in 1996.
The decrease in revenue was a result of the Registrant's decision not to renew
1997 operations at the Tamiment Hotel in Pennsylvania. As a result of non-
operation at this facility, the Registrant expensed the remainder of the
amortized value directly associated with that hotel. The Registrant originally
acquired the contracts to operate vacation venues at the Fontainebleau, Rye Town
Hilton and Tamiment Resort in 1996 for $675,000. The full amount was recorded as
intangible assets. Management decided that the growth and income trend of this
segment was not in the ultimate plans of the Registrant, and accordingly decided
to exit this segment of the Registrant's business. Subsequent to the year ended
December 31, 1997, the Registrant sold these operations retroactive to the
beginning of the year and subject to shareholder ratification. These operations
and one of the food services subsidiaries were sold to Samuel H. Lasko,
President, pursuant to Mr. Lasko's exercise of his option to purchase the
hospitality subsidiaries for an aggregate purchase price of $575,000, which is
the value of the businesses as determined by an independent fairness opinion.
Food Service Segment
- --------------------
The Registrant decided in November, 1997, to dispose of its food service
units. As of the end of fiscal 1997, the Registrant's reported loss for its
A & E Management, Inc. and The Lasko Companies, Inc. subsidiaries was
approximately $98,000 compared to a loss of approximately $189,000 in 1996. The
increase was due primarily to costs associated with the disposal of these
entities. Management's decision to dispose of these entities was primarily based
on the Registrant's inabilities to effectively grow these specific entities. As
mentioned above, while the Registrant has already sold, subject to shareholder
ratification, the A & E Management Corp. subsidiary to Samuel H. Lasko, it
expects to sell the Terrace Oceanside Restaurant, which is the operation of The
Lasko Companies, Inc. subsidiary in the second quarter of 1998. Presently, the
Registrant has entered into a Management Agreement with Samuel H. Lasko, under
which Mr. Lasko will continue to manage the restaurant until such a sale of the
operations is consummated.
Deering Ice Cream, Inc.
- -----------------------
In February, 1997, the Registrant purchased the assets and related
liabilities of DownEast Frozen Desserts, LLC. The loss incurred for the year
ended December 31, 1997, was approximately $738,000. The losses were incurred
from operations as well as from the disposal of the ice cream business.
Management decided to dispose of this segment because it did not fit into the
Registrant's long term plan of goals and objectives, additionally, the revenues
in the ice cream subsidiary took a downturn. As a result, profitability was not
obtained. In order to overcome these two issues, the Registrant would have had
to infuse substantial funding to compete with some of the larger competition,
and such additional funding, whether in the form of equity capital or debt
financing, did not appear to be reasonably available. Thus, Management felt
concentrating on its distribution and processing entities was a better direction
to take.
12
<PAGE>
Liquidity and Capital Resources
- -------------------------------
At December 31, 1997, the Registrant had cash of approximately $(235,000)
and working capital of approximately $(898,000). The Registrant, A-One-A
Produce & Provisions, Inc. and Terrace Fresh, Inc. have relied principally on
internally generated funds to fund their working capital needs.
Management has initiated a financing plan with a bank and a number of its
investors to provide the necessary funds to continue to operate its businesses
and to provide additional capital for a possible acquisition.
The Registrant has received a letter of intent from a bank to provide financing
to the Registrant. The bank has commenced its normal due diligence investigation
which should be completed shortly. Management is not presently aware of any
matter which would prevent the completion of the financing.
The Registrant has a pending registration statement covering a proposed offer to
its warrantholders to exercise their warrants and purchase common stock at a
temporarily reduced exercise price. Several warrantholders have indicated they
intend to exercise their warrants, once the registration statement is declared
effective. In addition, if so requested by the Registrant, a private investor
has indicated his intent to purchase equity capital in the Registrant if
sufficient proceeds are not realized by the Registrant from such warrant
exercises.
Management believes that actions presently being taken to revise the
Registrant's operating and financial requirements provide the opportunity for
the Registrant to continue as a going concern. However, the success of
management's plans is not assured.
Seasonality:
- ------------
The continuing operations of the Registrant are seasonal due to the increased
business in South Florida during the winter months. However, the Registrant's
Management believes that continuing operations will be less seasonal than the
hospitality and ice cream units have been. Additionally, Management believes
that through additional acquisitions in the food processing and distribution
areas it may minimize these seasonal effects, though there is no assurance that
any further acquisitions will be successfully made or that less seasonal effects
will be accomplished.
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 1997.
13
<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, 1997, the Registrant's directors and executive officers
were:
<TABLE>
<CAPTION>
Name Age Position Held
<S> <C> <C>
Dr. Samuel H. Lasko/(1)/ 52 President, Treasurer and Director
Jonathan S. Lasko 26 Executive Vice-President, Secretary, Chief
Operating Officer and Director
Bruce S. Phillips 54 Director
Steven Shulman 56 Chairman of the Board of Directors and Chief
Executive Officer
Richard Power 48 Director
Bernard Rubin, M.D. 49 Director
Fred A. Seigel/(2)/ 42 Director
</TABLE>
______________________________
/(1)/ In connection with the sale of the "hospitality" businesses, in
March, 1998, Dr. Lasko has resigned as an officer of the Registrant
effective on the ratification of the sale by the Registrant's shareholders
(later this year). Dr. Lasko has also advised that he will not stand for
re-election as a director at that time.
/(2)/ Elected a director on February 18, 1998, to fill the vacancy caused by the
resignation of Milton Namiot. See Item 10, "Executive Compensation," Note
6.
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
acquisition in February, 1997, there were five directors, and as of February 17,
1997, there have been 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.
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. 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 Executive Vice-President, Secretary,
the Chief Operating Officer of the
14
<PAGE>
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 has also been the Registrant's Executive Vice-President since May,
1993. 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. He is also President and Chief
Executive Officer of A-One-A Produce and Provisions, Inc. 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
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, the President 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 Executive Vice-President, Secretary and
Chief Operating Officer.
STEVEN SHULMAN, age 56, is a Managing Director of Latona Associates, Inc.,
an investment banking firm involved in advisory services and principal
investments. He serves as a director of a number of public and private companies
and is currently a director of WPI Group, Inc., Ermanco Incorporated, Beacon
Capital Partners, L.P. and Corinthian Directory, Inc. 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. Since February, 1997, Mr.
Shulman has served as the Chairman of the Board of Directors and since February
18, 1998, has also served as the Chief Executive Officer of the Registrant.
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. Since February, 1997, Mr. Power
has served as a director of the Registrant.
BERNARD RUBIN, M.D., age 49, was a director of the Registrant from August,
1995, to February 17, 1997, when he voluntarily resigned. He was re-elected a
director at the Registrant's 1997 Annual Meeting of Shareholders. For the past
approximately 19 years, Dr. Rubin has been a practicing cardiologist in
Baltimore, Maryland, where, for the past six years he has been the President of
Baltimore Heart Associates, an 18-member cardiology group. Dr. Rubin has served
as President of the Medical Staff and is currently Chief of Cardiology and
Medical Director of the Critical Care Unit at Northwest Hospital Center in
Baltimore. He holds undergraduate degrees from
15
<PAGE>
Yeshiva University and a medical degree from New York Medical College, both in
New York. Dr. Rubin is a Fellow in the American College of Cardiology.
FRED A. SEIGEL, age 42, was elected a Director on February 18, 1998, to
fill a vacancy. Mr. Seigel is a founder, President and a Director of Energy
Capital Partners, a privately-held, Boston-based company organized in September,
1993, providing financing for energy efficiency projects for commercial,
industrial and institutional property owners throughout the United States. He
has more than twenty years experience in the energy field. From January, 1988
to October, 1994, he served as a limited partner in two large-scale energy co-
generation projects in New York state, representing a total investment of
$350,000,000. From March, 1984 to November, 1986, Mr. Seigel was a project
manager for Wheelabrator-Frye, Inc., in that company's Resource Recovery
Division. From January, 1981 to January, 1983, he was the Director of the
Executive Office for Energy for the State of New Hampshire. Mr. Seigel holds a
B.A. from New England College, Henniker, New Hampshire.
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 for each directors' meeting attended. The
Registrant anticipates that the Board of Directors will continue to 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, 1997, 1996 and 1995, 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>
Annual Compensation
------------------------------------
Year Ended Annual Other
Name & Principal Position December 31 Salary Compensation Options
- ------------------------- ----------- ------ ------------ -------
<S> <C> <C> <C> <C>
Samuel H. Lasko, 1995 $ 31,403 $ 169,081/(2)/ 750,000/(5)/
President and 1996 $125,000 $9,517/(3)(4)/
Treasurer 1997 $150,000 $ 22,502/(3)/
Jonathan S. Lasko, 1995 $ 24,592 $ 169,081/(2)/ 750,000/(5)/
Executive Vice 1996 $ 70,000 $ 7,255/(3)/
President, Secretary and 1997 $ 95,000 $ 21,727/(3)/
Chief Operating Officer
Milton Namiot, 1997 $175,000 $ 9,500/(3)/ 125,000/(6)/
Chief Executive Officer/(6)/
</TABLE>
16
<PAGE>
____________________________________________________
/(1)/ Paid by A&E Management Corp. ("A&E").
/(2)/ 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.
/(3)/ Represents amounts paid for lease of automobile, automobile insurance,
cell phone and health insurance.
/(4)/ Does not include repayments of loans from A&E, The Lasko Companies, Inc.
and the Registrant.
/(5)/ In connection with the DownEast acquisition in February, 1997, 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 $1.1875 per share exercisable immediately and expiring
August 31, 2000.
/(6)/ In connection with the sale of the Registrant's Deering Ice Cream, Inc.
business, Mr. Namiot resigned as an officer. He was an officer and
director of the Registrant from February 17, 1997 until the closing of the
Deering transaction. In connection with his resignation, the termination
of this three year employment contract and his release of the Registrant
from the terms thereof, Mr. Namiot was vested with 50% of the options
theretofore granted him, or options to purchase 125,000 shares of the
Registrant's common stock.
17
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
The following table sets forth options exercised by the Registrant's chief
executive officer and the Registrant's two other most highly compensated
executive officers during fiscal 1996, and the number and value of all
unexercised options at year end. The value of "in-the-money" options refers to
options having an exercise price which is less than the market price of the
Registrant's stock at fiscal year-end. On that date, none of the Registrant's
executive officers held exercisable options which were "in-the-money".
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Options/SARs Options/SARs
at FY-End (#) at FY-End ($)
Shares Acquired On Value Exercisable/ Exercisable/
Name 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, and
resigned in December, 1997 following the sale of the Deering business.
/(2)/ Represents options(based on performance by the Registrant) contained in
the Lasko's 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 5-year employment agreements, ending August 31, 2000,
with each of Dr. Samuel H. Lasko and Jonathan S. Lasko. Dr. Samuel H. Lasko
tendered to the Registrant the balance of his employment agreement in partial
consideration of his purchase of the Registrant's "hospitality" segments. See
"Subsequent Events."
Under his employment agreement, Dr. Samuel H. Lasko received an annual base
salary of $95,000 for the first two years and was to receive $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
February 17, 1997, to their respective employment agreements, Dr. Lasko and
Jonathan Lasko each voluntarily 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
18
<PAGE>
Jonathan Lasko, warrants to purchase 375,000 shares of its common stock at an
exercise price of $1.1875 per share. (Dr. Lasko tendered to the Registrant
114,322 of such warrants in partial consideration of his purchase of the
Registrant's "hospitality" businesses.) 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. On February 18, 1998,
the Board of Directors accepted the recommendation of its Compensation Committee
and increased Jonathan S. Lasko's base compensation for 1998 to $125,000.
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 under which Mr. Namiot served as the President and
Chief Executive Officer of Deering and Chief Executive Officer of the
Registrant. As a result of the sale of the Deering business, Mr. Namiot
resigned from his positions as an officer and director of the Registrant.
In connection with the A-One-A transaction, the Registrant entered into 5
year employment agreements, effective July 1, 1997, and ending July 30, 2002,
with both Virgil D. Scarbrough and Scott Davis under which Messrs. Scarbrough
and Davis will serve as Co-Chief Operating Officers of the Registrant's wholly-
owned subsidiaries A-One-A Produce & Provision, Inc. and Terrace Fresh, Inc.
Under their respective employment agreements, Messrs. Scarbrough and Davis each
receive a annual base salary of $120,000.
In connection with the Bay Purveyors acquisition, the Registrant's wholly-
owned subsidiary, A-One-A Produce, entered into a 5 year employment agreement
effective September 1, 1997, with Kenneth Cohen under which Mr. Cohen will serve
in an upper level management position for A-One-A Produce. Under his employment
agreement, Mr. Cohen receives an annual base salary of $65,000.
The 1997 Stock Option Plan and Participants
The Registrant recently adopted the 1997 Stock Option Plan (the "Plan")
which enables it to grant options for shares of its Common Stock. The Plan
authorizes the grant of options to purchase up to an aggregate of 1,250,000
shares of the Registrant's Common Stock, to (i) officers and other full-time
salaried employees of the Registrant and its subsidiaries with managerial,
professional or supervisory responsibilities, and (ii) consultants and advisors
who render bona fide services to the Registrant and its subsidiaries, in each
case, where the Compensation Committee determines that such officer, employee,
consultant or advisor has the capacity to make a substantial contribution to the
success of the Registrant. The number of individuals who currently would be
eligible to receive options pursuant to the Plan is approximately seven. As
used herein with respect to the Plan, references to the Registrant include
subsidiaries of the Registrant.
The purposes of the Plan are to enable the Registrant to attract and retain
persons of ability as officers and other key employees with managerial,
professional or supervisory responsibilities, to retain able consultants and
advisors, and to motivate such persons to use their best efforts on behalf of
the Registrant by providing them with an equity participation in the Registrant.
The full text of the
19
<PAGE>
Plan is set forth as an exhibit to this Registration Statement, and the
following description is qualified in its entirety by reference thereto.
The Plan is administered by the Compensation Committee, which was appointed
by the Registrant's Board of Directors, and consists of three members of the
Board of Directors, two of whom are "disinterested" persons within the meaning
of Rule 16b-3 under the Securities Exchange Act of 1934. Under the terms of the
Plan, the Committee will have the authority to determine, subject to the terms
and conditions of the Plan, the persons to whom options are granted, the number
of options granted to each optionee, and the terms and conditions of each
option, including its duration.
The Plan can be amended, suspended, reinstated or terminated by the Board
of Directors; provided, however, that without approval of the Registrant's
shareholders, no amendment shall be made which (i) increases the maximum number
of shares of Common stock which may be subject to stock options granted under
the Plan, except for specified adjustment provisions, (ii) extends the term of
the Plan, (iii) materially increases the benefits accruing to optionees under
the Plan, (iv) materially modifies the requirements as to eligibility for
participation ion the Plan, or (v) will cause stock options granted under the
Plan to fail to meet the requirements of Rule 16b-3. Unless previously
terminated or extended by the Board of Directors, the Plan will terminate on
February 20, 2007.
Stock options may be granted to purchase Common Stock under the Plan at not
less than the fair market value of the shares as of the date of grant. The
maximum number of shares for which options may be issued to an employee of the
Registrant during any calendar year may not exceed 250,000. Other than the
limit of 250,000 options per year, there is no limitation on the aggregate
number of stock options which may be granted to any optionee pursuant to the
Plan.
As of December 31, 1997, 738,000 options have been granted, including
380,000 to Samuel H. Lasko, Jonathan S. Lasko, and Steven Shulman.
Stock options may be granted for a term of up to ten years. The Plan
provides that if a stock option, or portion thereof, expires, lapses without
being exercised or is terminated, canceled or surrendered for any reason without
being exercised in full, the unpurchased shares of Common Stock which were
subject to such stock option or portion thereof shall be available for future
grants of stock options under the Plan.
Pursuant to the terms of the Plan, the option price for all options must be
paid in cash, by check, bank draft or money order payable in United States
dollars to the order of the Registrant, or with Common Stock of the Registrant
owned by the optionee and having a fair market value on the date of exercise
equal to the aggregate exercise price of the shares to be so purchased, or a
combination thereof.
Options granted pursuant to the Plan will not be assignable or transferable
except by will or the laws of intestate succession. Options acquired pursuant
to the Plan may be exercised by the optionee (or the optionee's legal
representative) only while the optionee is employed by the Registrant, or within
six months after termination of employment due to a permanent disability, or
within three months after termination of employment due to retirement. The
executor or administrator of a deceased optionee's estate or the person or
persons to whom the deceased optionee's rights thereunder have passed by will or
by the laws of descent or distribution shall be entitled to exercise the option
within the sixth month after the decedent's death. Options expire immediately
in the event an optionee is
20
<PAGE>
terminated with or without cause or resigns; provided, however, in the event the
Registrant terminates the employment of an optionee who at the time of such
termination was an officer of the Registrant and had been continuously employed
by the Registrant during the two year period immediately preceding such
termination, for any reason except "good cause" (as defined in the Plan), each
stock option held by such optionee (which had not then previously lapsed or
terminated and which had been held by such optionee for more than six months
prior to such termination) shall be exercisable for a period of three months
after such termination to the extent otherwise exercisable during that period.
All of the aforementioned exercise periods set forth in this paragraph are
subject to the further limitation that an option shall not, in any case, be
exercisable beyond its stated expiration date.
The purchase price and the number and kind of shares that may be purchased
upon exercise of options granted pursuant to the Plan, and the number of shares
which may be granted pursuant to the Plan, are subject to adjustment in certain
events, including stock splits, recapitalizations, mergers, and reorganizations.
In February, 1997, the following officers, directors, significant employees
and other employees have received the number of options as is designated
opposite their respective names:
<TABLE>
<CAPTION>
Name Number of Options/(1)/
---- ----------------------
<S> <C>
Samuel H. Lasko 125,000
Jonathan S. Lasko 125,000
Steven Shulman 130,000/(2)/
Bruce Phillips 20,000/(2)/
Richard Power 20,000/(2)/
Milton Namiot/(3)/ 125,000
Joseph Dane/(3)/ 25,000
Hersh Taubenfeld 20,000
Keith Stuart 20,000
Amy Lasko 15,000
Vivien Cypkin 5,000
Other Employees/(4)/ 108,000
-------
TOTAL 738,000
</TABLE>
- ---------------------------------------------------
(1) Unless otherwise stated, these options were granted at an exercise price of
$1.185 per share, such options become exercisable one third per year over
three years from the date granted.
(2) All of Mr. Phillip's and Mr. Power's options, as well as 30,000 of Mr.
Shulman's options, became exercisable at the time they were granted.
(3) In connection with the Registrant's sale of its Deering subsidiary's
business, Messrs. Namiot and Dane are no longer affiliated with the
Registrant. The Registrant's Compensation Committee determined that the
number of options listed became exercisable after consummation of such sale
on such date the options would have been exercisable had Messrs. Namiot and
Dane stayed affiliated with the Registrant. See footnote 8 to "Executive
Compensation" table.
(4) Includes options granted to 17 individual employees of the Registrant's
subsidiaries at an exercise price of $2.31 per share, such options become
exercisable one third per year over three years from the date granted.
21
<PAGE>
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
March 1, 1998. 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 March 1, 1998.
<TABLE>
<CAPTION>
Common Preferred
Stock Stock
Beneficial Percent Beneficial Percent
Name of Beneficial Owner Ownership/(1)/ of Class/(1)(2)/ Ownership of Class
- ------------------------ -------------- ----------------- ----------- ---------
<S> <C> <C> <C> <C>
Dr. Samuel H. Lasko 383,750/(3)/ 7.7% -0- -0-
Jonathan S. Lasko 380,000 7.6% 25,000/(4)/ *
Richard Power 204,154 * 50,000 *
Steven Shulman 346,154 6.9% 50,000 *
Bernard Rubin, M.D. -0- -0- 15,000 *
Fred A. Seigel 64,577 * -0- -0-
Bruce S. Phillips -0- -0- -0- -0-
Milton Namiot/(5)/
All Directors and
Executive Officers
as a Group (6 persons) 1,378,635/(6)/ 27.5% 140,000 9.2%
</TABLE>
- ------------------------------------------------
* Less than five percent
(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 September 30, 1997.
(3) Includes 3,750 shares held for the benefit of Dr. Lasko's minor child.
(4) Held for the benefit of Jordana Lasko, a minor.
(5) In December, 1997, following the sale of the Deering subsidiary's business,
Mr. Namiot resigned as an officer and director of the Registrant.
(6) Does not include stock options granted. See "1997 Stock Option Plan and
Participants." Also does not include Warrants to purchse Common Stock at a
price of $1.1875 in the following amounts: Samuel H. Lasko - 375,000;
Jonthan S. Lasko - 375,000; Steven Shulman - 36,666.7; Richard Power -
31,666.7; Fred A. Siegel - 15,833.3; Bernard Rubin, M.D. - 20,000; and Bruce
S. Phillips -70,000.
22
<PAGE>
Item 12 - Certain Relationships and Related Transactions
- --------------------------------------------------------
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 loaned Terrace Holdings, Inc., The Lasko Companies, Inc. and
A&E Management Corp. the sums of $7,276, $42,715 and $235,558, respectively, or
an aggregate of $285,549. Each loan provided interest at the prime rate of
interest and principal and interest 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.
In connection with the DownEast 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.
Messrs. 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, they entered into 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 was exercised by Samuel H. Lasko
alone and on March 13, 1998, he purchased The Lasko Family Kosher Tours, Inc.
and A&E Management, Inc. for consideration equal to $575,000 in accordance with
a "fairness opinion" received by the Registrant and Dr. Lasko from an
independent valuation firm. The sale is subject to shareholders' approval. See
"Business - Sale of Hospitality Segments."
A-One-A Produce & Provisions, Inc. leases approximately 55,000 square feet
at 1351 N.W. 22nd Street, Pompano Beach, Florida, for use as its principal
offices and warehouse. The lease term is for ten years with three five year
options to extend expiring June 30, 2007 at an annual rental of approximately
$222,000. The Pompano Beach facility is owned by an affiliate of Messrs.
Scarbrough and Davis. A lease for this facility was negotiated as part of the
A-One-A acquisition. Under the lease, the Registrant has an option to purchase
the land and building in Pompano Beach, Florida at a purchase price of
$2,000,000 until December, 1998.
In July, 1997, the Registrant loaned $30,000 to its then wholly-owned
subsidiary, Deering Ice Cream, Inc. As a result of the consummation of the sale
of the assets of Deering to a subsidiary of Fieldbrook Farms, Inc., this loan
was terminated.
23
<PAGE>
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 *
---------------------------------------------------
(10) Material Contracts **
-----------------------
The following Material Contracts are filed herewith:
10.1 Employment Agreement, dated July 1, 1997, between Terrace
Holdings, Inc. and Scott Davis
10.2 Employment Agreement, dated July 1, 1997, between Terrace
Holdings, Inc. and Virgil Scarbrough
10.3 Employment Agreement, dated July 17, 1997, between Terrace
Holdings, Inc. and Kenneth Cohen
10.4 Investment Banking Agreement, dated July 1, 1997 between Terrace
Holdings, Inc. and Biltmore Securities, Inc.
10.5 Asset Acquisition Agreement, dated July 6, 1997 between Terrace
Holdings, Inc. and A One A Wholesale Produce, Inc.
10.6 Stock Purchase Agreement, dated February 2, 1998, between Terrace
Holdings, Inc. and Virgil Scarbrough and Scott Davis
10.7 Sale of Assets Agreement, dated September 1, 1997, between Dry Dock
Distributors, Inc. d/b/a Bay Purveyors and Terrace Holdings, Inc.
10.8 Guaranty dated August 7, 1997, by Terrace Holdings, Inc. in favor of
Foothill Capital Corporation
10.9 Agreement to Sell and Purchase, dated as of March 2, 1998, between the
Registrant and Samuel H. Lasko, relating to The Lasko Family Kosher
Tours, Inc. and A&E Management, Inc.
10.10 Management Agreement dated as of March 2, 1998, relating to the
Terrace Oceanside Restaurant
10.11 Terrace Holdings, Inc. 1997 Stock Option Plan
10.12 Asset Purchase Agreement, dated December 31, 1997, between D.M.S. Food
Distributors, Inc. (Gourmet Distributors) and the Registrant
10.13 Form of Contract for Sale of Business between The Lasko Family
Companies, Inc. and Steven Newman, relating to the Terrace Oceanside
Restaurant
24
<PAGE>
(21) Subsidiaries of the Registrant
-----------------------------------
The Registrant's three operating wholly-owned subsidiaries are:
1. The Lasko Companies, Inc.
2699 Stirling Road
Suite C - 405
Ft. Lauderdale, Florida 33312
2. A One A Produce & Provisions, Inc.
1325 N.W. 22nd Street
Pompano Beach, Florida 33069
3. Terrace Fresh, Inc.
1325 N.W. 22nd Street
Pompano Beach, Florida 33069
______________________________________
* 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.
b) Reports on Form 8-K
The Registrant filed Current Reports on Form 8-K on January 16, 1998 for the
purpose of reporting the consummation of the sale of its Deering Ice Cream
subsidiary to a unaffiliated third party.
25
<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, 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the two years in the period ended December 31, 1997. 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, 1997,
and the consolidated results of their operations and their cash flows for each
of the two years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
MOORE STEPHENS, P. C.
Certified Public Accountants
New York, New York
March 13, 1998
F-1
<PAGE>
TERRACE HOLDINGS, INC.
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
<S> <C>
Current Assets:
Accounts Receivable (Less Allowance for Doubtful Accounts
of $60,000) $1,869,198
Inventories 280,458
Due from Related Party 122,752
Restricted Cash 137,701
Due on Sale of Discontinued Operations 90,000
Other Current Assets 107,823
----------
Total Current Assets 2,607,932
Property and Equipment - Net 665,282
Cost in Excess of Net Assets of Businesses Acquired -
Net of Accumulated Amortization of $88,148 3,639,882
Other Assets 14,246
----------
Total Assets $6,927,342
==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
TERRACE HOLDINGS, INC.
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity
<S> <C>
Current Liabilities:
Cash Overdraft $ 372,451
Accounts Payable 892,742
Accrued Expenses 653,890
Current Portion of Long-Term Debt 162,370
Line of Credit 1,354,084
Provision for Phase-Out Costs 20,000
Other Current Liabilities 50,000
-----------
Total Current Liabilities 3,505,537
-----------
Long-Term Debt 81,380
-----------
Total Liabilities 3,586,917
-----------
Commitments and Contingencies --
-----------
Stockholders' Equity:
Convertible Preferred Stock, $.001 Par Value, 10,000,000
Shares Authorized, 1,400,000 Shares Issued and Outstanding 1,400
Common Stock - $.001 Par Value, 25,000,000 Shares Authorized,
5,006,400 Issued and Outstanding 5,006
Additional Paid-in Capital 9,175,467
Accumulated Deficit (5,841,448)
-----------
Total Stockholders' Equity 3,340,425
-----------
Total Liabilities and Stockholders' Equity $ 6,927,342
===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
TERRACE HOLDINGS, INC.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 9 9 7 1 9 9 6
----------- -----------
<S> <C> <C>
Net Sales $ 8,929,464 $ --
Cost of Sales 6,853,507 --
----------- -----------
Gross Profit 2,075,957 --
----------- -----------
Operating Expenses:
Selling, General and Administrative Expenses 3,470,480 348,439
Loss on Disposal -- 129,826
Provision for Doubtful Accounts 60,000 --
----------- -----------
Total Operating Expenses 3,530,480 478,265
----------- -----------
(Loss) from Operations (1,454,523) (478,265)
----------- -----------
Other (Expense) Income:
Interest Expense (79,594) --
Interest Income 22,601 19,338
----------- -----------
Total Other (Expense) (56,993) 19,338
----------- -----------
(Loss) From Continuing Operations (1,511,516) (458,927)
Discontinued Operations:
(Loss) from Operations of Discontinued Business
Segments (Net of Income Taxes of $-0-) (813,795) (697,100)
(Loss) on Disposal of Business Segments, including
Provision of $20,000 for Operating Loss during the Phase Out
Period (Net of Income Taxes of $-0-) (1,974,742) --
----------- -----------
Net (Loss) $(4,300,053) $(1,156,027)
=========== ===========
(Loss) Per Share of Common Stock:
(Loss) from Continuing Operations $ (.34) $ (.14)
(Loss) from Operations of Discontinued
Business Segments (Net of Income Tax of $-0-) (.18) (.21)
(Loss) on Disposal of Discontinued Business Segments (.44) --
----------- -----------
Basic and Diluted Net (Loss) Per Share of Common Stock $ (.96) $ (.35)
=========== ===========
Weighted Average Shares of Common Stock Outstanding 4,454,034 3,312,500
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
TERRACE HOLDINGS, INC.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Convertible Additional Total
----------- ---------- -----
Preferred Stock Common Stock Paid-in Accumulated Stockholders'
---------------------- --------------------- ------- ----------- -------------
Shares Amount Shares Amount Capital Deficit Equity
------ ------ ------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1996 -- $ -- 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
Asset Acquisitions -- -- 1,493,900 1,493 2,057,819 -- 2,059,312
Private Placement 1,400,000 1,400 -- -- 2,771,900 -- 2,773,300
Stock Issuances -- -- 200,000 200 219,800 -- 220,000
Stock Based Compensation -- -- -- -- 180,000 -- 180,000
Net (Loss) -- -- -- -- -- (4,300,053) (4,300,053)
--------- ------ --------- ------ ---------- ----------- -----------
Balance - December 31,
1997 1,400,000 $1,400 5,006,400 $5,006 $9,175,467 $(5,841,448) $ 3,340,425
========= ====== ========= ====== ========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
TERRACE HOLDINGS, INC.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 9 9 7 1 9 9 6
----------- ---------
<S> <C> <C>
Operating Activities:
Net (Loss) from Continuing Operations $(1,511,516) $(458,927)
----------- ---------
Adjustments to Reconcile Net (Loss) to Net Cash
(Used for) Provided by Operating Activities:
Depreciation and Amortization 157,613 --
Stock Based Compensation 180,000 --
Provision for Doubtful Accounts 60,000 --
Changes in Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable (541,699) --
Inventory (102,069) --
Other Current Assets 17,638 --
Other Assets (1,728) --
Increase (Decrease) in:
Accounts Payable 182,082 --
Accrued Expenses 186,955 --
----------- ---------
Total Adjustments 138,792 --
----------- ---------
Net Cash - Continuing Operations - Forward (1,372,724) (458,927)
----------- ---------
Discontinued Operations:
(Loss) From Discontinued Business Segments (2,788,537) (697,100)
Adjustments to Reconcile (Loss) to Net Cash:
Depreciation and Amortization 180,115 340,086
(Loss) on Disposal of Business Segments (Including Provision
of $20,000 for Operating Loss During Phase Out Period) 1,974,742 --
Changes in Net Assets, Liabilities (1,787,219) (165,304)
----------- ---------
Net Cash - Discontinued Operations - Forward (2,420,899) (522,318)
----------- ---------
Investing Activities - Continuing Operations:
Acquisition of Assets (201,744) (179,308)
Purchase of Business - Net of Cash Acquired (3,616,993) --
----------- ---------
Net Cash - Investing Activities - Continuing Operations - Forward (3,818,737) (179,308)
----------- ---------
Investing Activities - Discontinued Operations:
Acquisition of Intangible Assets -- (675,000)
Purchase and Disposal of DownEast Frozen Desserts, LLC -
Net of Cash Acquired 288,900 --
Acquisition of Assets (40,933) --
----------- ---------
Net Cash - Investing Activities - Discontinued Operations -
Forward $ 247,967 $(675,000)
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
TERRACE HOLDINGS, INC.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 9 9 7 1 9 9 6
----------- -----------
<S> <C> <C>
Net Cash - Continuing Activities - Forwarded $(1,372,724) $( 458,927)
----------- -----------
Net Cash - Discontinued Operations - Forwarded (2,420,899) (522,318)
----------- -----------
Net Cash - Investing Activities - Continuing Operations -
Forwarded (3,818,737) (179,308)
----------- -----------
Net Cash - Investing Activities - Discontinued Operations -
Forwarded 247,967 (675,000)
----------- -----------
Financing Activities - Continuing Operations:
Proceeds from Notes Payable 100,000 --
Payment of Notes Payable (64,467) (10,000)
Payments of Demand Notes Payable - Stockholders and Related Parties -- (185,549)
Proceeds from Line of Credit 1,354,085 --
Restricted Cash (137,701) --
Bank Overdrafts 372,448 --
Proceeds from Issuance of Convertible Preferred Stock 2,773,300 --
Proceeds from Issuance of Common Stock 220,000 --
----------- -----------
Net Cash - Financing Activities - Continuing Operations 4,617,665 (195,549)
----------- -----------
Financing Activities - Discontinued Operations:
Proceeds of Demand Notes Payable 1,175,821 --
----------- -----------
Net (Decrease) in Cash and Cash Equivalents (1,570,907) (2,031,102)
Cash and Cash Equivalents - Beginning of Years 1,570,907 3,602,009
----------- -----------
Cash and Cash Equivalents - End of Years $ -- $ 1,570,907
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the years for:
Interest $ 51,093 $ 9,020
Income Taxes $ -- $ --
</TABLE>
Supplemental Disclosures of Non-Cash Financing Activities:
During the quarter ending March 31, 1997, the Company issued 993,900 shares of
common stock valued at approximately $853,000 in connection with the acquisition
of DownEast Frozen Desserts, LLC.
During the third quarter, the Company issued 500,000 shares of its common
stock valued at $1,000,000 in connection with the acquisition of A-One-A
Wholesale Produce, Inc.
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
(1) Nature of Operations and Summary of Significant Accounting Policies
Terrace Holdings, Inc. ("Terrace" or the "Company"), 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. During 1997, the
Board of Directors determined to dispose of the net assets of the Company's
frozen dessert and hospitality business segments (See Note 3). The Company's
continuing operations focus on the food services and distribution business
through its wholly-owned subsidiary, A-One-A Produce & Provisions, Inc. ("A-One-
A"). A-One-A is a Pompano Beach, Florida based produce distributor that sells
and distributes fresh fruit and vegetables and dry grocery products to hotels,
restaurants and other businesses in southern Florida.
Consolidation Policy - The consolidated financial statements include the
accounts of Terrace and its subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
The consolidated financial statements as of and for the year ended December 31,
1997, include the accounts of Terrace and its wholly-owned subsidiaries, A&E
Management Corp. ("A&E"), The Lasko Family Kosher Tours, Inc. ("LFKT"), The
Lasko Companies ("Lasko") (together, the "Hospitality Group"), and A-One-A. A-
One-A's fiscal year ends on the Saturday nearest to December 31. LFKT was
incorporated on February 14, 1997 for the purpose of managing and operating the
Passover holiday vacation business, which was subsequently disposed of in
December 1997 (See Note 3B). On February 10, 1997, Deering Ice Cream, Inc.
("Deering") was incorporated to acquire certain assets and related liabilities
from DownEast Frozen Desserts, LLC ("DownEast"), to manufacture and market
frozen desserts. This subsidiary was disposed of in December 1997 (See
Note 3A).
The consolidated financial statements for the year ended December 31, 1996,
include the accounts of Terrace, A&E, Lasko and Prime Concern Kosher Foods, Inc.
["Prime"]. 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.
Cash and Cash Equivalents - The Company considers certain highly liquid
investments, with a maturity of three months or less when purchased to be cash
equivalents. The Company did not have any cash equivalents at December 31,
1997.
Inventories - Inventories are recorded at the lower of cost or market. Cost is
determined on the first-in, first-out ("FIFO") basis. Inventories consist of
fresh fruit, vegetables and dry goods.
Property and Equipment - Property and equipment are recorded at cost.
Expenditures for normal repairs and maintenance are charged to earnings as
incurred. When assets are retired or otherwise disposed, their costs and
related accumulated depreciation are removed from the accounts and the resulting
gains or losses are included in operations. Depreciation is recorded using the
straight-line method over the shorter of the estimated lives of the related
asset or the remaining lease term. Estimated useful lives are as follows:
Transportation Equipment 7 - 10 Years
Equipment, Furniture and Fixtures 5 - 7 Years
Leasehold Improvements 5 - 10 Years
Cost in Excess of Net Assets of Businesses Acquired - The cost in excess of net
assets of businesses acquired is being amortized on a straight-line basis over
20 years. Amortization expense amounted to $88,148 for the year ended December
31, 1997.
F-8
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996, Sheet #2
- --------------------------------------------------------------------------------
(1) Nature of Operations and Summary of Significant Accounting Policies
(Continued)
Impairment - The Company's policy is to record an impairment loss against the
balance of a long-lived asset in the period when it is determined that the
carrying amount of the asset may not be recoverable. This determination is based
on an evaluation of such factors as the occurrence of a significant event, a
significant change in the environment in which the business assets operate or if
the expected future non-discounted cash flows of the business was determined to
be less than the carrying value of the assets. If impairment is deemed to
exist, the assets will be written down to fair value. Management also evaluates
events and circumstances to determine whether revised estimates of useful lives
is warranted. As of December 31, 1997, management expects its long-lived assets
to be fully recoverable.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
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. The Company had approximately $452,000 at December 31, 1997 in a
financial institution subject to normal credit risk beyond insured amounts. The
Company does not require collateral on its financial instruments.
The Company extends credit to its customers, which results in accounts
receivable arising from its normal business activities. The Company routinely
assesses the financial strength of its customers and, based upon factors
surrounding the credit risk of its customers, believes that its receivable
credit risk exposure is limited. The Company's estimate of the financial
strength of its customers may be subject to change in the near term.
Other Concentrations - In December 1997, A-One A became a full-time member of a
cooperative of independent distribution specialists (the "Cooperative") which
enables the Company to enter group negotiations which results in better pricing
on purchases. Although the Company purchased approximately 37% through the
Cooperative, management believes that there is no business vulnerability
regarding this concentration of purchases from the Cooperative as the produce
purchased is available from other sources.
Business Risk - The Company is subject to the Perishable Agricultural
Commodities Act ("PACA") which regulates certain entities engaged in the
business of shipping or receiving perishable agricultural commodities in
interstate commerce. Currently, the Company maintains a PACA license to
distribute fresh produce, fruits and vegetables. The ability of the Company to
continue distribution and sales of its fresh produce, fruits and vegetables is
dependent upon its continued compliance with the PACA statute. Loss of its PACA
license would have a materially adverse effect on the Company.
Advertising - Advertising costs, which were not material at December 31, 1997
and 1996, are expensed as incurred.
Earnings Per Share - The Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share", which is effective for financial statements issued for periods ending
after December 15, 1997. Accordingly, earnings per share data in the financial
statements for the year ended December 31, 1997, have been calculated in
accordance with SFAS No. 128. Prior period earnings per share data have been
recalculated as necessary to conform prior year data to SFAS No. 128.
F-9
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996, Sheet #3
- --------------------------------------------------------------------------------
(1) Nature of Operations and Summary of Significant Accounting Policies
(Continued)
Earnings Per Share (Continued) - SFAS No. 128 supersedes Accounting Principles
Board Opinion No. 15, "Earnings per Share," and replaces its primary earnings
per share with a new basic earnings per share representing the amount of
earnings for the period available to each share of common stock outstanding
during the reporting period. SFAS No. 128 also requires a dual presentation of
basic and diluted earnings per share on the face of the statement of operations
for all companies with complex capital structures. Diluted earnings per share
reflects the amount of earnings for the period available to each share of common
stock outstanding during the reporting period, while giving effect to all
dilutive potential common shares that were outstanding during the period, such
as common shares that could result from the potential exercise or conversion of
securities into common stock.
The computation of diluted earnings per share does not assume conversion,
exercise, or contingent issuance of securities that would have an antidilutive
effect on earnings per share (i.e., increasing earnings per share or reducing
loss per share). The dilutive effect of outstanding options and warrants and
their equivalents are reflected in dilutive earnings per share by the
application of the treasury stock method which recognizes the use of proceeds
that could be obtained upon exercise of options and warrants in computing
diluted earnings per share. It assumes that any proceeds would be used to
purchase common stock at the average market price during the period. Options and
warrants will have a dilutive effect only when the average market price of the
common stock during the period exceeds the exercise price of the options or
warrants. Securities that could potentially dilute earnings per share in the
future are disclosed in Notes 13 and 14.
(2) Business Acquisitions
In August 1997, but effective as of July 1, 1997, the Company acquired all of
the assets and related liabilities of A-One-A in a transaction accounted for as
a purchase. The operations of A-One-A have been included in the Company's
results of operations from that date.
In consideration for the acquisition, the Company issued 500,000 unregistered
shares of its common stock valued at $1,000,000, and paid $3,130,000 in cash.
Additionally, an adjustment to the purchase price of approximately $148,000 was
made subsequent to the acquisition date and has been accrued at December 31,
1997.
In connection with the acquisition, the Company entered into 5 year employment
agreements with two officers, effective July 1, 1997, and ending July 30, 2002.
The employment agreements, call for aggregate annual compensation of $240,000.
Also in connection with the A-One-A acquisition, the Company entered into an
agreement to lease space for use as its principal offices and warehouse. The
lease term is for ten years with three five year options to extend expiring June
30, 2007, at an annual rental of approximately $222,000 including sales tax.
The Pompano Beach facility is owned by an affiliate of A-One-A officers. Under
the lease, the Company has an option to purchase the land and building at a
purchase price of $2,000,000 until December, 1998 (See Note 12A).
During 1997, the Company acquired all of the assets and related liabilities of
Dry Dock Distributors, Inc. d/b/a Bay Purveyors, ("Bay Purveyors") a Miami,
Florida based dry goods distributor which sells and distributes dry goods and
dairy goods to various restaurants and other business in Southern Florida. The
acquisition was deemed immaterial by management of the Company. Bay Purveyors
has operated as a division of A-One-A since its October 1, 1997 effective
purchase date. In connection with the Bay Purveyors acquisition, the Company
entered into an employment agreement with an uppper level manager.
F-10
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996, Sheet #4
- --------------------------------------------------------------------------------
(2) Business Acquisitions (Continued)
In consideration for the acquisition, the Company paid the shareholders of Dry
Dock Distributors, Inc. $340,000. The acquisition has been accounted for as a
purchase.
A summary of the allocation of the aggregate consideration paid for
aforementioned acquisitions to the fair market value of the assets acquired and
liabilities assumed is as follows:
<TABLE>
<CAPTION>
Current Assets:
<S> <C>
Cash $ 20,445
Accounts Receivables 1,383,703
Inventories 178,389
Other 123,082
----------
Total 1,705,619
----------
Property, Plant and Equipment 545,475
Cost in Excess of Net Assets Acquired (Including Acquisition
Costs of $239,725) 3,728,030
Other Assets 4,366
----------
Total 5,983,490
----------
Current Liabilities:
Accounts Payable and Accrued Expenses 914,206
Other 221,960
----------
Total 1,136,166
----------
Aggregate Consideration Paid $4,847,323
---------------------------- ==========
</TABLE>
The cost in excess of net assets acquired recorded for the acquisitions is to be
amortized over 20 years using the straight-line method.
The following pro forma information presents the results of the combined
operations of Terrace and A-One-A, treating the latter as if it was a subsidiary
of the Terrace for the full period then ended. This pro forma information does
not purport to be indicative of what would have occurred had the acquisitions
been completed as of January 1, 1996 or results which may occur in the future.
Pro forma unaudited information:
<TABLE>
<CAPTION>
Twelve months ended
-------------------
December 31,
------------
1 9 9 7 1 9 9 6
------- -------
<S> <C> <C>
Total Revenues $17,117,271 $14,497,109
Net (Loss) Income $(1,090,825) $ (179,669)
Basic and Diluted Net (Loss) Income
Per Share of Common Stock $ (.24) $ (.05)
</TABLE>
F-11
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996, Sheet #5
- --------------------------------------------------------------------------------
(3) Discontinued Operations
(A) Frozen Desert Business Segment - On February 17, 1997, the Company acquired
certain of the assets and related liabilities of DownEast, which manufactured
and marketed frozen desserts under the name Deering Ice Cream. The assets
acquired included accounts receivable, inventories, and certain furniture and
equipment. The stated liabilities assumed were principally trade payables and
certain long-term debt.
In consideration for the acquisition, the Company issued: (1) 993,900 shares of
its common stock, including 75,000 shares of common stock issued for investment
banking and finders fees, valued at approximately $853,000 and (2) warrants to
purchase 250,000 additional shares of the Company's common stock at an exercise
price of $1.1875 per share, (exercisable commencing February 17, 1997, through
August 31, 2000), and paid approximately $114,000 in cash. The acquisition was
accounted for as a purchase, effective January 1, 1997.
The total cost of the consideration tendered and the liabilities assumed in
excess of the assets purchased, including acquisition costs, was approximately
$1,800,000.
In November 1997, the Company adopted a formal plan to sell Deering. The
disposal occurred in December 1997. The net proceeds on disposal was
approximately $373,000. The loss on disposal was approximately $1,233,000
(including estimated disposal costs of $50,000).
Operating results of Deering, including net sales of approximately $6,360,000
are included in discontinued operations, in the statement of operations for the
year ended December 31, 1997.
Assets and liabilities disposed of consisted of the following at the disposal
date:
<TABLE>
<CAPTION>
<S> <C>
Cash $ 43,784
Accounts Receivable 573,808
Inventories 581,648
Property, Plant and Equipment - Net 1,667,520
Intangible Assets - Net 922,790
Other 486,281
----------
Total Assets 4,275,831
----------
Accounts Payable and Accrued Expenses 1,543,930
Notes Payable and Lines of Credit 1,175,821
----------
Total Liabilities 2,719,751
----------
Net Assets Disposed of $1,556,080
---------------------- ==========
</TABLE>
(B) Hospitality Business Segment - In November 1997, the Company adopted a
formal plan to sell the Hospitality Group to Samuel H. Lasko ("Dr. Lasko") (See
Note 11) and to an unrelated party (See Notes 16 and 17). The disposal is
expected to be completed within one year. The assets of the Hospitality Group to
be sold consist primarily of accounts receivable, inventories, property and
equipment and intangible assets.
The estimated loss on the disposal of the Hospitality Group of approximately
$742,000, includes a provision of $20,00 for expected losses during the phase-
out period. The Company is to receive $90,000 from the unrelated party. Dr.
Lasko relinquished his employment contract and certain warrants (See Note 11).
F-12
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996, Sheet #6
- --------------------------------------------------------------------------------
(3) Discontinued Operations (Continued)
Operating results, including net sales of approximately $4,853,000 and
$4,557,000, respectively, of the Hospitality Group for the years ended December
31, 1997 and 1996 are included in discontinued operations, in the statements of
operations. The statement of operations for 1996 has been restated. For the two
years ended December 31, 1997, the Hospitality Group operated kosher Passover
holiday vacation venues, kosher and non-kosher restaurants and a catering
operation in southern Florida and New York. The Passover holiday usually occurs
in the second quarter of the calendar year. The Company managed and operated
three Passover holiday vacation venues in 1997 and four in 1996.
Assets and liabilities of the Hospitality Group to be disposed of consisted of
the following at December 31 1997:
<TABLE>
<CAPTION>
<S> <C>
Accounts Receivable $ 164,929
Intangible Assets - Net 335,000
Other Current Assets 105,540
Property and Equipment - Net 469,277
----------
Total Assets 1,074,746
----------
Accounts Payable and Accrued Expenses 149,512
Deferred Revenue 113,750
----------
Total Liabilities 263,262
----------
Net Assets to Be Disposed of $ 811,484
---------------------------- ==========
</TABLE>
Assets are shown at their expected net realizable values and payables and
deferred revenue are shown at their face amounts.
There is no income tax benefit on the loss from operations of discontinued
business segments or on the loss on disposal of discontinued business segments.
(4) Going Concern Considerations
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern. However, the Company has suffered recurring losses
from operations and has a working capital deficiency of approximately $900,000
at December 31, 1997. These factors had raised substantial doubt about the
ability of the Company to continue as a going concern. Such substantial doubt
has been alleviated primarily due to management's plans for dealing with the
possible adverse effects of these factors.
Management has initiated a financing plan with a bank and a number of its
investors to provide the necessary funds to continue to operate its businesses
and to provide additional capital for a possible acquisition.
The Company has received a letter of intent from a bank to provide financing to
the Company. The bank has commenced its normal due diligence investigation which
should be completed shortly. Management is not presently aware of any matter
which would prevent the completion of the financing.
The Company has a pending registration statement covering a proposed offer to
its warrantholders to exercise their warrants and purchase common stock at a
temporarily reduced exercise price. Several warrantholders have indicated they
intend to exercise their warrants, once the registration statement is declared
effective. In addition, if so requested by the Company, a private investor has
indicated his intent to purchase equity capital in the Company if sufficient
proceeds are not realized by the Company from such warrant exercises.
Management believes that actions presently being taken to revise the Company's
operating and financial requirements provide the opportunity for the Company to
continue as a going concern. However, the success of management's plans is not
assured.
F-13
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996, Sheet #7
- --------------------------------------------------------------------------------
(5) Restricted Cash
In connection with a financing agreement (See Note 8) the Company entered into
a trust indenture with a bank, pursuant to which, the bank debits monthly
principal and interest loan payments.
(6) Fair Value of Financial Instruments
The Company adopted SFAS 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 certain instruments, including
trade receivables, amounts due on sale of discontinued operations, related party
balances, trade payables and bank line of credit, it was assumed that the
carrying amount approximated fair value for these instruments because of their
short maturities. It was estimated that the carrying amount of the Company's
long-term debt approximated its fair value based on quoted market prices for
similar issues.
(7) Property and Equipment
The following is a summary of property and equipment:
<TABLE>
<CAPTION>
<S> <C>
Transportation Equipment $608,820
Office Equipment, Furniture and Fixtures 113,696
Leasehold Improvements 12,231
--------
Total 734,747
Less: Accumulated Depreciation 69,465
--------
Property and Equipment - Net $665,282
---------------------------- ========
</TABLE>
Depreciation expense related to property and equipment amounted to $69,465 for
the year ended December 31, 1997.
(8) Line of Credit
During 1997, the Company had a working capital line of credit with Suntrust
Bank, South Florida, N.A. amounting to $300,000, at a variable interest rate at
.75% over the bank's prime-based rate. The working capital revolver was secured
by a blanket lien on all Company assets, excluding amounts due from affiliates.
The principal was paid in full on March 31, 1997, and the account was closed.
In August 1997, the Company guaranteed payment on a Loan and Security Agreement
between Foothill Capital Corporation of Mechanicsville, Virginia ("Foothill")
and the Company's then wholly-owned subsidiaries, Deering and A-One-A under
which Foothill agreed to provide revolving loans subject to available collateral
to a maximum of $3,200,000. The principal balance of approximately $1,360,000 at
December 31, 1997 represents substantially all credit available under the
facility at that date. The balance incurs interest at 2.5% above the bank's
prime rate. The prime rate at December 31, 1997, was 8.5%. The loan is
collateralized by virtually all assets of the Company.
F-14
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996, Sheet #8
- --------------------------------------------------------------------------------
(9) Long-Term Debt
At December 31, 1997, long-term debt consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Note payable in thirty-six monthly total installments of $6,583,
including interest at 9.1% per annum, through June 1999,
collateralized by certain transportation equipment. $110,370
Note payable in thirty-six monthly total installments of $1,154,
including interest at 9.8% per annum, through December 1999,
collateralized by certain transportation equipment. 25,071
Note payable in thirty-six monthly total installments of $1,150,
including interest at 9.8% per annum, through December 1999,
collateralized by certain transportation equipment. 24,976
Note payable - bank in eighteen monthly total installments of $5,556, plus
interest of 2.5% above a variable interest rate (prime rate), per annum,
through February 1999, collateralized by certain transportation equipment. 83,333
--------
Total 243,750
Less: Current Portion 162,370
--------
Total $ 81,380
----- ========
Long-term debt at December 31, 1997, matures as follows:
1998 $162,370
1999 81,380
2000 --
2001 --
2002 --
Thereafter --
--------
Total $243,750
----- ========
</TABLE>
The Company is subject to restrictive covenants including restrictions on the
use of proceeds, and collateral, and assurance of the maintenance of marketable
title to collateral. Management believes the Company was in compliance with all
debt covenants at December 31, 1997.
The weighted average interest rate on short-term borrowings as of December 31,
1997, was 11%.
F-15
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996, Sheet #9
- --------------------------------------------------------------------------------
(10) 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 bases. 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 and intangible assets. 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, 1997, (assuming all operating loss
carryforwards will be available) amount to approximately $5,550,000. Such loss
carryforwards will expire at the rate of $4,000,000 in 2012, $1,200,000 in 2011
and $350,000 in 2010. At December 31, 1997, based on the amount of operating
loss carryforwards, the Company would have had a deferred tax asset of
approximately $1,900,000. However, 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 $1,900,000 has been established
representing an increase of $1,374,000 from December 31, 1996. Accordingly, no
deferred tax asset is reflected in these financial statements.
(11) Related Parties Transactions
During 1996, the Hospitality Group paid off an outstanding loan due to a
stockholder, which was payable on demand plus interest. The interest rate on
the loan was 8.5%. Interest expense related to this loan amounted to $7,667 for
the period ended December 31, 1996.
A-One-A had sales to a related entity whose shareholders include shareholders of
the Company. Sales to the related entity totaled $203,327 for the period July 1
(effective purchase date) to December 27, 1997.
A-One-A also purchased goods from the same related party totaling $357,425 for
the period July 1 (effective purchase date) to December 27, 1997. The Company
had net receivables of $122,752 (net of a payable of $56,964) due from the
related party at December 27, 1997, which will be collected and paid within one
year, during the normal course of business. The Company purchased the related
entity in February 1998 (See Note 16).
In February 1997, the Company entered into an option agreement with Dr. Lasko,
the President, Treasurer, and a Director of the Company and his son, Jonathan S.
Lasko, the Executive Vice-President, Secretary, Chief Operating Officer and a
Director of the Company, which gave the Laskos, individually or together, the
option to purchase the businesses, assets or capital stock of the Hospitality
Group at the fair market value thereof. The option is exercisable for
approximately three years commencing April 1, 1998 until February 17, 2001, or
earlier under certain circumstances, exercise of the option, is subject to
shareholders' approval. The Company and Dr. Lasko agreed to accelerate the
exercise of his option, and in March 1998, he purchased (subject to shareholder
approval) LFKT and A&E in exchange for the relinquishment of his employment
contract and certain warrants. Dr. Lasko did not purchase The Lasko Companies,
Inc. however, but has agreed to manage it for the Company (See Notes 16 and 17).
F-16
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996, Sheet #10
- --------------------------------------------------------------------------------
(12) Commitments and Contingencies
(A) Operating Leases - The Company's operating facilities are leased from an
affiliate of A-One-A's officers. Future minimum rentals payments under
operating leases with terms in excess of one year are as follows:
<TABLE>
<CAPTION>
Year ending Amount
- ----------- ------
December 31,
- ------------
<S> <C>
1998 $ 240,852
1999 228,492
2000 221,544
2001 221,544
2002 221,544
Thereafter 996,948
----------
Total $2,130,924
----- ==========
</TABLE>
Rent expense related to the leases for the years ended December 31, 1997 and
1996 was $142,630 and $15,900, respectively.
(B) Employment Agreements - In addition to the A-One-A employment agreements
(See Note 2), the Company has an employment agreement with Jonathan S. Lasko,
through August 31, 2000, for a base salary of $125,000 per year. The employment
agreement was amended in February 1997. The amendment eliminated certain options
in the agreement in consideration of the issuance of warrants to purchase
375,000 shares of the Company's common stock. Additionally, the agreement was
amended to provide that certain other benefits be made available to the
executive.
In connection with the Bay Purveyors acquisition (See Note 2), A-One-A entered
into a 5-year employment agreement effective September 1, 1997 with an upper
level manager for a base salary of $65,000 per year.
(C) Standby Letter of Credit - The Company has available a standby letter of
credit in the amount of $100,000, which is being maintained as security for
payments related to purchases of inventory. The letter of credit expires May 1,
1998 and is collateralized by a blanket lien on the Company's assets. At
December 31, 1997, there was no balance outstanding pursuant to the letter of
credit.
(13) Description of Securities
(A) Convertible Preferred Stock - The Company is authorized to issue 10,000,000
shares of convertible preferred stock (the "Convertible Preferred Stock"), par
value $.001 per share. Pursuant to an offering memorandum dated July 7, 1997,
the Company offered 1,750,000 units of its securities at $2 per unit (the
"Preferred Units"). Each Preferred Unit consisted of one share of Convertible
Preferred Stock and two warrants, each to purchase one share of Company common
stock at an exercise price of $4 per share. As of December 31, 1997, 1,400,000
Preferred Units were issued for aggregate consideration of $2,773,300 net of
offering costs. Each share of Convertible Preferred Stock is non-voting, unless
converted into common stock of the Company. The Convertible Preferred Stock is
entitled to preference in the declaration of dividends if and when any dividends
are declared or paid. The Convertible Preferred Stock is entitled to preference
over the common stock in the event of dissolution, liquidation or winding-up the
Company. Each share of Convertible Preferred Stock is convertible into two
shares of common stock of the Company at the option of the holder. All shares
of the Convertible Preferred Stock not converted on or prior to July 31, 1998
will be automatically converted, based on that ratio, into shares of common
stock of the Company on that date. The Company issued 156,325 Preferred Units
to Biltmore Securities, Inc., and 15,000 Preferred Units to Westport Capital
Markets, LLC, as placement fees in connection with the offering. Additionally,
the Company issued to Biltmore and its assignees, warrants to purchase 750,000
shares of Company common stock at a price of $4.00 per share, exercisable
through and including December 4, 2000.
F-17
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996, Sheet #11
- --------------------------------------------------------------------------------
(13) Description of Securities (Continued)
(B) Common Stock - The Company is authorized to issue 25,000,000 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, subject to any priority as to dividends for any
preferred stock that may be 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.
In November 1997, the Company sold 200,000 shares of unregistered common stock
to an unrelated party for $1.10 per share. The issuance of these shares
resulted in a charge to operations of $180,000.
(C) Options and Warrants - 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.
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 ("Public 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, which commenced December 5, 1996, and
entitles the underwriter to purchase each unit and each share of common stock at
an exercise price of $4.50, subject to adjustment under certain circumstances.
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. 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.
Additionally, at December 31, 1997, the Company also had warrants outstanding
(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.
On February 17, 1997, in connection with the Deering acquisition, the Company
issued; (i) warrants to purchase 250,000 shares of its common stock to Biltmore
Securities, Inc. as its investment banking fee; and (ii) warrants to purchase
50,000 shares of its Common Stock to Bruce S. Phillips, a director of the
Company, in recognition of his efforts successfully to negotiate and consummate
this transaction. These warrants have an exercise price of $1.1875 exercisable
commencing February 17, 1997, the closing date of the transaction, and expiring
on August 31, 2000.
(D) Reduction in Warrant Price - During a 60-day period ("Temporary Exercise
Period") commencing with the effective date of a pending registration statement,
the Company will temporarily reduce the exercise price of certain warrants with
an exercise price of $4.00 per share to $1.25 to attempt to secure additional
cash liquidity for immediate working capital and to increase the Company's
equity capital base. After the expiration of the Temporary Exercise Period, the
exercise price of the warrants will return to the original $4.00 per share for
the balance of the term of the warrants.
F-18
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996, Sheet #12
- --------------------------------------------------------------------------------
(14) Stock Option Plan and Warrants
The Company adopted the 1997 Stock Option Plan (the "Plan") which enables its
Board of Directors to grant options for the purchase of shares of its common
stock. The Plan authorizes the grant of options to purchase up to an aggregate
of 1,250,000 shares of the Company's Common Stock, to (i) officers and other
full-time salaried employees of the Company and its subsidiaries with
managerial, professional or supervisory responsibilities, and (ii) consultants
and advisors who render bona fide services to the Company and its subsidiaries,
in each case, where the compensation committee of the Board of Directors
determines that such officer, employee, consultant or advisor has the capacity
to make a substantial contribution to the success of the Company. The purposes
of the Plan are to enable the Company to attract and retain persons of ability
as officers and other key employees with managerial, professional or supervisory
responsibilities, to retain able consultants and advisors, and to motivate such
persons to use their best efforts on behalf of the Company by providing them
with an equity participation in the Company.
Pursuant to the Plan, in February 1997, the Board of Directors granted certain
officers, directors and significant employees 630,000 options to purchase
Company common stock at an exercise price of $1.185 per share. The options of
which the majority vest over a 3 year period, one-third per year and expire on
February 20, 2007.
In July and September 1997, the Board of Directors granted certain employees
108,000 options to purchase Company common stock at an exercise price of $2.31
per share. The options vest over a 3 year period , one-third per year and
expire on June 30, and September 21, 2007.
As per the amended employment agreements with an executive, he received warrants
to purchase 375,000 shares of Company common stock at $1.1875 per share which
warrants are immediately exercisable at any time through August 31,
2000.
The Company also issued two directors warrants to purchase 40,000 shares of the
Company common stock at $1.1875 per share which are exercisable at any time
through August 31, 2000.
During 1997, the Company issued 300,000 stock options to consultants at an
exercise price of $1.1875 at the date of grant, and having a weighted average
exercise price of $1.1875. The total cost of issuing these stock options to
consultants during 1997 is approximately $207,000 which is being charged to
operations for the year ended December 31, 1997. The weighted average fair
value of stock options granted to consultants during 1997 is estimated at $.69
using the Black-Scholes option-pricing model and using a weighted average risk-
free interest rate of 6% and a weighted average expected life of 3.8 years with
an estimated volatility of 75%. No dividends are expected to be paid during the
expected life of the options.
A summary of the options and warrants is as follows:
<TABLE>
<CAPTION>
Weighted Average
----------------
Shares Exercise Price
------- --------------
<S> <C> <C>
Outstanding at December 31, 1995 -- $ --
Granted -- --
Exercised -- --
Expired/Canceled -- --
--------- -----
Outstanding at December 31, 1996 -- --
Granted 1,453,000 1.27
Exercised -- --
Expired/Canceled -- --
--------- -----
Outstanding at December 31, 1997 1,453,000 $1.27
========= =====
Exercisable at December 31, 1997 717,667 $1.24
========= =====
</TABLE>
F-19
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996, Sheet #13
- --------------------------------------------------------------------------------
(14) Stock Option Plan and Warrants (Continued)
If compensation cost (totaling approximately $890,000), for options issued under
the Plan had been determined based on the fair value at the grant dates for
awards under Plan, consistent with the alternative method set forth under SFAS
No. 123, the Company's net loss and basic and diluted net loss per share of
common stock would have been reduced on a pro forma basis as indicated below:
<TABLE>
<CAPTION>
1 9 9 7 1 9 9 6
----------- -----------
<S> <C> <C>
Year ended December 31:
Net Loss:
As Reported $(4,300,053) $(1,156,027)
Pro Forma $(5,190,053) $(1,156,027)
Basic and Diluted Net Loss Per Share of Common Stock:
As Reported $ (.96) $ (.35)
Pro Forma $ (1.17) $ (.35)
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for the grants awarded in 1997 and 1996, respectively:
<TABLE>
<CAPTION>
December 31,
------------
1 9 9 7 1 9 9 6
------- -------
<S> <C> <C>
Dividend Yields 0% --%
Expected Volatility 76% --%
Risk-Free Interest Rate 6.0% --%
Expected Lives 4.0 Years --
</TABLE>
The weighted-average fair value of options granted was $.76 and $-0- for the
years ended December 31, 1997 and 1996, respectively.
The following table summarizes information about stock options and warrants at
December 31, 1997:
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------------------- ----------------------
Weighted Weighted Weighted
-------- -------- --------
Range of Remaining Average Average
-------- --------- ------- -------
Exercise Prices Shares Contractual Life Exercise Price Shares Exercise Price
- --------------- --------- ---------------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C>
$1.185 - $1.1875 1,345,000 9.2 Years $1.186 681,667 $1.186
$ 2.31 108,000 9.5 Years $ 2.31 36,000 $ 2.31
--------- --------- ------ ------- ------
Totals 1,453,000 9.3 Years $ 1.27 717,667 $ 1.40
- ------ ========= ========= ====== ======= ======
</TABLE>
(15) New Authoritative Accounting Pronouncements
The FASB has issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No.
130 establishes standards for reporting and display of comprehensive income and
its components in the financial statements. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. Earlier application is
permitted. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. Management is in the process of
determining its preferred format. The adoption of SFAS No. 130 will have no
impact on the Company's consolidated results of operations, financial position
or cash flows.
F-20
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996, Sheet #15
- --------------------------------------------------------------------------------
(15) New Authoritative Accounting Pronouncements (Continued)
The FASB has issued SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information." SFAS No. 131 changes how operating segments are
reported in annual financial statements and requires the reporting of selected
information about operating segments in interim financial reports issued to
shareholders. SFAS No. 131 is effective for periods beginning after December
15, 1997, and comparative information for earlier years is to be restated. SFAS
No. 131 need not be applied to interim financial statements in the initial year
of its application. The Company is in the process of evaluating the disclosure
requirements. The adoption of SFAS No. 131 will have no impact on the Company's
consolidated results of operations; financial position or cash flows.
In February 1998, the FASB issued SFAS No. 132, "Employers Disclosure about
Pensions and Other Postretirement Benefits," which is effective for fiscal years
beginning after December 15, 1997. The modified disclosure requirements are not
expected to have a material impact on the Company's results of operations,
financial position or cash flows.
(16) Subsequent Events
In January 1998, the Company entered into an employment agreement with its Chief
Financial Officer. The compensation for services rendered under this agreement
is $90,000 per annum and includes an incentive bonus. The agreement also
includes options to purchase the Company's stock and a severance package.
In January 1998, the Company purchased certain non-cash assets of D.M.S. Food
Distributors, Inc., a Florida Corporation d/b/a Gourmet Distributors
("Gourmet"). Gourmet is a wholesaler of dry goods. In consideration for the
purchase, the Company paid approximately $254,000 including inventory and
furniture and fixtures, which resulted in costs in excess of net assets of
approximately $125,000 which will be allocated to intangible assets.
In February 1998, the Company purchased all of the outstanding stock of Fresh,
Inc., ("Fresh") a related entity (See Note 11). Fresh is a wholesaler which
sells packaged and cut fresh produce. In consideration for the purchase, the
Company paid $105,000 in cash and issued 138,948 shares of common stock valued
at $270,000. The acquisition resulted in costs in excess of net assets of
approximately $350,000 which will be allocated to intangible assets.
In March 1998, the Company entered into a management agreement with Samuel
H. Lasko (the "Manager"). The Manager is to operate and manage the business and
activities of The Lasko Companies, Inc. ("TLC") which operates a restaurant
business (the "Restaurant"). The agreement will terminate upon the sale or
other disposition of the Restaurant or the The Lasko Companies (See Notes 3 and
17).
(17) Subsequent Events--Unaudited (Subsequent to the Date of The Report of
Independent Auditors)
On March 23, 1998, the Company entered into a contract to sell its wholly-owned
subsidiary, The Lasko Companies, Inc. The sale price $90,000 to be paid as
follows, with $25,000 paid at the execution of the agreement (currently held in
escrow by the seller's attorney) and $65,000 to be paid by cash or certified
check upon execution and delivery of Bill of Sale.
. . . . . . . . . . . .
F-21
<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.
- --------------------------------------------------------------------------------
Registrant
By: /s/ Samuel H. Lasko, President
-----------------------------------------------------------------------------
Samuel H. Lasko, President
Date: April 15, 1998
---------------------------------------------------------------------------
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> <C>
/s/ Samuel H. Lasko President and Director April 15, 1998
- --------------------------
Samuel H. Lasko
/s/ Jonathan S. Lasko Executive Vice-President, April 15, 1998
- -------------------------- Secretary, Chief Operating
Jonathan S. Lasko Officer, Principal Financial
Officer and Director
/s/ Bruce S. Phillips Director April 15, 1998
- --------------------------
Bruce S. Phillips
/s/ Richard Power Director April 15, 1998
- --------------------------
Richard Power
/s/ Steven Shulman Director, Principal Executive April 15, 1998
- -------------------------- Officer
Steven Shulman
/s/ Fred A. Siegel Director April 15, 1998
- --------------------------
Fred Siegel
/s/ Bernard Rubin, M.D. Director April 15, 1998
- --------------------------
Bernard Rubin, M.D.
/s/ Mario Jacobs Principal Accounting Officer April 15, 1998
- --------------------------
Mario Jacobs
</TABLE>
<PAGE>
Exhibit 10.1
E M P L O Y M E N T A G R E E M E N T
---------------------------------------
THIS AGREEMENT is made and entered into as of the 17th day of July, 1997,
effective July 1, 1997, by and between Terrace Holdings, Inc., a Delaware
corporation (the "Company"), A One A Produce & Provisions, Inc., and Terrace
Fresh, Inc., both Florida corporations and wholly owned Subsidiaries of the
Company (collectively the "Subsidiaries", and with the "Company" collectively
hereinafter referred to as the "Employer") and Scott Davis (hereinafter referred
to as the "Executive").
WHEREAS, the Employer desires to enter into an agreement for the employment
of Executive by the Employer and to be assured of the continued services of
Executive and Executive desires to enter into employment by the Employer on the
terms provided herein.
NOW, THEREFORE, in consideration of the premises and of the terms,
covenants and conditions hereinafter contained, the parties hereto agree as
follows:
1. Employment, Duties and Authority.
The Employer hereby employs Executive and Executive hereby accepts
employment by the Employer on the terms, covenants and conditions herein
contained, as the Co-Chief Operating Officer of the Subsidiaries. The Executive
shall have such duties, responsibilities and authority as the by-laws of the
Employer shall from time to time provide and as the Board of Directors of the
Employer shall from time to time prescribe in writing and shall be in joint
charge, together with the other Co-Chief Operating Officer, of all day-to-day
operations of the Subsidiaries. During the term of Executive's employment
hereunder, Executive shall devote his full time to the performance of his duties
and responsibilities hereunder and will perform such duties and responsibilities
faithfully and with reasonable care for the welfare of the Employer. Executive
shall provide services to the Employer principally at its Subsidiaries' offices
in the State of Florida, or at such other reasonably proximate location and
shall not be obligated to relocate his residence. During the term of his
employment hereunder, Executive shall not perform any services for compensation
for any person, firm, partnership or corporation other than the Employer without
the express written consent of the Board of Directors of the Employer; provided
that Executive may provide services for charitable and not-for-profit
organizations in his discretion, and devote such time managing his personal
investments so long as such activities do not interfere with his obligations
hereunder.
<PAGE>
2. Compensation.
(a) Base Salary. The Employer shall pay to Executive during the term
of employment hereunder an annual salary of $120,000 ("Base Salary"),
subject to review and increase by the Board of Directors of the Employer
from time to time. Such salary shall be paid by the Employer to Executive
in semi-monthly installments, less amounts which the Employer may be
required to withhold from such payments by applicable federal, state or
local laws or regulations.
(b) Payment During Absences. If Executive shall be absent from work
on account of personal injuries or sickness, he shall continue to receive
the payments provided for in paragraph 2.1(a) hereof; provided, however,
that any such payment may, at the Employer's option, be reduced by the
amount which the Executive may receive, for the period covered by any such
payments, in disability payments (i) pursuant to any disability insurance
which the Employer, in its sole discretion, may maintain, or (ii) under any
governmental program for disability compensation.
(c) Bonus.
(i) At the discretion of the Board of Directors of the Employer,
Executive may be entitled to a bonus each year. The Employer may
establish and communicate standards to Executive for the achievement
of bonus compensation each year.
(ii) In addition to the discretionary bonus provided for in
clause 2(c)(i) above, Executive shall be entitled to the following
cash bonus: (A) if, for the first year of the term hereof, the "Pre-
tax Income" of the Subsidiaries equals at least $1,100,000 ("Base
Amount"), then the Executive shall be paid a cash bonus equal to 20%
of his Base Salary then in effect; (B) if such Pre-tax Income for such
period is 120% of said Base Amount, Executive shall be paid an
additional 10% of his then Base Salary; (C) if said Pre-tax Income is
140% of the Base Amount, Executive shall be paid an additional 20% of
his then Base Salary; and (D) if said Pre-tax Income is 200% of said
Base Amount, Executive shall be paid an additional 50% of his then
Base Salary as a bonus. Such bonus shall be paid incrementally pro
rata for any "Pre-
2
<PAGE>
Tax Income" exceeding 120% of the Base Amount in any year during the
term hereof.
For each subsequent year, during the term hereof, following the
first year, the Base Amount upon which such bonuses shall be
calculated shall be the greater of $1,100,000 or the Pre-tax Income of
the immediately-preceding year, and the percentages of the then Base
Salary to be paid to Executive as a cash bonus shall be as aforesaid.
(iii) For purposes of clause 2(c)(ii) above, the term "Pre-tax
Income" shall mean the income of Subsidiaries (before deducting
federal, state and local income taxes) for the applicable twelve-month
period, determined by the independent certified public accountants of
the Company in accordance with generally accepted accounting
principles consistently applied, adjusted as follows:
(1) Credit items not earned in the ordinary course of
Subsidiaries' business (including but not limited to proceeds
from life insurance and gains on the sale of real estate or other
capital items other than equipment) shall not be credited to Pre-
Tax Income, unless otherwise provided herein;
(2) Interest or dividend income on invested liquid assets,
recovery of bad debts, proceeds from business interruption or
casualty insurance, gains from the sale of equipment, and any
management fees earned in the ordinary course of business shall
be credited to Pre-Tax Income;
(3) Any amount of Purchase Price paid thereon by Company to
A-One-A Wholesale Produce, Inc. and Fresh, Inc. (the
"Acquisition")shall not be a debit from Pre-Tax Income;
(4) Any capital contributions made to Subsidiaries by the
Company, or any of its Subsidiaries, shall not be credited to
Pre-Tax Income;
3
<PAGE>
(5) Any indemnity that Subsidiaries may pay to Company shall not
be credited to Pre-Tax Income;
(6) Any indemnity that Company may pay to Subsidiaries shall not
be a debit against Pre-Tax Income;
(7) Any expenses paid by Company to complete the Acquisition
shall not be a debit against Pre-Tax Income;
(8) Any sums required to be paid by Employer to any employee
benefit plan in the event that Employer is deemed to be a member
of a controlled group, or affiliated service group, or employee
leasing organization under Section 414 of the Code shall not be a
debit against Pre-Tax Income; and
(9) All checks of Subsidiaries in excess of $3,000 shall require
two signatures. If one signature is either the Executive or his
Co-Chief Operating Officer, Executive shall be deemed to have
approved such expenditure.
(iv) If Executive or the Company shall disagree with the calculation
of the Pre Tax Income as determined by the independent certified public
accountants of the Company to the extent of at least $25,000 and such
disagreement shall not have been resolved prior to 30 days following
delivery of such determination, all items in dispute shall be submitted to
any other independent accountant or firm jointly chosen by the Company's
independent certified public accountants and the Executive's certified
public accountants for the purpose of arbitrating the dispute. The
Arbitrator must agree prior to accepting the engagement to complete his
determination within 30 days of the date of his engagement. the
determination of the Arbitrator shall be final, binding and nonappealable.
The fees of the Arbitrator shall be paid by the losing party or as the
Arbitrator shall apportion. Notwithstanding anything to the contrary
contained in this Section 2, the Company agrees to forthwith pay to
Executive that portion of the consideration, if any, that the Company in
good faith
4
<PAGE>
does not dispute. The Company shall use its best efforts to make
available to Executive and his attorneys, accountants or other
representatives, for examination, such of its book of account,
contracts, licenses, leases, instruments, commitments, sales orders,
purchase orders, records, accountants' work papers and other documents
as are relevant to the preparation of the independent certified public
accountants' determination.
5
<PAGE>
3. Benefits; Vacation; Automobile; Expense Reimbursement.
(a) Benefits. The Executive shall be entitled to, and shall receive,
all other benefits of employment available to other executives of the
Employer generally, including, without limitation, participation in any
medical, dental or other group health plans or accident benefits, life
insurance benefits, club memberships, pension or profit-sharing plans, as
shall be instituted by the Employer, in its sole discretion.
(b) Vacation. Executive shall be entitled to three weeks annual
vacation, subject to increase to four weeks on the terms available to other
executive employees of the Employer.
(c) Automobile. Executive shall be entitled to the use of an
automobile during the term of this Agreement and Employer shall be
responsible for all expenses related to such use for Employer purposes,
including, gasoline, maintenance, insurance and taxes. Reimbursement of
such expenses shall be made as described in subparagraph (d).
(d) Expense Reimbursement. During the term hereof, the Employer shall
reimburse Executive for all reasonable and necessary expenses incurred by
Executive in the performance of his duties hereunder, including without
limitation, travel, meals, lodging, office supplies or equipment subject to
such reasonable limitations, restrictions and reporting standards as the
Board of Directors of the Employer may from time to time establish.
Executive shall provide to the Employer promptly after incurring any such
expenses a detailed report thereof and such documentation as the Employer
shall from time to time require and as shall be sufficient to support the
deductibility of all such expenses by the Employer for federal income tax
purposes.
4. Term.
The employment of Executive hereunder shall be for a three-year term
commencing on _________________, 1997 and expiring on ___________________, 2002,
unless Executive or the Employer shall give notice of the termination of
Executive's employment and this Agreement under the terms of paragraphs 5 or 6
hereof.
5. Termination By Employer.
6
<PAGE>
(a) Employer's Right To Terminate Prior To Expiration Of Term. The
Employer shall be entitled to terminate this Agreement prior to the expiration
of its term or any renewal term on the occurrence of either:
(i) an event of default with respect to Executive, as provided
herein, or
(ii) Death or Total Disability of Executive, as defined herein,
occurring during the term or any renewal term of Executive's
employment hereunder.
(b) Event Of Default By Executive. For purposes of this paragraph, an
event of default with respect to Executive shall include:
(i) any willful failure by Executive to perform his duties,
responsibilities or obligations hereunder in a faithful and diligent
manner or with reasonable care and (if such failure can be cured) the
failure by Executive to cure such failure within 10 days after written
notice thereof shall have been given to Executive by the Employer;
(ii) embezzlement or conversion by Executive of any funds of
Employer or any client of Employer;
(iii) destruction or conversion by Executive of any property of
Employer, without Employer's consent;
(iv) Executive's conviction of a felony;
(v) Executive's adjudication as an incompetent;
(vi) Executive's habitual intoxication;
(vii) Executive's drug addiction; or
(viii) Any breach of paragraph 7 or 8 hereof.
(c) Total Disability. Total Disability of Executive shall be deemed
to have occurred hereunder when Executive shall have failed or been unable
to perform his duties hereunder on a full-time basis for an aggregate of
180 days ("Disability Period") and with a certification from a licensed
physician in the State of Florida that Executive is
7
<PAGE>
permanently disabled from performing his duties hereunder. Where the
conclusion of one Disability Period is followed within six months by the
start of a second Disability Period and the disabilities are the same or
related, both Disability Periods shall be aggregated for purpose of this
subparagraph (c).
(d) Effect Of Termination.
(i) In the event of termination of this Agreement and
Executive's employment pursuant to paragraph 5(a) hereof, all rights and
obligations of the Employer and Executive hereunder shall terminate on the
date of such termination, subject to the following:
A. Executive shall be entitled to receive (subject to any
rights of setoff or counterclaim by the Employer) all salary, additional
compensation and benefits which shall have accrued prior to the date of
such termination, and the obligation of the Employer for the payment of
salary, additional compensation or benefits shall terminate as at the date
of such termination; and
B. All rights of the Employer or Executive which shall have
accrued hereunder prior to the date of such termination, and all provisions
of this Agreement which are to survive termination of employment of
Executive hereunder, shall survive such termination, and the Employer and
Executive shall continue to be bound by such provisions in accordance with
the terms thereof.
(ii) In the event of termination of this Agreement and
Executive's employment at the expiration of a term of this Agreement by act
of the Employer other than pursuant to paragraph 5(a) hereof, then
Executive shall be entitled to receive the remaining salary and benefits
due for the balance of the term of this Agreement, with such salary to be
paid in accordance with paragraph 2(a).
(e) Death Of Executive. This Agreement and all rights and obligations
of the parties hereunder shall terminate immediately upon the death of
Executive except that the Employer shall pay to the heirs, legatees or
personal
8
<PAGE>
representative of Executive all compensation or benefits hereunder accrued
but not paid to the date of Executive's death.
6. Termination By Executive.
(a) Executive's Right To Terminate. Executive shall be entitled to
terminate his employment with the Employer under this Agreement prior to
the expiration of its term upon the occurrence of an event of default by
the Employer.
(b) Event Of Default By Employer. For purposes of this paragraph, an
event of default with respect to the Employer shall include:
(i) Any failure by the Employer to perform its obligations to
Executive under this Agreement and (if such failure can be cured) the
failure by the Employer to cure such failure within 10 days after written
notice thereof shall have been given to the Employer by Executive;
(ii) Employer's admitting in writing its inability to pay its
debts generally as they become due;
(iii) Employer's filing a petition for relief under any chapter
of Title 11 of the United States Code or a petition to take advantage of
any insolvency laws of the United States of America or any state thereof;
(iv) Employer's making an assignment for the benefit of its
creditors;
(v) Employer's consent to the appointment of a receiver of
itself or of the whole or any substantial part of its property; or
(vi) Employer's filing a petition or answer seeking
reorganization under the Federal Bankruptcy Laws or any other applicable
law or statute of the United States of America or any state thereof.
(c) Effect Of Termination. In the event of termination of the
Agreement by Executive in accordance with paragraph 6(a) hereof, all rights
and obligations of the Employer and
9
<PAGE>
Executive hereunder shall terminate on the date of such termination,
subject to the following:
(i) Executive shall be entitled to receive all salary,
additional compensation and benefits which shall have accrued prior to
the date of such termination and the Employer's obligation for the
payment of salary, additional compensation and benefits shall
terminate as of the date of such termination; and
(ii) All rights of the Employer or Executive which shall have
accrued hereunder prior to the date of such termination and all
provisions of this Agreement which are to survive termination of
employment of Executive hereunder shall survive such termination, and
the Executive shall continue to be bound by such provisions in
accordance with their terms.
7. Restrictive Covenant.
(a) Non-Competition. Executive agrees that, so long as he is employed
by Employer pursuant to this Agreement, and for eighteen months following
any termination or expiration hereof, other than termination by Executive
pursuant to paragraph 6(a) hereof, he will not, directly or indirectly, as
a sole proprietor, member of a partnership, stockholder, investor, officer
or director of a corporation, or as an employee, agent, associate or
consultant of any person, partnership or corporation other than Employer or
in any other capacity:
(i) own, manage, operate, participate in, perform services for
or otherwise carry on a business similar to or competitive with the
business of Employer in the United States; provided that ownership of
not more than five percent (5%) of the issued and outstanding shares
of a class of securities of a corporation the securities of which are
traded on a national security exchange or in the over-the-counter
market shall not be deemed ownership of the issuer of such shares for
the purposes of this section;
(ii) induce or attempt to persuade any employee of Employer to
terminate such employment relationship in order to enter into any such
relationship with such person or to enter into any such relationship
on behalf
10
<PAGE>
of any other business organization in competition with Employer or any
of its affiliates;
(iii) solicit any business related to the business conducted by
Employer from any clients, customers, or prospective or former clients
or customers of Employer, except those originated and introduced to
Employer solely by Executive; or
(iv) perform services of any nature for any entity which
engages in or conducts any business that competes with, restricts or
interferes with the business of Employer.
(b) Injunctive Relief. Without limiting the right of Employer or any
of its successors or permitted assigns to pursue all other legal and
equitable rights available to them for violation of the covenants set forth
in subparagraph 7(a) hereof, it is agreed that such other remedies cannot
fully compensate Employer and its successors and assigns for such a
violation and that Employer and its successors and assigns shall be
entitled to injunctive relief, without bond, to prevent violation or
continuing violation hereof. It is the intent and understanding of each
party that if, in any action before any court or agency legally empowered
to enforce this covenant, any term, restriction, covenant or promise is
found to be unreasonable and for that reason unenforceable, then such term,
restriction, covenant or promise shall be deemed modified to the extent
necessary to make it enforceable by such a court or agency.
8. Confidential Information.
(a) Definitions. "Confidential Information" means information
disclosed by the Employer to Executive, or developed or obtained by
Executive during his employment by the Employer, either before the date or
during the term of this Agreement, provided that such information is not
generally known in the business and industry in which the Employer is or
may subsequently become engaged, relating to or concerning the business,
projects, products, techniques or methods of the Employer, whether relating
to research, development, marketing, merchandising, selling or otherwise.
Without limitation, Confidential Information shall include all know-how,
technical information, ideas, concepts and processes relating to products
of the Employer, whether now existing or
11
<PAGE>
hereafter developed, and all prices, customer names and customer lists but
shall exclude the names of customers known to Executive prior to the
effective date hereof.
(b) Non-Disclosure. Executive agrees that, during the term hereof or
while Executive shall receive compensation hereunder and after termination
of this employment with the Employer for so long as the Confidential
Information shall not be generally known or generally disclosed (except by
Executive or by means of wrongful use or disclosure), Executive shall not
use any Confidential Information, except on behalf of the Employer during
the term hereof, or disclose any Confidential Information to any person,
firm, partnership, Employer, corporation or other entity, except as
authorized by the Board of Directors of the Employer.
9. Writings and Working Papers.
Executive covenants and agrees that any and all books, textbooks, letters,
pamphlets, drafts, memoranda or other writings of any kind written by him for or
on behalf of the Employer or in the performance of Executive's duties hereunder,
Confidential Information referred to in paragraph 8 hereof and all notes,
records and drawings made or kept by him of work performed in connection with
his employment by the Employer shall be and are the sole and exclusive property
of the Employer and the Employer shall be entitled to any and all copyrights
thereon or other rights relating thereto. Executive agrees to execute any and
all documents or papers of any nature which the Employer or its successors,
assigns or nominees deem necessary or appropriate to acquire, enhance, protect,
perfect, assign, sell or transfer its rights under this paragraph. Executive
also agrees that upon request he will place all such notes, records and drawings
in the Employer's possession and will not take with him without the written
consent of a duly authorized officer of the Employer any notes, records,
drawings, blueprints or other reproductions relating or pertaining to or
connected with his employment of the business, books, textbooks, pamphlets,
documents work or investigations of the Employer. The obligations of this
paragraph shall survive the term of employment hereunder or the termination or
expiration of the term or any renewal term hereof.
10. Bonus Shares.
In further consideration of Executive's employment by Company, Company
hereby agrees to issue to Executive shares of common stock
12
<PAGE>
of the Company, in the following amounts and upon the happening of the following
events:
(a) Executive shall be issued such number of shares of common stock
of the Company as are equal to $200,000 if the Pre-tax Income of
Subsidiaries is at least $850,000 for the first twelve months of the term
of this Agreement; and
(b) In addition, Executive shall be issued such additional number of
shares of common stock as shall equal $200,000 if the Pre-tax Income of the
Subsidiaries is at least $977,500 for the second twelve months of the term
of this Agreement.
For purposes of determining such $200,000 in each of paragraphs 10(a) and
10(b), each such share to be issued to Executive thereunder shall be valued at
its average closing price for the full trading week prior to issuance thereof,
which shall be determined by dividing the sum of the closing prices for each day
of such week by the number of days in such trading week. None of such shares
shall be registered and certificates evidencing them shall bear appropriate
restrictive legends with stop transfer orders placed against them on the books
of the Company's transfer agent.
11. Specific Enforcement.
Executive is obligated under this Agreement to render service of a special,
unique, unusual, extraordinary and intellectual character, thereby giving this
Agreement peculiar value so that the loss of such service or violation by
Executive of this Agreement could not reasonably or adequately be compensated in
damages in an action at law. Therefore, in addition to other remedies provided
by law, the Employer shall have the right during the term or any renewal term of
this Agreement (or thereafter with respect to obligations continuing after the
expiration or termination of this Agreement) to compel specific performance
hereof by Executive or to obtain permanent and temporary injunctive relief,
without any bond, against violations hereof by Executive. The prevailing party
will be entitled to recover all costs and expenses incurred by him or it in
connection therewith, including attorneys' fees.
12. Assignment.
13
<PAGE>
The rights and duties of a party hereunder shall not be assignable by that
party, without the express written consent of the other party.
13. Binding Effect.
This Agreement shall be binding upon the parties hereto and their
respective successors in interest, heirs and personal representatives and, to
the extent permitted herein, their assigns.
14. Severability.
If any provision of this Agreement or any part hereof or application hereof
to any person or circumstance shall be finally determined by a court of
competent jurisdiction to be invalid or unenforceable to any extent, the
remainder of this Agreement, or the remainder of such provision or the
application of such provision to persons or circumstances other than those as to
which it has been held invalid or unenforceable, shall not be affected thereby
and each provision of this Agreement shall remain in full force and effect to
the fullest extent permitted by law. The parties also agree that, if any portion
of this Agreement, or any part hereof or application hereof, to any person or
circumstance shall be finally determined by a court of competent jurisdiction to
be invalid or unenforceable to any extent, any court may so modify the
objectionable provision so as to make it valid, reasonable and enforceable.
15. Notices.
All notices, or other communications required or permitted to be given
hereunder shall be in writing and shall be delivered personally or mailed,
certified mail, return receipt requested, postage prepaid, to the parties as
follows:
If to the Employer: Terrace Holdings, Inc.
2699 Stirling Road
Suite C-405
Ft. Lauderdale, FL 33312
With a copy to: Gerald L. Fishman, Esq.
Fishman & Merrick, P.C.
30 North LaSalle Street
Suite 3500
Chicago, Illinois 60602
14
<PAGE>
If to Executive: Scott Davis
6445 N.W. 72 Way
Parkland, Florida 33067
With a copy to: Richard L. Katz, Esq.
Katz & Mestre
2100 Salzedo Street, Suite 300
Coral Gables, Florida 33134
Any notice mailed in accordance with the terms hereof shall be deemed
received on the third day following the date of mailing. Either party may change
the address to which notices to such party may be given hereunder by serving a
proper notice of such change of address to the other party.
16. Entire Agreement.
This Agreement constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof and supersedes all prior written or
oral negotiations, representations, agreements, commitments, contracts or
understandings with respect thereto and no modification, alteration or amendment
to this Agreement may be made unless the same shall be in writing and signed by
both of the parties hereto.
15
<PAGE>
17. Waivers.
No failure by either party to exercise any of such party's rights hereunder
or to insist upon strict compliance with respect to any obligation hereunder,
and no custom or practice of the parties at variance with the terms hereof,
shall constitute a waiver by either party to demand exact compliance with the
terms hereof. Waiver by either party of any particular default by the other
party shall not affect or impair such party's rights in respect to any
subsequent default of the same or a different nature, nor shall any delay or
omission of either party to exercise any rights arising from any default by the
other party affect or impair such party's rights as to such default or any
subsequent default.
18. Governing Law; Jurisdiction.
For purposes of construction, interpretation and enforcement, this
Agreement shall be deemed to have been entered into under the laws of the State
of Florida and its validity, effect, performance, interpretation, construction
and enforcement shall be governed by and subject to the laws of the State of
Florida without regard to its conflicts of law rules or principles.
19. Jurisdiction and Venue.
Any and all suits for any and every breach of this Agreement may be
instituted and maintained in any court of competent jurisdiction in the State of
Florida and the parties hereto consent to the jurisdiction and venue in such
court and the service of process by certified mail to the addresses for the
parties provided for notices herein.
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
TERRACE HOLDINGS, INC. ("Company")
By:_____________________________________
Samuel H. Lasko
President
Attest:
___________________________
Secretary
A One A Produce & Provisions, Inc. &
Terrace Fresh, Inc. ("Subsidiaries")
By:______________________________________
Its_______________________________
Attest:
___________________________
Secretary
Executive:
__________________________________
Scott Davis
17
<PAGE>
EXHIBIT 10.2
E M P L O Y M E N T A G R E E M E N T
---------------------------------------
THIS AGREEMENT is made and entered into as of the 17th day of July, 1997,
effective July 1, 1997, by and between Terrace Holdings, Inc., a Delaware
corporation (the "Company"), A One A Produce & Provisions, Inc., and Terrace
Fresh, Inc., both Florida corporations and wholly owned subsidiaries of the
Company (collectively the "Subsidiaries", and with the "Company" collectively
hereinafter referred to as the "Employer") and Virgil Scarbrough (hereinafter
referred to as the "Executive").
WHEREAS, the Employer desires to enter into an agreement for the employment
of Executive by the Employer and to be assured of the continued services of
Executive and Executive desires to enter into employment by the Employer on the
terms provided herein.
NOW, THEREFORE, in consideration of the premises and of the terms,
covenants and conditions hereinafter contained, the parties hereto agree as
follows:
1. Employment, Duties and Authority.
--------------------------------
The Employer hereby employs Executive and Executive hereby accepts
employment by the Employer on the terms, covenants and conditions herein
contained, as the Co-Chief Operating Officer of the Subsidiaries. The Executive
shall have such duties, responsibilities and authority as the by-laws of the
Employer shall from time to time provide and as the Board of Directors of the
Employer shall from time to time prescribe in writing and shall be in joint
charge, together with the other Co-Chief Operating Officer, of all day-to-day
operations of the Subsidiaries. During the term of Executive's employment
hereunder, Executive shall devote his full time to the performance of his duties
and responsibilities hereunder and will perform such duties and responsibilities
faithfully and with reasonable care for the welfare of the Employer. Executive
shall provide services to the Employer principally at its Subsidiaries' offices
in the State of Florida, or at such other reasonably proximate location and
shall not be obligated to relocate his residence. During the term of his
employment hereunder, Executive shall not perform any services for compensation
for any person, firm, partnership or corporation other than the Employer without
the express written consent of the Board of Directors of the Employer; provided
that Executive may provide services for charitable and not-for-profit
organizations in his discretion.
<PAGE>
2. Compensation.
(a) Base Salary. The Employer shall pay to Executive during the term
of employment hereunder an annual salary of $120,000 ("Base Salary"),
subject to review and increase by the Board of Directors of the Employer
from time to time. Such salary shall be paid by the Employer to Executive
in semi-monthly installments, less amounts which the Employer may be
required to withhold from such payments by applicable federal, state or
local laws or regulations.
(b) Payment During Absences. If Executive shall be absent from work
on account of personal injuries or sickness, he shall continue to receive
the payments provided for in paragraph 2.1(a) hereof; provided, however,
that any such payment may, at the Employer's option, be reduced by the
amount which the Executive may receive, for the period covered by any such
payments, in disability payments (i) pursuant to any disability insurance
which the Employer, in its sole discretion, may maintain, or (ii) under any
governmental program for disability compensation.
(c) Bonus.
(i) At the discretion of the Board of Directors of the Employer,
Executive may be entitled to a bonus each year. The Employer may
establish and communicate standards to Executive for the achievement
of bonus compensation each year.
(ii) In addition to the discretionary bonus provided for in
clause 2(c)(i) above, Executive shall be entitled to the following
cash bonus: (A) if, for the first year of the term hereof, the "Pre-
tax Income" of the Subsidiaries equals at least $1,100,000 ("Base
Amount"), then the Executive shall be paid a cash bonus equal to 20%
of his Base Salary then in effect; (B) if such Pre-tax Income for such
period is 120% of said Base Amount, Executive shall be paid an
additional 10% of his then Base Salary; (C) if said Pre-tax Income is
140% of the Base Amount, Executive shall be paid an additional 20% of
his then Base Salary; and (D) if said Pre-tax Income is 200% of said
Base Amount, Executive shall be paid an additional 50% of his then
Base Salary as a bonus. Such bonus shall be paid incrementally pro
rata for any "Pre-
2
<PAGE>
Tax Income" exceeding 120% of the Base Amount in any year during the
term hereof.
For each subsequent year, during the term hereof, following the
first year, the Base Amount upon which such bonuses shall be
calculated shall be the greater of $1,100,000 or the Pre-tax Income of
the immediately-preceding year, and the percentages of the then Base
Salary to be paid to Executive as a cash bonus shall be as aforesaid.
(iii) For purposes of clause 2(c)(ii) above, the term "Pre-tax
Income" shall mean the income of Subsidiaries (before deducting
federal, state and local income taxes) for the applicable twelve-month
period, determined by the independent certified public accountants of
the Company in accordance with generally accepted accounting
principles consistently applied, adjusted as follows:
(1) Credit items not earned in the ordinary course of
Subsidiaries' business (including but not limited to
proceeds from life insurance and gains on the sale of real
estate or other capital items other than equipment) shall
not be credited to Pre-Tax Income, unless otherwise provided
herein;
(2) Interest or dividend income on invested liquid assets,
recovery of bad debts, proceeds from business interruption
or casualty insurance, gains from the sale of equipment, and
any management fees earned in the ordinary course of
business shall be credited to Pre-Tax Income;
(3) Any amount of Purchase Price paid thereon by Company to
A-One-A Wholesale Produce, Inc. and Fresh, Inc. (the
"Acquisition") shall not be a debit from Pre-Tax Income;
(4) Any capital contributions made to Subsidiaries by the
Company, or any of its Subsidiaries, shall not be credited
to Pre-Tax Income;
3
<PAGE>
(5) Any indemnity that Subsidiaries may pay to Company
shall not be credited to Pre-Tax Income;
(6) Any indemnity that Company may pay to Subsidiaries
shall not be a debit against Pre-Tax Income;
(7) Any expenses paid by Company to complete the
Acquisition shall not be a debit against Pre-Tax Income;
(8) Any sums required to be paid by Employer to any employee
benefit plan in the event that Employer is deemed to be a
member of a controlled group, or affiliated service group,
or employee leasing organization under Section 414 of the
Code shall not be a debit against Pre-Tax Income; and
(9) All checks of Subsidiaries in excess of $3,000 shall
require two signatures. If one signature is either the Executive
or his Co-Chief Operating Officer, Executive shall be deemed to
have approved such expenditure.
(iv) If Executive or the Company shall disagree with the
calculation of the Pre Tax Income as determined by the independent
certified public accountants of the Company to the extent of at least
$25,000 and such disagreement shall not have been resolved prior to 30
days following delivery of such determination, all items in dispute
shall be submitted to any other independent accountant or firm jointly
chosen by the Company's independent certified public accountants and
the Executive's certified public accountants for the purpose of
arbitrating the dispute. The Arbitrator must agree prior to accepting
the engagement to complete his determination within 30 days of the
date of his engagement. The determination of the Arbitrator shall be
final, binding and nonappealable. The fees of the Arbitrator shall be
paid by the losing party or as the Arbitrator shall apportion.
Notwithstanding anything to the contrary contained in this Section 2,
the Company agrees to forthwith pay to Executive that portion of the
consideration, if any, that the Company in good faith
4
<PAGE>
does not dispute. The Company shall use its best efforts to make available
to Executive and his attorneys, accountants or other representatives, for
examination, such of its book of account, contracts, licenses, leases,
instruments, commitments, sales orders, purchase orders, records,
accountants' work papers and other documents as are relevant to the
preparation of the independent certified public accountants' determination.
3. Benefits; Vacation; Automobile; Expense Reimbursement.
------------------------------------------------------
(a) Benefits. The Executive shall be entitled to, and shall receive, all
other benefits of employment available to other executives of the Employer
generally, including, without limitation, participation in any medical, dental
or other group health plans or accident benefits, life insurance benefits, club
memberships, pension or profit-sharing plans, as shall be instituted by the
Employer, in its sole discretion.
(b) Vacation. Executive shall be entitled to three weeks annual vacation,
subject to increase to four weeks on the terms available to other executive
employees of the Employer.
(c) Automobile. Executive shall be entitled to the use of an automobile
during the term of this Agreement and Employer shall be responsible for all
expenses related to such use for Employer purposes, including, gasoline,
maintenance, insurance and taxes. Reimbursement of such expenses shall be made
as described in subparagraph (d).
(d) Expense Reimbursement. During the term hereof, the Employer shall
reimburse Executive for all reasonable and necessary expenses incurred by
Executive in the performance of his duties hereunder, including without
limitation, travel, meals, lodging, office supplies or equipment subject to such
reasonable limitations, restrictions and reporting standards as the Board of
Directors of the Employer may from time to time establish. Executive shall
provide to the Employer promptly after incurring any such expenses a detailed
report thereof and such documentation as the Employer shall from time to time
require and as shall be sufficient to support the deductibility of all such
expenses by the Employer for federal income tax purposes.
5
<PAGE>
4. Term.
-----
The employment of Executive hereunder shall be for a five-year term
commencing on July 17, 1997 and expiring on July 30, 2002, unless Executive or
the Employer shall give notice of the termination of Executive's employment and
this Agreement under the terms of paragraphs 5 or 6 hereof.
5. Termination By Employer.
------------------------
(a) Employer's Right To Terminate Prior To Expiration Of Term. The
Employer shall be entitled to terminate this Agreement prior to the
expiration of its term or any renewal term on the occurrence of either:
(i) an event of default with respect to Executive, as provided
herein, or
(ii) Death or Total Disability of Executive, as defined herein,
occurring during the term or any renewal term of Executive's
employment hereunder.
(b) Event Of Default By Executive. For purposes of this paragraph,
an event of default with respect to Executive shall include:
(i) any willful failure by Executive to perform his duties,
responsibilities or obligations hereunder in a faithful and diligent manner
or with reasonable care and (if such failure can be cured) the failure by
Executive to cure such failure within 10 days after written notice thereof
shall have been given to Executive by the Employer;
(ii) embezzlement or conversion by Executive of any funds of
Employer or any client of Employer;
(iii) destruction or conversion by Executive of any property of
Employer, without Employer's consent;
(iv) Executive's conviction of a felony;
(v) Executive's adjudication as an incompetent;
(vi) Executive's habitual intoxication;
6
<PAGE>
(vii) Executive's drug addiction; or
(viii) Any breach of paragraph 7 or 8 hereof.
(c) Total Disability. Total Disability of Executive shall be deemed
to have occurred hereunder when Executive shall have failed or been unable
to perform his duties hereunder on a full-time basis for an aggregate of
180 days ("Disability Period") and with a certification from a licensed
physician in the State of Florida that Executive is permanently disabled
from performing his duties hereunder. Where the conclusion of one
Disability Period is followed within six months by the start of a second
Disability Period and the disabilities are the same or related, both
Disability Periods shall be aggregated for purpose of this subparagraph
(c).
(d) Effect Of Termination.
----------------------
(i) In the event of termination of this Agreement and
Executive's employment pursuant to paragraph 5(a) hereof, all rights
and obligations of the Employer and Executive hereunder shall
terminate on the date of such termination, subject to the following:
A. Executive shall be entitled to receive (subject to any
rights of setoff or counterclaim by the Employer) all salary,
additional compensation and benefits which shall have accrued
prior to the date of such termination, and the obligation of the
Employer for the payment of salary, additional compensation or
benefits shall terminate as at the date of such termination; and
B. All rights of the Employer or Executive which shall have
accrued hereunder prior to the date of such termination, and all
provisions of this Agreement which are to survive termination of
employment of Executive hereunder, shall survive such
termination, and the Employer and Executive shall continue to be
bound by such provisions in accordance with the terms thereof.
(ii) In the event of termination of this Agreement and
Executive's employment at the expiration of a term of this Agreement
by act of the Employer other than pursuant
7
<PAGE>
to paragraph 5(a) hereof, then Executive shall be entitled to receive the
remaining salary and benefits due for the balance of the term of this
Agreement, with such salary to be paid in accordance with paragraph 2(a).
(e) Death Of Executive. This Agreement and all rights and obligations of
the parties hereunder shall terminate immediately upon the death of Executive
except that the Employer shall pay to the heirs, legatees or personal
representative of Executive all compensation or benefits hereunder accrued but
not paid to the date of Executive's death.
6. Termination By Executive.
------------------------
(a) Executive's Right To Terminate. Executive shall be entitled to
terminate his employment with the Employer under this Agreement prior to the
expiration of its term upon the occurrence of an event of default by the
Employer.
(b) Event Of Default By Employer. For purposes of this paragraph, an event
of default with respect to the Employer shall include:
(i) Any failure by the Employer to perform its obligations to
Executive under this Agreement and (if such failure can be cured) the
failure by the Employer to cure such failure within 10 days after written
notice thereof shall have been given to the Employer by Executive;
(ii) Employer's admitting in writing its inability to pay its debts
generally as they become due;
(iii) Employer's filing a petition for relief under any chapter
of Title 11 of the United States Code or a petition to take advantage of
any insolvency laws of the United States of America or any state thereof;
(iv) Employer's making an assignment for the benefit of its
creditors;
(v) Employer's consent to the appointment of a receiver of itself or
of the whole or any substantial part of its property; or
8
<PAGE>
(vi) Employer's filing a petition or answer seeking reorganization
under the Federal Bankruptcy Laws or any other applicable law or statute of
the United States of America or any state thereof.
(c) Effect Of Termination. In the event of termination of the Agreement by
Executive in accordance with paragraph 6(a) hereof, all rights and obligations
of the Employer and Executive hereunder shall terminate on the date of such
termination, subject to the following:
(i) Executive shall be entitled to receive all salary, additional
compensation and benefits which shall have accrued prior to the date of
such termination and the Employer's obligation for the payment of salary,
additional compensation and benefits shall terminate as of the date of such
termination; and
(ii) All rights of the Employer or Executive which shall have accrued
hereunder prior to the date of such termination and all provisions of this
Agreement which are to survive termination of employment of Executive
hereunder shall survive such termination, and the Executive shall continue
to be bound by such provisions in accordance with their terms.
7. Restrictive Covenant.
--------------------
(a) Non-Competition. Executive agrees that, so long as he is employed by
Employer pursuant to this Agreement, and for eighteen months following any
termination or expiration hereof, other than termination by Executive pursuant
to paragraph 6(a) hereof, he will not, directly or indirectly, as a sole
proprietor, member of a partnership, stockholder, investor, officer or director
of a corporation, or as an employee, agent, associate or consultant of any
person, partnership or corporation other than Employer or in any other capacity:
(i) own, manage, operate, participate in, perform services for or
otherwise carry on a business similar to or competitive with the business
of Employer in the United States; provided that ownership of not more than
five percent (5%) of the issued and outstanding shares of a class of
securities of a corporation the securities of which are traded on a
national security exchange or in
9
<PAGE>
the over-the-counter market shall not be deemed ownership of the issuer of
such shares for the purposes of this section;
(ii) induce or attempt to persuade any employee of Employer to
terminate such employment relationship in order to enter into any such
relationship with such person or to enter into any such relationship on
behalf of any other business organization in competition with Employer or
any of its affiliates;
(iii) solicit any business related to the business conducted by
Employer from any clients, customers, or prospective or former clients or
customers of Employer, except those originated and introduced to Employer
solely by Executive; or
(iv) perform services of any nature for any entity which engages in
or conducts any business that competes with, restricts or interferes with
the business of Employer.
(b) Injunctive Relief. Without limiting the right of Employer or any of
its successors or permitted assigns to pursue all other legal and equitable
rights available to them for violation of the covenants set forth in
subparagraph 7(a) hereof, it is agreed that such other remedies cannot fully
compensate Employer and its successors and assigns for such a violation and that
Employer and its successors and assigns shall be entitled to injunctive relief,
without bond, to prevent violation or continuing violation hereof. It is the
intent and understanding of each party that if, in any action before any court
or agency legally empowered to enforce this covenant, any term, restriction,
covenant or promise is found to be unreasonable and for that reason
unenforceable, then such term, restriction, covenant or promise shall be deemed
modified to the extent necessary to make it enforceable by such a court or
agency.
8. Confidential Information.
------------------------
(a) Definitions. "Confidential Information" means information disclosed
by the Employer to Executive, or developed or obtained by Executive during his
employment by the Employer, either before the date or during the term of this
Agreement, provided that such information is not
10
<PAGE>
generally known in the business and industry in which the Employer is or
may subsequently become engaged, relating to or concerning the business,
projects, products, techniques or methods of the Employer, whether relating
to research, development, marketing, merchandising, selling or otherwise.
Without limitation, Confidential Information shall include all know-how,
technical information, ideas, concepts and processes relating to products
of the Employer, whether now existing or hereafter developed, and all
prices, customer names and customer lists but shall exclude the names of
customers known to Executive prior to the effective date hereof.
(b) Non-Disclosure. Executive agrees that, during the term hereof or
while Executive shall receive compensation hereunder and after termination
of this employment with the Employer for so long as the Confidential
Information shall not be generally known or generally disclosed (except by
Executive or by means of wrongful use or disclosure), Executive shall not
use any Confidential Information, except on behalf of the Employer during
the term hereof, or disclose any Confidential Information to any person,
firm, partnership, Employer, corporation or other entity, except as
authorized by the Board of Directors of the Employer.
9. Writings and Working Papers.
---------------------------
Executive covenants and agrees that any and all books, textbooks, letters,
pamphlets, drafts, memoranda or other writings of any kind written by him for or
on behalf of the Employer or in the performance of Executive's duties hereunder,
Confidential Information referred to in paragraph 8 hereof and all notes,
records and drawings made or kept by him of work performed in connection with
his employment by the Employer shall be and are the sole and exclusive property
of the Employer and the Employer shall be entitled to any and all copyrights
thereon or other rights relating thereto. Executive agrees to execute any and
all documents or papers of any nature which the Employer or its successors,
assigns or nominees deem necessary or appropriate to acquire, enhance, protect,
perfect, assign, sell or transfer its rights under this paragraph. Executive
also agrees that upon request he will place all such notes, records and drawings
in the Employer's possession and will not take with him without the written
consent of a duly authorized officer of the Employer any notes, records,
drawings, blueprints or other reproductions relating or pertaining to or
connected with his employment of the business, books, textbooks, pamphlets,
documents work or
11
<PAGE>
investigations of the Employer. The obligations of this paragraph shall survive
the term of employment hereunder or the termination or expiration of the term or
any renewal term hereof.
10. Bonus Shares.
------------
In further consideration of Executive's employment by Company, Company
hereby agrees to issue to Executive shares of common stock of the Company, in
the following amounts and upon the happening of the following events:
(a) Executive shall be issued such number of shares of common stock
of the Company as are equal to $200,000 if the Pre-tax Income of
Subsidiaries is at least $850,000 for the first twelve months of the term
of this Agreement; and
(b) In addition, Executive shall be issued such additional number of
shares of common stock as shall equal $200,000 if the Pre-tax Income of the
Subsidiaries is at least $977,500 for the second twelve months of the term
of this Agreement.
For purposes of determining such $200,000 in each of paragraphs 10(a) and
10(b), each such share to be issued to Executive thereunder shall be valued at
its average closing price for the full trading week prior to issuance thereof,
which shall be determined by dividing the sum of the closing prices for each day
of such week by the number of days in such trading week. None of such shares
shall be registered and certificates evidencing them shall bear appropriate
restrictive legends with stop transfer orders placed against them on the books
of the Company's transfer agent.
11. Specific Enforcement.
--------------------
Executive is obligated under this Agreement to render service of a special,
unique, unusual, extraordinary and intellectual character, thereby giving this
Agreement peculiar value so that the loss of such service or violation by
Executive of this Agreement could not reasonably or adequately be compensated in
damages in an action at law. Therefore, in addition to other remedies provided
by law, the Employer shall have the right during the term or any renewal term of
this Agreement (or thereafter with respect to obligations continuing after the
expiration or termination of this Agreement) to compel specific performance
hereof by Executive or to obtain permanent and temporary injunctive relief,
without any bond,
12
<PAGE>
against violations hereof by Executive. The prevailing party will be entitled to
recover all costs and expenses incurred by him or it in connection therewith,
including attorneys' fees.
12. Assignment.
----------
The rights and duties of a party hereunder shall not be assignable by that
party, without the express written consent of the other party.
13. Binding Effect.
--------------
This Agreement shall be binding upon the parties hereto and their
respective successors in interest, heirs and personal representatives and, to
the extent permitted herein, their assigns.
14. Severability.
------------
If any provision of this Agreement or any part hereof or application hereof
to any person or circumstance shall be finally determined by a court of
competent jurisdiction to be invalid or unenforceable to any extent, the
remainder of this Agreement, or the remainder of such provision or the
application of such provision to persons or circumstances other than those as to
which it has been held invalid or unenforceable, shall not be affected thereby
and each provision of this Agreement shall remain in full force and effect to
the fullest extent permitted by law. The parties also agree that, if any portion
of this Agreement, or any part hereof or application hereof, to any person or
circumstance shall be finally determined by a court of competent jurisdiction to
be invalid or unenforceable to any extent, any court may so modify the
objectionable provision so as to make it valid, reasonable and enforceable.
15. Notices.
-------
All notices, or other communications required or permitted to be given
hereunder shall be in writing and shall be delivered personally or mailed,
certified mail, return receipt requested, postage prepaid, to the parties as
follows:
If to the Employer: Terrace Holdings, Inc.
2699 Stirling Road
Suite C-405
Ft. Lauderdale, FL 33312
13
<PAGE>
With a copy to: Gerald L. Fishman, Esq.
Fishman & Merrick, P.C.
30 North LaSalle Street
Suite 3500
Chicago, Illinois 60602
If to Executive: Virgil D. Scarbrough
4322 N.W. 88 Terrace
Coral Springs, Florida 33065
With a copy to: Richard L. Katz, Esq.
Katz & Mestre
2100 Salzedo Street, Suite 300
Coral Gables, Florida 33134
Any notice mailed in accordance with the terms hereof shall be deemed
received on the third day following the date of mailing. Either party may change
the address to which notices to such party may be given hereunder by serving a
proper notice of such change of address to the other party.
16. Entire Agreement.
----------------
This Agreement constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof and supersedes all prior written or
oral negotiations, representations, agreements, commitments, contracts or
understandings with respect thereto and no modification, alteration or amendment
to this Agreement may be made unless the same shall be in writing and signed by
both of the parties hereto.
17. Waivers.
-------
No failure by either party to exercise any of such party's rights hereunder
or to insist upon strict compliance with respect to any obligation hereunder,
and no custom or practice of the parties at variance with the terms hereof,
shall constitute a waiver by either party to demand exact compliance with the
terms hereof. Waiver by either party of any particular default by the other
party shall not affect or impair such party's rights in respect to any
subsequent default of the same or a different nature, nor shall any delay or
omission of either party to exercise any rights arising from any default by the
other party affect or impair such party's rights as to such default or any
subsequent default.
14
<PAGE>
18. Governing Law; Jurisdiction.
---------------------------
For purposes of construction, interpretation and enforcement, this
Agreement shall be deemed to have been entered into under the laws of the State
of Florida and its validity, effect, performance, interpretation, construction
and enforcement shall be governed by and subject to the laws of the State of
Florida without regard to its conflicts of law rules or principles.
19. Jurisdiction and Venue.
----------------------
Any and all suits for any and every breach of this Agreement may be
instituted and maintained in any court of competent jurisdiction in the State of
Florida and the parties hereto consent to the jurisdiction and venue in such
court and the service of process by certified mail to the addresses for the
parties provided for notices herein.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
TERRACE HOLDINGS, INC. ("Company")
By:_________________________________
Samuel H. Lasko
President
Attest:
___________________________
Secretary
A One A Produce & Provisions, Inc. &
Terrace Fresh, Inc. ("Subsidiaries")
By:_________________________________
Its______________________________
Attest:
___________________________
Secretary
Executive:
__________________________________
Virgil Scarbrough
16
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into this ____ day of ____________,
1997, effective September __, 1997, by and between A One A Produce &
Provisions, Inc., a Florida corporation (the "Company") and Kenneth Cohen
(hereinafter referred to as the "Employee").
WHEREAS, the Company desires to enter into an agreement for the employment
of Employee by the Company and to be assured of the continued services of
Employee and Employee desires to enter into employment by the Company on the
terms provided herein.
NOW, THEREFORE, in consideration of the premises and of the terms,
covenants and conditions hereinafter contained, the parties hereto agree as
follows:
1. Employment, Duties and Authority.
The Company hereby employs Employee and Employee hereby accepts employment
by the Company in an upper-level management position, on the terms, covenants
and conditions herein contained. The Employee shall have such duties,
responsibilities and authority as the by-laws of the Company shall from time to
time provide and as the Board of Directors of the Company shall from time to
time prescribe. During the term of Employee's employment hereunder, Employee
shall devote his full time to the performance of his duties and responsibilities
hereunder and will perform such duties and responsibilities faithfully and with
reasonable care for the welfare of the Company. Employee shall provide services
to the Company principally at its location in Broward County or at such other
reasonably proximate location. During the term of his employment hereunder,
Employee shall not perform any services for compensation for any person, firm,
partnership or corporation in competition with the Company other than the
Company without the express written consent of the Board of Directors of the
Company.
2. Compensation.
(a) Base Salary: The Company shall pay to Employee during the term
of employment hereunder an annual salary of $65,000 ("Base Salary"),
subject to review and increase by a majority in interest of the members of
the Company from time to time. Such salary shall be paid by the Company to
Employee in 26 bi-weekly installments, less amounts which the Company may
be required to withhold from such payments by applicable federal, state or
local laws or regulations. Such Base Salary shall be increased for each of
the second, third and fourth years of the term of employment by an amount
equal to 25% of any discretionary bonus paid to Employee for the
immediately preceding year, such increase in each case not to exceed
$5,000. The parties thereafter may adjust the Base Salary for the balance
of the term hereof as they shall mutually agree. In the event the parties
fail reach an agreement with
<PAGE>
respect to such adjustment, Employees Base salary shall increase as stated
above for the remainder of the term of this Agreement. Employee shall also
be eligible to receive an annual bonus as determined by the Board of
Directors of the Company.
(b) Bonus:
(I) At the discretion of the Board of Directors of the Company,
Employee may be entitled to a bonus each calendar year. The Company
may establish and communicate standards to Employee for the
achievement of bonus compensation each calendar year.
(ii) In addition to the discretionary bonus provided for in
clause 2(b)(I) above, Employee shall be entitled to the following cash
bonus: (A) if, for the first calendar year of the term hereof, the
"Pre-tax Income" of the Company equals at least $1,100,000 ("Base
Amount"), then the Employee shall be paid a cash bonus equal to 10% of
his Base Salary then in effect; (B) if such Pre-tax Income for such
period is 120% of said Base Amount, Employee shall be paid an
additional 10% of his then Base Salary; (C) if said Pre-tax Income is
140% of the Base Amount, Employee shall be paid an additional 15% of
his then Base Salary; and (D) if said Pre-tax Income is 160% of the
Base Amount, Employee shall be paid an additional 15% of his then Base
Salary; and (E) if said Pre-tax Income is 200% of said Base Amount,
Employee shall be paid an additional 20% of his then Base Salary as a
bonus. Such bonus shall be paid incrementally pro rata for any "Pre-
Tax Income" exceeding 120% of the Base Amount in any calendar year
during the term hereof.
For each subsequent calendar year, during the term hereof,
following the first calendar year, the Base Amount upon which such
bonuses shall be calculated shall be the greater of $1,100,000 or the
defined Pre-tax income of the Company of the immediately-preceding
calendar year, and the percentages of the then Base Salary to be paid
to Employee as a cash bonus shall be as aforesaid.
(iii) For purposes of clause 2(b)(ii) above, the term "Pre-tax
Income" shall mean the income of Company (before deducting federal,
state and local income taxes) for the applicable calendar year,
determined by the independent certified public accountants of the
Company in accordance with generally accepted accounting principles
consistently applied. To the extent any period during the term hereof
is not a complete calendar year, such bonus shall be paid pro rata for
the balance of the incomplete period.
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<PAGE>
(iv) In addition, the Company will use its best efforts to issue
10,000 shares of its common stock to Employee under its current
Employee Stock Option Plan.
3. Benefits; Vacation; Expense Reimbursement.
(a) Benefits. The Employee shall be entitled to, and shall receive,
all other perquisites and benefits of employment available to other
employees of the Company generally, including, without limitation,
participation in any group health plans or pension or profit-sharing plans,
as shall be instituted by the Company, in its sole discretion.
(b) Vacation. Employee shall be entitled to two weeks' vacation
annually, provided however, that no more than two weeks of vacation time
may be taken continuously. After two years, Employee shall be entitled to
three weeks vacation annually.
(c) Expense Reimbursement. During the term hereof, the Company shall
reimburse Employee for all reasonable and necessary expenses incurred by
Employee in the performance of his duties hereunder, including without
limitation, travel, meals, lodging, office supplies or equipment subject to
such reasonable limitations, restrictions and reporting standards as the
Board of Directors of the Company may from time to time establish. Employee
shall provide to the Company promptly after incurring any such expenses a
detailed report thereof and such documentation as the Company shall from
time to time require and as shall be sufficient to support the
deductibility of all such expenses by the Company for federal income tax
purposes.
(d) Other Benefits. Notwithstanding the foregoing, Employee shall be
entitled to the following during the term hereof:
(I) $600 per month as and for payment or reimbursement of health
insurance premiums for Employee and his immediate family members;
(ii) $750 per month as and for a car allowance (Employee pays
his own maintenance and insurance with respect thereto); and
(iii) the use of a Company car phone.
3
<PAGE>
4. Term.
(a) Term. The employment of Employee hereunder shall be for a term
of five years commencing on September __, 1997 and expiring on September
__, 2002.
(b) Renewal. This term may be renewed upon written agreement of the
parties. The parties shall begin to use their best efforts to secure
renewal of this Agreement in the fourth year of the term of this Agreement.
If such agreement to renew shall not be reached by the end of the term due
to the Company's actions, the provisions of paragraph 7 shall not apply. In
the event the parties fail to reach an agreement to renew, such failure to
renew shall be considered due to the Company's actions if the Company
offers compensation to the Employee in an amount less than the compensation
paid in the fifth year of the term of this Agreement. If, however, the
failure to reach an agreement to renew is due to the actions of the
Employee, the provisions of paragraph 7 shall survive expiration of the
term.
5. Termination By Company.
(a) Company's Right To Terminate Prior To Expiration Of Term. The
Company shall be entitled to terminate this Agreement prior to the
expiration of its term on the occurrence of either:
(i) an event of default with respect to Employee, as provided
herein, or
(ii) Death or Total Disability of Employee, as defined herein,
occurring during the term or any renewal term of Employee's employment
hereunder; or
(iii) subject to paragraph 5(f) hereof, without cause.
(b) Event Of Default By Employee. For purposes of this paragraph, an
event of default with respect to Employee shall include:
(i) any willful failure by Employee to perform his duties,
responsibilities or obligations hereunder in a faithful and diligent
manner or with reasonable care and (if such failure can be cured) the
failure by Employee to cure such failure within 10 days after written
notice thereof shall have been given to Employee by the Company;
4
<PAGE>
(ii) embezzlement or conversion by Employee of any funds of
Employer or any client of Employer;
(iii) destruction or conversion by Employee of any property of
Employer, without Employer's consent;
(iv) Employee's conviction of a felony;
(v) Employee's adjudication as an incompetent;
(vi) Employee's habitual intoxication;
(vii) Conduct unbefitting an employee of Company which casts
Company in a shameful light; or
(viii) Employee's breach of paragraphs 7 or 8 hereof.
(c) Total Disability. Total Disability of Employee shall be deemed
to have occurred hereunder either as determined by the definition of
disability under any disability policy through an insurance company in
effect for the Company or, if none is in effect, when Employee shall have
failed or been unable to perform his duties hereunder on a full-time basis
for an aggregate of 180 days ("Disability Period") and with a certification
from a licensed physician in the State of Florida that Employee is
permanently disabled from performing his duties hereunder. Where the
conclusion of one Disability Period is followed within six months by the
start of a second Disability Period and the disabilities are the same or
related, both Disability Periods shall be aggregated for purpose of this
subparagraph (c).
(d) Effect Of Termination. In the event of termination of this
Agreement and Employee's employment pursuant to paragraph 5(a) hereof, all
rights and obligations of the Company and Employee hereunder shall
terminate on the date of such termination, subject to the following:
(i) Employee shall be entitled to receive (subject to any rights
of setoff or counterclaim by the Company) all salary, additional
compensation and benefits which shall have accrued prior to the date of
such termination, and the obligation of the Company for the payment of
salary, additional compensation or benefits shall terminate as at the date
of such termination; and
(ii) All rights of the Company or Employee which shall have
accrued hereunder prior to the date of such termination, and all provisions
of this Agreement which are to survive termination of employment of
Employee
5
<PAGE>
hereunder, including but not limited to paragraph 7, shall survive
such termination, and the Company and Employee shall continue to be
bound by such provisions in accordance with the terms thereof.
(e) Death Of Employee. This Agreement and all rights and obligations
of the parties hereunder shall terminate immediately upon the death of Employee
except that the Company shall pay to the heirs, legatees or personal
representative of Employee all compensation or benefits hereunder accrued but
not paid to the date of Employee's death.
(f) Termination Without Cause. If the Company terminates this
Agreement without cause, in addition to any other rights Employee may have
hereunder, the Company shall pay to the Employee an amount equal to eight bi-
weekly installments of Employee's then Base Salary, such payment to be deemed a
severance payment and not a penalty. Moreover, in the event of such termination
without cause, the provisions of paragraph 7 shall not apply.
6. Termination By Employee.
(a) Employee's Right To Terminate. Employee shall be entitled to
terminate his employment with the Company under this Agreement prior to the
expiration of its term upon the occurrence of an event of default with
respect to the Company.
(b) Event Of Default By Company. For purposes of this paragraph, an
event of default with respect to the Company shall include:
(i) any failure by the Company to perform its obligations to
Employee under this Agreement and (if such failure can be cured) the
failure by the Company to cure such failure within 10 days after
written notice thereof shall have been given to the Company by
Employee;
(ii) the Company's admitting in writing its inability to pay its
debts generally as they become due;
(iii) the Company's filing a petition for relief under any
chapter of Title 11 of the United States Code or a petition to take
advantage of any insolvency laws of the United States of America or
any state thereof;
(iv) the Company's making an assignment for the benefit of its
creditors;
6
<PAGE>
(v) the Company's consent to the appointment of a receiver of
itself or of the whole or any substantial part of its property; or
(vi) the Company's filing a petition or answer seeking
reorganization under the Federal Bankruptcy Laws or any other
applicable law or statute of the United States of America or any state
thereof.
(c) Effect Of Termination. In the event of termination of the
Agreement by Employee in accordance with paragraph 6(a) hereof, all rights
and obligations of the Company and Employee hereunder shall terminate on
the date of such termination, subject to the following:
(i) Employee shall be entitled to receive all salary,
additional compensation and benefits which shall have accrued prior to
the date of such termination and the Company's obligation for the
payment of salary, additional compensation and benefits shall
terminate as of the date of such termination; and
(ii) All rights of the Company or Employee which shall have
accrued hereunder prior to the date of such termination and all
provisions of this Agreement which are to survive termination of
employment of Employee hereunder, except the provisions of paragraph 7
shall survive such termination.
7. Restrictive Covenant.
(a) Non-Competition. Employee agrees that, so long as he is employed
by Company pursuant to this Agreement, and for a period of 18 months
following termination of this Agreement by Employee pursuant to paragraph
5, other than paragraph 5(f) hereof, he will not, directly or indirectly,
as a sole proprietor, member of a partnership, stockholder, investor,
officer or director of a corporation, or as an employee, agent, associate
or consultant of any person, partnership or corporation other than Company
or in any other capacity:
(i) own, manage, operate, participate in, perform services for
or otherwise carry on a business similar to or competitive with the
business of Company within 500 miles of Fort Lauderdale, Florida;
(ii) induce or attempt to persuade any employee of Company to
terminate such employment relationship in order to enter into any such
relationship with such person or to enter into any such relationship
on behalf of any other business organization in competition with
Company or any of its affiliates;
7
<PAGE>
(iii) solicit any business related to the business conducted by
Company from any clients, agencies of clients, customers, or
prospective or former clients, agencies of clients or customers of
Company; or
(iv) perform services of any nature for any entity which
engages in or conducts any business that competes with, restricts or
interferes with the business of Company.
(b) Injunctive Relief. Without limiting the right of Company or any
of its successors or permitted assigns to pursue all other legal and
equitable rights available to them for violation of the covenants set forth
in subparagraph 7(a) hereof, it is agreed that such other remedies cannot
fully compensate Company and its successors and assigns for such a
violation and that Company and its successors and assigns shall be entitled
to injunctive relief, without the necessity of posting any bond, to prevent
violation or continuing violation hereof. It is the intent and
understanding of each party that if, in any action before any court or
agency legally empowered to enforce this covenant, any term, restriction,
covenant or promise is found to be unreasonable and for that reason
unenforceable, then such term, restriction, covenant or promise shall be
deemed modified to the extent necessary to make it enforceable by such a
court or agency.
8. Confidential Information.
(a) Definitions. "Confidential Information" means information
disclosed by the Company to Employee, or developed or obtained by Employee
during his employment by the Company, either before the date or during the
term of this Agreement, provided that such information is not generally
known in the business and industry in which the Company is or may
subsequently become engaged, relating to or concerning the business,
projects, techniques or methods of the Company, whether relating to food
preparation, marketing, merchandising, selling or otherwise. Without
limitation, Confidential Information shall include all know-how, technical
information, ideas, concepts and processes relating to the business of the
Company, whether now existing or hereafter developed, and all prices,
customer names and customer lists but shall exclude the names of customers
known to Employee prior to the effective date hereof.
(b) Non-Disclosure. Employee agrees that, during the term hereof or
while Employee shall receive compensation hereunder and after termination
of this employment with the Company for so long as the Confidential
Information shall not be generally known or generally disclosed (except by
Employee or by means of wrongful use or disclosure), Employee shall not use
any Confidential Information, except on behalf of the Company during the
term hereof, or disclose any Confidential
8
<PAGE>
Information to any person, firm, partnership, company, corporation or other
entity, except as authorized by a majority interest of members of the
Company.
9. Specific Enforcement.
Employee is obligated under this Agreement to render service of a special,
unique, unusual, extraordinary and intellectual character, thereby giving this
Agreement peculiar value so that the loss of such service or violation by
Employee of this Agreement could not reasonably or adequately be compensated in
damages in an action at law. Therefore, in addition to other remedies provided
by law, the Company shall have the right during the term or any renewal term of
this Agreement (or thereafter with respect to obligations continuing after the
expiration or termination of this Agreement) to compel specific performance
hereof by Employee or to obtain temporary and permanent injunctive relief,
without any bond, against violations of the non-competition and non-disclosure
provisions recited herein by Employee. The prevailing party will be entitled to
recover all costs and expenses incurred by him or it in connection therewith,
including attorneys' fees.
10. Assignment.
The rights and duties of a party hereunder shall not be assignable by that
party, without the express written consent of the other party.
11. Binding Effect.
This Agreement shall be binding upon the parties hereto and their
respective successors in interest, heirs and personal representatives and, to
the extent permitted herein, their assigns.
12. Severability.
If any provision of this Agreement or any part hereof or application hereof
to any person or circumstance shall be finally determined by a court of
competent jurisdiction to be invalid or unenforceable to any extent, the
remainder of this Agreement, or the remainder of such provision or the
application of such provision to persons or circumstances other than those as to
which it has been held invalid or unenforceable, shall not be affected thereby
and each provision of this Agreement shall remain in full force and effect to
the fullest extent permitted by law. The parties also agree that, if any portion
of this Agreement, or any part hereof or application hereof, to any person or
circumstance shall be finally determined by a court of competent jurisdiction to
be invalid or unenforceable to any extent, any court may so modify the
objectionable provision so as to make it valid, reasonable and enforceable.
9
<PAGE>
13. Notices.
All notices, or other communications required or permitted to be given
hereunder shall be in writing and shall be delivered personally or mailed,
certified mail, return receipt requested, postage prepaid, to the parties as
follows:
If to the Company: A One A Produce & Provisions, Inc.
1351 N.W. 22nd Street
Pompano Beach, Florida 33069
Attn: Jonathan S. Lasko, CEO
If to Employee: Kenneth Cohen
10010 S.W. 133rd Street
Miami, Florida 33176
Any notice mailed in accordance with the terms hereof shall be deemed
received on the third day following the date of mailing. Either party may change
the address to which notices to such party may be given hereunder by serving a
proper notice of such change of address to the other party.
14. Entire Agreement.
This Agreement constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof and supersedes all prior written or
oral negotiations, representations, agreements, commitments, contracts or
understandings with respect thereto and no modification, alteration or amendment
to this Agreement may be made unless the same shall be in writing and signed by
both of the parties hereto.
15. Waivers.
No failure by either party to exercise any of such party's rights hereunder
or to insist upon strict compliance with respect to any obligation hereunder,
and no custom or practice of the parties at variance with the terms hereof,
shall constitute a waiver by either party to demand exact compliance with the
terms hereof. Waiver by either party of any particular default by the other
party shall not affect or impair such party's rights in respect to any
subsequent default of the same or a different nature, nor shall any delay or
omission of either party to exercise any rights arising from any default by the
other party affect or impair such party's rights as to such default or any
subsequent default.
10
<PAGE>
16. Governing Law; Jurisdiction.
For purposes of construction, interpretation and enforcement, this
Agreement shall be deemed to have been entered into under the laws of the State
of Florida and its validity, effect, performance, interpretation, construction
and enforcement shall be governed by and subject to the laws of the State of
Florida, without regard to conflicts of laws principles thereunder.
17. Jurisdiction and Venue.
Any and all suits for any and every breach of this Agreement may be
instituted and maintained in any court of competent jurisdiction in Broward
County, Florida and the parties hereto consent to the jurisdiction and venue in
such court.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
__________________________________
By:_______________________________
Authorized Officer
Attest:
______________________________
Secretary
EMPLOYEE:
__________________________________
Kenneth Cohen
11
<PAGE>
INVESTMENT BANKING AGREEMENT
----------------------------
THIS INVESTMENT BANKING AGREEMENT ("Agreement") is made as of the 1st day
of July, 1997, by and between BILTMORE SECURITIES, INC. having its principal
business offices at 6700 North Andrews Avenue, Fort Lauderdale, Florida 33309
(the "Banker") and TERRACE HOLDINGS, INC., with its principal offices at 2699
Stirling Road, Suite C-405, Fort Lauderdale, Florida 33312 (the "Company").
WITNESSETH
WHEREAS the Company desires to retain the Banker and the Banker desires to
be retained by the Company, all pursuant to the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants herein contained, it is agreed as follows:
1. Retention. The Banker is hereby retained by the Company to perform
services related to corporate finance and other matters, and the Banker hereby
accepts such retention and shall perform for the Company the duties described
herein, faithfully and to the best of its ability.
2. Services.
(a) The Banker agrees, to the extent reasonably required in the
conduct of the business of the Company, to provide the Company with its
judgment and experience with respect to business development services for
the Company as it reasonably requests. The services may include, without
limitation, the following:
(i) review business plans and projections;
(ii) review financial data as it relates to raising financing;
(iii) advise on the Company's capital structure and on
alternatives for raising capital;
(iv) review and advise on prospective mergers and
acquisitions, and on any financing required to complete
such transactions;
(v) advise on issues relating to public offerings;
(vi) provide fairness opinions;
(vii) review managerial needs; and
(viii) advise on issues relating to financial public relations.
(b) If the Banker and the Company mutually determine it is
reasonable, the Banker also agrees to provide a research report on the
Company and follow-on reports. The Banker shall distribute such reports in
accordance with its customary practices.
<PAGE>
(c) At the Banker's request, the Company, shall schedule meetings
between the Company's management and the Bankers' or other brokerage
representatives to introduce the Company and its operations. The Company
shall make key management available to make due diligence presentations at
reasonable times and places.
3. Term. The Banker's retention hereunder shall be for a term of three
years commencing on the date of this Agreement. This Agreement may be terminated
by either party upon 45 days written notice to the other. No termination shall
affect the provisions of Paragraphs 4 or 5.
Upon the expiration or termination of this Agreement, should any
transactions between the Company and another party actually introduced by the
Banker not be consummated, within 180 days of such expiration and termination,
the Banker shall deliver to the Company a list ("List") agreed to by the Company
and the Banker containing the names of all parties actually introduced by the
Banker to the Company for acquisition purposes; or the Banker shall submit to
the Company a letter ("Letter") from each party actually introduced which
indicates that the Banker introduced such party to the Company. The Banker shall
be entitled to compensation in accordance with the provisions of this Agreement
if and only if the Company consummates a transaction with any party set forth on
the List or in any Letter within one year from the termination or expiration of
this Agreement or within one year from the date active negotiations with any
such party terminate.
4. Compensation. The Banker shall be compensated in accordance with the
following:
(a) The Company forthwith shall issue to the Banker and its assignees
Warrants (the "Warrants") to purchase 750,000 shares of common stock
("Common Stock") of the Company at a price of four dollars ($4.00) per
share ("Exercise Price"), exercisable through and including December 4,
2000.
Each Warrant shall be subject to the same terms and conditions, rights
and obligations, as the Warrants offered and sold by the Company to the
public in its public offering of December 5, 1995, and those Warrants sold
and privately placed to accredited investors in its "preferred private
placement" of July 7, 1997. Such Warrants shall be covered by the Warrant
Agreement between the Company and American Stock Transfer and Trust
Company, New York, New York.
The Company also hereby grants to the Banker, subject to the
conditions listed below, the right to demand registration, under the
Securities Act of 1933, as amended (the "Act"), of the Warrants and Common
Stock issuable upon exercise of the Warrants referred to above, on one
occasion with all expenses of the registration to be borne by the Company.
The Banker shall cooperate with the Company to prevent the request of a
demand during periods when business combinations may be contemplated.
In lieu of registering the Warrants and underlying Common Stock under
the Act in accordance with this provision, the Company shall have the right
to purchase the Warrants or Common Stock issued upon exercise of the
Warrants from Banker or the then holder of such Warrants or Common Stock.
The purchase price shall be equal to the closing bid price on the day that
demand for registration has been made (i) multiplied by the number of
shares of Common Stock if Common Stock is being purchased, or (ii)
multiplied by the number of
2
<PAGE>
shares of Common Stock which may be purchased upon exercise of the
Warrants, less the exercise price of the Warrants (but only if the Warrants
have not yet been exercised).
In addition, the Company shall, subject to the conditions listed
below, grant "piggy back" registration rights under the Act to include the
Warrants or the shares of Common Stock issuable upon exercise of the
Warrants in an underwriting of the sale of shares of Common Stock or other
security. Inclusion of such shares in an underwriting is subject to the
willingness of the managing underwriter(s) to include said Warrants or
shares of Common Stock. In the event that the Company grants registration
rights to any other shareholders on terms and conditions the Banker deems
to be more favorable than these granted hereunder, the Company shall grant
the same rights to the Banker.
(b) The Company agrees that separate fees shall be applicable for the
services in Paragraphs 2(a)(iv) and 2(a)(v) and 2(a)(vi) above. Any such
fees will be subject to the Banker's customary terms and agreement between
the Banker and the Company.
(c) In the event the Banker acts as underwriter for a public offering
for the Company, the terms of compensation for that offering will be in
accordance with NASD corporate finance compensation guidelines. In the
event that a public offering of securities is consummated within twelve
(12) months of the execution of this Agreement by the Banker, the Banker
and its assignees will waive their beneficial ownership to the Warrants
described in paragraph 4(a) provided that the Company will authorize the
issuance of underwriter's warrants to the Banker on terms that are within
the NASD corporate finance guidelines. Such underwriter's warrants
typically are up to one-tenth (1/10) the number of securities sold in the
offering at a price 120% of the public offering price with a term of five
(5) years.
5. Additional Financing. If, during the term of this Agreement, the
Banker (i) introduces, negotiates or arranges for a non-public equity financing
for the Company, and such financing is accepted and consummated, or (ii)
arranges for non-public debt financing and such debt financing is accepted and
consummated within such three year period, then the Company will pay a fee to
the Banker for its services which shall be agreed upon, prior to the
consummation of such financing, between the Company and the Banker. If the
Banker arranges for the purchase or sale of assets, or a merger, acquisition or
joint venture for the Company, and such transaction is accepted and consummated
during such three year period, the Company will pay a fee to the Banker for its
services calculated as follows:
(a) 500,000 shares of Common Stock of the Company if the Total Assets
or value acquired by the Company are at least $2,500,000 but less than
$4,999,999;
(b) 750,000 shares of Common Stock of the Company if the Total Assets
or value acquired by the Company are at least $5,000,000 but less than
$7,499,999; and
(c) 1,000,000 shares of Common Stock of the Company if the Total
Assets or value acquired by the Company are at least $7,500,000.
3
<PAGE>
This Paragraph 5 is intended by the parties to replace and be in lieu of
Section 3(u) of that certain Underwriting Agreement dated as of December 5,
1995, between them and such Section 3(u) shall be deemed of no further force or
effect.
6. Expenses. The Company shall reimburse the Banker for all direct out-
of-pocket expenses incurred by the Banker in connection with the services
rendered hereunder, including but not limited to the Banker's due diligence
activities with respect to the Company.
7. Non-exclusive Engagement. The Banker shall not by this Agreement be
prevented or barred from rendering services of the same or similar nature, as
herein described, or services of any nature whatsoever for, or on behalf of,
persons, firms, or corporations other than the Company. Similarly, the Company
shall not be prevented or barred from seeking or requiring services of a same or
similar nature from any person other than the Banker.
8. Disclaimer of Responsibility for Acts of the Company. The obligations
of the Banker described in this Agreement consist solely of financial services
to the Company and do not create a partnership, joint venture or any type of
agency relationship between the Company and the Banker. In no event shall
Banker be required by this Agreement to act as the agent of the Company or
otherwise to represent or make decisions for the Company. All final decisions
with respect to acts of the Company or its affiliates, whether or not made
pursuant to or in reliance on information or advice furnished by the Banker
hereunder, shall be those of the Company or such affiliates and the Banker shall
under no circumstances be liable for any expense incurred or loss suffered by
the Company as a consequence of such decisions.
9. Right of First Refusal. The Company and the Banker understand and
agree that during the term of this Agreement, the Banker shall have a right to
purchase for its account or sell for the account of the Company any equity
securities with respect to which the Company may seek a public or private
offering for cash, through a broker or underwriter. The Company will consult
with the Banker regarding any such offering and will offer the Banker the
opportunity to purchase or sell any such securities on terms not less favorable
to the Company than it can secure elsewhere.
10. Board of Directors. The Company agrees to provide the Banker with
notice of all regular and special meetings of the Board of Directors at the time
such notice is given to members of the Board of Directors. Subject to the
proscriptions of the attorney/client privilege, if applicable, the Banker shall
also be provided with all materials delivered to members of the Board of
Directors at the time such materials are delivered to board members and a
designated representative shall be allowed to be present at meetings of the
Board of Directors on a unofficial basis.
11. Amendment. No amendment to this Agreement shall be valid unless such
amendment is in writing and is signed by authorized representatives of all the
parties to this Agreement.
12. Indemnity.
(a) The Company agrees to indemnify and hold the Banker, its
affiliates, control persons, officers, employees, agents and sureties
harmless from and against all losses, claims, damages, liabilities, costs
or expenses (including reasonable attorneys' and
4
<PAGE>
accountants' fees and the cost of any of the Banker's personnel involved in
any such matter) of any kind or nature whatsoever arising out of the
Banker's entering into or performing under this Agreement, including costs
arising out of any dispute whether or not the Banker is a party to such
dispute.
(b) If for any reason the foregoing indemnification is unavailable to
the Banker, or insufficient to hold it harmless, then the Company shall
contribute to the amount paid or payable by the Banker as a result of such
loss, claim, damage, or liability in such proportion as is appropriate to
reflect not only the relative benefits received by the Company and its
stockholders on the one hand and the Banker on the other hand, but also the
relative fault of the Company and the Banker, as well as any relevant
equitable considerations. The reimbursement, indemnity, and contribution
obligations of the Company under this Paragraph 12 shall be in addition to
any liability which the Company may otherwise have and in addition to any
other remedy, at law or in equity, that might be available to the Banker,
and shall be binding upon and inure to the benefit of any successor,
assigns, heirs, and personal representatives of the Company, the Banker and
any such person.
(c) Banker agrees to indemnify and hold the Company, its affiliates,
control persons, officers, employees, and agents harmless from and against
all losses, claims, damages, liabilities, costs or expenses (including
reasonable attorneys' and accountants' fees and the cost of any of the
Company's personnel involved in any such matter) of any kind or nature
whatsoever arising out of the Company's entering into or performing under
this Agreement, including costs arising out of any dispute whether or not
the Company is a party to such dispute.
(d) If for any reason the foregoing indemnification is unavailable to
the Company, or insufficient to hold it harmless, then the Banker shall
contribute to the amount paid or payable by the Company as a result of such
loss, claim, damage, or liability in such proportion as is appropriate to
reflect not only the relative benefits received by the Banker and its
stockholders on the one hand and the Company on the other hand, but also
the relative fault of the Banker and the Company, as well as any relevant
equitable considerations. The reimbursement, indemnity, and contribution
obligations of the Banker under this Paragraph 12 shall be in addition to
any liability which the Banker may otherwise have and in addition to any
other remedy, at law or in equity, that might be available to the Company,
and shall be binding upon and inure to the benefit of any successor,
assigns, heirs, and personal representatives of the Banker, the Company and
any such person.
The provisions of this Paragraph 12 shall survive the termination and
expiration of this Agreement.
13. Waiver. Any of the terms and conditions of this Agreement may be
waived at any time and from time to time in writing by the party entitled to the
benefit thereof, but a waiver in one instance shall not be deemed to constitute
a waiver in any other instance. A failure to enforce any provision of this
Agreement shall not operate as a waiver of this provision or of any other
provision hereof.
5
<PAGE>
14. Severability. In the event that any provision of this Agreement shall
be held to be invalid, illegal, or unenforceable in any circumstances, the
remaining provisions shall nevertheless remain in full force and effect and
shall be construed as if the unenforceable portion or portions were deleted.
15. Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and permitted assigns.
Any attempt by either party to assign any rights, duties, or obligations which
may arise under this Agreement without the prior written consent of the other
party shall be void.
16. Governing Law. The validity, interpretation and construction of this
Agreement and each part thereof will be governed by the laws of the State of
Florida without reference to its conflicts of laws rules or principles.
17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be deemed an original and all of which together
will constitute one and the same instrument.
18. Arbitration. The parties agree that all controversies which may arise
between them concerning any transaction, the construction, performance or breach
of this Agreement between them shall be determined by arbitration before a panel
of three arbitrators, held in Fort Lauderdale, Florida, in accordance with the
rules of the NASD. This shall inure to and be binding on the Company, its
officers, directors, registered representatives, agents, independent
contractors, employees, sureties, and any person acting on its behalf in
relation to acting subject to this Agreement. Any award rendered in arbitration
may be enforced in any court of competent jurisdiction, and the party against
whom the award is rendered shall pay attorneys' fees and costs of the party to
whom the award is made.
19. Interpretation. The parties hereto acknowledge and agree that (a) the
rule of construction to the effect that any ambiguities are resolved against the
drafting party shall not be employed in the interpretation of this Agreement,
and (b) the terms and provisions of this Agreement shall be construed fairly as
to all parties hereto and not in favor of or against any party, regardless of
which party was generally responsible for the preparation of this Agreement.
20. Headings and Captions. The headings and captions of the various
subdivisions of this Agreement are for convenience of reference only and shall
in no way modify, or affect, or be considered in construing or interpreting the
meaning or construction of any of the terms or provisions hereof.
21. Notices. All notices, requests, consents and other communications
hereunder shall be in writing, shall be addressed to the receiving party's
address set forth below or to such other address as the party may designate by
notice hereunder, and shall be either (A) delivered by hand, (B) sent by
recognized overnight courier, (C) sent by facsimile transmission, or (D) sent by
registered or certified mail, return receipt requested, postage prepaid.
If to the Banker:
6
<PAGE>
Biltmore Securities, Inc.
6700 North Andrews Avenue
Suite 500
Fort Lauderdale, Florida 33309
Attn: Elliot Loewenstern
Facsimile: 954/351-4205
If to the Company:
Terrace Holdings, Inc.
2699 Stirling Road
Suite C-405
Fort Lauderdale, Florida 33312
Attn: Jonathan Lasko
Facsimile: 954/894-0993
With a copy to:
Fishman & Merrick, P.C.
30 North LaSalle Street
Suite 3500
Chicago, Illinois 60602
Attention: Gerald L. Fishman, Esq.
Facsimile: 312/726-2649
All notices, requests, consents and other communications hereunder shall be
deemed to have been given (i) if by hand, at the time of the delivery thereof to
the receiving party at the address of such party set forth above, (ii) if sent
by overnight courier, on the next business day following the day such notice is
delivered to the courier service, (iii) sent by facsimile transmission, at the
time that receipt thereof has been acknowledged by electronic confirmation or
otherwise, or (iv) if sent by registered or certified mail, on the fifth
business day following the day such mailing is sent. The address of any party
herein may be changed at any time by written notice to the parties in accordance
with the preceding provisions.
22. Total Agreement, This Agreement contains all of the agreements of the
parties with respect to the subject matter hereof and supersedes all prior oral
or written agreements and understandings relating to the subject matter hereof.
No statement, representation, warranty, covenant or agreement of any kind or
nature not expressly set forth in this Agreement shall affect, or be used to
interpret, change or restrict the express terms and provisions of this
Agreement. This Agreement shall not be modified or amended unless agreed to in
writing by all parties.
BILTMORE SECURITIES, INC.
By:
------------------------------------
7
<PAGE>
Accepted, agreed, and effective as
of the date first above written:
TERRACE HOLDINGS, INC.
By:
-------------------------------
Title:
----------------------------
8
<PAGE>
EXHIBIT 10.5
ASSET ACQUISITION AGREEMENT
BY AND BETWEEN
TERRACE HOLDINGS, INC.
A DELAWARE CORPORATION,
AND
A ONE A WHOLESALE PRODUCE, INC.,
A FLORIDA CORPORATION
<PAGE>
TABLE OF CONTENTS
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<TABLE>
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1. DEFINITIONS............................................... 1
1.1 Affiliate.......................................... 1
1.2 Ancillary Documents................................ 1
1.3 Assets............................................. 1
1.4 Code............................................... 3
1.5 Liabilities........................................ 3
1.6 Rights............................................. 3
2. SALE OF ASSETS AND ISSUANCE OF STOCK...................... 3
2.1 Purchase and Sale of Assets and Rights............. 3
2.2 Delivery of Possession and Instruments
of Transfer........................................ 4
3. CONSIDERATION............................................. 4
3.1 Cash Consideration................................. 4
3.2 Time and Mode of Cash Payment...................... 4
3.3 Issuance of THI Shares of Capital Stock............ 4
3.4 Other Consideration................................ 5
3.5 Acquisition Audit.................................. 5
3.6 Allocation of Consideration for Tax Purposes....... 6
3.7 Escrow Deposit and Uses Thereof.................... 6
4. CLOSING................................................... 6
4.1 Closing and Closing Date........................... 6
5. REPRESENTATIONS AND WARRANTIES OF A-1-A................... 7
5.1 Organization, Good Standing, Power, Etc............ 7
5.2 Capital Stock...................................... 7
5.3 Articles of Incorporation and By-Laws.............. 8
5.4 Subsidiaries, Divisions and Affiliates............. 8
5.5 Equity Investments................................. 8
5.6 Authorization of Agreement......................... 8
5.7 Effect of Agreement................................ 8
5.8 Restrictions; Burdensome Agreements................ 9
5.9 Governmental and Other Consents.................... 9
</TABLE>
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<TABLE>
<CAPTION>
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<C> <S> <C>
5.10 Financial Statements.............................. 9
5.11 Absence of Certain Changes or Events.............. 10
5.12 Title to Assets; Absence of Liens
and Encumbrances.................................. 10
5.13 Equipment......................................... 11
5.14 Insurance......................................... 11
5.15 Agreements, Arrangements, Etc..................... 12
5.16 Patents, Trademarks, Copyrights, Etc.............. 15
5.17 Permits, Licenses, Etc............................ 16
5.18 Compliance with Applicable Laws................... 16
5.19 Litigation........................................ 17
5.20 No Interest in Competitors........................ 17
5.21 Customers, Suppliers, Distributors and Agents..... 18
5.22 Books and Records................................. 18
5.23 Employee Benefit Plans............................ 18
5.24 Powers of Attorney................................ 19
5.25 Sufficiency of Assets and Commitments............. 19
5.26 Labor Disputes, Unfair Labor Practices............ 19
5.27 Past Due Obligations.............................. 20
5.28 Environmental Compliance.......................... 20
5.29 Tax and Other Returns and Reports................. 21
5.30 Recent Dividends and Other Distributions.......... 21
5.31 Inventory......................................... 21
5.32 Purchase and Sale Obligations..................... 22
5.33 Other Information................................. 22
5.34 Knowledge of A-1-A and the Shareholders........... 22
6. REPRESENTATIONS AND WARRANTIES OF THI.................... 22
6.1 Organization...................................... 22
6.2 Authorization of Agreement........................ 22
6.3 Effect of Agreement............................... 23
6.4 Litigation........................................ 23
6.5 Possible Submission to Stockholder Vote........... 23
7. PRE-CLOSING COVENANTS OF A-1-A........................... 23
7.1 Conduct of Business Until Closing Date............ 24
7.2 Approvals, Consents and Further Assurances........ 25
7.3 Access to Properties, Records, Suppliers,
Agents, Etc....................................... 25
7.4 Advice of Changes................................. 25
7.5 Conduct........................................... 25
</TABLE>
ii
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<TABLE>
<CAPTION>
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<C> <S> <C>
7.6 Employee Benefit Plans............................. 26
7.7 Satisfaction of Conditions by A-1-A................ 26
7.8 Non-Disclosure of Negotiations and
Non-Usage of Documents of THI...................... 26
7.9 Purchase of Real Estate by Affiliate............... 26
8. PRE-CLOSING COVENANTS OF THI.............................. 27
8.1 Satisfaction of Conditions by THI.................. 27
8.2 Confidentiality.................................... 27
8.3 Real Estate Closing Penalty Advance................ 28
9. POST-CLOSING COVENANTS.................................... 28
9.1 Further Assurances................................. 28
9.2 Confidentiality.................................... 29
9.3 Cooperation........................................ 29
10. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THI............ 29
10.1 Accuracy and Representations and Warranties........ 29
10.2 Performance of Agreements.......................... 30
10.3 Litigation, Etc.................................... 30
10.4 Approvals and Consents............................. 31
10.5 Shareholders' Certificate.......................... 31
10.6 Officer's Certificate.............................. 31
10.7 Good Standing Certificates......................... 31
10.8 No Material Adverse Change......................... 31
10.9 Actions, Proceedings, Etc.......................... 32
10.10 Opinion of Counsel to A-1-A........................ 32
10.11 Licenses, Permits, Consents, Etc................... 32
10.12 Documentation of Rights............................ 32
10.13 Employment of Shareholders......................... 32
10.14 Officers' Financial Certificate.................... 32
10.15 Accountants Letter................................. 32
10.16 THI Financing Commitment........................... 33
10.17 Lease/Option on Real Property...................... 33
10.18 Simultaneous Closing of Affiliate Transaction...... 33
10.19 Completion of Due Diligence........................ 33
</TABLE>
iii
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<TABLE>
<CAPTION>
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<C> <S> <C>
11. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF A-1-A.......... 34
11.1 Accuracy of Representations and Warranties......... 34
11.2 Performance of Agreements.......................... 34
11.3 Secretary's Certificate............................ 34
11.4 Actions, Proceedings, Etc.......................... 34
11.5 No Injunction...................................... 34
11.6 Opinion of Counsel to Buyer........................ 34
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATIONS.......................................... 35
12.1 Survival........................................... 35
12.2 Indemnification by A-1-A and its Shareholders...... 35
12.3 Indemnification by THI............................. 36
12.4 Right to Defend.................................... 36
12.5 Subrogation........................................ 37
13. MISCELLANEOUS............................................. 37
13.1 Expenses........................................... 37
13.2 Termination of Agreement........................... 37
13.3 Waivers............................................ 38
13.4 Binding Effect; Benefits........................... 38
13.5 Assignment......................................... 38
13.6 Notices............................................ 38
13.7 Entire Agreement................................... 39
13.8 Headings; Certain Terms............................ 39
13.9 Counterparts....................................... 40
13.10 Governing Law...................................... 40
13.11 Severability....................................... 40
13.12 Amendments......................................... 40
13.13 Transaction Taxes.................................. 40
13.14 Disclosures........................................ 40
13.15 Section References................................. 40
13.16 Brokers and Finders................................ 40
</TABLE>
iv
<PAGE>
SCHEDULE AND EXHIBIT INDEX
--------------------------
<TABLE>
<C> <S> <C>
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 2.1 Excluded Liabilities
8. Exhibit 3.1 Promissory Notes
9. Exhibit 3.4(a) Virgil Scarbrough Employment Agreement
10. Exhibit 3.4(b) Scott Davis Employment Agreement
11. Exhibit 3.4(c) Richard Goldrich Employment Agreement
12. Exhibit 3.6 Allocation of Consideration
13. Exhibit 4.1 Form of Closing Memorandum
14. Exhibit 5.1 Good Standing Certificates - A-1-A
15. Exhibit 5.2 Outstanding Offers, Options, Warrants, Equity
Securities, Etc.
16. Exhibit 5.3 Articles of Incorporation and By-laws of A-1-A
17. Exhibit 5.4 Subsidiaries, Divisions and Affiliates of A-1-A
18. Exhibit 5.5 Equity Investments
19. Exhibit 5.10 Financial Statements of A-1-A
20. Exhibit 5.11 Material Adverse Changes
21. Exhibit 5.12 Liens and Encumbrances of A-1-A
22. Exhibit 5.14 Insurance Policies
23. Exhibit 5.15.1 Liabilities
24. Exhibit 5.16 Patents, Trademarks, Copyrights
25. Exhibit 5.17 Permits, Licenses, Etc.
26. Exhibit 5.19 Material Litigation
27. Exhibit 5.20 5% Interest Ownership Table
28. Exhibit 5.21 Interest in Competitors
29. Exhibit 5.23 Employee Benefit Plans
30. Exhibit 5.24 Powers of Attorney
31. Exhibit 5.25 Sufficiency of Assets & Liabilities
32. Exhibit 5.26 Material Labor Disputes
33. Exhibit 5.27 Past Due Obligations
34. Exhibit 5.28 Environmental Compliance
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
</TABLE>
v
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<TABLE>
<C> <S> <C>
39. Exhibit 5.31.B Non-useable Inventory
40. Exhibit 10.10 Opinion of Counsel to A-1-A
41. Exhibit 10.14 Officer's Financial Certificate
42. Exhibit 10.15 Accountant's Letter
43. Exhibit 10.17 Lease/Option to Purchase Land and Building
44. Exhibit 11.3 Secretary's Certificate
45. Exhibit 11.6 Opinion of Counsel to THI
</TABLE>
vi
<PAGE>
PURCHASE AGREEMENT
------------------
THIS AGREEMENT ("Agreement") is made and entered into as of the 23rd day of
June, 1997, by and among Terrace Holdings, Inc., a Delaware corporation, or its
assignee under Section 13.5 of this Agreement ("THI") and A One A Wholesale
Produce, Inc., a Florida corporation ("A-1-A"), and A-1-A.
RECITALS:
---------
WHEREAS, A-1-A owns and operates all the Assets (as hereinafter defined);
WHEREAS, THI desires to purchase from A-1-A, and A-1-A 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
considerations, 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 A-1-A (as of the Closing) as follows:
(a) the business of A-1-A as a going concern, the goodwill pertaining
thereto and all of A-1-A's right, title
1
<PAGE>
and interest in and to the names "A One A Wholesale Produce", "We Berry the
Competition", and all other names and phrases used by A-1-A, as well as all
logos relating thereto;
(b) all items of inventory owned by A-1-A including, without
limitation, all raw materials, work-in-progress and finished products of A-
1-A (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 A-1-A and all equipment loaned to
customers), furniture, fixtures and non-inventory supplies of A-1-A
(including containers, packaging and shipping material, tools and spare
parts and other similar tangible personal property owned by A-1-A, which
are listed on Exhibit 1.3(c), all of which are collectively referred to
hereinafter as the "Equipment");
(d) all of A-1-A's right, title and interest in and to the United
States and foreign rights of A-1-A currently owned or used by A-1-A (and
the rights proposed to be used) which are set forth on Exhibit 1.3(d), in
the conduct of the business of A-1-A, 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 A-1-A 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, 1997 through the Closing Date, all
documents relating to uncollected invoices, and all shipping records from
January 1, 1997 through the Closing Date;
(f) all contracts, agreements and orders for goods;
2
<PAGE>
(g) all trade receivables of A-1-A ("Accounts Receivable") and all
advance payments, prepaid items, rights to offset and credits of all kinds
of A-1-A, including those items listed in Exhibit 1.3(g);
(h) all real property owned or leased or under contract for purchase
by A-1-A 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 A-
1-A which is not specifically included in, or specifically excluded by, the
foregoing subsections (a) through (h); and
(j) all other assets of A-1-A, 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 "Liabilities" 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 and all trade
payables and liabilities related to the Assets incurred in the ordinary course
of business and disclosed on Exhibit 5.10 or incurred thereafter consistent with
the term of this Agreement, which remain outstanding at Closing.
1.6 "Rights" shall mean copyrights, licenses, patents, trademarks,
trademark rights, trade names, service marks, service mark rights, and trade
secrets, shop rights, know-how, technical information, techniques, discoveries,
designs, proprietary rights and non-public information of A-1-A and
registrations, reissues and extensions thereof and applications and license
therefor.
2. SALE OF ASSETS AND ISSUANCE OF STOCK
2.1 Purchase and Sale of Assets and Rights. In exchange for the
consideration specified herein, and upon and subject to the terms and conditions
of this Agreement, THI agrees to purchase and acquire from A-1-A, and A-1-A
agrees to sell, assign, transfer, convey and deliver to THI or its assignee
under Section 13.5 at the
3
<PAGE>
Closing, all rights, title and interest in and to the Assets, free and clear of
any lien, encumbrance, security agreement, equity, option, claim, charge or
restriction, subject to the Liabilities other than those specifically excluded
on Exhibit 2.1.
2.2 Delivery of Possession and Instruments of Transfer. At the Closing,
A-1-A 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 A-1-A'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 of any kind or nature.
3. CONSIDERATION
3.1 Cash Consideration. The aggregate cash consideration to be paid by
THI in full consideration for its purchase of the Assets and the other rights
provided herein shall be $3,130,000, payable in accordance with the provisions
of Section 3.2 and subject to adjustment as set forth in Section 3.5 hereof.
3.2 Time and Mode of Cash Payment. The cash consideration set forth in
Section 3.1 shall be payable at the Closing by cashiers' or certified check(s)
or by wire transfer of funds, provided good and marketable title to the Assets
is delivered, free and clear of any lien, or encumbrance in accordance with
Section 2.2 hereof and provided all other terms and conditions of this Agreement
have been complied with.
3.3 Issuance of THI Shares of Capital Stock. As additional consideration,
subject to the conditions precedent set forth in this Agreement, at the Closing,
THI shall issue to A-1-A such number of shares, not less than 500,000, of THI
common stock, par value $.001 per share, as are equal to $1,000,000 in value in
the aggregate; it being agreed and understood that for purposes of determining
such $1,000,000, each such share shall be valued at its average closing price
for the full trading week prior to the Closing, which shall be determined by
dividing the sum of the closing prices for each day of such week by the number
of days in such trading week. If, however, the average closing price per share
calculated in accordance with the foregoing is above $2.00 per share, THI shall
issue to A-1-A only 500,000 shares. Except as otherwise expressly provided for
in
4
<PAGE>
this Agreement, none of such shares shall be registered. Except as otherwise
expressly provided for in this Agreement, certificates evidencing the shares of
THI common stock to be issued hereunder 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."
3.4 Other Consideration. In further consideration of the sale by A-1-A,
and the purchase by THI, of the Assets, and as additional inducements to THI to
enter into this Agreement, the following shall be applicable:
(a) Virgil Scarbrough shall, at the Closing, deliver to THI an
executed Employment Agreement in the form attached hereto as Exhibit
3.4(a).
(b) Scott Davis shall, at the Closing, deliver an executed Employment
Agreement in the form attached hereto as Exhibit 3.4(b).
(c) Richard Goldrich shall, at the Closing, deliver to THI an
executed Employment Agreement in the form attached hereto as Exhibit
3.4(c).
3.5 Acquisition Audit. THI, at its expense, shall cause the firm of Moore
Stephens, P.C., independent certified public accountants, to conduct, within
three months following the Closing, an acquisition audit ("Acquisition Audit")
of the assets and liabilities of A-1-A. A-1-A shall direct the independent
certified public accounting firm it currently employs, to provide such
assistance as shall reasonably be requested by Moore Stephens, P.C. in
performing the Acquisition Audit. The results of the Acquisition Audit shall be
delivered to THI, and shall be in such form as to satisfy all applicable rules
and regulations of the Securities and Exchange Commission. Specifically, the
Acquisition Audit shall cover not less than the A-1-A years ended December 31,
1996 and 1995, and may also cover an interim period or date in
5
<PAGE>
1997, as THI shall direct. The cash consideration provided for in Section 3.1
shall be adjusted, up or down, dollar for dollar, to the extent that the audited
Total Stockholders Equity of A One A Wholesale Produce, Inc. as of December 31,
1996, exceeds or is below $951,966. The adjusted cash consideration shall be
paid to A-1-A by THI or to THI by A-1-A, depending on whether the adjusted
amount exceeds or is below $951,966 within five days from the date such
Acquisition Audit is delivered to the parties. Any payments to be made pursuant
to the Acquisition Audit shall be paid with interest from Closing to be
calculated at a rate equal to the prime rate as announced by Sun Trust Bank N.A.
If A-1-A or THI shall disagree with the calculation of Total Stockholder
Equity pursuant to the Acquisition Audit to the extent of at least $25,000 and
such disagreement shall not have been resolved prior to 30 days following
delivery of the Acquisition Audit, all items in dispute shall be submitted to
any other independent accountant or firm jointly chosen by THI's independent
certified public accountants and A-1-A's certified public accountants for the
purpose of arbitrating the dispute. The Arbitrator must agree prior to
accepting the engagement to complete his determination within 30 days of the
date of his engagement. The determination of the Arbitrator shall be final,
binding and nonappealable. The fees of the Arbitrator shall be paid by the
losing party or as the Arbitrator shall apportion. Notwithstanding anything to
the contrary contained in this Section 3.5, THI agrees to forthwith pay to A-1-A
that portion of the consideration, if any, that THI in good faith does not
dispute. THI shall use its best efforts to make available to A-1-A and its
attorneys, accountants or other representatives, for examination, such of its
book of account, contracts, licenses, leases, instruments, commitments, sales
orders, purchase orders, records, accountants' work papers and other documents
as are relevant to the preparation of the Acquisition Audit.
3.6 Allocation of Consideration for Tax Purposes. The parties agree to
allocate the consideration paid pursuant to this Agreement in the manner and in
accordance with the values specified in Exhibit 3.6 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.
3.7 Escrow Deposit and Uses Thereof. Concurrent with or as immediately
subsequent to the execution of this Agreement as is
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practicable, THI shall deposit with counsel for A-1-A named in Section 13.6
hereof, as Informal Escrowee, the sum of $100,000, which sum shall form a part
of the cash consideration provided in Section 3.1 hereof. At the Closing, such
escrowed sum shall be paid to A-1-A as part of the cash consideration hereunder
and the interest thereon, if any, shall be paid over to THI. If the Closing does
not occur by reason of THI's material breach of the Agreement, then, such sum,
together with interest thereon, if any, shall be paid to A-1-A as liquidated
damages and not as a penalty, provided that if such liquidated damages are paid
to A-1-A they shall be in lieu of any obligations of THI under Section 8.3 of
this Agreement.
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., 2699
Stirling Road, Suite C-405, Fort Lauderdale, Florida, at 10:00 a.m. (local
time), July 17, 1997, or at such later date, place or time as the parties shall
otherwise mutually agree upon (the date of the Closing being referred to herein
as the "Closing Date"), but shall be deemed effective as of June 30, 1997, or
such later month end as immediately precedes any Closing Date subsequent to July
17, 1997 ("Effective 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. 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.
5. REPRESENTATIONS AND WARRANTIES OF A-1-A
As an inducement to THI to enter into this Agreement and perform its
obligations hereunder, A-1-A 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. A-1-A is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida. A-1-A is authorized or
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licensed to do business as a foreign corporation 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 A-1-A makes such
qualification necessary. A-1-A has all requisite corporate 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 Stock.
(a) A-1-A has authorized capital stock consisting of 1,000 shares of
common stock, $1.00 par value, of which 300 shares are issued and outstanding,
all of which are duly authorized, validly issued, fully paid, nonassessable,
free of preemptive rights, and were issued in compliance with all federal and
applicable state securities laws.
(b) Except as set forth in Exhibit 5.2 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 capital stock of A-1-A or any
other securities (as such term is defined in the Securities Act of 1933, as
amended). Except as set forth in Exhibit 5.2, there are no equity securities of
the Company that are reserved for issuance or are outstanding.
(c) The capital stock is owned by the shareholders of A-1-A free and clear
of all liens, charges, encumbrances or claims of any kind whatsoever.
5.3 Articles of Incorporation and By-Laws. Included in Exhibit 5.3 hereto
are correct and complete copies of the Articles of Incorporation of A-1-A, as
amended to date, and the By-Laws of A-1-A, as amended to date. Such Articles of
Incorporation and By-Laws 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 A-1-A.
Except as set forth on Exhibit 5.4, the business of A-1-A has been conducted
solely by A-1-A and not
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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, A-1-A 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 A-1-A. This Agreement constitutes a valid and
binding obligation of A-1-A enforceable in accordance with its terms, except
that such enforcement may be limited by bankruptcy, insolvency or other similar
laws affecting the enforcement of creditor's rights generally.
5.7 Effect of Agreement. The execution, delivery and performance of this
Agreement by A-1-A, and the consummation by A-1-A 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 A-1-A is subject; (b) violate any
judgment, order, writ or decree of any court applicable to A-1-A; 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, by-law,
commitment, contract or other agreement or instrument, including any of the
Liabilities, to which A-1-A or any of its shareholders is a party or by which
any of the Assets is or may be bound or affected or from which A-1-A derives
benefit, which breach, conflict, modification, termination, default or
encumbrance described in this clause (c) would be material to the business of A-
1-A or any of the Assets.
5.8 Restrictions; Burdensome Agreements. A-1-A is not a party to any
contract, commitment or agreement, nor is A-1-A or the Assets subject to, or
bound or affected by, any provision of the Articles of Incorporation, By-laws or
other corporate 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 A-1-A's
business or any of the Assets.
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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 A-1-A 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. A-1-A has delivered to THI, and included in
Exhibit 5.10 hereto are, correct and complete copies of balance sheets of A-1-A
for the periods ended March 31, 1997 and March 31, 1996, and May 31, 1997, the
related statements of income for the three months ended March 31, 1997 and
March 31, 1996, and the ended May 31, 1997 (the "1997 Financial Statements") and
balance sheets for the years ended December 31, 1996 and 1995 and the related
statements of income for the years then ended (collectively, with the 1997
Financial Statements, the "Financial Statements"). None of the Financial
Statements have been audited. Except as set forth on the compilation report of
Jewett & DuBose, Certified Public Accountants, the Financial Statements are in
accordance with the books and records of A-1-A, have been prepared in accordance
with generally accepted accounting principles and practices consistently applied
and accurately present the financial position of A-1-A at their respective dates
and the results of operations 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 A-1-A 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, 1997, A-1-A 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,
A-1-A'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 inadequate consideration, (ii)
obligations or liabilities under the Liabilities 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 One
Thousand Dollars ($1,000.00); (e) mortgaged, pledged or subjected to lien or any
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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; or (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
A-1-A.
5.12 Title to Assets; Absence of Liens and Encumbrances. Except as set
forth on Exhibit 5.12, (a) A-1-A has good title to, and owns outright, the
Assets, which include substantially all of A-1-A'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 nature. The leases and other agreements or instruments under
which A-1-A 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. A-1-A 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 May 31, 1997 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 May
31,
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1997. Except as noted on Exhibit 1.3(c), all of the Equipment (a) is in good
working condition, with, to the knowledge of A-1-A, no material defects, and
generally has been suitable to A-1-A for the uses for which it was designed or
has been employed by A-1-A, 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
A-1-A'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. A-1-A carries, and (with
respect to any period for which a claim against A-1-A 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 A-1-A'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 A-1-A, 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
A-1-A 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 premiums
increases with respect to any of such policies or bonds and there is no
condition or circumstance applicable to the business of A-1-A, other than the
sale of the Common Stock pursuant to this Agreement, which may result in such
termination or increase. A-1-A 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 A-1-A or the Assets.
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5.15 Agreements, Arrangements, Etc.
5.15.1 Except as set forth on Exhibit 5.15.1, A-1-A is not a party to, nor
are A-1-A 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
A-1-A 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 A-1-A;
(e) non-competition, secrecy or confidentiality agreements;
(f) agreement or other arrangement for the sale of goods or services
by A-1-A 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
A-1-A 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
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per contract or more than $1,000 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
A-1-A'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, 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 A-1-A 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 $1,000;
(r) advertising, publication or printing agreement;
(s) agreement which restricts A-1-A from doing business anywhere in
the world;
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(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 A-1-A's business, including trade and
other payables and liabilities related to the Assets incurred in the
ordinary course of business (all of which are set forth in the 1997
Financial Statements on Exhibit 5.10), except contracts or purchase orders
for the purchase or sale of goods or services made in the usual and
ordinary course of business.
Correct and complete copies of all Liabilities required to be shown on Exhibit
5.15.1 (or Exhibit 5.10) have been separately delivered to THI prior to the date
hereof.
5.15.2 Each of the Liabilities is valid, in full force and effect and
enforceable by A-1-A in accordance with its terms.
5.15.3 Except as set forth on Exhibit 5.15.1, A-1-A has fulfilled, or has
taken all action reasonably necessary to enable it to fulfill when due, all of
its obligations under the Liabilities, except where the failure to do so would
not, individually or in the aggregate, have a material adverse affect on the
business of A-1-A or the Assets. Furthermore, there has not occurred any
default by A-1-A or any event which, with the lapse of time or the election of
any person other than A-1-A, 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
A-1-A, will become a default under any of the Liabilities, except for such
defaults, if any, which (a) have not resulted and will not result in any
material loss to or liability of A-1-A or any of its successors or assigns or
(b) have been indicated on Exhibit 5.15.1. A-1-A 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 Liabilities and
no waiver or variance has been granted by any of the parties hereto.
5.15.4 The accounts receivable of A-1-A at June 30, 1997 and as reflected
on its balance sheet of that date, are true, complete and collectible except for
$1,000 thereof, which may be deemed to be a reasonable reserve for unpaid debts.
If on or about December 31, 1997, any of such accounts, to the extent of them
remaining
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unpaid, are not paid in full on demand when due, except as otherwise then agreed
by THI, A-1-A forthwith upon notice from THI to that effect, will pay the full
amount thereof to THI against delivery to A-1-A of an assignment of the
defaulted account or accounts less the $1,000 as aforesaid, which is deemed to
be the full reserve against unpaid accounts receivable of A-1-A.
5.15.5 After the Closing, except as set forth on Exhibit 5.15.1, each of
the Liabilities included in the Assets does not require the consent of the other
parties thereto and, with respect to any of the Liabilities which do require the
consent of the other parties thereto, A-1-A 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 A-1-A 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 A-1-A, as such business is currently being conducted. Except as set
forth on Exhibit 5.16, A-1-A 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 business of A-1-A
as currently being conducted; neither has the validity of such items been, nor
is the validity of such items, nor the use thereof by A-1-A, the subject of any
pending or threatened opposition, interference, cancellation, nullification,
conflict, concurrent use, litigation or other proceeding. The conduct of the
business of A-1-A 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
A-1-A have not been used, and no use is now being made, by any entity except
A-1-A 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 A-1-A.
5.17 Permits, Licenses, Etc. There are no permits, licenses,
registrations, memberships, orders or approvals of governmental or
administrative authorities or required to permit A-1-A to carry on
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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 A-1-A's business).
5.18 Compliance with Applicable Laws. The conduct of A-1-A 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, any federal agriculture law, or the Foreign Corrupt
Practices Act and the respective regulations thereunder and similar applicable
state laws and regulations, including but not limited to agriculture laws and
regulations) 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 A-1-A's business. A-1-A 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 A-1-A 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 A-1-A or any of the Assets, or the transactions
contemplated by this Agreement; nor are any facts known to A-1-A, which it
believes could reasonably give rise to any such claim, action, suit, proceeding,
arbitration, investigation or hearing, which may have any adverse affect,
individually or in the aggregate in excess of One Thousand Dollars ($1,000) upon
the business of A-1-A, the value of the Assets or the transactions contemplated
by this Agreement. A-1-A 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,
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administrative or other competent authority to which A-1-A is a party, or to
which the Company is subject. Neither A-1-A nor any of its shareholders or
current officer, director, partner or employee of A-1-A or any Affiliate of
A-1-A 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 A-1-A. A-1-A'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 A-1-A, any of the shareholders or any officer or
director of A-1-A 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, company, limited partnership, joint venture,
association or other entity which is a competitor, supplier or customer of A-1-A
or has any type of business or professional relationship with A-1-A.
5.21 Customers, Suppliers, Distributors and Agents. Except as set forth
on Exhibit 5.21, A-1-A has no knowledge or reason to believe that any customer,
client, distributor, supplier or any other person or entity with material
business dealings with A-1-A, will or may cease to continue such relationship
with A-1-A, 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, A-1-A has no knowledge of (1) any other existing or contemplated
modification or change in the business relationship of A-1-A 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 A-1-A with its
customers, clients, suppliers or other persons or entities with material
business dealings with A-1-A or which has prevented or will prevent such
business from being carried on by A-1-A 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 A-1-A are in all material respects complete, correct and up
to date, with all necessary
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signatures, and are in all material respects accurately reflected in the
Financial Statements.
5.23 Employee Benefit Plans. Except as described in Exhibit 5.23, A-1-A
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 A-1-A (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 A-1-A is a "party in
interest" as defined in Section 3 of ERISA, or a "disqualified person" as
defined in Section 4975 of the Code, A-1-A 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. A-1-A has complied
with all of the rules and regulations governing each of the Employee Benefit
Plans maintained for the benefit of A-1-A'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 A-1-A nor any Employee
Benefit Plans maintained by A-1-A 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 A-1-A 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 A-1-A
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in connection with any of A-1-A's properties or business affairs other than such
powers to so act as normally pertain to the officers of A-1-A.
5.25 Sufficiency of Assets and Liabilities. Except as set forth in Exhibit
5.25, the Assets and the Liabilities, taken in the aggregate, are sufficient,
and constitute all of the property and Rights necessary, for the continuation of
the business and operations of A-1-A on a basis consistent with past operations.
5.26 Labor Disputes, Unfair Labor Practices. Except as set forth on Exhibit
5.26, A-1-A is not engaged in any labor practice which would have a material
adverse affect on the Assets or A-1-A'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 A-1-A. There have been no strikes, labor disputes, slow-downs,
walkouts, or work stoppages involving employees of A-1-A during the last five
(5) years. No union representation question exists with respect to the employees
of A-1-A and no union organizing activities are taking place. A-1-A 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 A-1-A 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 A-1-A over $500 have given rise or shall give rise within 6
months after the Closing Date (except as such will be performed by A-1-A 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, (i)
A-1-A 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 A-1-A
or the use of any property, facility or Assets of A-1-A or to the knowledge of
A-1-A any nearby or adjacent
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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 A-1-A; and (iv) any Hazardous Substance handled or
dealt with in any way in connection with the business of A-1-A 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 classify substances by reason of
deleterious properties such as ignitability, 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.
5.29 Tax and Other Returns and Reports. A-1-A has timely filed or will file
all federal, state and local tax returns and information returns ("Tax Returns")
required to be filed by them and have paid all taxes due for all periods ending
on or before December 31, 1996. Adequate provision has been made in the books
and records of A-1-A 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
or information returns and any other Tax Returns of A-1-A and of its
shareholders as it may affect A-1-A. 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 A-1-A or of any of its shareholders as it may affect A-1-A. 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 A-
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1-A or any of its shareholders as it may affect A-1-A or with respect to any Tax
Return filed or to be filed by A-1-A.
5.30 Recent Dividends and Other Distributions. There has been no dividend
or other distribution of assets or securities by A-1-A, whether consisting or
money, property or any other thing of value, declared, issued or paid to or for
the benefit of A-1-A's shareholders subsequent to the date of the most recent
financial statements described in Section 5.10.
5.31 Inventory. Except as set forth in Exhibits 5.31A and B, all of the
Inventory has been received within four months of June 30, 1997 and is of a
quantity and quality saleable at regular prices or usable in the ordinary course
of business during 1997. Exhibit 5.31A shall specify all Inventory that was
received more than four 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.
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 A-1-A
have been made in the usual and ordinary course of its business in accordance
with normal practices. On the Closing Date, A-1-A shall deliver to THI a
schedule of all such uncompleted purchase and sale orders and other commitments
with respect to any of A-1-A'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 A-1-A 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 A-1-A 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 A-1-A and its Shareholders. As to each representation and
warranty made by A-1-A under this Article 5, any fact or information known to
any shareholder of A-1-A or notice received by any shareholder of A-1-A, shall
be imputed to A-1-A as
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if such fact or information were known to A-1-A or such notice received by
A-1-A.
6. REPRESENTATIONS AND WARRANTIES OF THI
-------------------------------------
THI hereby represents and warrants to A-1-A 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 Possible Submission to Stockholder Vote. THI has been advised that the
transactions contemplated herein need not be
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submitted to its stockholders for approval. If, prior to Closing, THI is
otherwise advised by counsel, it will so notify A-1-A forthwith. As soon as is
practicable thereafter, and consistent with applicable state corporate and
federal securities law and regulation, the transactions contemplated in this
Agreement shall be disclosed and submitted to the Terrace stockholders to
consider and vote thereon. A-1-A hereby agrees fully to cooperate with THI and
provide all reasonable assistance and documentation as may be necessary for THI
full to comply with the applicable requirements under the proxy rules
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended, and under the applicable requirements of the
NASDAQ Stock Market.
7. PRE-CLOSING COVENANTS OF A-1-A
A-1-A hereby covenants and agrees with THI that A-1-A 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, A-1-A shall:
7.1.1 operate the business of A-1-A only in the usual, regular and
ordinary manner, and use its best efforts to (a) preserve the present
business organization of A-1-A intact, (b) keep available the services of
the present employees of A-1-A, and (c) preserve the current business
relationships of A-1-A 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 A-
1-A, whether owned or leased;
7.1.3 maintain the books, records and accounts of A-1-A 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
A-1-A and to the conduct of its business;
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7.1.5 perform all of the obligations of A-1-A without default, unless
such default is of no significance to A-1-A and could have no adverse
impact on A-1-A, its Assets or business;
7.1.6 neither (a) amend A-1-A's Articles 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 A-1-A;
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 A-1-A 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 A-1-A or the Assets;
7.1.8 not make any distributions or dividends of Assets or
securities, nor any changes to the capital structure of A-1-A except such
distributions which will not cause the Stockholders' Equity to fall below
$951,966; 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 A-1-A or the Assets to
any party except THI.
7.2 Approvals, Consents and Further Assurances. A-1-A 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,
and shall deliver to THI copies, reasonably satisfactory in form and substance
to counsel to THI, of such approvals and consents. A-1-A shall also use its best
efforts to assure that the other conditions set forth in Article 10 hereof are
satisfied by the Closing Date.
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7.3 Access to Properties, Records, Suppliers, Agents, Etc. A-1-A shall
give to THI and to THI's counsel, financiers, accountants and other
representatives access to and copies of such of A-1-A'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 A-1-A;
and shall furnish to THI and such representatives all such additional
instruments, contracts, documents or other written obligations (certified by
officers of A-1-A, 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 A-1-A 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 or Assets of A-1-A, 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 A-1-A nor any of its shareholders shall
enter into any transaction or take any action which would result in any of the
representations and warranties of A-1-A 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 A-1-A's current
obligations, A-1-A 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 A-1-A, and (iii) all liabilities of A-1-A 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 A-1-A. A-1-A 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
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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. A-1-
A 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 A-1-
A, or any of the terms or other aspects of the negotiations between THI and A-1-
A, in the event that the Closing shall not occur for any reason. A-1-A 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).
7.9 Purchase of Real Estate by Affiliate.
7.9.1 A-1-A has provided THI with a copy of a Deposit Receipt and
Contract for Sale and Purchase of certain real estate and building located
at 1351 Northwest 22nd Street, Pompano Beach, Florida, which land and
building has been or is about to be purchased by an Affiliate of A-1-A for
an aggregate purchase price of $1,975,000 and an aggregate total "project
cost" of approximately $2,200,000. Said land and building is to be used and
utilized for the sole purpose of operating the business of A One A
Wholesale Produce, Inc. A-1-A hereby covenants and agrees with THI that it
shall cause the completion and consummation of said purchase simultaneously
with or prior to the consummation of the transactions contemplated by this
Agreement and to cause said Affiliate to enter into the Lease and Option to
Purchase attached hereto as Exhibit 10.17.
7.9.2 To the extent that the aggregate "Project Costs" for the above
land and building exceed $2,200,000 and such excess is the result of non-
fixture type improvements to the building (e.g., exterior painting, etc.),
then the amount of such excess costs shall be added to the rent to be paid
by THI under the Lease and Option to Purchase attached hereto as Exhibit
10.17, provided that such excess shall be divided into thirty equal
installments and paid over the first thirty months of said lease. Should
THI purchase the real estate and
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building, any unpaid monthly installments of such excess shall be added to
its purchase price therefor.
8. PRE-CLOSING COVENANTS OF THI
8.1 Satisfaction of Conditions by THI. THI hereby covenants and agrees
with A-1-A that, between the date of this Agreement and the Closing Date or date
of termination of this Agreement, as the case 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.
8.2 Confidentiality. Prior to the Closing, THI shall keep confidential any
and all information furnished to it by A-1-A 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 A-1-A
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 keep such information confidential, to the extent that it is
protectable by law, and will not use it and will return and cause all of its
advisors, representatives and other parties over which it has control to return
to A-1-A all documents or other written materials regarding A-1-A and any copies
thereof obtained from A-1-A or made by it through A-1-A during the course of the
negotiations.
8.3 Real Estate Closing Penalty Advance. THI hereby covenants and agrees,
in addition to the consideration to be paid under Section 3.5, to advance to and
pay A-1-A the amount of the penalty required under Special Clause 2 of that
certain Deposit Receipt and Contract for Sale and Purchase dated February 24,
1997 by and between A One A Wholesale Produce, Scott Davis and Virgil Scarbrough
and A.M. Davis Mercantile Company for the purchase of 1351 Northwest 22nd
Street, Pompano Beach, Florida, for the days commencing with June 5, 1997
through the Closing Date of this Agreement. If, for any reason, the acquisition
transactions contemplated by this Agreement are not consummated, the provisions
of Section 3.7 shall apply and THI shall be deemed to have paid such penalty
advance by reason of the liquidated damages paid as therein provided.
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9. POST-CLOSING COVENANTS
9.1. Further Assurances. After the Closing hereunder, A-1-A shall take all
necessary actions to formally change its names and to deliver to THI any
necessary documents to enable THI to fully utilize such names as part of the
Rights. A-1-A, at the request of THI, also 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 transfer to and fully vest in THI, and protect
THI's right, title and interest in and to all of A-1-A's right, title and
interest in and to the Assets, and (b) otherwise to consummate the transactions
contemplated by this Agreement.
9.1.1 THI will provide to the shareholders of A-1-A reasonable access
to any records of A-1-A's business which is in THI's possession and which
will assist said shareholders in responding to or complying with any tax
audit or other governmental inquiry or which may be necessary in connection
with any litigation by or against said shareholders and relating thereto.
9.1.2 THI will use its best efforts to maintain licenses in good
standing under the Perishable Agricultural Commodity Act, 1930, as amended.
Notwithstanding the foregoing, A-1-A's current shareholders, as employees
of THI's subsidiaries, shall have primary responsibility for the foregoing.
9.1.3 After the Closing, THI shall not acquire or establish a
business which competes with that of A-1-A, unless such business is made a
part of A-1-A, during the term of the Employment Agreements of Virgil
Scarbrough and Scott Davis.
9.1.4 After the Closing, THI will use its best efforts to secure the
release of any personal guarantees which Scott Davis or Virgil Scarbrough
have given directly related to any of the Liabilities. If, notwithstanding
its best efforts, THI is unable to secure the release of any such personal
guarantees, THI agrees to indemnify and hold Davis and Scarbrough harmless
from any claims arising under such personal guarantees under Section 12.3.
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9.2 Confidentiality. A-1-A 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, A-1-A 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 course of the negotiations concerning THI and its
principals and Affiliates.
9.3 Cooperation. A-1-A shall cooperate with THI in arranging or
participating in meetings between THI and employees, suppliers, customers,
agents, distributors and others who have or have had a business relationship
with A-1-A, at times that are non-injurious in a material way to the operations
of A-1-A.
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 A-1-A (contained in this Agreement, any Exhibit or Schedule
hereto, or any certificate or instrument delivered to THI or its representatives
by A-1-A 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. A-1-A shall have performed and complied
with all covenants, obligations and agreements, including but not limited to
those set forth in Section 3.4 of this Agreement, to be performed or complied
with by them 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 5.19A, no claim, action, suit,
proceeding, arbitration, investigation or hearing or note of hearing shall
be pending or threatened against or affecting THI, A-1-A 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 A-1-A or the ability of THI to consummate the transactions contemplated
by this Agreement or to own the Assets or to operate the business of A-1-A.
10.3.2 A-1-A 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 A-1-A; 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 Common Stock or
to operate the business of A-1-A.
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 Common Stock or
to operate any such business.
10.4 Approvals and Consents. A-1-A 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. Shareholders' Certificate. THI shall have received an accurate
certificate of the shareholders of A-1-A, 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.
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10.6 Officer's Certificate. THI shall have received an accurate
certificate, dated the Closing Date, of the President of A-1-A, 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 condition, business, operations, Assets, liabilities, management or
prospects of A-1-A.
10.7 Good Standing Certificates. THI shall have received (a) a certificate
of the Secretary of State of Florida, dated within 30 days before the Closing
Date, certifying that the records of such state regarding A-1-A incorporated in
such state reflect neither a certificate of dissolution, a court order declaring
dissolution, a merger or consolidation which terminated its existence, nor
suspension of its corporate powers, rights and privileges, and that in
accordance with the records of such state, such corporation is authorized to
exercise all of its corporate powers, rights and privileges in such state and
(b) a telegram or other document from one or more appropriate officials of the
State of Florida 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 there have been no material adverse changes in the financial
condition, business, operations, assets, liabilities, management or prospects of
A-1-A, and that the unaudited Total Stockholders' Equity of A-1-A as of June 30,
1997 is no less than its audited Total Stockholders' Equity as of December 31,
1996.
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 A-1-A. THI shall have received an opinion of
Messrs. Katz and Mestre, counsel to A-1-A, addressed to THI, dated the Closing
Date, to the effect set forth in, and substantially in the form, of Exhibit
10.10.
32
<PAGE>
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 A-
1-A have been obtained.
10.12 Documentation of Rights. A-1-A shall have delivered to THI true and
complete copies of all of the documentation held by A-1-A relating to each of
the Rights.
10.13 Employment of Shareholders and Employee. THI shall have entered into
Employment Agreements with Virgil Scarbrough, and Scott Davis in the forms
attached hereto as Exhibits 3.4(a) and 3.4(b) respectively.
10.14 Officers' Financial Certificate. THI shall have received an accurate
certificate as set forth in Exhibit 10.14 from the President and Secretary of A-
1-A, dated as of the Closing Date, satisfactory in form and substance to THI and
its counsel, certifying that the 1996 Financial Statements are true and correct,
and accurately present the financial position of A-1-A during that interim
period.
10.15 Accountants Letter. THI shall have received to THI's sole
satisfaction a "comfort" letter as set forth in Exhibit 10.15 from Jewett &
DuBose, independent certified public accountants for A-1-A, 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 A-1-A prior to the Closing Date.
10.16 THI Financing Commitment. One day prior to the Closing Date, THI
shall have secured binding commitments, satisfactory to it for not less than
$3,200,000 principal amount of equity, loans or other financing, the proceeds of
which will fund at Closing some or all the cash consideration to A-1-A provided
in Section 3.1. Upon receipt prior to Closing of such binding commitments, THI
shall so notify A-1-A.
10.17 Lease/Option on Real Property. THI shall have received a duly
executed triple net Lease and Option to Purchase the
33
<PAGE>
building and real estate located at 1351 Northwest 22nd Street, Pompano Beach,
Florida, in the form attached hereto as Exhibit 10.17 and providing for a term
of not less than ten years with not less than two-five year renewal options at
an annual base rent of $209,000, together with an irrevocable right of first
refusal in THI to purchase said land and building at any time after December 31,
1997 and during the term or any extension thereof, at a purchase price equal to
the amount bid therefor by a bona fide independent third party bidder.
Notwithstanding the foregoing, THI shall have an irrevocable option to purchase
said land and building, at any time within 1997 following the Closing Date
hereof, and during such time the purchase price for said land and building shall
be $2,200,000, subject to a adjustment as provided in Section 7.9.2, and the
seller shall provide THI with a purchase money mortgage therefor bearing
interest at 9.5% with repayments based on a twenty year amortization rate and a
loan term of ten years. In any purchase of said land and building on or before
June 30, 1998, as a result of its exercise of its option or its right of first
refusal to purchase, THI shall receive from the seller a credit of $300,000
toward said purchase price. If THI exercises its option to purchase, THI will
bear the expense for title insurance, documentary stamps, recording fees, and
any due diligence it requires.
10.18 Simultaneous Closing of Affiliate Transaction. THI, simultaneously
with the Closing hereunder, shall have closed and consummated that certain asset
acquisition with Fresh, Inc., an Affiliate of A-1-A, which closing is scheduled
for the same time and place as the Closing hereunder.
10.19 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 A-1-A.
11. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF A-1-A
The obligations of A-1-A under 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 A-1-A in its sole discretion.
11.1 Accuracy of Representations and Warranties. All representations and
warranties by THI in this Agreement shall be
34
<PAGE>
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. A-1-A shall have received a certificate from
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 A-1-A and
approved by its counsel, including but not limited to (i) securing the
appropriate approval(s) and/or license(s) under the Perishable Agricultural
Commodities Act, 1930, as amended, and (ii) the affirmative vote of a majority
of the THI shareholders voting at a meeting called for such purpose, if required
under advice from THI's counsel; and such counsel to A-1-A 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. A-1-A shall have received an opinion of
Fishman & Merrick, P.C., counsel to THI, addressed to A-1-A, dated as of the
Closing Date, to the effect set forth in, and substantially in the form, of
Exhibit 11.6.
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 (i) with respect to any
material claim, written notice of which shall have been delivered to THI or
A-1-A, as the case may be, such claim shall survive the termination of
35
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such period and shall survive for as long as such claim is unsettled, and (ii)
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. For purposes
hereof, a material claim shall mean a claim or claims aggregating $25,000 or
more, individually or in the aggregate.
12.2 Indemnification by A-1-A. Subject to the limitations set forth in the
last sentence of Section 12.1, A-1-A 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, A-1-A shall
indemnify THI and A-1-A and its respective directors, officers, employees,
representatives 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 (i) A-1-A, or the conduct of its
operations prior to the Closing, except for Liabilities specifically assumed by
THI under the provisions hereof, and (ii) any misrepresentation, breach of
warranty or nonfulfillment of any agreement, covenant or obligation by A-1-A
made in this Agreement (including without limitation any Exhibit hereto and any
certificate or instrument delivered in connection herewith) 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 of A-1-A
after the Closing Date. If THI exercises its option to purchase pursuant to
Section 10.17, A-1-A shall have the option to indemnify THI pursuant to this
Section by reducing the principal amount of the purchase money mortgage given to
THI.
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, A-1-A 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 reduce any amounts it owes to
A-1-A in the amount owed to it by A-1-A under this Section 12.2.
36
<PAGE>
12.3 Indemnification by THI. Subject to the limitations set forth in the
last sentence of Section 12.1, THI hereby covenants and agrees with A-1-A that
THI shall indemnify A-1-A 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 any of
them resulting from (i) the conduct of the operations of A-1-A subsequent to the
Closing, and (ii) 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).
If, by reason of the claim of any third party relating to any of the
matters subject to indemnification under this Section 12.3, a lien, attachment,
garnishment or execution is placed upon any of the property or assets of any
A-1-A Indemnified Party, THI shall promptly furnish an indemnity bond reasonably
satisfactory to A-1-A to obtain the prompt release of such lien, attachment,
garnishment or execution. A-1-A shall be entitled to reduce any amounts it owes
to THI in the amount owed to it by THI under this Section 12.3.
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 A-1-A (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
37
<PAGE>
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, A-1-A and THI shall each pay their own respective expenses and the
fees and expenses of their respective counsel and other experts.
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 A-1-A or THI if, through no material fault of such party so
electing to terminate, the Closing shall not have occurred on or prior to
July 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
38
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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 A-1-A, 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. A-1-A shall consent in writing to any such
assignment. Immediately upon such assignment, THI shall be released from any
obligation, of any kind or nature, under this Agreement.
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:
If to THI, to:
Terrace Holdings, Inc.
2699 Stirling Road
Suite C-405
Fort Lauderdale, Florida 33312
Facsimile: (954) 894-0993
39
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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 A-1-A, to:
A One A Wholesale Produce, Inc.
4011 S.W. 47th Avenue, Suite 1112
Fort Lauderdale, Florida 33314-4050
Facsimile:
With a copy to:
Richard L. Katz, Esq.
Katz & Mestre
2100 Salzedo Street
Suite 300
Coral Gables, Florida 33134
Facsimile: (305) 447-8509
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
40
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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.
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. THI shall pay any and all taxes imposed upon the
initial issuance, and A-1-A shall pay any and all taxes imposed upon any
subsequent 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. Each party represents and warrants there are no
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.
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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, as of the date first above written.
TERRACE HOLDINGS, INC.
By:______________________________________
Samuel H. Lasko, President
A ONE A WHOLESALE PRODUCE, INC.
By:______________________________________
_________________________, President
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<PAGE>
EXHIBIT 10.6
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
TERRACE HOLDINGS, INC.
A DELAWARE CORPORATION,
AND
VIRGIL SCARBROUGH & SCOTT DAVIS
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
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<S> <C>
1. DEFINITIONS 1
1.1 Affiliate.................................................. 1
1.2 Ancillary Documents........................................ 1
1.3 Code....................................................... 3
1.4 Liabilities................................................ 3
1.5 Rights..................................................... 3
1.6 Stock................
2. SALE OF ASSETS AND ISSUANCE OF STOCK............................ 3
2.1 Purchase and Sale of Assets and Rights..................... 3
2.2 Delivery of Possession and Instruments of Transfer......... 4
3. CONSIDERATION................................................... 4
3.1 Cash Consideration......................................... 4
3.2 Stock Redemption........................................... 4
3.3 Time and Mode of Cash Payment.............................. 4
3.4 Issuance of THI Shares of Capital Stock.................... 4
4. CLOSING......................................................... 6
4.1 Closing and Closing Date................................... 6
5. REPRESENTATIONS AND WARRANTIES OF FRESH......................... 6
5.1 Organization, Good Standing, Power, Etc.................... 6
5.2 Capital Stock.............................................. 7
5.3 Articles of Incorporation and By-Laws...................... 7
5.4 Subsidiaries, Divisions and Affiliates..................... 7
5.5 Equity Investments......................................... 7
5.6 Authorization of Agreement................................. 7
5.7 Effect of Agreement........................................ 8
5.8 Restrictions; Burdensome Agreements........................ 8
5.9 Governmental and Other Consents............................ 8
5.10 Financial Statements....................................... 8
5.11 Absence of Certain Changes or Events....................... 9
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
5.12 Title to Assets; Absence of Liens and Encumbrances.............. 9
5.13 Equipment....................................................... 10
5.14 Insurance....................................................... 10
5.15 Agreements, Arrangements, Etc................................... 11
5.16 Patents, Trademarks, Copyrights, Etc............................ 14
5.17 Permits, Licenses, Etc.......................................... 15
5.18 Compliance with Applicable Laws................................. 15
5.19 Litigation...................................................... 15
5.20 No Interest in Competitors...................................... 16
5.21 Customers, Suppliers, Distributors and Agents................... 16
5.22 Books and Records............................................... 16
5.23 Employee Benefit Plans.......................................... 17
5.24 Powers of Attorney.............................................. 17
5.25 Sufficiency of Assets and Commitments........................... 17
5.26 Labor Disputes, Unfair Labor Practices.......................... 18
5.27 Past Due Obligations............................................ 18
5.28 Environmental Compliance........................................ 18
5.29 Tax and Other Returns and Reports............................... 19
5.30 Recent Dividends and Other Distributions........................ 19
5.31 Inventory....................................................... 19
5.32 Purchase and Sale Obligations................................... 20
5.33 Other Information............................................... 20
5.34 Knowledge of FRESH and the Shareholders......................... 20
6. REPRESENTATIONS AND WARRANTIES OF THI................................. 20
6.1 Organization.................................................... 20
6.2 Authorization of Agreement...................................... 20
6.3 Effect of Agreement............................................. 21
6.4 Litigation...................................................... 21
6.5 Possible Submission to Stockholder Vote......................... 21
7. POST-CLOSING COVENANTS................................................ 21
7.1 Further Assurances.............................................. 21
7.2 Confidentiality................................................. 23
7.3 Cooperation..................................................... 23
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THI........................ 23
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
8.1 Accuracy and Representations and Warranties..................... 23
8.2 Performance of Agreements....................................... 23
8.3 Litigation, Etc................................................. 24
8.4 Approvals and Consents.......................................... 24
8.5 Shareholders' Certificate....................................... 24
8.6 Officer's Certificate........................................... 24
8.7 Good Standing Certificates...................................... 25
8.8 No Material Adverse Change...................................... 25
8.9 Actions, Proceedings, Etc....................................... 25
8.10 Opinion of Counsel to FRESH..................................... 25
8.11 Licenses, Permits, Consents, Etc................................ 25
8.12 Documentation of Rights......................................... 25
8.13 Officers' Financial Certificate................................. 26
8.15 Accountants Letter.............................................. 26
8.16 Completion of Due Diligence..................................... 26
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF FRESH...................... 26
9.1 Accuracy of Representations and Warranties...................... 26
9.2 Performance of Agreements....................................... 26
9.3 Secretary's Certificate......................................... 26
9.4 Actions, Proceedings, Etc....................................... 26
9.5 No Injunction................................................... 27
9.6 Opinion of Counsel to Buyer..................................... 27
10. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATIONS.......... 27
10.1 Survival........................................................ 27
10.2 Indemnification by FRESH and its Shareholders................... 27
10.3 Indemnification by THI.......................................... 28
10.4 Right to Defend................................................. 29
10.5 Subrogation..................................................... 29
11. MISCELLANEOUS......................................................... 29
11.1 Expenses........................................................ 29
11.2 Waivers......................................................... 29
11.3 Binding Effect; Benefits........................................ 30
11.4 Assignment...................................................... 30
11.5 Notices......................................................... 30
11.6 Entire Agreement................................................ 31
11.7 Headings; Certain Terms......................................... 31
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
11.8 Counterparts................................................... 31
11.9 Governing Law.................................................. 32
11.10 Severability................................................... 32
11.11 Amendments..................................................... 32
11.12 Transaction Taxes.............................................. 32
11.13 Disclosures.................................................... 32
11.14 Section References............................................. 32
11.15 Brokers and Finders............................................ 32
</TABLE>
iv
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SCHEDULE AND EXHIBIT INDEX
--------------------------
<TABLE>
<CAPTION>
<C> <C> <S>
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 2.1 Excluded Liabilities
8. Exhibit 3.1 Promissory Notes
9. Exhibit 3.4 Scarbrough & Davis Employment Agreements
10. Exhibit 3.6 Allocation of Consideration
11. Exhibit 4.1 Form of Closing Memorandum
12. Exhibit 5.1 Good Standing Certificates - FRESH
13. Exhibit 5.2 Outstanding Offers, Options, Warrants, Equity Securities, Etc.
14. Exhibit 5.3 Articles of Incorporation and By-laws of FRESH
15. Exhibit 5.4 Subsidiaries, Divisions and Affiliates of FRESH
16. Exhibit 5.5 Equity Investments
17. Exhibit 5.10 Financial Statements of FRESH
18. Exhibit 5.11 Material Adverse Changes
19. Exhibit 5.12 Liens and Encumbrances of FRESH
20. Exhibit 5.14 Insurance Policies
21. Exhibit 5.15.1 Liabilities
22. Exhibit 5.16 Patents, Trademarks, Copyrights
23. Exhibit 5.17 Permits, Licenses, Etc.
24. Exhibit 5.19 Material Litigation
25. Exhibit 5.20 5% Interest Ownership Table
26. Exhibit 5.21 Interest in Competitors
27. Exhibit 5.23 Employee Benefit Plans
28. Exhibit 5.24 Powers of Attorney
29. Exhibit 5.25 Sufficiency of Assets & Liabilities
30. Exhibit 5.26 Material Labor Disputes
31. Exhibit 5.27 Past Due Obligations
32. Exhibit 5.28 Environmental Compliance
33. Exhibit 5.29.A Tax Examination Dates
34. Exhibit 5.29.B Examinations of Tax Returns by Governmental Agency
35. Exhibit 5.29.C Proposal by Governmental Entity of Deficiency, Assessment or Claim of Taxes
36. Exhibit 5.31.A Inventory
37. Exhibit 5.31.B Non-useable Inventory
38. Exhibit 10.10 Opinion of Counsel to FRESH
39. Exhibit 10.14 Officer's Financial Certificate
40. Exhibit 10.15 Accountant's Letter
41. Exhibit 11.3 Secretary's Certificate
42. Exhibit 11.6 Opinion of Counsel to THI
</TABLE>
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PURCHASE AGREEMENT
------------------
THIS AGREEMENT ("Agreement") is made and entered into as of the _____ day
of _____, 1997, by and among Terrace Holdings, Inc., a Delaware corporation, or
its assignee under Section 13.5 of this Agreement ("THI") and Virgil Scarbrough
("Scarbrough")and Scott Davis ("Davis")(collectively, the "SELLERS").
RECITALS:
---------
WHEREAS, SELLERS own all of the Stock (as hereinafter defined);
WHEREAS, THI desires to purchase from SELLERS, and SELLERS desire to sell
to THI, all of the outstanding stock 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
considerations, 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 "Code" shall mean the Internal Revenue Code of 1986, as amended,
----
and/or superseded.
1.4 "Liabilities" 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 and all trade
payables and liabilities related to the Assets incurred in the ordinary course
of business and disclosed on Exhibit 5.10 or incurred
1
<PAGE>
thereafter consistent with the term of this Agreement, which remain outstanding
at Closing.
1.5 "Rights" shall mean copyrights, licenses, patents, trademarks,
trademark rights, trade names, service marks, service mark rights, and trade
secrets, shop rights, know-how, technical information, techniques, discoveries,
designs, proprietary rights and non-public information of FRESH and
registrations, reissues and extensions thereof and applications and license
therefor.
1.6 "Stock" shall mean all of the outstanding stock of Fresh, Inc.
-----
("FRESH").
2. SALE OF STOCK AND ISSUANCE OF THI STOCK
---------------------------------------
2.1 Purchase and Sale of Stock. In exchange for the consideration
specified herein, and upon and subject to the terms and conditions of this
Agreement, THI agrees to purchase and acquire from SELLERS, and SELLERS agree 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 Stock, free
and clear of any lien, encumbrance, security agreement, equity, option, claim,
and charge or restriction.
2.2 Delivery of Possession and Instruments of Transfer. At the Closing,
SELLERS shall deliver to THI stock certificates 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 SELLERS' rights, title and interest in and
to the Stock, free and clear of any lien, encumbrance, security agreement,
equity, option, claim, charge or restriction of any kind or nature.
3. CONSIDERATION
-------------
3.1 Cash Consideration. The aggregate cash consideration to be paid by
THI in full consideration for its purchase of the Stock and the other rights
provided herein shall be $70,000, to be divided among SELLERS, $35,000 each,
payable in accordance with the provisions of Section 3.3.
3.2 Stock Redemption. In order provide SELLERS with ownership of all the
outstanding Stock, immediately prior to Closing, Richard Golrich ("Goldrich"),
pursuant to that certain Stock Redemption between FRESH, Scarbrough, Davis and
Goldrich,("Stock Redemption") shall tender to FRESH, any and all Stock owned by
him and in consideration therefor, FRESH shall pay to Goldrich $35,000, payable
in accordance with the provisions of Section 3.3. A copy of the Stock
Redemption is attached as exhibit hereto.
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3.3 Time and Mode of Cash Payment. The cash consideration set forth in
Section 3.1 shall be payable at the Closing by cashiers' or certified check(s)
or by wire transfer of funds, provided good and marketable title to the Stock is
delivered, free and clear of any lien, or encumbrance in accordance with Section
2.2 hereof and provided all other terms and conditions of this Agreement have
been complied with.
3.4 Issuance of THI Shares of Capital Stock. As additional consideration,
subject to the conditions precedent set forth in this Agreement, at the Closing,
THI shall issue, and pursuant to that certain Stock Redemption, FRESH shall
cause THI to issue, to Scarbrough, Davis and Goldrich, an amount of shares of
THI common stock, par value $.001 per share, to be divided equally among
Scarbrough, Davis and Goldrich, as is equal to $150,000 based on the average
purchase price per share at which such stock is traded during the five days
immediately prior to the Closing. In addition, THI shall issue an additional
30,000 shares and 30,000 shares to Scarbrough and Davis respectively which
shares shall constitute full satisfaction of the loans from Scarbrough and Davis
to FRESH. Except as otherwise expressly provided in this Agreement, none of
such shares shall be registered. All of the THI shares shall be duly
authorized, validly issued, fully paid, nonassessable, and free of preemptive
rights. THI acknowledges that Goldrich is a third party beneficiary to this
Agreement. Except as otherwise expressly provided for in this Agreement,
certificates evidencing the shares of THI common stock to be issued hereunder
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."
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., 4100
North Hills Drive, Hollywood, Florida, at 10:00 a.m. (local time), ___________,
1997, or at such later date, place or time as the parties shall otherwise
mutually agree upon (the date of the Closing being referred to herein as the
"Closing Date"), but shall be deemed effective as of June 30, 1997,
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or such later month end as immediately precedes any Closing Date subsequent to
June 30, 1997 ("Effective 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. 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.
5. REPRESENTATIONS AND WARRANTIES OF SELLERS
-----------------------------------------
As an inducement to THI to enter into this Agreement and perform its
obligations hereunder, SELLERS hereby represent and warrant 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. FRESH is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida. FRESH is authorized or licensed to do business as a foreign corporation
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 FRESH makes such qualification necessary. FRESH has all requisite
corporate 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 Stock.
-------------
(a) FRESH has authorized capital stock consisting of One Thousand (1,000)
shares of common stock, $1.00 par value, of which Three Hundred (300) shares,
(Two Hundred (200) shares after giving effect to that certain Stock Redemption)
are issued and outstanding, all of which are duly authorized, validly issued,
fully paid, nonassessable, free of preemptive rights, and were issued in
compliance with all federal and applicable state securities laws.
(b) Except as set forth in Exhibit 5.2 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 capital stock of FRESH or any
other securities (as such term is defined in the Securities Act of 1933,
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as amended). Except as set forth in Exhibit 5.2, there are no equity securities
of the Company that are reserved for issuance or are outstanding.
(c) SELLERS own all of the capital stock of FRESH free and clear of all
liens, charges, encumbrances or claims of any kind whatsoever.
5.3 Articles of Incorporation and By-Laws. Included in Exhibit 5.3 hereto
are correct and complete copies of the Articles of Incorporation of FRESH, as
amended to date, and the By-Laws of FRESH, as amended to date. Such Articles of
Incorporation and By-Laws 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 FRESH. Except
as set forth on Exhibit 5.4, the business of FRESH has been conducted solely by
FRESH 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, FRESH 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 SELLERS. This Agreement constitutes a valid
and binding obligation of SELLERS enforceable in accordance with its terms,
except that such enforcement may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditor's rights generally.
5.7 Effect of Agreement. The execution, delivery and performance of this
Agreement by SELLERS, and the consummation by SELLERS 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 FRESH or SELLERS are subject; (b) violate
any judgment, order, writ or decree of any court applicable to FRESH or SELLERS;
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 the Stock pursuant to, any corporate charter, by-law,
commitment, contract or other agreement or instrument, including any of the
Liabilities, to which FRESH or SELLERS are a party or by which any of the Assets
is or may be bound or affected or from which FRESH derives benefit, which
5
<PAGE>
breach, conflict, modification, termination, default or encumbrance described in
this clause (c) would be material to the business of FRESH or any of the Stock.
5.8 Restrictions; Burdensome Agreements. FRESH or SELLERS are not a party
to any contract, commitment or agreement, nor are FRESH, the SELLERS or the
Stock subject to, or bound or affected by, any provision of the Articles of
Incorporation, By-laws or other corporate 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 FRESH's business or any of the Stock.
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 SELLERS
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. SELLERS have delivered to THI, and included in
Exhibit 5.10 hereto are, correct and complete copies of balance sheets of FRESH
for the periods ended September 30, 1997 and September 30,1996, the related
statements of income for the nine months ended September 30, 1997 and 1996,(the
"1997 Financial Statements") and balance sheets for the years ended December 31,
1996 and 1995 and the related statements of income for the years then ended
(collectively, with the 1997 Financial Statements, the "Financial Statements").
None of the Financial Statements have been audited. Except as set forth on the
compilation report of Jewett & DuBose, Certified Public Accountants, the
Financial Statements are in accordance with the books and records of FRESH, have
been prepared in accordance with generally accepted accounting principles and
practices consistently applied and accurately present the financial position of
FRESH at their respective dates and the results of operations 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 the Stock 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, 1997, FRESH has not: 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,
FRESH's financial condition, results of operations or business or the value of
the Stock.
5.12 Title to Stock; Absence of Liens and Encumbrances. Except as set
forth on Exhibit 5.12, (a) SELLERS have good title
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<PAGE>
to, and own outright, the Stock, free and clear of all 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 Stock, free and clear of all claims, liens,
charges, encumbrances, security interests, restrictions on use or transfer, or
other defects of any nature. The leases and other agreements or instruments
under which FRESH holds, leases or is entitled to the use of any real or
personal property (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. FRESH enjoys peaceable and
undisturbed possession under all such leases, and the change in ownership of the
Stock 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 July 31, 1997 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 July
31, 1997. Except as noted on Exhibit 1.3(c), all of the Equipment (a) is in good
working condition, with, to the knowledge of SELLERS, no material defects, and
generally has been suitable to FRESH for the uses for which it was designed or
has been employed by FRESH, 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
FRESH's current insurance companies with respect to current policies covering
any of the assets of FRESH, or by any governmental authority requiring or
recommending, with respect to any of FRESH's 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 of FRESH.
FRESH carries, and (with respect to any period for which a claim against FRESH
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 FRESH'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 FRESH, 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 FRESH which in the aggregate are in excess or One
Thousand Dollars ($1,000.00), and (ii) claims for product
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<PAGE>
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 premiums increases with respect to any of
such policies or bonds and there is no condition or circumstance applicable to
the business of FRESH, other than the sale of the Common Stock pursuant to this
Agreement, which may result in such termination or increase. SELLERS and FRESH
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 FRESH.
5.15 Agreements, Arrangements, Etc.
-----------------------------
5.15.1 Except as set forth on Exhibit 5.15.1, SELLERS and FRESH are not a
party to, nor are FRESH or SELLERS 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;
(c) employment or other contract or agreement with an employee or
independent contractor which (i) may not be terminated without liability to
FRESH 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 FRESH;
(e) non-competition, secrecy or confidentiality agreements;
(f) agreement or other arrangement for the sale of goods or services
by FRESH to any third party (including the government or any other
governmental authority);
(g) agreement with any labor union;
8
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(h) policy of insurance (including bonds) in force with respect to
FRESH 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 $1,000 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
FRESH'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, 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 FRESH receivables or contracts for sales on credit;
(p) agreement granting any person a lien, security interest or
mortgage on any of the assets of FRESH, 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 $1,000;
(r) advertising, publication or printing agreement;
(s) agreement which restricts FRESH from doing business anywhere in
the world;
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(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 FRESH's business, including trade and other payables
and liabilities incurred in the ordinary course of business (all of which
are set forth in the 1997 Financial Statements on Exhibit 5.10), except
contracts or purchase orders for the purchase or sale of goods or services
made in the usual and ordinary course of business.
Correct and complete copies of all Liabilities required to be shown on Exhibit
5.15.1 (or Exhibit 5.10) have been separately delivered to THI prior to the date
hereof.
5.15.2 Each of the Liabilities is valid, in full force and effect and
enforceable by FRESH in accordance with its terms.
5.15.3 Except as set forth on Exhibit 5.15.1, FRESH has fulfilled, or has
taken all action reasonably necessary to enable it to fulfill when due, all of
its obligations under the Liabilities, except where the failure to do so would
not, individually or in the aggregate, have a material adverse affect on the
business of FRESH. Furthermore, there has not occurred any default by FRESH or
any event which, with the lapse of time or the election of any person other than
FRESH, 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 FRESH, will become a
default under any of the Liabilities, except for such defaults, if any, which
(a) have not resulted and will not result in any material loss to or liability
of FRESH or any of its successors or assigns or (b) have been indicated on
Exhibit 5.15.1. FRESH 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 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 Liabilities does not require the consent of the other parties thereto and,
with respect to any of the Liabilities which do require the consent of the other
parties thereto, SELLERS have 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 FRESH which make use of, or are
sold,
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licensed or made under, each such Right. All of the Rights constitute all Rights
necessary for the conduct of the business of FRESH, as such business is
currently being conducted. Except as set forth on Exhibit 5.16, SELLERS have 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
have 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 business of FRESH as currently being conducted;
neither has the validity of such items been, nor is the validity of such items,
nor the use thereof by FRESH, the subject of any pending or threatened
opposition, interference, cancellation, nullification, conflict, concurrent use,
litigation or other proceeding. The conduct of the business of FRESH as
currently operated 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 FRESH have not been used, and no use is now being
made, by any entity except FRESH 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 FRESH.
5.17 Permits, Licenses, Etc. There are no permits, licenses,
registrations, memberships, orders or approvals of governmental or
administrative authorities or required to permit FRESH 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 FRESH's business).
5.18 Compliance with Applicable Laws. The conduct of FRESH 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, any federal agriculture law, or the Foreign Corrupt
Practices Act and the respective regulations thereunder and similar applicable
state laws and regulations, including but not limited to agriculture laws and
regulations) 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 or FRESH's business. FRESH 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 FRESH or the value of the Stock.
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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 FRESH or the transactions contemplated by this
Agreement; nor are any facts known to FRESH, which it believes could reasonably
give rise to any such claim, action, suit, proceeding, arbitration,
investigation or hearing, which may have any adverse affect, individually or in
the aggregate in excess of One Thousand Dollars ($1,000) upon the business of
FRESH, the value of the Stock or the transactions contemplated by this
Agreement. FRESH 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 FRESH is a party, or to which the Company is
subject. Neither SELLERS, FRESH nor any of its shareholders or current officer,
director, partner or employee of FRESH or any Affiliate of FRESH 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
FRESH. FRESH'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 SELLERS, FRESH, any of the shareholders or any
officer or director of FRESH 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, company, limited partnership, joint venture,
association or other entity which is a competitor, supplier or customer of FRESH
or has any type of business or professional relationship with FRESH.
5.21 Customers, Suppliers, Distributors and Agents. Except as set forth
on Exhibit 5.21, SELLERS have no knowledge or reason to believe that any
customer, client, distributor, supplier or any other person or entity with
material business dealings with FRESH, will or may cease to continue such
relationship with FRESH, 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, SELLERS have no knowledge of (1) any other existing
or contemplated modification or change in the business relationship of FRESH
with, or (2) any existing condition or state of facts or circumstances which has
affected adversely, will
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adversely affect (in more than a minimal manner), or has a reasonable likelihood
of adversely affecting the business of FRESH with its customers, clients,
suppliers or other persons or entities with material business dealings with
FRESH or which has prevented or will prevent such business from being carried on
by FRESH 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 FRESH are in all material respects complete, correct and up
to date, with all necessary signatures, and are in all material respects
accurately reflected in the Financial Statements.
5.23 Employee Benefit Plans. Except as described in Exhibit 5.23, FRESH
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 FRESH (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 FRESH is a "party in
interest" as defined in Section 3 of ERISA, or a "disqualified person" as
defined in Section 4975 of the Code, FRESH 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. FRESH has complied
with all of the rules and regulations governing each of the Employee Benefit
Plans maintained for the benefit of FRESH'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 SELLERS, FRESH nor any
Employee Benefit Plans maintained by FRESH 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,
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and SELLERS do 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 SELLERS in connection with any of
FRESH's properties or business affairs other than such powers to so act as
normally pertain to the officers of FRESH.
5.25 THIS PROVISION INTENTIONALLY LEFT BLANK
5.26 Labor Disputes, Unfair Labor Practices. Except as set forth on
Exhibit 5.26, FRESH is not engaged in any labor practice which would have a
material adverse affect on FRESH'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 FRESH. There have been no strikes, labor disputes, slow-downs,
walkouts, or work stoppages involving employees of FRESH during the last five
(5) years. No union representation question exists with respect to the employees
of FRESH and no union organizing activities are taking place. FRESH 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 FRESH 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 FRESH over $500 have given rise or shall give rise within 6
months after the Closing Date (except as such will be performed by FRESH 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, (i)
SELLERS have 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 FRESH or
the use of any property, facility of FRESH or to the knowledge of SELLERS 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
14
<PAGE>
any facility of FRESH; and (iv) any Hazardous Substance handled or dealt with in
any way in connection with the business of FRESH 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 classify substances by reason of
deleterious properties such as ignitability, 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.
5.29 Tax and Other Returns and Reports. With respect to FRESH, SELLERS
have timely filed or will file all federal, state and local tax returns and
information returns ("Tax Returns") required to be filed by them and have paid
all taxes due for all periods ending on or before December 31, 1996. Adequate
provision has been made in the books and records of FRESH 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 or information returns and any other Tax
Returns of FRESH and of SELLERS as they may affect FRESH. 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 FRESH or SELLERS as they may affect FRESH. 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 FRESH or SELLERS
as they may affect FRESH or with respect to any Tax Return filed or to be filed
by FRESH.
5.30 Recent Dividends and Other Distributions. Except as provided in that
certain Stock Redemption, there has been no dividend or other distribution of
assets or securities by FRESH, whether consisting or money, property or any
other thing of value, declared, issued or paid to or for the benefit of FRESH's
shareholders subsequent to the date of the most recent financial statements
described in Section 5.10.
15
<PAGE>
5.31 Inventory. Except as set forth in Exhibits 5.31A and B, all of the
Inventory has been received within four months of June 30, 1997 and is of a
quantity and quality saleable at regular prices or usable in the ordinary course
of business during 1997. Exhibit 5.31A shall specify all Inventory that was
received more than four 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.
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 FRESH
have been made in the usual and ordinary course of its business in accordance
with normal practices. On the Closing Date, SELLERS shall deliver to THI a
schedule of all such uncompleted purchase and sale orders and other commitments
with respect to any of FRESH'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 SELLERS or any of their 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 FRESH 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 SELLERS. As to each representation and warranty made by
SELLERS under this Article 5, any fact or information known to any shareholder
of FRESH or notice received by any shareholder of FRESH, shall be imputed to
SELLERS as if such fact or information were known to SELLERS or such notice
received by SELLERS.
6. REPRESENTATIONS AND WARRANTIES OF THI
-------------------------------------
THI hereby represents and warrants to SELLERS 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.
16
<PAGE>
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 Possible Submission to Stockholder Vote. THI has been advised that the
transactions contemplated herein need not be submitted to its stockholders for
approval. If, prior to Closing, THI is otherwise advised by counsel, it will so
notify SELLERS forthwith. As soon as is practicable thereafter, and consistent
with applicable state corporate and federal securities law and regulation, the
transactions contemplated in this Agreement shall be disclosed and submitted to
the Terrace stockholders to consider and vote thereon. SELLERS hereby agree
fully to cooperate with THI and provide all reasonable assistance and
documentation as may be necessary for THI full to comply with the applicable
requirements under the proxy rules promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended, and under the
applicable requirements of the NASDAQ Stock Market.
7. POST-CLOSING COVENANTS
----------------------
7.1. Further Assurances. SELLERS, 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")
17
<PAGE>
and take such other action as THI may reasonably request (a) to transfer to and
fully vest in THI, and protect THI's right, title and interest in and to all of
SELLERS' rights, titles and interests in and to the Stock, and (b) otherwise to
consummate the transactions contemplated by this Agreement.
7.1.1 THI will provide to the SELLERS reasonable access to any records
of FRESH's business which is in THI's possession and which will assist
SELLERS in responding to or complying with any tax audit or other
governmental inquiry or which may be necessary in connection with any
litigation by or against SELLERS and relating thereto.
7.1.2 THI will use its best efforts to maintain licenses under the
Perishable Agricultural Commodity Act, 1930, as amended. Notwithstanding
the foregoing, SELLERS as employees of THI's subsidiaries, shall have
primary responsibility for the foregoing.
7.1.3 After the Closing, THI shall not acquire or establish a business
which competes with that of FRESH, unless such business is made a part of
FRESH, during the term of the Employment Agreements of Scarbrough and
Davis.
7.1.4 After the Closing, THI will use its best efforts to secure the
release of any personal guarantees which Davis or Scarbrough have given
directly related to any of the Liabilities. If, notwithstanding its best
efforts, THI is unable to secure the release of any such personal
guarantees, THI agrees to indemnify and hold Davis and Scarbrough harmless
from any claims arising under such personal guarantees under Section 12.3.
7.2 Confidentiality. SELLERS 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, SELLERS
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 course of the negotiations concerning
THI and its principals and Affiliates.
7.3 Cooperation. SELLERS shall cooperate with THI in arranging or
participating in meetings between THI and employees, suppliers, customers,
agents, distributors and others who have or have had a business relationship
with SELLERS or FRESH, at times that are non-injurious in a material way to the
operations of FRESH.
18
<PAGE>
8. 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:
8.1 Accuracy of Representations and Warranties. All representations and
warranties made by SELLERS (contained in this Agreement, any Exhibit or Schedule
hereto, or any certificate or instrument delivered to THI or its representatives
by SELLERS or their 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.
8.2 Performance of Agreements. SELLERS and FRESH shall have performed and
complied with all covenants, obligations and agreements, including but not
limited to those set forth this Agreement, to be performed or complied with by
them on or before the Closing Date pursuant to this Agreement.
8.3 Litigation, Etc.
---------------
8.3.1 Except as set forth on Exhibit 5.19A, no claim, action, suit,
proceeding, arbitration, investigation or hearing or note of hearing shall
be pending or threatened against or affecting THI, SELLERS or FRESH 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 FRESH or
the ability of THI to consummate the transactions contemplated by this
Agreement or to operate the business of FRESH.
8.3.2 SELLERS and FRESH 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
business of FRESH; 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 Common Stock or
to operate the business of FRESH.
19
<PAGE>
8.3.3 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 Common Stock or
to operate any such business.
8.4 Approvals and Consents. SELLERS shall have obtained, and THI shall
have received copies of, all of the approvals and consents required by this
Agreement, 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.
8.5. Shareholders' Certificate. THI shall have received an accurate
certificate of the SELLERS 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.
8.6 Officer's Certificate. THI shall have received an accurate
certificate, dated the Closing Date, of the President of FRESH, 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 condition, business, operations, assets, liabilities, management or
prospects of FRESH.
8.7 Good Standing Certificates. THI shall have received (a) a certificate
of the Secretary of State of Florida, dated within 30 days before the Closing
Date, certifying that the records of such state regarding FRESH incorporated in
such state reflect neither a certificate of dissolution, a court order declaring
dissolution, a merger or consolidation which terminated its existence, nor
suspension of its corporate powers, rights and privileges, and that in
accordance with the records of such state, such corporation is authorized to
exercise all of its corporate powers, rights and privileges in such state and
(b) a telegram or other document from one or more appropriate officials of the
State of Florida 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.
8.8 No Material Adverse Change. THI shall confirm to its sole
satisfaction that there have been no material adverse changes in the financial
condition, business, operations, assets, liabilities, management or prospects of
FRESH, and that the unaudited Total Stockholders' Equity of FRESH as of June 30,
1997 is no less than its audited Total Stockholders' Equity as of December 31,
1996.
20
<PAGE>
8.9 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.
8.10 Opinion of Counsel to FRESH. THI shall have received an opinion of
Messrs. Katz and Mestre, counsel to FRESH, addressed to THI, dated the Closing
Date, to the effect set forth in, and substantially in the form, of Exhibit
10.10.
8.11 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
FRESH have been obtained.
8.12 Documentation of Rights. SELLERS shall have delivered to THI true
and complete copies of all of the documentation held by SELLERS relating to each
of the Rights.
8.13 Officers' Financial Certificate. THI shall have received an accurate
certificate as set forth in Exhibit 10.14 from the President and Secretary of
FRESH, dated as of the Closing Date, satisfactory in form and substance to THI
and its counsel, certifying that the 1996 Financial Statements are true and
correct, and accurately present the financial position of FRESH during that
interim period.
8.14 Accountants Letter. THI shall have received to THI's sole
satisfaction a "comfort" letter as set forth in Exhibit 10.15 from Jewett &
DuBose, independent certified public accountants for FRESH, 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 SELLERS prior to the Closing Date.
8.15 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 FRESH.
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF FRESH
------------------------------------------------
The obligations of SELLERS under 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 SELLERS in their sole discretion.
21
<PAGE>
9.1 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.
9.2 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.
9.3 Secretary's Certificate. SELLERS shall have received a certificate
from THI, substantially in the form of Exhibit 11.3, dated the Closing Date.
9.4 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 SELLERS and
approved by its counsel, including but not limited to (i) securing the
appropriate approval(s) and/or license(s) under the Perishable Agricultural
Commodities Act, 1930, as amended, and (ii) the affirmative vote of a majority
of the THI shareholders voting at a meeting called for such purpose, if required
under advice from THI's counsel; and such counsel to FRESH shall have been
furnished with such other instruments and documents as they shall have
reasonably requested.
9.5 No Injunction. No third party injunction, stay or restraining order
shall be in effect prohibiting the consummation of the transactions contemplated
hereby.
9.6 Opinion of Counsel to Buyer. SELLERS shall have received an opinion
of Fishman & Merrick, P.C., counsel to THI, addressed to SELLERS, dated as of
the Closing Date, to the effect set forth in, and substantially in the form, of
Exhibit 11.6.
10. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
-----------------------------------------------------------
10.1 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 (i) with respect to any
material claim, written notice of which shall have been delivered to THI or
SELLERS, 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 (ii) with
respect to any litigation which shall have been commenced to resolve such claim
on or prior to such
22
<PAGE>
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. For purposes hereof, a material claim shall mean
a claim or claims aggregating $25,000 or more, individually or in the aggregate.
10.2 Indemnification by SELLERS. Subject to the limitations set forth in
the last sentence of Section 10.1, SELLERS hereby covenant and agree 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, SELLERS
shall indemnify THI and FRESH and its respective directors, officers, employees,
representatives 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 (i) FRESH, or the conduct of its
operations prior to the Closing, except for Liabilities specifically assumed by
THI under the provisions hereof, and (ii) any misrepresentation, breach of
warranty or nonfulfillment of any agreement, covenant or obligation by SELLERS
made in this Agreement (including without limitation any Exhibit hereto and any
certificate or instrument delivered in connection herewith) 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 of FRESH
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 10.2, a lien, attachment,
garnishment or execution is placed upon any of the property or assets of any THI
Indemnified Party, SELLERS 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 reduce any amounts it owes to
SELLERS against any amount owed to it by SELLERS under this Section 10.2.
10.3 Indemnification by THI. Subject to the limitations set forth in the
last sentence of Section 10.1, THI hereby covenants and agrees with SELLERS that
THI shall indemnify SELLERS and holds 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 and
court costs and reasonable fees and disbursements of counsel) incurred by any of
them resulting from (i) the conduct of the operations of FRESH subsequent to the
Closing, and (ii) any misrepresentation, breach of warranty or the
nonfulfillment of any
23
<PAGE>
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).
If, by reason of the claim of any third party relating to any of the
matters subject to indemnification under this Section 10.3, a lien, attachment,
garnishment or execution is placed upon any of the property or assets of any
FRESH Indemnified Party, THI shall promptly furnish an indemnity bond reasonably
satisfactory to SELLERS to obtain the prompt release of such lien, attachment,
garnishment or execution. SELLERS shall be entitled to reduce any amounts it
owes to THI in the amount owed to it by THI under this Section 10.3.
10.4 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 SELLERS (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 10, for all costs and expense incurred
by it in connection therewith.
10.5 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.
24
<PAGE>
11. MISCELLANEOUS
-------------
11.1 Expenses. Except as and to the extent otherwise provided in this
Agreement, whether or not the transactions contemplated by this Agreement are
consummated, SELLERS and THI shall each pay their own respective expenses and
the fees and expenses of their respective counsel and other experts.
11.2 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.
11.3 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.
11.4 Assignment. Without limitation, and without the consent, prior,
written or otherwise, of SELLERS, 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. SELLERS shall consent in writing to any such
assignment. Immediately upon such assignment, THI shall be released from any
obligation, of any kind or nature, under this Agreement.
11.5 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:
If to THI, to:
Terrace Holdings, Inc.
4100 North Hills Drive
Hollywood, Florida 33312
Facsimile: (954) 894-0993
25
<PAGE>
With a copy to:
Gerald L. Fishman, Esq.
Fishman, Merrick, Miller, Genelly,
Springer, Klimek & Anderson, P.C.
30 North LaSalle Street
Suite 3500
Chicago, Illinois 60602
Facsimile: (312) 726-2649
If to SELLERS, to:
Virgil Scarbrough
4322 N.W. 88 Terrace
Coral Springs, FL 33065
Scott Davis
6445 N.W. 72 Way
Parkland, FL 33067
With a copy to:
Richard L. Katz, Esq.
Katz & Mestre
2100 Salzedo Street
Suite 300
Coral Gables, Florida 33134
Facsimile: (305) 447-8509
11.6 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.
11.7 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 to" unless otherwise specified; the word "or" means "and/or," and
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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.
11.8 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.
11.9 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.
11.10 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.
11.11 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.
11.12 Transaction Taxes. THI shall pay any and all taxes imposed upon the
initial issuance, and SELLERS shall pay any and all taxes imposed upon any
subsequent sale and exchange of the Common Stock and transfer of ownership
thereof.
11.13 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.
11.14 Section References. All references contained in this Agreement to
any section number are references to sections of this Agreement unless otherwise
specifically stated.
11.15 Brokers and Finders. Each party represents and warrants there are
no 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.
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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, as of the date first above written.
TERRACE HOLDINGS, INC.
By:
-------------------------------------
Samuel J. Lasko, President
-------------------------------------
Virgil Scarbrough
-------------------------------------
Scott Davis
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EXHIBIT 10.8
GUARANTY
--------
THIS GUARANTY is made as of this 7th day of August, 1997, by TERRACE
HOLDINGS, INC. , a Delaware Corporation (the "Guarantor") in favor of FOOTHILL
CAPITAL CORPORATION (the "Lender") pursuant to, and in order to induce Lender to
extend credit to DEERING ICE CREAM, INC. and A-ONE-A PRODUCE & PROVISIONS, INC.
(collectively the "Borrower"), pursuant to that certain Loan and Security
Agreement of even date herewith between the Lender and the Borrower, as the same
has been or may hereafter be amended, modified, extended, renewed, supplemented
or replaced from time to time, (the "Loan Agreement"), which shall be fair and
sufficient consideration for the execution of this Guaranty.
Section 1. Definitions. All capitalized words and terms used herein shall
have the meanings assigned to them in the Loan Agreement unless otherwise
defined herein.
Section 2. Guaranty.
(a) To induce the Lender to extend credit to the Borrower pursuant to
the Loan Agreement, and subject to the limitation set forth in Section 3, the
Guarantor hereby irrevocably and unconditionally guarantees to the Lender, its
successors and assigns (i) the full and prompt payment when due, whether by
acceleration or otherwise, with such interest as may accrue thereon either
before or after maturity thereof, of all of the Obligations, including, without
limitation, the Revolving Loans, together with all renewals, modifications,
consolidations, and extensions thereof, (ii) the full and prompt payment and
performance of all terms, conditions and covenants contained in the Loan
Agreement and (iii) the full and prompt performance of any and all other
obligations of the Borrower under any other documents or instruments referred to
in the Loan Agreement or now or hereafter evidencing, securing, or otherwise
relating to the Obligations or the Loan Agreement (hereinafter collectively
called the "Loan Documents"). The Guarantor hereby agrees that if any of the
Obligations or other monetary obligations, duties and covenants are not paid by
the Borrower in accordance with their respective terms or if any and all sums
which are now or may hereafter become due from the Borrower to the Lender under
or pursuant to any of the Obligations or the Loan Documents are not paid by the
Borrower in accordance with their terms, the Guarantor will make such payments.
The Guarantor hereby further agrees to pay the Lender all reasonable expenses
(including, without limitation, reasonable attorneys' fees and court costs) paid
or incurred by the Lender in endeavoring to enforce this Guaranty. This
Guaranty shall be a continuing Guaranty of all the Obligations and all of the
other obligations, duties and covenants of the Borrower created pursuant to any
and all of the Loan Documents, including, without limitation, any and all
advances, debts, obligations, covenants and liabilities heretofore, now or
hereafter made, incurred or created under and pursuant to any of the Loan
Documents whether voluntary or involuntary, absolute or contingent, liquidated
or unliquidated, determined or undetermined, and whether recovery upon such
obligations, duties and covenants may be or hereafter become unenforceable.
(b) As an additional inducement to the Lender to extend credit to the
Borrower, the Guarantor, if a stockholder of the Borrower, hereby covenants and
agrees not to transfer, assign, sell, convey or otherwise dispose of, grant any
option, warrant or other right with respect to, pledge, hypothecate or otherwise
encumber any of the capital stock of the Borrower owned by him without the prior
written consent of the Lender, which consent will not be unreasonably withheld,
except that the Borrower shall have the right to pledge such stock to Omnibus
Services, Inc.
Section 3. Limitation on Guaranty. The liability of the Guarantor
hereunder shall be unlimited.
Section 4. Guaranty of Collection. This is a guaranty of collection not of
payment. The Guarantor shall have no liability hereunder to the Lender until
the Lender has exhausted all recourse against the Collateral securing the
Obligations
Section 5. Guaranty Unconditional. The obligations of the Guarantor
hereunder are irrevocable, absolute and unconditional, irrespective of the
value, genuineness, validity, regularity or enforceability of any of the
Obligations or any term or provision of any of the Loan Documents or any other
document relating to the Obligations or the Loan Documents or any other
circumstance which might otherwise constitute a legal or equitable discharge or
defense of a surety or guarantor.
Section 6. Subordination and Waiver of Subrogation.
<PAGE>
(a) The Guarantor hereby subordinates all indebtedness of the Borrower to
the Guarantor, whether now existing or hereafter arising (the "Subordinated
Indebtedness"), to the full and prompt payment of the Obligations. Any amounts
received by the Guarantor as a payment on the Subordinated Indebtedness, other
than payments on Subordinated Indebtedness permitted under a subordination
agreement approved by the Lender, shall be retained and held in trust by the
Guarantor for the benefit of the Lender.
(b) The Guarantor agrees that no payment made hereunder by him shall
entitle him, at any time, to be subrogated to the rights of the Lender or any
other Guarantor with respect to any of the Obligations or other obligations,
duties and covenants created under and pursuant to any of the loan documents and
the Guarantor forever waives any rights to enforce any remedy of the Lender,
until payment and performance in full of the Obligations and all other
obligations, duties and covenants created under and pursuant to the Loan
Documents, which the Lender may now have, or may hereafter have, against the
Borrower, any other Guarantor or any other person and forever waives any benefit
of, or any right to participation in, any security interest or collateral
whatsoever now or hereafter held by the Lender until payment and performance in
full of the Obligations and all other obligations, duties and covenants created
under the Loan Documents which the Lender may now or hereafter have against the
Borrower, any other Guarantor or any other person.
Section 7. Representations and Warranties. The Guarantor represents and
warrants to the Lender that:
(a) The Guarantor has full power and authority to make and perform
this Guaranty and this Guaranty has been duly executed and delivered by the
Guarantor and constitutes the valid and legally binding obligation of the
Guarantor enforceable against him in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (whether
enforcement is sought by proceedings in equity or at law).
(b) The making and performance by the Guarantor of this Guaranty does
not and will not (i) contravene any existing provision of law or regulation or
any order, decree, writ or injunction of any court or administrative body or
(ii) result in a breach of or constitute a default or require any consent under
any contractual restriction binding on the Guarantor or on any of his
properties.
(c) The Guarantor will receive substantial benefit from the extensions
of credit to the Borrower pursuant to the Loan Documents.
(d) No consents, approvals, licenses or authorizations of, or filing
or registrations with, any governmental authority are required under applicable
federal or state law for the making and performance by the Guarantor of this
Guaranty.
(e) There is no action, suit , investigation or proceeding in any
court or before any arbitrator or regulatory commission, board, administrative
agency or other governmental authority pending or, to the knowledge of the
Guarantor, threatened which, if determined adversely to the Guarantor, would
materially and adversely affect his assets and properties or his ability to
perform his obligations hereunder. The Guarantor has provided the Lender with
information relating to all litigation in which he is a party, none of which the
Guarantor deems likely to have a material and adverse affect upon his assets and
properties.
(f) Except as previously disclosed to the Lender in writing, the
Guarantor is not in default in the payment of the principal of or interest on
any indebtedness for borrowed money and is not in default under any instrument
under and subject to which any indebtedness has been incurred and, to the
knowledge of the Guarantor, no event has occurred and is continuing under the
provisions of any such agreement which with the lapse of time or the giving of
notice, or both, would constitute an event of default thereunder, which default
would have a material adverse effect on his assets, the validity of the Guaranty
or the ability of the Guarantor to perform his obligations hereunder.
(g) The Guarantor is not insolvent (as defined in Section 101(31) of
the United States Bankruptcy Code), unable to pay debts as they mature or
engaged in business with unreasonably small capital; the Guarantor has filed all
federal, State, local and foreign tax returns which are required to be filed by
the Guarantor, and the Guarantor has paid all federal, State, local and foreign
taxes shown to be due on such tax returns or which have been assessed against
the Guarantor; the Guarantor is not or has not been the subject of any
bankruptcy, reorganization, insolvency, readjustment of debt, trusteeship,
receivership, dissolution or liquidation law, statute or proceeding.
Section 8. Consents. The Guarantor hereby consents and agrees that any or
all of the following actions may be taken or things done without notice to the
Guarantor and without affecting, diminishing or releasing the liability of the
Guarantor under this Guaranty:
(a) The time for the Borrower's performance of or compliance with any
of the Obligations or any
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other obligations, duties or covenants created under or pursuant to any of the
Loan Documents may be accelerated, renewed, modified, released or extended or
such performance or compliance may be waived by the Lender, including, without
limitation, the time of payment of the Obligations.
(b) The rate of interest under the Loan Agreement or other evidence of
indebtedness may be increased or decreased.
(c) Any of the acts referred to in any documents, instruments or
certificates evidencing or securing the Obligations or referred to in any of the
Loan Documents may be performed, in accordance with their terms, by the Borrower
or any other party for and or on behalf of the Borrower.
(d) As described therein or herein, the terms of any of the documents,
instruments or certificates evidencing or securing any of the Obligations or the
terms of the Loan Documents may be modified, extended or renewed for any period
for the purpose of adding any provisions thereto or changing in any manner the
rights of the Lender or of the Borrower thereunder.
(e) The Lender may grant releases, compromises and indulgences with
respect to any of the Obligations or any of the Loan Documents to any persons or
entities now or hereafter liable thereunder or hereunder.
(f) The Lender may release any guarantor or endorser of any of the
Obligations, the Loan Documents or any other covenant, obligation or duty
guaranteed hereby or referred to herein.
(g) The Lender may take or fail to take any action of any type
whatsoever without releasing the Guarantor's obligations hereunder or affecting
this Guaranty in any way or affording the Guarantor any recourse against the
Lender.
(h) Any property constituting security of any kind or nature
whatsoever now or hereafter held by the Lender or by any person, firm, trustee
or corporation on the Lender's behalf, or for its account, may be surrendered or
exchanged or substituted for collateral of like kind or of any kind, or such
property or security may be otherwise dealt with, and the Lender's interest
thereunder may be released or remain in effect, all as the Lender, in its sole
discretion, may deem desirable.
Section 9. Credit Information. The Guarantor assumes the responsibility
for being and keeping himself informed of the financial condition of the
Borrower and of all other circumstances bearing upon the risk of non-payment and
non-performance of the Obligations and of any obligations, duties and covenants
created under and pursuant to any of the Loan Documents; and, the Lender shall
have no duty to advise the Guarantor of information known to the Lender
regarding such condition or any such circumstances.
Section 10. Tolling of Statute of Limitations. The Guarantor agrees that
payment or performance of any of the Obligations or other acts which toll any
statute of limitations applicable to the Obligations or to any of the Loan
Documents shall also toll the statute of limitations applicable to the liability
of the Guarantor under this Guaranty.
Section 1 1. Waiver. The Guarantor unconditionally waives: (a)
diligence, presentment, demand for payment, protest, notice of dishonor and
notice of default;
(b) the benefit of any act or omission by the Lender which directly or
indirectly results in or aids the discharge of the Borrower or the Borrower's
payment and performance of the Obligations or any of the obligations, duties and
covenants created under or pursuant to any of the Loan Documents by operation of
law or otherwise;
(c) notice of acceptance of this Guaranty and the incurring of the
Obligations, or any of the obligations, duties and covenants created under or
pursuant to any of the Loan Documents;
(d) the provisions of Section 49-25 and 49-26 of the Code of Virginia
of 1950, asamended;
(e) any defense that may arise by reason of lack of authority of the
Guarantor or theincapacity or lack of authority, death or disability of any
other person or entity or the failure of the Lender to file or enforce a claim
against the estate (in bankruptcy or other proceeding) of the Borrower, the
Guarantor or any other person or entity;
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(f) any defense based on the failure of the Lender to give notice of
the existence, creation or incurring of any new or additional indebtedness or
obligation or any action or non-action on the part of any other person
whatsoever in connection with any of the obligations hereby guaranteed;
(g) any duty on the part of the Lender to disclose to the Guarantor
any facts the Lender may now or hereafter know with regard to the Borrower;
(h) any and all rights of subrogation, reimbursement, contribution,
indemnification, exoneration and all other rights and claims which the Guarantor
may now or hereafter have against the Borrower, or againstany other person
directly or indirectly, contingently or non-contingently, liable for or
obligated upon any of the Obligations ("Other Obligated Party"), arising on
account of this Guaranty or any sums paid by the Guarantor or collected by the
Lender pursuant to this Guaranty until payment and performance in full of the
Obligations, duties and covenants created under the Loan Documents which the
Lender may now or hereafter have against the Borrower, any other Guarantor or
any other person. In furtherance, and not in limitation, of the preceding
waiver, the Guarantor agrees that any sums paid by the Guarantor or collected by
the Lender pursuant to this Guaranty shall be deemed a contribution to the
capital of the Borrower or Other Obligated Party, as the case may be, and shall
not constitute the Guarantor a creditor of the Borrower or such Other Obligated
Party.
Section 12. Certain Rights, Remedies, Etc.
(a) In the event of any demand or default on this Guaranty or the
Obligations: (1) all Obligations shall become due and payable, together with
interest accrued to the date of payment, without notice, at the option of the
Lender; (2) the Guarantor shall reimburse the Lender for any expenses, costs and
attorneys' fees which the Lender may incur in connection with the collection of
any monies due under this Guaranty or in connection with the enforcement of any
right under this Guaranty.
(b) In pursuing its rights, under and pursuant to any of the Obligations or
any of the obligations, duties and covenants created under and pursuant to the
Loan Documents or under this Guaranty, the Lender need not join the Guarantor in
any suit against the Borrower under the Loan Documents or join the Borrower in
any suit against the Guarantor hereunder. The Guarantor hereby waives any right
to require the Lender to give notice of the terms, time and place of any public
or private sale of any Collateral now or hereafter securing the Obligations or
obligations, duties and covenants created under and pursuant to the Loan
Documents or to comply with any other provision of Section 9-504 of the Uniform
Commercial Code as enacted by the Commonwealth of Virginia.
(c) The books and records of the Lender showing the accounts between the
Lender and the Borrower shall be admissible in evidence in any action or
proceeding thereon as prima facie proof of the items set forth therein.
Section 13. No Set-Off. No act or omission of any kind or at any time on
the part of the Lender in respect to any matter whatsoever shall in any way
affect or impair the rights of the Lender to enforce any right, power or benefit
under this Guaranty and no set-off, claim, reduction or diminution of any
obligation or any defense of any kind or nature which the Guarantor has or may
have against the Lender shall be available against the Lender in any suit or
action brought by the Lender to enforce any right, power of benefit provided by
this Guaranty, provided that nothing herein shall prevent the assertion by the
Guarantor of any such claim by separate suit or counterclaim. Nothing in this
Guaranty shall be construed as a waiver by the Guarantor of any rights or claims
which he may have against the Lender hereunder or otherwise, but any recovery
upon such rights and claims shall be had from the Lender separately, it being
the intent of this Guaranty that the Guarantor shall be unconditionally and
absolutely obligated to perform fully all his obligations, covenants and
agreements hereunder for the benefit of the Lender.
Section 14. Notices. All notices, demands, approvals, consents, requests
and other communications hereunder shall be delivered by hand, sent prepaid by
Federal Express (or a comparable overnight delivery service) or sent by the
United States mail, certified, postage prepaid, return receipt requested, to the
Guarantor at its address specified on the signature page hereof, with a copy to
Adam Fishman, Esquire, Fishman & Merrick, P.C., 30 N. LaSalle, Suite 3500,
Chicago, Illinois 60602, and to the Lender at the address specified in the Loan
Agreement. Any notice, request, demand or other communication delivered or sent
in the manner aforesaid shall be deemed given or made (as the case may be) upon
the earliest of (a) the date it is actually received, (b) on the business day
after the day on which it is delivered by hand, (c) on the business day after
the day it is properly delivered to Federal Express (or a comparable overnight
delivery service) or (d) on the third business day after the day on which it is
deposited in the United States mail. Any party may change its address by
notifying the other party of the new address in any manner permitted by this
Section. Rejection or other refusal to accept, or the inability to deliver
because of a changed address of which no notice was given, shall not affect the
date of such notice, election or demand sent as aforesaid.
Section 15. Reinstatement. The liability of the Guarantor hereunder shall
be reinstated and revived and the rights of the Lender shall continue if and to
the extent that for any reason any payment by or on behalf of the Borrower or
the Guarantor is
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rescinded or must be otherwise restored by the Lender, whether as a result of
any proceedings in bankruptcy or reorganization or otherwise, and all decisions
as to whether any such payment must be rescinded or restored shall be made in
good faith by the Lender in its sole discretion; provided, however, that if the
Lender chooses to contest any such matter at the request of the Guarantor, the
Guarantor agrees to indemnify and hold the Lender harmless with respect to all
costs (including, without limitation, aftorneys'fees) of such litigation.
Section 16. No Waiver: Amendments, Etc. No failure on the part of the
Lender to exercise, no delay in exercising and no course of dealing with respect
to, any right hereunder shall operate as a waiver thereof; nor shall any single
or partial exercise of any right hereunder preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law. This
Guaranty may not be amended or modified except by written agreement of the
Guarantor and the Lender and no consent or waiver hereunder shall be valid as
against the Lender unless in writing and signed by the Lender.
Section 17. Insolvency. The voluntary or involuntary liquidation,
dissolution, sale or other disposition of all or substantially all the assets
and liabilities, the receivership, insolvency, bankruptcy, assignment for the
benefit of creditors, reorganization, or other proceeding affecting the Borrower
or the disaffirmance of the Obligations or any obligation, duty or covenant
created pursuant to any of the Loan Documents in any such proceeding shall not
release or discharge the Guarantor from this Guaranty.
Section 18. Jurisdiction, Venue and Waiver of Jury Trial.
(a) The forum having the proper jurisdiction and venue to adjudicate any
claim, dispute or default which may arise out of the execution and delivery of
this Guaranty and the performance of the Guarantor's obligations hereunder shall
be the Circuit Court of the City of Richmond, Virginia, and the proper appellate
courts of the Commonwealth of Virginia, or the United States District Court of
the Eastern District of Virginia, Richmond Division, and the proper appellate
courts of the United States, unless the Lender in its sole discretion chooses to
bring suit on its own behalf in some other court of competent jurisdiction. The
Guarantor expressly submits and consents to such jurisdiction and venue and
specifically waives any and all rights it may have to contest the jurisdiction
and/or venue of the above mentioned forums and to demand any other forums. The
Guarantor waives personal service of any and all legal process upon him and
consents and agrees that all such service may be made by Registered Mail
directed to the Guarantor at the address for notices set forth at the end of
this Agreement, and service so made shall be deemed to be completed on the date
the return receipt therefor is signed.
(b) TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH GUARANTOR
WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
BROUGHT BY EITHER PARTY AGAINST THE OTHER ON ANY MATTER ARISING OUT OF THIS
GUARANTY AND THE GUARANTOR'S OBLIGATIONS HEREUNDER.
THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE GUARANTOR,
AND THE GUARANTOR HEREBY REPRESENTS THAT NO REPRESENTATIONS OF FACT OR OPINION
HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN
ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE GUARANTOR FURTHER REPRESENTS THAT IT
HAS BEEN REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS
WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND THAT IT
HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.
Section 19. Entire Agreement. This Guaranty constitutes the entire
agreement, and supersedes all prior agreements and understandings, both written
and oral, between the Guarantor and the Lender with respect to the subject
matter hereof.
Section 20. Severability. The invalidity or unenforceability of any
phrase, sentence, clause or section in this Guaranty shall not affect the
validity or enforceability of the remaining portions of this Guaranty, or any
hereof.
Section 21. Construction. This Guaranty shall be construed and enforced in
accordance with the laws of the Commonwealth of Virginia without regard to its
rules with respect to choice of law. All references in this Guaranty to the
singular number and neuter gender shall be deemed to mean and include the plural
number and all genders, and vice versa, unless the context shall otherwise
require.
The Guarantor has executed this Guaranty as of the date first above
written.
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TERRACE HOLDINGS. INC.
By___________________________________________
Milton Naimot, Chief Executive Officer
Address for Notices:
2699 Stirling Road, Suite C-405
Fort Lauderdale, Florida 33312
COMMOMWEALTH OF VIRGINIA )
) TO WIT:
CITY OF RICHMOND )
On this day of August, 1997, before me, the undersigned officer,
personally appeared , known to me (or satisfactorily
proven) to be the person whose name is subscribed to within the instrument and
acknowledged that he executed the same for the purposes therein contained.
In witness whereof I hereunder set my hand and official seal.
Notary Public
My Commission expires:
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EXHIBIT 10.9
AGREEMENT TO SELL AND PURCHASE
------------------------------
THIS AGREEMENT TO SELL AND PURCHASE ("Agreement") made as of the 2nd day of
March, 1998, but effective as of January 1, 1998, by and among Terrace Holdings,
Inc., a Delaware corporation (the "Seller"), and Samuel H. Lasko or his designee
(individually and collectively, the "Buyer").
RECITALS
--------
WHEREAS, the Seller is the owner of all of the issued and outstanding
capital stock (the "Stock") of The Lasko Family Kosher Tours, Inc. ("TLFKT") and
A&E Management, Inc. ("A&E") (individually and collectively, the "Company"); and
WHEREAS, the Seller is also the owner of all of the issued and outstanding
capital stock of The Lasko Companies, Inc. ("TLC") which operates the Terrace
Oceanside Restaurant in Hallandale, Florida ("Restaurant"); and
WHEREAS, pursuant to that certain Option Agreement made as of the 17th day
of February, 1997, between the Seller and the Buyer ("Option Agreement"), the
Buyer was granted an option (the "Option"), to purchase all, or substantially
all, of the Subject Business (hereinafter defined) of the Company; and
WHEREAS, the Buyer has exercised the Option and desires to purchase the
Subject Business; and
WHEREAS, pursuant to the Option Agreement, the Seller and the Buyer agreed
that if the Buyer exercised the Option to purchase the Subject Business they
each would execute an Agreement substantially in the form hereof, and that the
sale and purchase of the Subject Business would be in accordance with the
provisions of this Agreement; and
WHEREAS, the parties hereto believe that the sale by the Seller to the
Buyer of the Subject Business will be in the best interests of the stockholders
of the Seller, and the Seller is willing to sell to the Buyer the Subject
Business on the terms and conditions set forth in this Agreement; and
WHEREAS, the Buyer is willing to purchase the Subject Business, on the
terms and conditions set forth in this Agreement; and
WHEREAS, the Buyer has notified the Seller of Buyer's intent to exclude TLC
from Buyer's exercise of his option, notwithstanding that Seller desires to sell
and dispose of the Restaurant business as well as the Subject Business; and
<PAGE>
WHEREAS, pending Seller's sale or other disposition of the Restaurant to a
third party, Seller desires to engage Buyer and Buyer is willing to be engaged
as the manager of the Restaurant on the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, for and in consideration of the premises, the mutual
covenants and agreements set forth, and other good and valuable considerations,
the receipt and adequacy of which are hereby acknowledged, the parties,
intending to be legally bound, do hereby agree as follows:
1. Sale and Purchase. Upon the terms and subject to the conditions of
this Agreement, on the Closing Date, as hereinafter defined, the Seller shall
sell, transfer, assign, convey and deliver to the Buyer, and the Buyer shall
purchase from the Seller, free and clear of all Encumbrances, all of the
Seller's right, title and interest in and to the Stock of the Company in
consideration of the Purchase Price.
(a) As used herein, the term "Purchase Price" shall mean and refer to
the price to be paid by Buyer for the Stock, which is the fair market value
of the Subject Business determined by The Durkin Company ("Durkin"), an
independent financial appraisal firm engaged for such purpose at Seller's
sole expense ("fairness opinion"). The Purchase Price has been accepted by
the Buyer and has the prior approval and recommendation thereof by a
committee of disinterested directors of the Seller appointed therefor and
Seller's full Board of Directors. Such Purchase Price in the aggregate is
$575,000. A copy of the fairness opinion dated February 5, 1998, is
attached hereto as Exhibit A.
(b) The Purchase Price shall be paid by Buyer by (i) surrendering his
current Employment Agreement expiring August 31, 2000 with Seller, which
Employment Agreement has been valued by Durkin at $417,807 (as of January
1, 1998), and (ii) the surrender to Seller by Buyer of 114,322 warrants to
purchase common stock of Seller ( at an exercise of $1.1875 per share),
which warrants have been valued by Durkin at $157,193.
2. Representations and Warranties. The Seller represents and warrants
that it owns all of the Stock free and clear of all encumbrances of any kind or
nature, and will, upon Closing hereof, deliver to the Buyer good and marketable
title to the Stock, free and clear of all encumbrances. The Seller
incorporates herein by this reference its representations and warranties
contained in Article 6 and the indemnities contained in Article 5 of that
certain Asset Acquisition Agreement dated as of December 9, 1996, as amended as
of February 7, 1997, by and among Seller and DownEast Frozen Desserts, LLC (the
"Acquisition Agreement") as though fully recited herein and as though made with
respect to the Subject Business and if any of such provisions are ambiguous,
such provisions shall be interpreted
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as if they pertain to the Subject Business. In addition, the Seller further
incorporates by reference, as though fully recited herein, such other provisions
of the Acquisition Agreement designed to protect the Buyer from and after the
Closing thereof from obligations not agreed to be assumed by Buyer thereunder or
hereunder.
3. Subject Business Revenues, Expenses and Income. At or prior to the
Closing hereunder, Seller shall cause the books, records and financial
statements of the Company, if any, for the calendar year 1998 to reflect only
the direct revenues, expenses, income, charges and similar matters directly
related to the operation of the Subject Business, and shall not reflect any
Seller corporate overhead in such fiscal year items, other than the following:
(a) compensation paid to or accrued for the Buyer; and
(b) a percentage of the legal and accounting fees equal to the
percentage that the revenues of the Subject Business bear to the total of
such revenues of the Seller in the aggregate shall be allocable to the
Subject Business.
The Company shall assume only those liabilities existing as of the Closing
which are directly related to the Subject Business, and such other liabilities
as are accepted by the Buyer. Direct expenses of TLFKT specifically incurred
or accrued in calendar year 1997 with respect to Passover, 1998, shall be
allocable to the Subject Business.
The assumption by the Company or Buyer of certain liabilities of the
Subject Business shall in no way expand the rights or remedies of any third
party against the Company or Buyer as compared to the rights and remedies which
such third party would have had against the Seller had the Company not assumed
such liabilities. Without limiting the generality of the preceding sentence,
the assumption by the Company of such certain liabilities pursuant to the
provisions hereof shall not create any third party beneficiary rights.
4. Closing. The consummation of the sale and purchase of the Stock
provided for in Section 1 (the "Closing") will be made, against delivery of
conveyance and transfer by appropriate instruments of transfer, including but
not limited to assignments, approvals, or such other appropriate instruments as
are requested by the Buyer which convey all of the Seller's right, title and
interest in and to the Stock of the Company to the Buyer, at two o'clock p.m. on
March 11, 1998 (such date and time being herein referred to as the "Closing
Date"), at the offices of Fishman, Merrick, Miller, Genelly, Springer, Klimek &
Anderson, P.C., 125 South Wacker Drive, Suite 2800, Chicago, Illinois 60606, or
such other time and place as shall be mutually agreed between the parties,
subject, however, to the provisions of Section 26 hereof. The effective date of
the transactions contemplated herein shall be as of January 1, 1998.
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The obligation of the Buyer to consummate the transactions contemplated
under this Agreement shall, at the option of the Buyer, be subject to the
satisfaction, on or prior to the Closing Date, of the following conditions set
forth in this Section 4. The Buyer may waive any or all of such conditions in
whole or in part without prior notice; provided, however, that no such waiver
shall constitute a waiver by the Buyer of any of its other rights or remedies,
at law or in equity if the Seller shall be in violation of any of its
representations, warranties, covenants, agreements or obligations under this
Agreement.
(a) There shall have been no breach by the Seller in the performance
of any of its covenants and agreements herein; each of the representations
and warranties of Seller contained or referred to herein shall be true and
correct in all respects on the Closing Date as though made on the Closing
Date, except for changes resulting from any transaction expressly consented
to in writing by the Buyer; and there shall have been delivered to Buyer a
certificate or certificates to such effect, dated the Closing Date, signed
by or on behalf of the Seller by its Chief Executive Officer or Executive
Vice President.
(b) The Seller shall have taken all corporate action necessary to
approve the transaction contemplated by this Agreement, and shall have
furnished the Buyer with certified copies of resolutions adopted by its
Board of Directors and stockholders in connection with such transaction, in
each case in form and substance reasonably satisfactory to counsel for the
Buyer.
(c) There shall not be in effect or, to the best knowledge of the
Seller, threatened any Order (preliminary, permanent or temporary) by a
Governmental Body of competent jurisdiction and no Legal Requirement shall
have been promulgated or enacted which, in any case, restrains or prohibits
the transaction contemplated hereby.
(d) The Seller shall have delivered to the Buyer such evidence as the
Buyer may request of the receipt of all actions and approvals to consummate
the transactions contemplated hereby.
(e) There shall not be pending or threatened any action or proceeding
by or before any court or other governmental body which shall seek to
restrain, prohibit or invalidate the sale of the Subject Business to the
Buyer, or which might affect the right of the Buyer to own, operate in
their entirety or control the Subject Business.
Any sales or other transfer taxes payable by reason of the transfer and
conveyance of the Stock to be sold, assigned, transferred and delivered
hereunder shall be paid by the Seller.
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5. Seller Non-Solicitation. For a period of three years from the Closing
Date, neither the Seller nor any of its affiliates will directly or indirectly
induce or attempt to induce any employee of the Subject Business or of the Buyer
following the Closing to leave the employ of the Buyer or in any way interfere
with the relationship between any such employee and the Buyer. The Seller
agrees that the foregoing covenant is reasonable and that any remedy at law for
any breach by it of this would be inadequate, and that, in addition to other
rights or remedies existing in the Buyer's favor, the Buyer shall be entitled to
injunctive relief for any such breach, without bond. If a court of competent
jurisdiction declines to enforce this provision on the grounds that the
restrictions are too onerous or otherwise not necessary for the protection of
the Buyer, the parties hereto agree that the maximum period and scope
permissible under such circumstances will be substituted for the period and
scope stated herein.
6. Management of Restaurant. From and after the date hereof, Buyer or
his designee shall manage and operate the Restaurant for and on behalf of Seller
in accordance with a management agreement substantially in the form of Exhibit B
attached hereto. Said management agreement shall provide a management fee, if
any, to be paid to Buyer as therein set forth and shall terminate on the earlier
of the end of the calendar month one year after the Closing hereunder occurs or
the date of sale or other disposition by Seller of TLC or the Restaurant.
7. Indemnification.
(a) Indemnification by the Seller. The Seller hereby indemnifies and
holds harmless Buyer, his Affiliates, each of their respective directors,
officers, employees and agents, and each of the heirs, executors,
successors and assigns of each of the foregoing (collectively, the "Buyer
Indemnified Parties") from and against any and all Losses and Expenses
incurred by any Buyer Indemnified Party in connection with, resulting from
or arising out of:
(i) any breach by the Seller, or any other failure of the Seller
to perform, any of its covenants, agreements or obligations in this
Agreement or in any executed agreement or instrument contemplated
hereby; or
(ii) any breach of any warranty or the inaccuracy of any
representation of the Seller contained or referred to in this
Agreement or in any certificate delivered by or on behalf of the
Seller pursuant hereto.
(b) Indemnification by Buyer. The Buyer hereby indemnifies and holds
harmless the Seller, its Affiliates, its respective directors, officers,
employees and agents, and each of the heirs, executors, successors and
assigns of each of the
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foregoing (the "Seller Indemnified Parties") from and against any and all
Losses and Expenses incurred by any Seller Indemnified Party in connection
with, resulting from or arising out of any material breach by the Buyer of
this Agreement.
(c) Notice and Other Provisions. Promptly after receipt by an
indemnified party hereunder of notice of the commencement of any action,
claim or other fact or occurrence for which indemnification is due pursuant
to this Agreement, such indemnified party shall, if a claim in respect
thereof is to be made against the indemnifying party hereunder, notify the
indemnifying party in writing of such claim or the commencement thereof
within a reasonable time hereafter; but the omission so to notify the
indemnifying party shall not relieve the indemnifying party from any
liability which it may have to any indemnified party hereunder except to
the extent the failure to so notify the indemnifying party resulted in
Losses. In case any such action shall be brought against any indemnified
party, and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate in, and,
to the extent that it shall wish, to assume the defense thereof, with
counsel satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it which are
different from or additional to those available to the indemnifying party,
the indemnified party shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of
such action on behalf of such indemnified party or parties. Upon receipt of
notice from the indemnifying party to such indemnified party of its
election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to
such indemnified party under this section for any legal or other Expenses
subsequently incurred by such indemnified party in connection with the
defense thereof unless (i) the indemnified party shall have employed such
counsel in connection with the assumption of legal defenses in accordance
with the proviso to the preceding sentence (it being understood, however,
that the indemnifying party shall not be liable for the expenses of more
than one separate counsel, approved by the indemnified party), (ii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the action or (iii) the indemnifying
party has authorized the employment of counsel for the indemnified party at
the expense of the indemnifying party. Notwithstanding any provision to the
contrary, neither the Seller nor the Buyer shall be liable for amounts paid
in settlement of any litigation or claim if such settlement was effected
without its or his consent.
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8. Public Announcements. Until such time as may be mutually agreed upon
by the parties to this Agreement, neither party hereto shall, without the
approval of the other party, make or cause to be made any press release or other
public announcement concerning the transactions contemplated by this Agreement
except and as to the extent required by law or regulation, including without
limitation applicable federal and state securities laws and regulations.
9. Expenses. Except as otherwise expressly set forth herein, the Seller
shall pay or reimburse expenses of the parties incident to the performance and
enforcement of this Agreement (including all fees and expenses of respective
counsel, accountants and other consultants, advisors and representatives),
whether or not the transactions contemplated hereby are consummated.
10. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior agreements, arrangements, covenants, promises, conditions, understandings,
inducements, representations and negotiations, expressed or implied, written or
oral, between them as to such subject matter.
11. Specific Performance; Other Rights and Remedies. The parties recognize
that certain of their rights under this Agreement are unique and, accordingly,
in addition to such other remedies as may be available to any of them at law or
in equity, the parties shall have the right to enforce their rights hereunder by
actions for injunctive relief and specific performance to the extent permitted
by law, without bond.
12. Waivers; Amendments. Any amendments to or modifications of this
Agreement shall be made only with the written consent of the party entitled to
the benefit thereof. Any such waiver shall not operate as a further or
continuing waiver hereunder, nor shall any failure to enforce or require strict
performance operate as a waiver hereunder except as is expressly set forth
herein and no such waiver shall be effective unless in writing.
13. Assignments; Successors and Assigns. This Agreement shall not be
assignable by any party without the prior written consent of the other;
provided, however, that notwithstanding the foregoing, the Buyer shall have the
right to designate an Affiliate or Affiliates to receive, acquire and assume the
Stock or the Subject Business.
This Agreement shall be binding and inure to the benefit of the parties
hereto and their respective heirs, successors and permitted assigns, including
without limitation successors by operation of law pursuant to any merger,
consolidation or sale of assets involving any of the parties.
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14. Notices. All notices and other communications permitted or required
under this Agreement shall be given in writing and shall be (a) mailed by First
Class or Express Mail, postage prepaid, (b) sent by facsimile or other form of
rapid transmission, confirmed thereafter as in (a) above, or (c) personally
delivered to the receiving party. All such notices and communications shall be
mailed, sent or delivered as follows:
If to the Seller, at:
Terrace Holdings, Inc.
1351 N.W. 22nd Street
Pompano Beach, Florida 33069
Facsimile: (954) 917-7552
If to the Buyer, at:
Samuel H. Lasko
c/o 4201 North Hills Drive
Hollywood, Florida 33021
Facsimile: (954) 981-9121
or to such other persons as the party to receive such communication or notice
may have designated by written notice to the other party. Notice shall be
effective when given, except in the case of notice by mail, which shall become
effective two business days after mailing provided there is written proof of
such mailing.
15. Severability. The invalidity, illegality or unenforceability of any of
the provisions of this Agreement shall not invalidate the balance hereof, but
this Agreement shall be reformed and construed as if such invalid, illegal or
unenforceable provision(s) were not contained herein. The parties shall endeavor
in good faith negotiations to replace the invalid, illegal or unenforceable
provision(s) with valid, legal and enforceable provisions, the economic effect
of which comes as close as possible to that of the invalid, illegal or
unenforceable provision(s).
16. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which shall constitute one
and the same instrument binding upon the parties hereto.
17. Further Acts. The parties hereto each agree that any time, and from
time to time, before and after the consummation of the transactions contemplated
by this Agreement, it/he will do all such things and execute and deliver all
agreements, assignments, instruments, other documents and assurances, as any
other party or its/his counsel reasonably deems
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necessary or desirable in order to carry out the terms and conditions of this
Agreement and the transactions contemplated hereby or to facilitate the
enjoyment of any of the rights created hereby or to be created hereunder.
18. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by and construed under the laws
of the State of Florida without giving effect to any choice or conflicts of laws
provisions.
19. Consent to Jurisdiction and Service. Each of the parties hereby
consents and submits to the jurisdiction of the courts of the State of Florida
and of any federal court located in said jurisdiction in connection with any
actions or proceedings brought against it by any other party to this Agreement
arising out of or relating to this Agreement and hereby agrees that any and all
claims in respect of any such act or proceeding may be heard and determined in
any such court.
20. Inspection and Information. The Buyer may on or prior to the Closing
hereunder, through its representatives and counsel, make such investigation of
the business, properties and assets, and of the financial and legal condition of
the Company and the Subject Business, as the Buyer may deem necessary or
advisable, and the Seller agrees, at its expense, to cooperate therewith and
make all persons and documents relevant to such inquiry reasonably available.
21. Section Headings. The headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning of
interpretation of this Agreement.
22. Certain Terminology. Whenever used herein, the singular number shall
include the plural, the plural shall include the singular, and the use of any
gender shall include all genders, except where the context otherwise requires,
reference to "this section" or words of similar import shall be deemed to refer
to the entire section and not a particular subsection and references to
"hereunder," "herein," "hereof" or words of similar import shall be deemed to
refer to the entire Agreement and not the particular section or subsection.
23. Termination. Anything contained in this Agreement to the contrary
notwithstanding, this Agreement may be terminated at any time prior to the
Closing Date (a) by the mutual consent of the Buyer and the Seller, (b) by the
Buyer, on the one hand, or the Seller, on the other hand, if the Seller, on the
one hand, or the Buyer on the other hand, shall have materially breached any of
their respective agreements, obligations or covenants contained in this
Agreement or if any of their respective representations or warranties contained
in this Agreement shall have been inaccurate when made. In the event that this
Agreement shall be terminated pursuant to this Section 23, all further
obligations of the
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parties under this Agreement (other than Sections 6, 7 and 10) shall be
terminated without further liability of any party to the other, provided that
nothing herein shall relieve any party from liability for its breach of this
Agreement.
24. Definitions. As used herein, unless context otherwise requires, the
following terms shall have the following respective meanings:
(a) "Affiliate" of any person shall mean any person which directly or
indirectly owns or controls or is under common ownership or control with or
is controlled by such person.
(b) "Expenses" means any and all expenses (i) reasonably incurred in
connection with investigating, preparing and defending, bringing or
prosecuting any claim, action, suit or proceeding (including, without
limitation, court filing fees, court costs, arbitration fees or costs,
witness fees, and reasonable fees and disbursement of legal counsel,
investigators, expert witnesses, accountants and other professionals) and
(ii) incurred by a Governmental Body and legally required to be paid by any
indemnified person.
(c) "Governmental Body" means any court, government (federal, state,
local or foreign), department, commission, board, agency, official or other
regulatory, administrative or governmental authority.
(d) "Legal Requirement" means any law, statute, rule, regulation,
ordinance, variance, directive, code or requirement of any Governmental
Body.
(e) "Liabilities" means all indebtedness, liabilities, obligations
and commitments of the Company directly related to the Subject Business and
shown on the balance sheet of the Company and which are outstanding at the
time of Closing.
(f) "Losses" means any and all losses, costs, obligations,
liabilities, settlement payments, awards, judgments, fines, penalties,
damages, expenses, deficiencies or other charges, but shall not include
Expenses.
(g) "Order" means any order, writ, injunction, ruling, judgment,
stipulation or decree by or with any Governmental Body.
(h) "Subject Business" shall mean and refer to all of the business,
assets, (subject to Section 3 hereof), Contracts and other items used or
useful in the operations of the Company and the Division of the Seller, all
as listed on Exhibit A attached hereto, or to be attached under Section 4
prior to the Closing.
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25. Joint Representation. The parties hereto expressly acknowledge and
agree that they each have requested the law firm of Fishman, Merrick, Miller,
Genelly, Springer, Klimek & Anderson, P.C. to represent them jointly with
respect to this Agreement and related matters and they acknowledge and expressly
waive any right or opportunity to assert a claim against said Fishman, Merrick,
Miller, Genelly, Springer, Klimek & Anderson, P.C. by reason of conflict of
interest. The parties further acknowledge, understand and agree that in the
event of any dispute between them under this Agreement or relating to the
matters contemplated herein that said Fishman, Merrick, Miller, Genelly,
Springer, Klimek & Anderson, P.C. will withdraw as counsel to either party
therein, but may continue to act as counsel to both parties in other matters
without any limitation whatsoever subject only to the applicable Code of
Professional Responsibility requirements as said firm shall determine.
26. Stockholders' Vote Requirement. The transactions contemplated by this
Agreement shall be submitted for ratification by a majority of the stockholders
of Seller voting thereon at a meeting of Seller's stockholders duly called.
Seller shall submit this transaction for such ratification at its 1998 Annual
Meeting of Stockholders or as soon thereafter as is practicable. The
transactions contemplated and consummated hereunder shall be deemed ratified
upon the Seller receiving such affirmative vote of a majority of shareholders
voting at such meeting.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
TERRACE HOLDINGS, INC.
By:___________________________
Steven Shulman, Chairman
and Chief Executive Officer
______________________________
Samuel H. Lasko
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EXHIBIT A
FAIRNESS OPINION
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EXHIBIT B
MANAGEMENT AGREEMENT
<PAGE>
EXHIBIT 10.10
MANAGEMENT AGREEMENT
--------------------
This Management Agreement is made as of March 2, 1998, between Terrace
Holdings, Inc. ("Terrace"), and Samuel H. Lasko or his designee ("Manager").
WHEREAS, Terrace wholly owns The Lasko Companies, Inc. ("TLC") which
operates a restaurant business at The Hemispheres, Hallandale, Florida
("Restaurant"); and
WHEREAS, Terrace desires to retain Manager to operate and manage the
business and activities of the Restaurant under and in accordance with the terms
and conditions hereinafter set forth; and
WHEREAS, Manager desires to accept such retention under and in accordance
with the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises, the mutual covenants and
agreements herein contained and other valuable consideration, the receipt and
adequacy whereof are hereby acknowledged, Manager and Terrace, intending to be
legally bound, do hereby covenant and agree as follows:
Section 1. Responsibilities, Duties and Services.
1.1 Terrace hereby engages Manager to render services and perform duties
in connection with the operation of the Restaurant, as hereinafter set forth,
and Manager hereby accepts such engagement. Manager shall be responsible for
the day to day management and operation of the Restaurant's business and
affairs, with full power and authority to act on behalf of and bind the
Restaurant.
1.2 Manager's managerial and supervisory authority shall be subject to the
ultimate responsibility of Terrace and TLC as owner of the Restaurant. Without
limiting the generality of the foregoing:
(a) Manager shall be obligated for the full and faithful performance
of all duties relative to the proper and appropriate operation and
management of the Restaurant, including without limitation full and
complete compliance with all applicable governmental requirements.
Anything herein to the contrary notwithstanding, all operations,
management, internal procedures, controls and practices as administered and
supervised by Manager shall be in full compliance with and subject to all
such procedures and policies of Terrace. Nothing in this Agreement shall
be construed to constitute Terrace and Manager as agents of each other,
copartners or joint venturers, it being contemplated that Manager shall
only operate and manage the Restaurant in accordance herewith.
<PAGE>
(b) Nothing in this Agreement shall preclude or prohibit Manager or
its personnel or Affiliates from continuing to operate and be engaged in
any business in the same manner as Manager and such personnel and
Affiliates currently may be engaged, during the term or any extension of
this Agreement, notwithstanding that such activities may directly compete
with the Restaurant or its business and activities.
Section 2. Management Fees.
2.1 Subject to the provisions of this Management Agreement, Terrace shall
pay to Manager a management fee equal to $100, payable upon execution hereof.
Section 3. Representations.
Each of the parties represents and warrants to the other party that:
(a) This Agreement has been duly and validly executed and delivered by
it and constitutes its legal, valid and binding obligation, enforceable
against it in accordance with its terms, except as (i) the enforceability
thereof may be affected by bankruptcy, insolvency, reorganization,
marshalling, moratorium and other similar laws of general application
affecting the rights and remedies of creditors and secured parties and the
obligations of debtors, and (ii) the availability of equitable remedies may
be limited by equitable principles of general applicability.
(b) Neither the execution and delivery of this Agreement nor any other
agreement or document to be executed and delivered pursuant hereto, nor
compliance with the terms, conditions and provisions hereof, by it:
(i) will conflict with, or result in a breach or violation of, or
constitute a default under, any of the terms, conditions or provisions
of any law; or
(ii) will conflict with, or result in breach or violation of or
constitute a default in the performance, observance or fulfillment of
any obligation, covenant or condition contained in, or constitute, or
but for any requirement of giving of notice or passage of time or both
would constitute, an event of default by it under, any obligation,
covenant or condition contained in the charter or by-laws or
partnership agreement or certificate of such party or any contractual
obligation or constitute, or but for any requirement of giving of
notice or passage of time or both
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would constitute, an event of default by it under, any contractual
obligation.
(c) Terrace and TLC, each is a corporation duly organized and validly
existing under the laws of its jurisdiction of organization with all
requisite power and authority, corporate and other, to execute and deliver
and perform its obligations under this Agreement.
Section 4. Term of the Agreement.
The term of this Agreement shall commence on the date hereof and shall
terminate upon the earliest to occur of any of the following:
(a) Upon the consent in writing of the parties; or
(b) At 12:00 midnight, Eastern time, one year from the date hereof; or
(c) By either party, in its sole discretion, upon the occurrence of
any of the following events:
(i) upon the occurrence of any Act of Bankruptcy with respect to
the other party; or
(ii) upon the occurrence by either party of a material breach of
its obligations under this Agreement which is not cured within ten
days of written notice from the other party of such breach; or
(d) At such time that Terrace consummates a sale or other disposition
of the Restaurant or TLC.
If this Agreement is terminated, there shall continue any liability which
would otherwise exist under this Agreement for any breach of this Agreement
which is based on a refusal or failure to perform obligations to be performed on
or prior to the date of termination and for any breach of or any erroneous or
untrue representation and warranty.
Section 5. Indemnification.
(a) Terrace agrees to indemnify and hold harmless Manager against any and
all Claims to the extent that such Claims are based upon, arise out of or relate
to (i) any inaccurate, untruthful or erroneous representation or any breach of
any warranty or any failure to perform or comply with any of the covenants,
conditions or agreements of Terrace or TLC set forth in this Agreement or in any
agreements, instruments, other documents or certificates delivered pursuant
hereto or thereto or (ii) any act or omission to act by Terrace
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or TLC which results in Manager incurring any liability or (iii) any other
claim, obligation or liability arising out of the business or operation of the
Restaurant, direct, indirect, contingent or consequential, unless directly
caused by Manager's gross negligence or wilful or wanton misconduct.
(b) Manager agrees to indemnify and hold harmless Terrace against any and
all Claims to the extent such Claims are based upon, arise out of or relate to
(i) any material misrepresentation or any material breach of any warranty or any
direct wilful or wanton failure to perform or comply with any of the covenants,
conditions or agreements of Manager set forth in this Agreement or in any
agreements, instruments, other documents or certificates delivered pursuant
hereto, or (ii) any direct grossly negligent act or omission to act or direct
wilful or wanton misconduct by Manager which results in Terrace incurring any
liability.
(c) (i) If a claim or demand is made against either Manager or Terrace by
a third party which gives or may give rise to indemnification under these
provisions, the party claiming indemnification (the "Indemnified Party") shall
promptly notify the other party (the "Indemnifying Party") in writing of such
claim or demand. Failure of the Indemnified Party to so provide written notice
shall not relieve the Indemnifying Party from liability under these provisions
except and solely to the extent damages result from such failure. Following
such notice, the Indemnifying Party shall assume the defense of such claim or
demand through attorneys of its choosing, provided that such attorneys shall be
reasonably satisfactory to the Indemnified Party and shall not be the regular
attorneys for the Indemnifying Party unless the Indemnified Party consents. The
Indemnifying Party shall pay all costs and expenses to contest or defend any
such claim or demand. The Indemnified Party shall have the right to employ
separate counsel and to participate in the defense of any claim or demand, but
shall pay the costs and expenses of such separate counsel unless any of the
following are present, in which event the Indemnifying Party shall pay all costs
and expenses of such separate counsel:
(1) the Indemnifying Party has agreed to pay such fees and expenses;
or
(2) the Indemnifying Party has failed to assume the defense of such
claim or demand, or has failed to employ counsel satisfactory to the
Indemnified Party; or
(3) representation of both Terrace, TLC and Manager by the same
counsel would be inappropriate due to actual or potential material
differing interests between them, in which event the Indemnifying Party
shall not have the right to assume the defense of such claim or demand on
behalf of the Indemnified Party if it elects to employ separate counsel.
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(ii) Any such claim or demand by a third party may be settled,
compromised or paid by the Indemnifying Party without the consent of the
Indemnified Party unless:
(1) the Indemnified Party would be liable for or subject to any
portion thereof; or
(2) the terms of such settlement, compromise or payment could
reasonably be expected to have a material adverse effect on the future
business or financial condition of the Indemnified Party,
in which event, the Indemnified Party's prior written consent is required for
any such settlement, compromise or payment.
(d) In the event that any action or proceeding is commenced by any party
hereto for the purpose of enforcing any provision of this Agreement, the parties
to such action or proceeding or arbitration may receive as part of any award,
judgment, decision or other resolution of such action or proceeding their costs
and reasonable attorneys' fees as determined by the person or body making such
award, judgment, decision or resolution. Should any claim hereunder be settled
short of the commencement of any such action or proceeding, the parties in such
settlement shall be entitled to include as part of the damages alleged to have
been incurred reasonable costs of attorneys or other professionals in
investigation or counseling on such claim.
Section 6. Definitions.
As used herein, unless the context otherwise requires, the following terms
have the following respective meanings. Terms defined in the singular shall
have a comparable meaning when used in the plural and vice versa, and the
reference to any gender shall be deemed to include all genders.
"Act of Bankruptcy," when used with reference to any Person, shall mean any
of the following events or occurrences:
(a) its admitting in writing its inability to pay its debts generally
as they become due; or
(b) its commencement of a voluntary case under the Bankruptcy Code as
from time to time in effect, or its authorizing, by appropriate proceedings
of its board of directors or other governing body, the commencement of such
a voluntary case; or
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(c) the filing against it or any substantial part of its property of a
petition commencing an involuntary case under the Bankruptcy Code which is
not dismissed within thirty (30) days; or
(d) its seeking relief as a debtor under any applicable law, other
than the Bankruptcy Code, of any jurisdiction relating to the liquidation
or reorganization of debtors or to the modification or alteration of the
rights of creditors, or its consenting to or acquiescing in such relief or
its admitting or acquiescing in or failing promptly and in an appropriate
manner to deny the material allegations of any petition seeking such
relief; or
(e) the entry of an order by a court (or other ruling body) of
competent jurisdiction (i) finding it to be bankrupt or insolvent, (ii)
ordering or approving its liquidation, reorganization or any modification
or alteration of the rights of its creditors, or (iii) assuming custody of,
or appointing a receiver, trustee, sequestrator, conservator, liquidator,
fiscal agent or other custodian for, all or a substantial part of it
property; or
(f) its making an assignment for the benefit of, or entering into a
composition with, its creditors; or
(g) its seeking or consenting to or acquiescing in the appointment of
a receiver, trustee, sequestrator, conservator, liquidator, fiscal agent or
other custodian of itself or of any substantial part of its property; or
(h) its winding-up, liquidation or dissolution, or its authorization,
by appropriate action of its board of directors or other governing body, of
any of the foregoing.
"Affiliate" of any Person shall mean any Person which, directly or
indirectly, owns or controls, is under common ownership or control with, or is
owned or controlled by, such Person.
"Bankruptcy Code" shall mean 11 U.S.C. (S) 101 et seq., as from time to
time hereafter amended, and any successor or similar statute and any similar
law, statute, regulation or rule of any jurisdiction other than the United
States of America.
"Claims" shall mean any and all liabilities, obligations, losses, damages,
deficiencies, claims, assessments, penalties, actions, proceedings, suits and
judgments of whatever kind and nature and all fees, costs and expenses
(including, without limitation, attorneys' fees and expenses and legal costs)
relating thereto.
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"Entity" shall mean any corporation, unincorporated association,
partnership, business trust, trust, joint stock company, joint venture or other
organization, entity or business, or any Governmental Authority.
"Legal Action" shall mean any litigation or legal or other actions, suits,
proceedings, investigations or arbitration, at law or in equity or admiralty
(including without limitation any voluntary or involuntary proceedings under the
Bankruptcy Code or any comparable law or statute of any other Governmental
Authority).
"Manager" is defined in the preambles to this Agreement.
"Person" shall mean any individual or any Entity.
Section 7. Nature and Survival of Representations and Warranties.
The parties shall not be liable or bound in any manner by expressed or
implied representations, warranties, covenants, agreements or indemnifications
pertaining to the subject matter of this Agreement, or any other matter
whatsoever, made or furnished by any officer, director, partner, employee,
stockholder, attorney, principal, controlling person, agent or other person
representing or purporting to represent one of the parties unless such
representations, warranties, covenants, agreements or indemnifications are
expressly and specifically set forth herein or in any schedule, exhibit or other
document expressly made a part hereof or in any certificate or other document
delivered pursuant to the provisions of this Agreement.
The representations, warranties, covenants, agreements and indemnifications
set forth or otherwise provided for in this Agreement shall survive the
termination of this Agreement and shall not be deemed waived or otherwise
affected by any investigation made by or on behalf of any party hereto.
All representations, warranties, covenants, agreements and indemnifications
made in this Agreement or in any agreement, instrument, other document or
certificates delivered in connection with the transactions contemplated hereby
shall be deemed material and relied on by each party notwithstanding any
investigation made by it or on its behalf.
Section 8. Confidentiality.
Each party, except as reasonably necessary to complete the transactions
contemplated hereby and except as otherwise required by any Governmental
Requirement, including without limitation applicable securities laws, shall use
its best efforts to maintain the confidentiality of the terms and conditions of
this Agreement and the transactions contemplated hereby. The provisions of this
Section shall survive any termination of this Agreement or the consummation of
the transactions contemplated hereby.
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Section 9. Entire Agreement.
This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior agreements,
arrangements, covenants, promises, conditions, understandings, inducements,
representations and negotiations, expressed or impled, written or oral, between
them as to such subject matter.
Section 10. Waivers; Amendments.
Anything in this Agreement to the contrary notwithstanding, amendments to
and modifications of this Agreement may be made, required consents and approvals
may be granted, compliance with any term, covenant, agreement, condition or
other provision set forth herein may be omitted or waived, and
misrepresentations and breaches of warranties may be waived, either generally or
in a particular instance and either retroactively or prospectively with, but
only with, the written consent of the party entitled to the benefit thereof. Any
waiver of any terms, covenants, agreements, conditions or other provisions, any
breach of any warranty or any misrepresentation, set forth in this Agreement, in
any one instance, shall not operate as or be deemed to be or construed as a
further or continuing waiver of any other breach of such terms, covenants,
agreements, conditions, representations or warranties or any other term,
covenant, agreement, condition, agreement, provision, representation or
warranty, nor shall any failure at any time or times to enforce or require
strict performance of any provision hereof operate as a waiver of or affect in
any manner such party's right at a later time to enforce or require performance
of such provision or of any other provision hereof. No such waiver shall be
effective unless in writing. No delay on the part of any party at any time or
times in the exercise of any right or remedy shall operate as a waiver thereof.
The failure of a party hereto at any time or times to insist upon strict
compliance with any term, covenant, agreement, condition or other provision or
to exercise any right or remedy with respect to such failure or to require
performance of any thereof shall in no manner affect its right at a later time
to enforce the same or constitute a waiver of any such term, covenant,
agreement, condition or other provision or any breach or default in connection
therewith. Any waiver or consent may be given subject to satisfaction of the
conditions stated therein.
Section 11. Assignment, Successors and Assigns.
This Agreement shall not be assignable by either party without the prior
written consent of the other; provided, however, that notwithstanding the
foregoing, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, including,
without limitation, successors by operation of law pursuant to any merger,
consolidation or sale of assets involving any of the parties.
Nothing in this Agreement expressed or implied is intended to and shall not
be construed to confer upon or create in any person (other than the parties
hereto and their successors and
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permitted assigns) any rights or remedies under or by reason of this Agreement,
including without limitation any rights to enforce this Agreement.
Section 12. Notices and Representation.
All notices and other communications which by any provision of this
Agreement are required or permitted to be given shall be given in writing and
shall be (a) mailed by first-class or express mail, postage prepaid, (b) sent by
telex, telegram, fax or other form of rapid transmission, confirmed by mailing
(by first class or express mail, postage prepaid) written confirmation at
substantially the same time as such rapid transmission, or (c) personally
delivered to the receiving party (which if other than an individual shall be an
officer or other responsible party of the receiving party). All such notices
and communications shall be mailed, sent or delivered as follows:
If to Manager, at:
4201 North Hills Drive
Hollywood, Florida 33021
954-981-9121 fax
If to Terrace, at:
Terrace Holdings, Inc.
1351 N.W. 22nd Street
Pompano Beach, Florida 33069
954-917-7552 fax
or to such other person(s), telex or facsimile number(s) or address(es) as the
party to receive any such communication or notice may have designated by written
notice to the other party.
A notice delivered in person shall be effective when given; a notice sent
by mail shall not become effective until received by the person to whom it is
given, unless it is mailed by registered mail, in which case it shall be deemed
effective on the earlier of the date of receipt or the third business day after
it has been mailed; a notice sent by telex, telegram, telecopy or other form of
rapid transmission shall be deemed to be given when receipt of such transmission
is acknowledged.
The parties hereto expressly acknowledge and agree that they each have
requested the law firm of Fishman, Merrick, Miller, Genelly, Springer, Klimek &
Anderson, P.C. to represent them jointly with respect to this Agreement and
related matters and they acknowledge and expressly waive any right or
opportunity to assert a claim against said Fishman, Merrick, Miller, Genelly,
Springer, Klimek & Anderson, P.C. by reason of conflict of interest. The
parties further acknowledge, understand and agree that in the event of any
dispute between them under
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this Agreement or relating to the matters contemplated herein that said Fishman,
Merrick, Miller, Genelly, Springer, Klimek & Anderson, P.C. will withdraw as
counsel to Manager or his affiliates therein, but may continue to act as counsel
to Terrace without any limitation whatsoever subject only to the applicable Code
of Professional Responsibility requirements as said firm shall determine.
Section 13. Severability.
If any provision of this Agreement shall be held or deemed to be, or shall
in fact be, invalid, inoperative, illegal or unenforceable as applied to any
particular case in any jurisdiction or jurisdictions, or in all jurisdictions or
in all cases, because of the conflicting of any provision with any constitution
or statute or rule of public policy or for any other reason, such circumstance
shall not have the effect of rendering the provision or provisions in question
invalid, inoperative, illegal or unenforceable in any other jurisdiction or in
any other case or circumstance or of rendering any other provision or provisions
herein contained invalid, inoperative, illegal or unenforceable to the extent
that such other provisions are not themselves actually in conflict with such
constitution, statute or rule of public policy, but this Agreement shall be
reformed and construed in any such jurisdiction or case as if such invalid,
inoperative, illegal or unenforceable provision had never been contained herein
and enforceable to the maximum extent permitted in such jurisdiction or in such
case. The parties all endeavor in good faith negotiations to replace the
invalid, inoperative, illegal or unenforceable provisions with valid, operative,
legal and enforceable provisions the economic effect of which comes as close as
possible to that of the invalid, inoperative, illegal or unenforceable
provisions.
Section 14. Counterparts.
This Agreement may be executed in several counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument, binding upon all the parties hereto, notwithstanding that all
the parties are not signatories to the original or the same counterpart. In
pleading or proving any provision of this Agreement, it shall not be necessary
to produce more than one of such counterparts.
Section 15. Section Headings.
The headings contained in this Agreement are for reference purposes only
and shall not in any way affect the meaning or interpretation of this Agreement.
Section 16. Certain Terminology.
Whenever used herein, the singular number shall include the plural, the
plural shall include the singular, and the use of any gender shall include all
genders. Except where the context otherwise requires, references to "this
Section" or words of similar import shall be deemed to refer to the entire
section and not a particular subsection and references to
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"hereunder", "herein", "hereof" or words of similar import shall be deemed to
refer to the entire Agreement and not the particular Section or Section or
subsection.
Section 17. Further Acts.
Each party agrees that at any time, and from time to time, before and after
the consummation of the transactions contemplated by this Agreement, it will do
all such things and execute and deliver all such agreements, assignments,
instruments, other documents and assurances, as any other party or its counsel
reasonably deems necessary or desirable in order to carry out the terms and
conditions of this Agreement and the transactions contemplated hereby or to
facilitate the enjoyment of any of the rights created hereby or to be created
hereunder. Each of the parties hereby irrevocably constitutes and appoints the
other as its true and lawful attorney, in the name, place and stead of such
party, to execute, acknowledge and deliver all such agreements, assignments,
instruments, other documents and assurances as are necessary to carry out the
terms and conditions of this Agreement and the transactions contemplated hereby
or to facilitate the enjoyment of any of the rights created by this Agreement or
to be so created.
Section 18. Conflict Among Attachments.
In the event of any conflict between the provisions of this Agreement and
any exhibit hereto, or any agreement, instrument, other document or undertaking
executed pursuant hereto, unless otherwise specifically provided therein, the
provisions of this Agreement shall control.
Section 19. Governing Law.
The validity, interpretation, construction and performance of this
Agreement shall be governed by the applicable laws of the United States of
America and the domestic substantive laws of the State of Florida without giving
effect to any choice or conflict of laws provision or rule that would cause the
application of domestic substantive laws of any other jurisdiction.
Section 20. Arbitration.
The parties agree that any dispute between them that cannot be resolved and
any action or proceeding brought by either party against the other shall be
determined by arbitration by three arbitrators knowledgeable in the commodity
futures business in Chicago, Illinois, in accordance with the commercial
arbitration rules then in effect of the American Arbitration Association. Each
party shall select one arbitrator and the third arbitrator shall be mutually
agreed upon by both parties. If the parties are unable to agree upon the third
arbitrator, the third arbitrator shall be selected by the arbitrators previously
selected by the parties. The costs of the arbitrators shall be borne equally by
the parties. The decision of the arbitrators shall be final and binding and may
be entered in any court of competent jurisdiction.
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Notwithstanding the foregoing provisions, if there has been filed any
petition or application or proceeding commenced by or against any party hereto
under any Bankruptcy Code, the other party may elect to enforce all or any of
its rights or remedies in any court of competent jurisdiction, and shall not be
required to have any such dispute determined in arbitration pursuant to the
foregoing provisions.
Section 21. No Presumption.
This Agreement shall be construed without regard to any presumption or
other rule requiring construction against the party causing this Agreement to be
drafted.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement all
pursuant to due authority as of the date first above written.
TERRACE HOLDINGS, INC.
(SEAL)
By:___________________________________
Steven Shulman, Chairman
and Chief Executive Officer
______________________________________
Samuel H. Lasko
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Exhibit 10.11
TERRACE HOLDINGS, INC.
1997 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN
The purpose of the Terrace Holdings, Inc. 1997 Stock Option Plan (the
"Plan") is to enable Terrace Holdings, Inc. (the "Company") and its subsidiaries
to attract and retain the services of directors, officers and other key
employees with managerial, professional or supervisory responsibilities and to
motivate such persons to use their best efforts on behalf of the Company.
2. GENERAL PROVISIONS
2.1 Definitions
As used in the Plan:
(a) "Board of Directors" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, including any and all
amendments thereto.
(c) "Committee" means the Compensation Committee appointed by the Board of
Directors from time to time.
(d) "Common Stock" means the Company's Common Stock, $.001 par value.
(e) "Fair Market Value" means, with respect to a specific date, the last
reported sale price of the Common Stock in the NASDAQ SmallCap Market
on the date such Fair Market Value is being determined, and, in the
absence of any sale on such day, the Fair Market Value as determined in
good faith by the Committee on the basis of such quotations and other
considerations as the Committee deems appropriate.
(f) "Participant" means a person to whom a Stock Option has been granted
under the Plan.
(g) "Rule 16b-3" means Rule 16b-3 promulgated under the Securities Exchange
Act of 1934, as amended from time to time, or any successor rule.
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(h) "Stock Option" means an option granted under the Plan.
(l) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the
time of the granting of the Stock Option, each of the corporations
other than the last corporation in the unbroken chain owns 50% or more
of the total voting power of all classes of stock in one of the other
corporations in such chain.
2.2 Administration of the Plan
(a) The Committee shall have the full power, subject to and within the
limits of the Plan, to: (i) interpret and administer the Plan, and
Stock Options granted under it; (ii) make and interpret rules and
regulations for the administration of the Plan and to make changes in
and revoke such rules and regulations (and in the exercise of this
power, shall generally determine all questions of policy and expediency
that may arise and may correct any defect, omission, or inconsistency
in the Plan or any agreement evidencing the grant of any Stock Option
in a manner and to the extent it shall deem necessary to make the Plan
fully effective); (iii) determine those persons to whom Stock Options
shall be granted and the number of Stock Options to be granted to any
person; (iv) determine the terms of Stock Options granted under the
Plan, consistent with the provision of the Plans; and (v) generally,
exercise such powers and perform such acts in connection with the Plan
as are deemed necessary or expedient to promote the best interests of
the Company. The interpretation and construction by the Committee of
any provision of the Plan or of any Stock Option shall be final,
binding and conclusive.
(b) No member of the Committee shall be liable for any action taken or
omitted to be taken or for any determination made by him or her in good
faith with respect to the Plan, and the Company shall indemnify and
hold harmless each member of the Committee against any cost or expense
(including counsel fees) or liability (including any sum paid in
settlement of a claim with the approval of the Committee) arising out
of any act or omission in connection with the administration or
interpretation of the Plan, unless arising out of such person's own
fraud or bad faith.
2.3 Effective Date
The Plan shall become effective upon its adoption by the Board of
Directors, and Stock Options may be granted upon such adoption and from time to
time thereafter, subject, however, to approval of the Plan by affirmative vote
of the holders of a majority of the shares of the Common Stock present in person
or by proxy and entitled to vote at an annual meeting of the shareholders of the
Company or at a special meeting of the shareholders of the Company expressly
called for such purposes, or any adjournments thereof, within 12 months after
the adoption of the Plan by the Board of Directors. If the Plan is not approved
at such annual or
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special meeting or at any adjournments thereof, this Plan and all Stock Options
previously granted thereunder shall become null and void.
2.4 Duration
If approved by the shareholders of the Company, as provided in Section 2.3,
unless sooner terminated by the Board of Directors, the Plan shall remain in
effect for a period of ten (10) years following its adoption by the Board of
Directors.
2.5 Shares Subject to the Plan
The maximum number of shares of Common Stock which may be subject to Stock
Options granted under the Plan shall be 1,250,000. The Stock Options shall be
subject to adjustment in accordance with Section 4.1, as appropriate, and shares
to be issued upon exercise of Stock Options may be either authorized and
unissued shares of Common Stock or authorized and issued shares of Common Stock
purchased or acquired by the Company for any purpose. If a Stock Option or
portion thereof shall expire or is terminated, cancelled or surrendered for any
reason without being exercised in full, the unpurchased shares of Common Stock
which were subject to such Stock Option or portion thereof shall be available
for future grants of Stock Options under the Plan.
2.6 Amendments
The Plan may be suspended, terminated or reinstated, in whole or in part,
at any time by the Board of Directors. The Board of Directors may from time to
time make such amendments to the Plan as it may deem advisable, provided,
however, that, without the approval of the Company's shareholders, no amendment
shall be made which:
(a) Increases the maximum number of shares of Common Stock which may be
subject to Stock Options granted under the Plan (other than as provided
in Section 4.1, as appropriate); or
(b) Extends the term of the Plan; or
(c) Otherwise materially increases the benefits accruing to Participants
under the Plan; or
(d) Materially modifies the requirements as to eligibility for
participation in the Plan; or
(e) Will cause Stock Options granted under the Plan to fail to meet the
requirements of Rule 16b-3.
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Except as otherwise provided herein, termination or amendment of the Plan shall
not, without the consent of a Participant, affect such Participant's rights
under any Stock Options previously granted to such Participant.
2.7 Participants and Grants
Stock Options may be granted by the Committee to (i) directors, officers
and other full-time salaried employees of the Company and its Subsidiaries with
managerial, professional or supervisory responsibilities and (ii) consultants
and advisors who render bona fide services to the Company and its Subsidiaries,
in each case, where the Committee determines that such director, officer or
employee has the capacity to make a substantial contribution to the success of
the Company. The Committee may grant Stock Options to purchase such number of
shares of Common Stock (subject to the limitations of Sections 2.5 and 3.9) as
the Committee may, in its sole discretion, determine. In granting Stock Options
under the Plan, the Committee, on an individual basis, may vary the number of
Stock Options as between Participants and may grant Stock Options to a
Participant in such amounts as the Committee may determine in its sole
discretion.
3. STOCK OPTIONS
3.1 General
All Stock Options granted under the Plan shall be evidenced by written
agreements executed by the Company and the Participant to whom granted, which
agreement shall state the number of shares of Common Stock which may be
purchased upon the exercise thereof and shall contain such investment
representations and other terms and conditions as the Committee may from time to
time determine.
3.2 Price
Subject to the provisions of Section 3.6(d) and 4.1, the purchase price per
share of Common Stock subject to a Stock Option shall, in no case, be less than
one hundred percent (100%) of the Fair Market Value of a share of Common Stock
on the date the Stock Option is granted.
3.3 Period
The duration or term of each Stock Option granted under the Plan shall be
for such period as the Committee shall determine but in no event more than ten
(10) years from the date of grant thereof.
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3.4 Exercise
Subject to Section 4.4, Stock Options may be exercisable at such other time
or times as the Committee shall specify when granting the Stock Option. Once
exercisable, a Stock Option shall be exercisable, in whole or in part, by
delivery of a written notice of exercise to the Secretary of the Company at the
principal office of the Company specifying the number of shares of Common Stock
as to which the Stock Option is then being exercised together with payment of
the full purchase price for the shares being purchased upon such exercise.
Until the shares of Common Stock as to which a Stock Option is exercised are
issued, the Participant shall have none of the rights of a shareholder of the
Company with respect to such shares.
3.5 Payment
The purchase price for shares of Common Stock as to which a Stock Option
has been exercised and any amount required to be withheld, as contemplated by
Section 4.3, may be paid:
(a) In United States dollars in cash, or by check, bank draft or money
order payable in United States dollars to the order of the Company; or
(b) By the delivery by the Participant to the Company of whole shares of
Common Stock having an aggregate Fair Market Value on the date of
payment equal to the aggregate of the purchase price of Common Stock
as to which the Stock Option is then being exercised or by the
withholding of whole shares of Common Stock having such Fair Market
Value upon the exercise of such Stock Option; or
(c) By a combination of both (a) and (b) above.
The Committee may, in its discretion, impose limitations, conditions and
prohibitions on the use by a Participant of shares of Common Stock to pay the
purchase price payable by such Participant upon the exercise of a Stock Option.
3.6 Termination of Employment or Other Relationship
(a) In the case of Stock Options granted to an Employee of the Company,
then in the event a Participant's employment by, or relationship with,
the Company shall terminate for any reason other than those reasons
specified in Sections 3.7(b), (c), (d) or (e) hereof while such
Participant holds Stock Options granted under the Plan, then all
rights of any kind under any outstanding Option held by such
Participant which shall not have previously lapsed or terminated shall
expire immediately.
(b) If a Participant's employment by, or relationship with, the Company or
its Subsidiaries shall terminate as a result of such Participant's
total disability, each Stock Option held by such Participant (which
has not previously lapsed or terminated) shall be exercisable by such
Participant for a period of six months
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after termination but only to the extent the Option is otherwise
exercisable during that period. For purposes of the foregoing
sentence, "total disability" shall mean permanent mental or physical
disability as determined by the Committee.
(c) In the event of the death of a Participant, each Stock Option held by
such Participant (which has not previously lapsed or terminated) shall
be exercisable by the executor or administrator of the Participant's
estate or by the person or persons to whom the deceased Participant's
rights thereunder shall have passed by will or by the laws of descent
or distribution, for a period of six (6) months after such
Participant's death but only to the extent the Option is otherwise
exercisable during that period.
(d) In the case of a Participant who is an employee of the Company, if a
Participant's employment by the Company shall terminate by reason of
such Participant's retirement in accordance with Company policies,
each Stock Option held by such Participant at the date of termination
(which has not previously lapsed or terminated) shall be exercisable
for a period of three (3) months after termination, but only to the
extent the Option is otherwise exercisable during that period.
(e) In the event the Company terminates the employment of a Participant
who at the time of such termination was an officer of the Company and
had been continuously employed by the Company during the two (2) year
period immediately preceding such termination, for any reason except
"good cause" (hereafter defined) and except upon such Participant's
death, total disability or retirement in accordance with Company
policies, each Stock Option held by such Participant (which has not
previously lapsed or terminated and which has been held by such
Participant for more than six (6) months prior to such termination)
shall be exercisable for a period of three (3) months after such
termination, but only to the extent the Option is otherwise
exercisable during that period. A termination for "good cause" shall
be deemed to have occurred only if the Participant in question (i) is
terminated by written notice for dishonesty, because of his conviction
of a felony, or because of his violation of any material provision of
any employment or other agreement, written or oral, with the Company
or any of its Subsidiaries, or (ii) shall voluntarily resign or
terminate his employment with the Company or any of its Subsidiaries
under or followed by such circumstances as would constitute a breach
of any material provision of any employment or other agreement between
him and the Company or any of its Subsidiaries, or (iii) shall have
committed an act of dishonesty not discovered by the Company or any of
its Subsidiaries prior to the cessation of his employment with the
Company or any of its Subsidiaries, but which would have results in
his discharge if discovered prior to such date, or (iv) shall, either
before or after cessation of his employment with the Company or any of
its Subsidiaries, without the written consent of the Company or any of
its Subsidiaries, use (except for the benefit of the Company or any of
its Subsidiaries) or disclose to any other person any confidential
information relating to the continuation of proposed continuation
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of the business or any trade secrets of the Company of any of its
Subsidiaries obtained as a result of or in connection with such
employment.
3.7 Effect of Leaves of Absence
It shall not be considered a termination of employment when a
Participant is on military or sick leave or such other type leave of absence
which is considered as continuing intact the employment relationship of the
Participant with the Company or any of its Subsidiaries. In case of such leave
of absence, the employment relationship shall be deemed to have continued until
the later of (i) the date when such leave shall have lasted ninety (90) days in
duration, or (ii) the date as of which the Participant's right to employment
shall have no longer been guaranteed either by statute or contract.
3.8 Limitation on Number of Options Granted to Employees
The maximum number of shares for which options may be granted to an
employee of the Company during any calendar year shall not exceed 250,000.
4. MISCELLANEOUS PROVISIONS
4.1 Adjustments Upon Changes in Capitalization
In the event of changes to the outstanding shares of Common Stock of the
Company through reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, stock dividend, stock consolidation or
otherwise, or in the event of a sale of all or substantially all of the assets
of the Company, an appropriate and proportionate adjustment shall be made in the
number and kind of shares as to which Stock Options may be granted. A
corresponding adjustment changing the number or kind of shares and/or the
purchase price per share of unexercised Stock Options or portions thereof which
shall have been granted prior to any such change shall likewise be made.
Notwithstanding the foregoing, in the case of a reorganization, merger or
consolidation, or sale of all or substantially all of the assets of the Company,
in lieu of adjustments as aforesaid, the Committee may in is discretion
accelerate the date after which a Stock Option may or may not be exercised or
the stated expiration date thereof. Adjustments or changes under this Section
shall be made by the Committee, whose determination as to what adjustments or
changes shall be made, and the extent thereof, shall be final, binding and
conclusive.
4.2 Non-Transferability
No Stock Option shall be transferable except by will or the laws of descent
and distribution, nor shall any Stock Option be exercisable during the
Participant's lifetime by any person other than the Participant or his guardian
or legal representative.
4.3 Withholding
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The Company's obligations under this Plan shall be subject to applicable
federal, state and local tax withholding requirements. Federal, state and local
withholding tax due at the time of a grant or upon the exercise of any Stock
Option may, in the discretion of the Committee, be paid in shares of Common
Stock already owned by the Participant or through the withholding of shares
otherwise issuable to such Participant, upon such terms and conditions as the
Committee shall determine. If the Participant shall fail to pay, or make
arrangements satisfactory to the Committee for the payment, to the Company of
all such federal, state and local taxes required to be withheld by the Company,
then the Company shall, to the extent permitted by law, have the right to deduct
from any payment of any kind otherwise due to such Participant an amount equal
to any federal, state or local taxes of any kind required to be withheld by the
Company.
4.4 Compliance with Law and Approval of Regulatory Bodies
No Stock Option shall be exercisable and no shares will be delivered under
the Plan except in compliance with all applicable federal and state laws and
regulations including, without limitation, compliance with all federal and state
securities laws and withholding tax requirements and with the rules of the
NASDAQ SmallCap Market and of all other domestic stock exchanges on which the
Common Stock may be listed. Any share certificate issued to evidence shares for
which a Stock Option is exercised may bear legends and statements the Committee
shall deem advisable to assure compliance with federal and state laws and
regulations. No Stock Option shall be exercisable and no shares will be
delivered under the Plan, until the Company has obtained consent or approval
from regulatory bodies, federal or state, having jurisdiction over such matters
as the Committee may deem advisable. In the case of the exercise of a Stock
Option by a person or estate acquiring the right to exercise the Stock Option as
a result of the death of the Participant, the Committee may require reasonable
evidence as to the ownership of the Stock Option and may require consents and
releases of taxing authorities that it may deem advisable.
4.5 No Right to Employment
Neither the adoption of the Plan nor its operation, nor any document
describing or referring to the Plan, or any part thereof, nor the granting of
any Stock Options hereunder, shall confer upon any Participant under the Plan
any right to continue in the employ of the Company or any Subsidiary, or shall
in any way affect the right and power of the Company or any Subsidiary to
terminate the employment of any Participant at any time with or without
assigning a reason therefore, to the same extent as might have been done if the
Plan had not been adopted.
4.6 Exclusion from Pension Computations
By acceptance of a grant of a Stock Option under the Plan, the recipient
shall be deemed to agree that any income realized upon the receipt or exercise
thereof or upon the disposition of the shares received upon exercise will not be
taken into account as "base remuneration", "wages", "salary" or "compensation"
in determining the amount of any contribution to or payment or any other benefit
under any pension, retirement, incentive, profit-sharing or deferred
compensation plan of the Company or any Subsidiary.
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4.7 Abandonment of Options
A Participant may at any time abandon a Stock Option prior to its
expiration date. The abandonment shall be evidenced in writing, in such form as
the Committee may from time to time prescribe. A Participant shall have no
further rights with respect to any Stock Option so abandoned.
4.8 Severability
If any of the terms or provisions of the Plan conflict with the
requirements of Rule 16b-3, then such terms or provisions shall be deemed
inoperative to the extent they so conflict with the requirements of Rule 16b-3.
4.9 Interpretation of the Plan
Headings are given to the Sections of the Plan solely as a convenience to
facilitate reference. Such headings, numbering and paragraphing shall not in
any case be deemed in any way material or relevant to the construction of the
Plan or any provision hereof. The use of the masculine gender shall also
include within its meaning the feminine. The use of the singular shall also
include within its meaning the plural and vice versa.
4.10 Use of Proceeds
Funds received by the Company upon the exercise of Stock Options shall be
used for the general corporate purposes of the Company.
4.11 Construction of Plan
The place of administration of the Plan shall be in the State of Florida,
and the validity, construction, interpretation, administration and effect of the
Plan and of its rules and regulations, and rights relating to the Plan, shall be
determined solely in accordance with the laws of the State of Florida.
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