<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON , 1998
SEC FILE NO.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
TERRACE HOLDINGS, INC.
(NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 5812 65-0594270
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
1351 N.W. 22ND STREET
1351 N.W. 22ND STREET POMPANO BEACH, FLORIDA 33069
POMPANO BEACH, FLORIDA 33069 (ADDRESS OF PRINCIPAL PLACE OF
954-917-7272 BUSINESS OR INTENDED PRINCIPAL PLACE
(ADDRESS AND TELEPHONE NUMBER OF OF BUSINESS)
PRINCIPAL EXECUTIVE OFFICES)
----------------
JONATHAN S. LASKO, EXECUTIVE VICE-PRESIDENT
1351 N.W. 22ND STREET
POMPANO BEACH, FLORIDA 33069
954-917-7272
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES TO:
GERALD L. FISHMAN, ESQ.
ADAM D. FISHMAN, ESQ.
FISHMAN, MERRICK, MILLER, GENELLY,
SPRINGER, KLIMEK & ANDERSON, P.C.
30 NORTH LASALLE STREET
CHICAGO, IL 60602
312-726-1224
312-726-2649--FAX
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(1) PRICE(1) FEE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock..................... 5,496,400(2) $4.00(3) $ 21,985,600 $6,459.20
- ---------------------------------------------------------------------------------------------
Preferred Stock.................. 1,523,825 $4.88(4) $ 7,436,266 $2,193.70
- ---------------------------------------------------------------------------------------------
Common Stock issuable upon
conversion of Preferred Stock... 3,047,650 -- -- --
- ---------------------------------------------------------------------------------------------
Preferred Warrants............... 3,047,650
- ---------------------------------------------------------------------------------------------
Common Stock issuable upon
conversion of Preferred
Warrants........................ 3,047,650(6) $1.25(5) $ 3,809,562.50 $1,123.82
- ---------------------------------------------------------------------------------------------
TOTAL............................ 16,163,175 $ -- $33,231,428.50 $9,776.72
- ---------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Represents shares of Common Stock issuable upon the exercise of redeemable
common stock purchase warrants ("Warrants") sold by the Company in its
initial public offering consummated in December, 1995; shares of Common
Stock issuable upon the exercise of private warrants held by Selling
Shareholders; and shares of Common Stock held by certain other Selling
Shareholders.
(3) Represents the exercise price of the Warrants.
(4) In accordance with Rule 457(c), the price represents the average of the
closing bid and asked price of the Company's Common Stock as of January
22, 1998, multiplied by two, since each share of Preferred Stock is
convertible into two shares of Common Stock.
(5) Pursuant to Rule 457(c), the price represents the average of the closing
bid and asked price of the Warrants as of January 22, 1998.
(6) Represents shares issuable upon the exercise of Warrants issued in a
private placement in July, 1997.
----------------
THE COMPANY HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE COMPANY SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PRELIMINARY PROSPECTUS DATED , 1998
SUBJECT TO COMPLETION
PROSPECTUS
TERRACE HOLDINGS, INC.
In December, 1995, Terrace Holdings, Inc., a Delaware corporation ( the
"Company") sold to the public 1,437,500 redeemable common stock purchase
warrants (the "Public Warrants"). In August, 1997, the Company consummated a
private placement of 1,523,825 units of its securities, including units issued
as commissions, each unit consisting of one share of convertible preferred
stock, $.001 par value ("Preferred Stock") and two redeemable common stock
purchase warrants (the "Private Placement Warrants"), each to purchase one
share of common stock, $.001 par value ("Common Stock"). The Private Placement
Warrants are identical in all respects to the Public Warrants. The Public
Warrants and the Private Placement Warrants are sometimes hereinafter
collectively referred to as the "Warrants". This Prospectus covers the offer
and sale of up to (1) 4,485,150 shares of Common Stock reserved for issuance
upon exercise of Warrants, and (2) 3,047,650 shares of Common Stock reserved
for issuance upon conversion of the Preferred Stock sold as part of the Private
Placement. See "Description of Securities--Warrants," "Price Range of
Securities," "Business--Recent Financing" and "Plan of Distribution."
This Prospectus also covers the offer and sale of up to 275,000 shares of
Common Stock by certain selling shareholders. Up to 2,090,000 shares of Common
Stock reserved for issuance upon exercise of warrants issued to (i) Biltmore
Securities, Inc., the underwriter of the Company's initial public offering
(1,000,000 shares), (ii) in connection with the Company's acquisition of
Deering Ice Cream, Inc. (250,000 shares), and (iii) various of its officers and
directors (840,000 shares), are being registered so that if and when such
warrants are registered they may be offered and sold to the public. While the
Company will receive proceeds from the exercise of such warrants, it will not
receive proceeds from the public sales of the Preferred Stock or the Private
Placement Warrants or the sales of any Common Stock by the selling
shareholders, although the costs incurred in connection with their offer and
sale will be borne by the Company. See "Selling Securities Holders."
The Company will receive payments of the exercise prices of the Warrants to
the extent any Warrants are exercised. See "Use of Proceeds from Warrant
Exercises." There is no assurance, however, that any Warrants will be
exercised. Biltmore Securities, Inc., (the "Soliciting Agent"), will be paid a
warrant solicitation fee equal to 4% of the exercise price of Warrants with
respect to any Warrants exercised as a result of solicitation of the Warrant
holders by the Soliciting Agent, provided that such solicitation is in
compliance with applicable rules of the National Association of Securities
Dealers, Inc. See "Use of Proceeds from Warrant Exercises," and "The Soliciting
Agent."
During the 60-day period commencing on the date of this Prospectus, to and
including 5:00 p.m., New York time, on , 1998, subject to
extension in the sole discretion of the Company ("Temporary Exercise Period"),
the Company has temporarily reduced the exercise price of the Warrants from
$4.00 to $1.25. 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 Warrant term. See "Description of Securities--Warrants."
Prior to this offering, there has not been any public market for the
Preferred Stock, and there can be no assurance that any such market will
develop or be sustained after this offering. The Public Warrants currently
trade on the NASDAQ SmallCap Market under the symbol "THISW", as will the
Private Placement Warrants commencing on the date hereof. No assurances can be
given that the market for the Warrants will be sustained after the offering.
See "Risk Factors--No Assurance of Continued Public Trading Market or Continued
Qualification for NASDAQ Inclusion".
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION OF THE BOOK VALUE OF THE COMMON STOCK
INCLUDED IN THE UNITS AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD
THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" BEGINNING ON PAGE 4 AND
"DILUTION".
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OR THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
The Date of this Prospectus is , 1998
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files annual and quarterly reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information may be inspected and
copied at the public reference facilities maintained by the Commission, Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the offices of
the Commission's New York Regional Office, 7 World Trade Center, Suite 1300,
New York, New York 10048 and the Chicago Regional Office at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of these materials
may be obtained from the Public Reference Section of the Commission, 450 Fifth
Street N.W., Washington, D.C. 20549 at prescribed rates.
This Prospectus constitutes a part of a Registration Statement on Form SB-2
which the Company has filed with the Commission pursuant to the Securities Act
of 1933, as amended (the "Securities Act"), relating to the Company's
securities (referred to herein, together with amendments and exhibits, as the
"Registration Statement"). This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission.
For further information with respect to the Company and the securities offered
hereby, reference is hereby made to the Registration Statement. Statements
made in this Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to such exhibit for a more complete description
of the matter involved, and each such statement shall be deemed qualified in
its entirety by such reference. Copies of the Registration Statement and the
exhibits may be inspected, without charge, at the offices of the Commission,
or obtained at prescribed rates from the Public Reference Section of the
Commission at the address set forth above.
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information contained in this
Prospectus and is qualified in its entirety by reference to the more detailed
information and the financial statements and notes thereto appearing elsewhere
herein. Unless otherwise specified, all information in this Prospectus assumes
no exercise of the Warrants. See "Description of Securities", "Underwriting"
and "Management--Employment Agreements". Each prospective investor is urged to
carefully read this Prospectus in its entirety, including but not limited to
the Risk Factors.
THE COMPANY
Terrace Holdings, Inc., was incorporated under the laws of the State of
Delaware on June 15, 1995, to change the state of incorporation of Bon
Adventure Kosher Tours, Inc., a Florida corporation, formerly known as Embassy
Kosher Tours of South Florida, Inc. The Company currently has five wholly-owned
operating subsidiaries, three in the "hospitality" group and two in the "food
services and distribution" group. The hospitality subsidiaries are The Lasko
Companies, Inc., which owns and operates on leased property the Company's
kosher, casual dining restaurant, Terrace Oceanside Restaurant, in Hallandale,
Florida; 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
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 Company consummated the sale of the assets of its
wholly-owned subsidiary, Deering Ice Cream, Inc. for $1,000,000, subject to
later adjustment, in cash and certain royalty payments over four years. While
the Company believes such sale will not have a material adverse effect on its
longer term growth or ultimate profitability, there is no assurance that the
Company's belief will be borne out. See "Business--Frozen Desserts".
The Company has also commenced activities which should lead to its
disposition of its "hospitality" businesses in 1998. See "Business--Food
Services."
The Company's executive offices are located at 1351 N.W. 22nd Street, Pompano
Beach, Florida 33069. Its telephone number is 954-917-7272.
1
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities to be Issued by the
Company Upon the Exercise of the
Warrants and Conversion of the
Preferred Stock(1)............... 7,532,800 shares of Common Stock
Securities Offered by Selling
Shareholders..................... 275,000 shares of Common Stock
1,523,825 shares of Preferred Stock
3,047,650 Warrants
Securities Outstanding Prior to
this Prospectus
Common Stock(2)................. 5,081,400 Shares
Warrants(3)..................... 6,575,150 Warrants
Preferred Stock................. 1,523,825 Shares
NASDAQ SmallCap Marketsm Symbols.. Common Stock--THIS
Warrants--THISW
Use of Net Proceeds of Sale of For working capital and potential
Warrants......................... acquisition
Risk Factors...................... The securities offered hereby are highly
speculative and involve a high degree of
risk and should be purchased only by
investors that can afford the loss of their
entire investment. See "Risk Factors". In
addition, there is immediate substantial
dilution. See "Dilution".
</TABLE>
- --------
(1) Represents 1,437,500 and 3,047,650 shares of Common Stock issuable upon the
exercise of the Public Warrants and Private Placement Warrants,
respectively, and 3,047,650 shares of Common Stock issuable upon conversion
of the Preferred Stock.
(2) Assumes that none of the Preferred Stock is converted into shares of Common
Stock. Includes (i) 1,768,900 shares of Common Stock issued to third
parties subsequent to the Public Offering; (ii) 2,537,500 shares of Common
Stock issued in the Public offering; and (iii) 775,000 shares of Common
Stock issued to members of the Lasko Family.
(3) Includes 3,047,650 Preferred Warrants and (i) 750,000 shares of Common
Stock issuable upon exercise of warrants issued to two executive officers
of the Company; (ii) 1,437,500 shares of Common Stock reserved for issuance
upon exercise of the Public Warrants; (iii) 250,000 shares of Common Stock
issuable upon exercise of warrants issued in connection with the
acquisition of DownEast Frozen Desserts, LLC; (iv) 90,000 shares of Common
Stock issuable upon exercise of warrants issued to two directors of the
Company; and (v) 1,000,000 shares of Common Stock issuable upon the
exercise of warrants issued to the underwriter of the Company's initial
public offering. Does not include the possible issuance of (i) 141,500
shares of Common Stock issuable upon exercise of an option (the
"Underwriter's Option") to purchase securities of the Company sold to the
Soliciting Agent in connection with the Company's initial public offering
in December, 1995 ("Initial Public Offering"); (ii) 125,000 shares of
Common Stock issuable upon exercise of the Warrants included in the
Underwriter's Option; (iii) 200,000 shares of Common Stock issuable upon
exercise of warrants ("Class B Warrants") which were issued immediately
following the effective date of the Company's Initial Public Offering (the
terms and conditions of the Class B Warrants are identical to the Warrants
except that the exercise price of the Class B Warrants is $10.00).
2
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table sets forth certain summary financial data prepared in
accordance with generally accepted accounting principles as of and for the
dates indicated and should be read in conjunction with the financial statements
and notes thereto and Management's Discussion and Analysis of Financial
Condition and Results of Operations appearing elsewhere in this Prospectus. The
following data, insofar as it relates to the year ended December 31, 1996, and
1995 have been derived from audited financial statements and notes thereto
appearing elsewhere herein.
The data for the nine months ended September 30, 1996 and 1997, have been
derived from unaudited pro forma financial statements also appearing herein and
which, in the opinion of management, include all adjustments, consisting of
normal, recurring adjustments, necessary for a fair statement of the results
for the unaudited periods. The pro forma information represents unaudited
information as if the events described in the footnotes below had occurred as
at the date presented. The results of operations for the nine months ended
September 30, 1997, are not necessarily indicative of the results to be
expected for the entire year.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED PRO FORMA CONSOLIDATED
DECEMBER 31, SEPTEMBER 30, FOR THE PERIOD ENDED
----------------------- ----------------------- ------------------------
1996 1995 1997 1996 12/31/96 9/30/97
----------- ---------- ----------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ -- $ -- $ 3,574,304 $ -- $14,497,109 $11,754,992
Gross Profit............ -- -- 903,214 -- 4,190,559 3,312,610
Operating Expenses...... 478,265 41,500 1,231,151 379,802 4,727,426 3,404,919
Loss from Continuing
Operations............. (478,265) (41,500) (356,493) (379,802) (541,957) (138,297)
Loss from Discontinued
Operations............. (677,762) (549,654) (3,159,124) (584,688) -- --
Net Income (Loss)....... (1,156,027) (591,154) (3,515,617) (964,490) (697,274) (215,956)
Net Income (Loss) per
Share.................. (.35) (.33) (.79) (.29) (.18) (.04)
Weighted Average of
Common Shares
Outstanding............ 3,312,500 1,791,643 4,498,066 3,312,500 3,812,500 4,998,066
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30, AS
1996 1997 ADJUSTED*
------------ ------------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital.......................... $1,409,568 $ 183,920 $ 4,941,520
Total Assets............................. 2,790,466 7,362,724 12,120,324
Long-Term Debt........................... -- 116,352 116,352
Total Liabilities........................ 382,600 2,848,244 2,848,244
Shareholders' Equity..................... 2,407,866 4,514,480 9,272,080
</TABLE>
- --------
* As adjusted to give effect to the sale by the Company of 4,485,150 shares of
Common Stock upon exercise of the warrants at the temporary exercise price
of $1.25 per share.
3
<PAGE>
UNLESS THE CONTEXT INDICATES OTHERWISE, ANY REFERENCE IN THIS PROSPECTUS TO
THE "COMPANY" MEANS AND REFERS TO THE COMPANY AND ITS WHOLLY-OWNED
SUBSIDIARIES.
RISK FACTORS
THE PURCHASE OF THE SECURITIES BEING OFFERED HEREBY IS SPECULATIVE AND
INVOLVES A HIGH DEGREE OF RISK AND SUBSTANTIAL DILUTION. THE PURCHASE OF THESE
SECURITIES SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD TO SUSTAIN A
TOTAL LOSS OF THEIR INVESTMENT IN THE COMPANY. PROSPECTIVE INVESTORS, PRIOR TO
ANY PURCHASE, SHOULD CAREFULLY CONSIDER ALL OF THE INFORMATION CONTAINED IN
THIS PROSPECTUS AND, IN PARTICULAR, THE FOLLOWING FACTORS WHICH COULD
MATERIALLY AND ADVERSELY AFFECT THE OPERATIONS AND PROSPECTS OF THE COMPANY OR
AN INVESTMENT THEREIN, BEFORE MAKING A DECISION TO PURCHASE THE SECURITIES
BEING OFFERED HEREBY. THE FOLLOWING IS NOT INTENDED AS, AND SHOULD NOT BE
CONSIDERED, AN EXHAUSTIVE LIST.
1. No Assurance of Profitability. To date, on a fiscal year basis, the
Company has generated net losses. There is no assurance that the future
operations of the Company will result in revenues or will be profitable.
Should the operations of the Company be profitable, it is anticipated that the
Company would retain all of its earnings in order to finance future growth and
expansion. See "Dividend Policy" and "Business".
2. No Dividends on Common Stock. The Company does not anticipate payment of
any cash dividends on its Common Stock for the foreseeable future; it being
anticipated that any earnings would be retained by the Company to finance its
operations and future growth and expansion. See "Dividend Policy".
3. Proposed Expansion. Although the Company intends to continue to pursue a
strategy of growth by acquisition, to date, it has made three acquisitions:
the purchase, in January, 1996, of three additional Passover vacation venues
(one of which was not operated after 1996), the acquisition, in February,
1997, of Deering Ice Cream, Inc. ("Deering"), the assets of which were sold in
December, 1997, and the acquisition, in July, 1997, of A-One-A Wholesale
Produce, Inc. There can be no assurance that the Company will make any
additional acquisitions in the near future, or if made, that any such
acquisitions will add profitability to the Company. Contrary to its initial
strategy in December, 1995, the Company has determined that proposed expansion
by establishing additional kosher dining facilities geographically dispersed
would entail substantial costs both economically and in personnel.
Accordingly, the Company has determined to seek growth not by establishing
additional kosher dining facilities but by acquisition of existing food and
food related operations. There is no assurance any such acquisitions will be
available to the Company or that its acquiring such operations will add to the
Company's profitability. Furthermore, competition in the Company's current
principal businesses could significantly increase. See "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
4. Dependence on Proceeds of Warrant Exercises to Implement Proposed
Expansion; Possible Need for Additional Financing; Possible Loss of Entire
Investment. The Company is dependent on and intends to use a significant
portion of the proceeds received upon exercise of the Warrants to implement
its proposed expansion plans. The Company anticipates the proceeds of the
exercise of Warrants, together with projected cash flow from operations, will
be sufficient to fund the Company's operations, including its proposed
expansion, during the twelve months following the date of this Prospectus,
although there cannot be any assurance of this. In the event that the
Company's plans change, there are any delays in implementing the proposed
expansion, its projections prove to be inaccurate or the proceeds from the
exercise of the Warrants prove to be insufficient, the Company may be required
to seek additional financing or curtail its current and expansion activities.
In such case, the Company will generally be required to seek additional debt
or equity financing to fund the costs of continuing operations or to expand
its operations. The Company has no current commitments or arrangements for
additional
4
<PAGE>
financing and there can be no assurance that additional financing, if needed,
will be available, or if available, that it can be obtained on terms
satisfactory to the Company. Prospective investors should be aware that if the
Company is not successful in its operations, future acquisitions or facilities
that it establishes, their entire investment in the Company could become
worthless. Even if the Company is successful in its expansion plans, no
assurances can be given that such expansion will be successful or that
investors will derive a profit from their investment. See "Use of Proceeds"
and "Business".
5. Competition. The restaurant and holiday vacation industries are highly
competitive, as is the produce and grocery distribution industry, and there
are numerous well-established competitors possessing substantially greater
financial, marketing, personnel and other resources than the Company. These
competitors include national, regional and local chains and manufacturers.
Unless and until it disposes of these business, the Company can also be
expected to face competition from other restaurants and food service
establishments and tour companies. In addition, there can be no assurance that
consumers will regard the Company's products and services as significantly
distinguishable from competitive products and services, or that substantially
equivalent products will not be introduced by the Company's competitors or
that the Company will be able to compete successfully. Furthermore, certain of
the Company's principal businesses, unless and until disposed of, (kosher
dining facilities and holiday vacation venues offering kosher foods) are
limited to specialty food products in a niche market which is specifically
aimed at consumers of kosher foods. Such a market is significantly more
limited than a market catering to consumers of non-kosher foods. See
"Business--Competition".
6. Sale of Hospitality Subsidiaries. In February, 1997, the Company entered
into an Option Agreement with Samuel H. Lasko, the President, Treasurer and a
director of the Company, and Jonathan S. Lasko, the Executive Vice-President,
Secretary, Chief Operating Officer and a director of the Company, which gives
the Laskos, individually or collectively, the option to purchase all of the
stock or the assets, at their respective fair price, of The Lasko Companies,
Inc., A & E Management, Inc., and The Lasko Family Kosher Tours, Inc., each of
which is a wholly-owned subsidiary of the Company. The fair price will be
determined by an independent evaluation and is subject to the approval of a
committee of disinterested directors, the stockholders of the Company and the
purchaser. This option is exercisable for four years commencing on April 1,
1998, or earlier if an event specified in the Option Agreement occurs prior to
that date. Samuel H. Lasko has indicated to the Company that he intends to
exercise this option on the first date that it is exercisable in accordance
with the Option Agreement. No assurances can be given that if Mr. Lasko
exercises the option that the sale will be consummated. Management of the
Company believes, although such a sale may have a material short term adverse
effect on the Company, there will not be material long term effects from such
sale.
7. Changes and Other Factors Affecting Restaurant and Holiday Vacation
Industries. The restaurant, holiday vacation and produce and grocery
distribution industries are often affected by changes in consumer tastes,
national, regional and local economic conditions, demographic trends, traffic
patterns and the type, number and location of competing facilities. In
addition, the labor intensiveness of these businesses, as well as factors such
as inflation, increased food, labor and employee benefit costs and
availability of experienced management and hourly employees may also adversely
affect the restaurant and holiday vacation industries in general and the
Company's operations in particular. See "Business--Competition".
8. Current Seasonal Nature of Certain Operations. The Company's current
restaurant operations are located in south Florida and are seasonal in nature
since such operations rely, to a significant degree, on tourism in the winter
months to sustain them. Thus, unless the Company is successful in disposing of
its food services businesses, the third calendar quarter (July-September) of
each year is likely to generate losses. Furthermore, the Company's current
holiday vacation business is limited to Passover which, in date of occurrence,
approximates Easter. While the Passover vacation operations generate revenue
and income and require year-round management activity, the concentration of
revenues, expenses and management effort into a short period of time may have
a material adverse effect upon the Company's ability to expand the number of
its vacation venues unless additional qualified management personnel are
engaged in this area of its operations. There can be no assurance that the
Company will be able to successfully dispose of these operations or, if not,
overcome these seasonal drawbacks, which may have a materially adverse effect
on the Company generally. See "Business".
5
<PAGE>
As indicated, the Company has recently disposed of its frozen dessert
business and has determined to dispose of its food service and vacation
businesses and to concentrate on its food distribution and produce processing
operations. In December, 1997, the Company consummated the sale of the assets
and certain liabilities of its wholly-owned subsidiary, Deering Ice Cream,
Inc. to a subsidiary of Fieldbrook Farms, Inc., Dunkirk, New York, for
$1,000,000, subject to adjustment, cash plus certain royalties over four
years. There is no assurance that the sale of Deering or completing such other
dispositions, will cause the Company to become profitable as a result of the
foregoing. See "Business".
9. Government Regulation. Food and food related businesses are subject to
various federal, state and local laws and regulations, including those related
to the manufacture and sale of food and alcoholic beverages. The failure to
obtain and retain food and liquor licenses or any other governmental approvals
would have a material adverse effect on the Company. In addition, food
processing and restaurant operating costs are affected by increases in the
minimum hourly wage, unemployment tax rates, sales taxes and similar matters
over which the Company has no control. The Company may be subject to "dram-
shop" statutes, which generally provide a person injured by an intoxicated
person the right to recover damages from an establishment that wrongfully
served alcoholic beverages to the intoxicated person. Additionally, laws in
certain states may limit or delay the Company in obtaining liquor licenses.
See "Business--Government Regulation".
10. Loss of PACA Licenses. The Company's A-One-A Produce & Provisions, Inc.
subsidiary and its affiliate, Terrace Fresh, Inc., are subject to 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. A-One-A
Produce and Terrace Fresh currently maintain PACA licenses to distribute fresh
produce, fruits and vegetables. The ability of the Company to continue
successful distribution and sales of its fresh produce, fruits and vegetables
is dependent upon its continued compliance with PACA. Loss of its PACA license
would have a materially adverse effect on the Company. See "Business".
11. Loss of Kosher Certification. In addition to federal, state and local
laws and regulations, Jewish laws must be observed with respect to the
Company's "kosher" operations. The designation of the Company's restaurant and
Passover holiday vacations as "kosher" means that all the foods are prepared
in accordance with Jewish dietary laws. The Company's restaurant located in
Broward County, Florida is under the supervision of the Orthodox Rabbinic
Board of Broward and Palm Beach Counties ("ORB"). Restaurants or other food
operations of the Company located elsewhere will be under the supervision of
other local Rabbinic certifications generally accepted by the Orthodox Jewish
community. The certifying Rabbinic body must approve the ingredients, foods,
preparation and facility before it will certify a restaurant as "kosher."
Therefore, the ability of the Company to continue successfully to maintain
kosher status for these businesses is dependent upon its continued compliance
with the requirements of Rabbinic certification. Loss of kosher certification
would have a materially adverse effect upon the Company. See "Business".
12. Potential Liability and Possible Insufficiency of Insurance. The
Company's operations involve the use of public accommodations and the offering
of consumer products and services to the public. The Company therefore may be
exposed to a significant risk of liability for property damage and personal
injury. The Company maintains general liability insurance (in the aggregate or
per claim) for its various businesses. The Company endeavors to contractually
limit its potential liability to the amount and terms of its insurance
policies. However, the Company is not always able to obtain such limitations
on liability, and such provisions, when obtained, may not adequately shelter
the Company from liability. Consequently, a partially or completely uninsured
claim, if successful and of sufficient magnitude, may have a material adverse
effect on the Company and its financial condition. See "Business".
13. Risk Borne by Public Shareholders Disproportionate to Risk Borne by
Present Shareholders. The initial shareholders of the Company and the holders
of the Private Placement Warrants paid nominal or no consideration per share
for their shares of Common Stock. Investors in this offering will have paid
substantially more, and, accordingly, bear a disproportionate amount of risk
because of the disparity in purchase price. See "Dilution".
6
<PAGE>
14. Immediate and Substantial Dilution. An investor exercising the Warrants,
at the temporary exercise reduced price, may experience immediate and
substantial dilution of $.67, or approximately 54%, per share because the
exercise price of the Warrants exceeds the pro forma net tangible book value
per share of the Company after giving effect to the exercises, purchases and
divestitures. See "Dilution".
15. Broad Discretion in Application of Proceeds. Management of the Company
has broad discretion to adjust the application and allocation of any net
proceeds of funds received upon exercise of the Warrants, which proceeds will
be added to the Company's working capital, in order to address changed
circumstances and opportunities. As a result of the foregoing, the success of
the Company will be substantially dependent upon the discretion and judgment
of the management of the Company with respect to the application and
allocation of such net proceeds. See "Use of Proceeds".
16. No Assurance of Continued Public Trading Market or Continued
Qualification for NASDAQ Inclusion. The Company's Common Stock and Warrants
are listed on the NASDAQ SmallCapsm Market ("NASDAQ"). The Company anticipates
that, upon completion of this offering, the Preferred Stock will also be
listed on NASDAQ. If, for any reason, the Preferred Stock is not eligible for
listing or any of the Company's securities are not eligible for continued
listing or if a public trading market does not develop for the Preferred Stock
or continue for the Company's securities, purchasers of the Company's
securities may have difficulty selling their securities should they desire to
do so. If the Company is unable to satisfy the requirements for continued
quotation on NASDAQ, trading, if any, in the securities offered hereby would
be conducted in the over-the-counter market in what are commonly referred to
as the "pink sheets" or on the NASD OTC Electronic Bulletin Board. As a
result, an investor may find it more difficult to dispose or to obtain
accurate quotations as to the price of the securities offered hereby. The
above-described rules may materially adversely affect the liquidity of the
market for the Company's securities. See "Description of Securities".
17. Rule 144 Sales; Future Sales of Common Stock. 2,268,900 of the Company's
presently outstanding 5,081,400 shares of Common Stock are "restricted
securities" as that term is defined under Rule 144 promulgated under the
Securities Act and may only be sold pursuant to a registered offering or in
accordance with applicable exemptions from the registration requirements of
the Securities Act. Rule 144 provides for the sale of limited quantities of
restricted securities without registration under the Securities Act. In
general, under Rule 144, a person (or person whose shares are aggregated) who
has satisfied a one year holding period may, under certain circumstances,
sell, within any three month period, a number of shares which does not exceed
the greater of 1% of the then outstanding shares of common stock or the
average weekly trading volume during the four calendar weeks prior to such
sale. Rule 144(k) also permits, under certain circumstances, the sale of
shares without any quantity limitation by a person who is not an affiliate of
the company and who has satisfied a two-year holding period. The Company is
unable to predict the effects that future sales under Rule 144 may have on the
then prevailing market price of the Company's securities. Possible or actual
sales of the Company's outstanding Common Stock by certain of the present
shareholders under Rule 144 may, in the future, have a depressive effect on
the price of the Company's securities.
Prospective investors should be aware that the possibility of sales may, in
the future, have a depressive effect on the price of the Company's Common
Stock in any market and, therefore, the ability of any investor to sell his
securities may be dependent directly upon the number of securities that are
offered and sold. Affiliates of the Company may sell their securities during a
favorable movement in the market price of the Company's Common Stock which may
have a depressive effect on its price per share. See "Description of
Securities".
18. Future Issuances of Stock by the Company Without Shareholder Approval.
Assuming the exercise of all of the Company's outstanding Warrants, the
Company will have outstanding 16,620,700 shares of Common Stock out of a total
of 25,000,000 shares of Common Stock authorized. The Company also has
10,000,000 shares of Preferred Stock authorized, the rights, preferences,
conversions, terms and conditions of which may be set, from time to time, by
the Board of Directors. There are currently 1,523,650 shares of Preferred
Stock outstanding. The remaining shares of Common Stock not issued or reserved
for specific purposes and the
7
<PAGE>
remaining shares of Preferred Stock may be issued without any action or
approval of the Company's shareholders. Although there are no present plans,
agreements or undertakings involving the issuance of such shares, except as
disclosed in this Prospectus, any such issuance could be used as a method of
discouraging, delaying or preventing a change in control of the Company or
could significantly dilute the public ownership of the Company, which could
adversely affect the market. There can be no assurance that the Company will
not undertake to issue such shares if it deems it appropriate to do so.
Notwithstanding the foregoing, the current officers, directors, shareholders
and Private Placement Warrant holders have agreed not to sell, transfer,
assign or issue any securities of the Company prior to July, 1998 without the
consent of the Soliciting Agent. See "Dilution", "Description of Securities"
and "Plan of Distribution."
19. Exercise of Warrants May Have Dilutive Effect on Market. The Warrants
provide, during their term, an opportunity for the holder to profit from a
rise in the market price, of which there is no assurance, with resulting
dilution in the ownership interest in the Company held by the then present
shareholders. Holders of the Warrants most likely would exercise them and
purchase the underlying Common Stock at a time when the Company may be able to
obtain capital by a new offering of securities on terms more favorable than
those provided by such securities, in which event the terms on which the
Company may be able to obtain additional capital would be affected adversely.
See "Description of Securities".
20. Current Prospectus and State Blue Sky Registration Required to Exercise
Warrants. The Company is able to issue shares of its Common Stock upon the
exercise of Warrants only if there is a current prospectus relating to the
Common Stock issuable upon the exercise of the Warrants under an effective
registration statement filed with the Commission and such Common Stock is then
qualified for sale or exempt therefrom under applicable state securities laws
of the jurisdictions in which the various holders of Warrants reside. There
can be no assurance, however, that the Company will be successful in
maintaining a current registration statement. After a registration statement
becomes effective, it may require updating by the filing of a post-effective
amendment. A post-effective amendment is required (i) any time after nine
months subsequent to the effective date of the prospectus when any financial
information contained in the prospectus is over sixteen months old, (ii) when
facts or events have occurred which represent a fundamental change in the
information contained in the registration statement, or (iii) when any
material change occurs in the information relating to the plan or distribution
of the securities registered by such registration statement. The Company
anticipates that the Registration Statement, of which this Prospectus is a
part, will remain effective for not more than nine months following the date
of this Prospectus, assuming a post-effective amendment is not filed by the
Company. The Company intends to qualify the securities in a limited number of
states, although certain exemptions under certain state securities ("blue
sky") laws may permit the securities to be transferred to purchasers in states
other than those in which they were initially qualified. The Company will be
prevented, however, from issuing Common Stock upon exercise of the Warrants in
those states where exemptions are unavailable and the Company has failed to
qualify the Common stock issuable upon exercise of the Warrants. The Company
may decide not to seek, or may not be able to obtain, qualification of the
issuance of such Common Stock in all of the states in which the ultimate
purchasers of the Warrants reside. In such a case, the Warrants of those
purchasers will expire and have no value if such Warrants cannot be sold.
Accordingly, the market for the Warrants may be limited because of the
Company's obligation to fulfill the foregoing requirements. See "Description
of Securities".
21. Warrants Subject to Redemption; Temporary Exercise Price. The Warrants
are immediately exercisable. Each such Warrant entitles the holder to purchase
one share of Common Stock at $4.00 per share until December 5, 2000. The
Warrants are redeemable by the Company for $.05 per Warrant, at any time, upon
thirty days' prior written notice, if the last reported sale price or the
average closing bid price of the Common Stock, as reported by the principal
exchange on which the Common Stock is quoted, the NASDAQ or the National
Quotation Bureau Incorporated, as the case may be, equals or exceeds $9.00 per
share, for any twenty consecutive trading days ending within ten days of the
notice of redemption. Upon thirty days' written notice to all holders of the
Warrants, the Company shall have the right to reduce the exercise price or
extend the term of the Warrants, subject to the Company complying with
Commission Rule 13e-4. Notice of the redemption of the Warrants could force
the holders thereof to exercise the Warrants and pay the exercise price at a
time when it may be
8
<PAGE>
disadvantageous for them to do so, to sell the Warrants at the current market
price when they might otherwise wish to hold them or to accept the redemption
price which is likely to be substantially less than the market value of the
Warrants at the time of redemption. See "Description of Securities--Warrants".
During the sixty day period commencing on the date of this Prospectus to and
including 5:00 p.m. New York time on , 1998, subject to extension
in the sole discretion of the Company ("Temporary Exercise Period"), the
Company has temporarily reduced the exercise price of the Warrants from $4.00
to $1.25. 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 Warrant term. See "Description of Securities--Warrants".
22. Soliciting Agent's Influence on the Market. A significant amount of
securities of the Company are held by customers of the Soliciting Agent. Such
customers may engage in transactions for the sale or purchase of such
securities through or with the Soliciting Agent. Although it has no obligation
to do so, the Soliciting Agent may make a market in the Company's securities
and may otherwise effect transactions in such securities. If it participates
in the market, the Soliciting Agent may exert a dominating influence on the
market for the securities of the Company. Such market activity may be
discontinued at any time. The price and liquidity of the Company's securities
may be significantly affected by the degree, if any, of the Soliciting Agent's
participation in such market.
23. Relationship of Soliciting Agent to Trading. The Soliciting Agent may
act in a brokerage capacity with respect to the purchase or sale of the
Company's securities in the over-the-counter market. Unless exempt under
Regulation M promulgated by the Securities and Exchange Commission, the
Soliciting Agent, while engaged in any distribution of the Company's
securities, will be prohibited from engaging in any market making activity or
soliciting brokerage activities with regard to the Company's securities during
a period beginning five business days prior to the commencement of any such
activity and ending when its participation in such distribution ends. As a
result, the Soliciting Agent may be unable to continue to make a market for
the Company's securities during certain periods when the Warrants are
exercisable. Such a limitation, while in effect, could impair the liquidity
and market price of these securities.
24. "Penny Stock" Regulations. Securities laws require certain disclosures
in connection with trades in any stock defined as a "penny stock". Commission
regulations generally define a penny stock to be any equity security that has
a market price of less than $5.00 per share, subject to certain exceptions.
Such exceptions include any equity security listed on NASDAQ. Unless an
exception is available, Commission regulations require the broker/dealer to
deliver, prior to effecting any transaction involving a penny stock, certain
information and disclosures regarding the penny stock market and the risks
associated therewith.
In addition, applicable Commission regulations provide that unless the
transaction involving a penny stock is exempt under the regulations, a
broker/dealer cannot effect a transaction in the penny stock unless certain
sales practice requirements are met, which include the determination by the
broker/dealer that transactions in penny stocks are suitable investments for
the prospective purchaser and receipt by the broker/dealer from such person of
a written agreement to the transaction.
As of the date of this Prospectus, by reason of inclusion on NASDAQ, the
Company's securities are exempt from the definition of penny stock. If any of
the Company's securities were subsequently to become characterized as a penny
stock, the market liquidity for the Company's securities could be severely
affected. In such an event, the regulations on penny stocks could limit the
ability of broker/dealers to sell the Company's securities and thus the
ability of purchasers of the Company's securities in this offering to sell
their securities in the secondary market.
25. Limitation on Director Liability. As permitted by the Delaware General
Corporation Law, the Company's Certificate of Incorporation limits the
liability of directors to the Company or its shareholders for monetary damages
for breach of a director's fiduciary duty except for liability for (i) any
breach of the director's duty of loyalty to the Company or its shareholders,
(ii) acts or omissions not in good faith or which involved
9
<PAGE>
intentional misconduct or knowing violation of law, (iii) unlawful payments of
dividends or unlawful stock purchases or redemptions as provided in Section
174 of the Delaware General Corporation Law, or (iv) any transaction from
which the director derived an improper personal benefit. As a result of the
Company's charter provision and Delaware law, shareholders may have more
limited rights to recover against directors for breach of fiduciary duty. See
"Management--Limitation of Liability and Indemnification of Directors".
FOR ALL OF THE AFORESAID REASONS, AND OTHERS SET FORTH HEREIN, THESE
SECURITIES INVOLVE A HIGH DEGREE OF RISK. ANY PERSON CONSIDERING AN INVESTMENT
IN THE SECURITIES OFFERED SHOULD BE AWARE OF THESE AND OTHER FACTORS SET FORTH
IN THIS PROSPECTUS. THESE SECURITIES SHOULD BE PURCHASED ONLY BY PERSONS WHO
CAN AFFORD A TOTAL LOSS OF THEIR ENTIRE INVESTMENT IN THE COMPANY AND HAVE NO
IMMEDIATE NEED FOR A RETURN OF THEIR INVESTMENT.
10
<PAGE>
PRICE RANGE OF SECURITIES
MARKET INFORMATION
Since the Company's initial public offering in early December, 1995, the
Company's Common Stock and Warrants have been 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 Company's initial public offering
as reported by NASDAQ for those periods. The prices represent quotations
between dealers. The quotations do not include retail markups, markdowns, or
commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
BID ASK
TYPE OF ----------- -----------
SECURITY QUARTER ENDED HIGH LOW HIGH LOW
-------- ------------- ----- ----- ----- -----
<C> <S> <C> <C> <C> <C>
Common Stock December 29, 1995(1)..................... 6 1/8 2 1/4 7 1/8 4 1/4
<CAPTION>
HIGH(2) LOW(2)
------- ------
<C> <S> <C> <C> <C> <C>
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
September 30, 1997....................... 2 1/8 2
December 31, 1997........................ 1 1/4 1 1/8
January 9, 1998.......................... 1 1/2 1 5/16
<CAPTION>
QUARTER ENDED HIGH LOW HIGH LOW
------------- ----- ----- ----- -----
<C> <S> <C> <C> <C> <C>
Warrants December 29, 1995(1)..................... 1 1/2 3/4 2 1 1/2
<CAPTION>
HIGH(2) LOW(2)
------- ------
<C> <S> <C> <C> <C> <C>
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
January 9, 1998.......................... 1 3/16 1 3/16
</TABLE>
- --------
(1) Includes only the period December 6, 1996 through December 29, 1996.
(2) In February, 1996, NASDAQ changed its reporting system to no longer
including Bid and Ask amounts; therefore, the prices shown for these dates
only reflect the High and Low actual sales price.
HOLDERS
As of January 7, 1997, there were 40 and 39 holders of record of the
Company's Common Stock and Public Warrants, respectively. The Company believes
that it has a greater number of shareholders and Public Warrant holders
because the Company 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 Company 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.
11
<PAGE>
DILUTION
As of September 30, 1997, the pro forma unaudited net tangible book value of
the Company was $684,306, or approximately $.14 per share of Common Stock. Net
tangible book value per share consists of total assets less intangible assets
and liabilities, divided by the total number of shares of Common Stock
outstanding. By giving effect to the exercise, at an assumed exercise price of
$1.25 per share, of the 4,485,150 shares of Common Stock issuable upon
exercise of the Warrants (resulting in net proceeds to the Company estimated
to be $4,757,600), the adjusted pro forma net tangible book value at September
30, 1997 would have been $5,441,906, or approximately $.58 per share. Thus, as
of September 30, 1997, the adjusted pro forma net tangible book value per
share of Common Stock owned by the Company's current shareholders would have
increased by approximately $.44 without any additional investment on their
part and the purchasers of the Common Stock upon exercise of the Warrants will
incur an immediate dilution of approximately $.67 per share from the current
market price.(1) "Dilution" means the difference between the exercise price of
the Warrants and the adjusted pro forma net tangible book value per share
after giving effect to the offering. Holders of Common Stock may be subjected
to additional dilution if (i) any additional securities are issued as
compensation or to raise additional financing, or (ii) any of the securities
set forth in footnote (1) below are issued. The following table illustrates
the dilution which investors participating in this offering will incur and the
benefit to current shareholders as a result of this offering.
<TABLE>
<S> <C> <C>
Exercise price of the Warrants................................ $1.25
Pro forma net tangible book value per share before offering. $.14
Increase in pro forma net tangible book value per share
attributable to Common Stock issued on exercise of
Warrants................................................... $.44
Adjusted pro forma net tangible book value per share after
offering..................................................... .58
-----
Dilution of net tangible book value per share to purchasers
exercising their Warrants(3)................................. $ .67
=====
</TABLE>
- --------
(1) Does not reflect (i) 141,500 shares of Common Stock issuable upon exercise
of the Soliciting Agent's Purchase Option; (ii) 125,000 shares of Common
Stock issuable upon exercise of the Warrants included in the Soliciting
Agent's Purchase Option; (iii) 200,000 shares of Common Stock issuable
upon exercise of the Class B Warrants; or (iv) the issuance of any Options
under the 1997 Stock Option Plan. See "Description of Securities",
"Certain Transactions" and "Management".
(2) Before deduction of soliciting commissions and offering expenses.
(3) Assuming no exercise of the Soliciting Agent's Purchase Option, the
Warrants, the Class B Warrants or the issuance of any Options under the
1997 Stock Option Plan. See "Underwriting" and "Description of
Securities".
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1997, and as adjusted to give effect to the sale by the Company
of 4,485,150 shares of Common Stock upon exercise of the Warrants at the
temporary exercise price of $1.25 per share. This table should be read in
conjunction with the financial statements and notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
Long-Term Debt....................................... $ 116,352 $ 116,352
----------- -----------
Shareholders' Equity:
Convertible Preferred Stock........................ 2,800,000 2,800,000
Common Stock, 25,000,000 shares authorized, $.001
par value, 4,881,400 shares issued; 9,366,550, as
adjusted.......................................... 4,881 9,367
Additional Paid-in Capital......................... 6,766,611 11,519,725
Retained Earnings (Deficit)........................ (5,057,012) (5,057,012)
----------- -----------
Total Shareholders' Equity......................... 4,514,480 9,272,080
----------- -----------
Total Capitalization............................... $ 4,630,832 $ 9,388,432
=========== ===========
</TABLE>
13
<PAGE>
DIVIDEND POLICY
Holders of the Company's Common Stock are entitled to dividends when, as and
if declared by the Board of Directors out of funds legally available therefor.
The Company has not paid and does not intend to pay cash dividends in the
foreseeable future on the shares of Common Stock. Cash dividends, if any, that
may be paid in the future to holders of Common Stock will be payable when, as
and if declared by the Board of Directors of the Company, based upon the
Board's assessment of the financial condition of the Company, its earnings,
need for funds, capital requirements, and other factors, including any
applicable laws. The Company intends to retain earnings, if any, to finance
its operations as well as the development and expansion of its business. In
addition, any financing which the Company may obtain in the future may contain
provisions restricting the Company's ability to pay dividends. Accordingly,
there can be no assurance that dividends of any kind or amount will ever be
paid in the future. Investors needing immediate or future income by way of
dividends should not purchase the securities of the Company. The Company
currently may be restricted from the payment of dividends under its financing
agreements with Foothill Capital Corporation and there is no assurance that
the Company can or will attempt to renegotiate such restrictions in the
foreseeable future.
14
<PAGE>
SELECTED FINANCIAL DATA
The financial data set forth below is derived from, should be read in
conjunction with and is qualified in its entirety by the more detailed
financial statements and notes thereto, and should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED PRO FORMA CONSOLIDATED
DECEMBER 31, SEPTEMBER 30, FOR THE PERIOD ENDED
----------------------- ----------------------- ------------------------
1996 1995 1997 1996 12/31/96 9/30/97
----------- ---------- ----------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ -- $ -- $ 3,574,304 $ -- $14,497,109 $11,754,992
Gross Profit............ -- -- 903,214 -- 4,190,559 3,312,610
Operating Expenses...... 478,265 41,500 1,231,151 379,802 4,727,426 3,404,919
Loss from Continuing
Operations............. (478,265) (41,500) (356,493) (379,802) (541,957) (138,297)
Loss from Discontinued
Operations............. (677,762) (549,654) (3,159,124) (584,688) -- --
Net Income (Loss)....... (1,156,027) (591,154) (3,515,617) (964,490) (697,274) (215,956)
Net Income (Loss) per
Share.................. (.35) (.33) (.79) (.29) (.18) (.04)
Weighted Average of
Common Shares
Outstanding............ 3,312,500 1,791,643 4,498,066 3,312,500 3,812,500 4,998,066
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30, AS
1996 1997 ADJUSTED*
------------ ------------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital.......................... $1,409,568 $ 183,920 $ 4,941,520
Total Assets............................. 2,790,466 7,362,724 12,120,324
Long-Term Debt........................... -- 116,352 116,352
Total Liabilities........................ 382,600 2,848,244 2,848,244
Shareholders' Equity..................... 2,407,866 4,514,480 9,272,080
</TABLE>
- --------
* As adjusted to give effect to the sale by the Company of 4,485,150 shares
of Common Stock upon exercise of the warrants at the temporary exercise
price of $1.25 per share.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis should be read in conjunction with the
historical financial statements and footnotes thereto and with the Pro Forma
Combined Financial Statements of the Company and notes thereto included
elsewhere in this Prospectus.
The following discussion does not take into account the determination of the
Board of Directors to discontinue the Company's "Hospitality" segment of
businesses in as much as the actual dispositions thereof has not been
completed. See "Risk Factors--Sale of Hospitality Subsidiaries," "Certain
Relationships and Related Transactions," and below immediately prior to "Food
Services and Distribution." Similarly, the following discussion describes the
Company's Frozen Dessert Segment, the sale of which was consummated in
December, 1997. See "Business--Sale of Frozen Desserts Business," and below
under "Food Services and Distribution--Frozen Desserts Segment."
RESULTS OF OPERATIONS
TERRACE HOLDINGS, INC. (CONSOLIDATED)
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
The Company's consolidated net loss for the year ended December 31, 1996 was
approximately $1,156,000 compared with its combined net loss of approximately
$591,000 for the year ended December 31, 1995. This substantial increase is
due to the following factors. In 1996, the Company purchased additional
Passover holiday contracts the required amortization of which resulted in a
net loss of $185,528. Selling, general and administrative expenses increased
by 221% from $581,200 in 1995 to $1,612,179 in 1996 primarily due to increases
in professional fees, payroll and related expenses, and costs associated with
the purchases of the new holiday venues. In addition, the Company's aggressive
attempts at possible acquisition candidates has also increased the associated
fees and other costs even though benefits were not realized in 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1997 TO NINE MONTHS ENDED SEPTEMBER 30, 1996
The Company's consolidated net loss for the nine months ended September 30,
1997 was approximately $3,516,000 compared to a net loss of approximately
$964,000 for the nine months ended September 30, 1996. The increase in losses
for the period in 1997 are attributable to the disposal of certain business
segments. The Company finalized the purchase of A One A Produce in the third
quarter and has since finalized the acquisition of Bay Purveyors, a food
distributor in Miami, Florida. The company believes that with the addition and
consolidation of these new subsidiaries, the company will increase growth and
profitability in the fourth quarter of 1997 and into 1998.
HOSPITALITY
Passover Holiday Vacations Segment
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Through Passover 1995, the Company operated one Passover vacation venue at
the Registry Resort & Spa, f/k/a the Bonaventure Resort & Spa in Fort
Lauderdale, Florida. In January, 1996, the Company purchased additional
Passover holiday contracts for three other venues. Revenues for the year ended
December 31, 1996 were $3,751,700 or 103% higher than the $1,844,000 recorded
in the comparable period of 1995. The substantial increase in revenue resulted
from the addition of three Passover holiday contracts. Cost of sales increased
by 138% from $1,315,500 in 1995 to $3,134,500 in 1996. This increase is due to
the three additional venues. The gross profit percentage decreased to 16% from
28% at December 31, 1995 mainly because increased costs and required
amortization (as noted below) associated with the new venues. Management
currently believes that it can realize maximum profitability potential from
these venues through the remaining contract lives, although no assurance to
that effect can be given.
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Selling, general and administrative expenses increased by 357% from $139,060
in 1995 to $636,100 in 1996. The increase is due primarily to the costs related
to the purchase of the additional holiday venues. These costs include a charge
to amortization expense of $260,000, as well as other costs associated with the
new venues, such as travel expense associated with new locations. Operating
expenses also increased due to professional fees associated with the Company's
expansion into the pubic marketplace. As a result of the above, the net loss
for the year ended December 31, 1996, was $18,800 as compared to net income of
$292,300 for the corresponding period of 1995.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
In 1997, the Company operated its Passover holiday vacation segments at three
resort locations, The Registry Resort & Spa in Fort Lauderdale, Florida, the
Fontainebleau Hilton in Miami Beach, Florida and the Ryetown Hilton, in
Ryebrook, New York. Revenues for the nine months ended September 30, 1997 were
approximately $3,495,000 or 7% less than the approximately $3,750,000 recorded
in the comparable period in 1996. The decrease was a result of the Company's
decision not to renew its Passover operation at the Tamiment Hotel in
Pennsylvania. Management felt that, in the future, the Tamiment would not be as
profitable as expected and, on this basis, chose to no longer operate a
Passover vacation at this particular venue. Since this portion of the Company's
business is extremely seasonal and all of the revenues are realized in the
second quarter there were no operating results to speak of in the third
quarter.
Restaurants and Catering Segment
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
The Company's operations at The Club at Emerald Hills in Hollywood, Florida
are derived from operation of the Reflections Restaurant and catering private
functions. During 1996, the golf club where the restaurant and catering
facility are located changed its membership policies resulting in a slightly
higher number of golfers and, thus, people using the Company's food and
beverage operations there. This translated into slightly higher revenues in the
restaurant of approximately $909,200 for the year ended December 31, 1996
compared to approximately $856,800 for the year ended December 31, 1995.
Net loss for the year ended December 31, 1996 was approximately $59,150 as
compared to net loss of approximately $137,886 for the year ended December 31,
1995. This decrease in loss was primarily due to an overall decrease in cost of
sales.
With respect to the operation of Terrace Oceanside Restaurant in Hallandale,
Florida, net loss for the year ended December 31, 1996 was $130,000 as compared
to a net loss of $137,738 for the year ended December 31, 1995. The Company
currently believes that the costs it has incurred associated with its initial
start up have substantially ended.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
Although revenues for the nine months ended September 30, 1997 were slightly
higher than the prior year period, the net loss for the nine months ended
September 30, 1997 was approximately $56,000 compared to $38,000 for the same
period in 1996. This increase in loss was primarily due to an overall increase
in the cost of sales. Management is implementing new procedures for cost
control in order to obtain lower expenses in the area of food and payroll
costs.
With respect to the Terrace Oceanside Restaurant, the Company's net income of
$11,600 for the nine months ended September 30, 1997, compared to a net loss of
$95,115 for the nine months ended September 30, 1996 can be attributed to
several different factors. The Company realized a decrease in purchases and
wages. During the summer months, when the restaurant industry in Southern
Florida is at a normal low, the Company temporarily closes the Terrace
Oceanside restaurant. The restaurant has subsequently reopened.
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As noted elsewhere in this Prospectus, the Company has determined to dispose
of, and Samuel H. Lasko, President of the Company, has notified the Company of
his intention to exercise his option to acquire the Passover holiday vacations
and restaurant and catering segments of the Company's businesses. There is no
assurance that Mr. Lasko will exercise his option when it is exercisable or
that such a transaction will be consummated. If neither Mr. Lasko purchases
nor another buyer is found, the Company will continue to operate these
segments. If the segments are disposed of, however, there is no assurance that
overall profitability of the Company will nevertheless be achieved. See "Risk
Factors--Sale of Hospitality Subsidiaries" and "Business."
FOOD SERVICES AND DISTRIBUTION
Frozen Dessert Segment
As stated elsewhere in this Prospectus, in February, 1997, the Company's
wholly-owned subsidiary, Deering Ice Cream, Inc., ("Deering") acquired all of
the assets and related liabilities of DownEast Frozen Desserts, LLC, which
manufactures and markets frozen desserts under the name Deering Ice Cream.
("Deering").
Revenues for the period ended September 27, 1997 were approximately
$5,068,700 or 4% higher than the $4,862,100 for the same period of 1996,
although overall volume produced and shipped increased approximately 44% over
the same period in 1996. The large difference in these amounts was caused by a
change in billing methods with several large co-packing customers. As of
January 26, 1997, Deering's largest co-packing customer provides Deering with
materials at the customer's cost. Thus, Deering is only charging a processing
fee to that customer which includes direct labor overhead and profit. This
billing procedure was also adopted for another major co-packing customer. In
total, this reduced co-packing revenues $1,100,000 as compared to what would
have been charged in 1996 for equivalent volume, without any effect on profit.
Branded sales for the period ended September 27, 1997 were up 21% over the
prior year primarily due to the advent of manufacturing and selling the Howard
Johnson's line of products. Placement for this line of products has been
obtained in major markets outside New England, including the New York
Metropolitan area, Upstate New York, Baltimore, Washington D.C. and Florida.
Operating loss was $19,600 an improvement of $691,900 over the loss for the
same period in 1996. This stronger performance can be attributed to a
reduction in overhead per gallon of approximately $.48, a reduction in plant
labor per gallon of $.21, and an improvement in material yield of 6%. Selling
and marketing expenses as a percent of net revenues were approximately .5%
lower than the same period in 1996 due to more effective in-store promotion
and a reduced level of slotting fees. Administration remained equivalent to
last year despite the approximate 44% growth in sales related transactions.
On December 17, 1997, the Company sold the Deering business to a subsidiary
of Fieldbrook Farms, Inc. of Dunkirk, New York, for a cash purchase price of
$1,000,000 (subject to adjustments), plus royalties on future revenues
generated by sales of products under the Howard Johnson's and Deering names
over the next four years. See "Business." The Deering business was sold, not
only because it was determined that it would take too long for the Company to
bring this business to profitability, but also so that the Company could focus
its resources in the more profitable produce and grocery distribution
businesses. There is no assurance, however, that this disposition will result
in additional profitability for the Company.
New Acquisition--Wholesale Food Distribution Segment
As stated elsewhere in this Prospectus, in August, 1997 but effective July
1, 1997, the Company'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
Company acquired the assets and related liabilities of A One A Wholesale's
affiliate, Fresh, Inc. ("Fresh"). Both were privately held companies in the
business of distributing and selling fresh fruit and vegetables to hotels,
restaurants and other businesses in the Southern Florida region. Also, on
September 27, 1997, A-One-A Produce acquired the business of Bay Purveyors, a
Miami, Florida distributor of "dry" grocery products in South Florida. Bay
Purveyors is operated as a division of A-One-A Produce and Fresh, Inc.
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Revenues for the period ended September 30, 1997, were approximately
$3,575,000 or 8% higher than the $3,280,000 for the same period ended
September, 1996. Net loss for the period was approximately $66,000 as compared
to net income of $46,000 for the same period in 1996. This decrease in income
can be attributed to start up costs and expenses as a result of relocating the
facility and amortization expense of approximately $42,000. Management has
implemented new cost control procedures in an attempt to obtain lower expenses
and believes that this will help realize positive financial results at this
subsidiary in the future.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company, on a pro forma basis, had cash of
approximately $690,000.00 and working capital of approximately $1,183,000.00.
The Company, A One A Produce and Provisions, Inc. and Terrace Holdings, Inc.
have relied principally on internally generated funds to fund its working
capital needs.
On a prospective basis after consumption of this offering, the Company
estimates that it will be in position to expand its operations. Management
believes both the proceeds of this registration statement and internally
generated funds should be adequate to meet the Company's working capital
expenditures (including the expansion plans) for the twelve months following
the completion of this registration statement.
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BUSINESS
GENERAL
Terrace Holdings, Inc., was incorporated under the laws of the State of
Delaware on June 15, 1995, to change the state of incorporation of Bon
Adventure Kosher Tours, Inc., a Florida corporation, formerly known as Embassy
Kosher Tours of South Florida, Inc. The Company currently has five wholly-
owned operating subsidiaries, three in the "hospitality" group and two in the
"food services and distribution" group. The hospitality subsidiaries are The
Lasko Companies, Inc., which owns and operates on leased property the
Company's kosher, casual dining restaurant, Terrace Oceanside Restaurant, in
Hallandale, Florida; 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 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 Company disposed of its frozen desserts manufacturing business. See
"Frozen Desserts."
HOSPITALITY
Restaurant. The Company is the successor to a business founded in 1988 to
operate a holiday vacation venue in south Florida. From October, 1993 through
May, 1995, the founders of the Company 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 Company opened a new restaurant, "Terrace Oceanside Restaurant", in
Hallandale, Florida. The Company'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 Company determined that the economic
feasibility of opening additional kosher Terrace restaurants would be more
difficult, both on an economic and management/employee basis, than earlier
anticipated and decided, instead, to seek possible acquisitions of going
concerns in the food--or leisure--related industries.
Food and Beverage Management. The Company, through its wholly-owned
subsidiary, A&E Management Corp., currently manages a non-kosher restaurant
and catering operation at The Club at Emerald Hills, an upscale country club
in Hollywood, Florida.
Holiday Vacations. Since 1989, the Company has operated a kosher Passover
holiday vacation venue at the Bonaventure Resort & Spa, now known as the
Registry Resort & Spa, in Fort Lauderdale, Florida. Under the Company's
management and principal shareholders, this operation has grown from serving
approximately 300 guests in 1989 to approximately 1,300 guests for Passover
since 1992. Passover occurs each spring and the Company takes over the entire
Registry Resort & Spa for the Passover holiday season. The Lasko Family Kosher
Tours, Inc., a wholly-owned subsidiary, manages and operates its Passover
holiday vacations business.
In January, 1996, the Company 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 Company 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.
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In November, 1997, Samuel H. Lasko, President, notified the Company of his
intention to exercise his option to purchase the hospitality subsidiaries of
the Company at a purchase price equal to the "fair value" of the subsidiaries.
Dr. Lasko's exercise of his option is subject to the Company securing an
independent fairness opinion and the affirmative vote of the majority of the
Company's shareholders. The Board of Directors has retained an independent
accounting, consulting and valuation firm to render such an opinion and, if
that opinion is acceptable to Dr. Lasko, the hospitality subsidiaries of the
Company will be sold to him subject to the affirmative shareholder vote
required.
FOOD SERVICES AND DISTRIBUTION
Produce. In August, 1997, but effective as of July 1, 1997, the Company'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 Company
acquired the assets and related liabilities of A One A Wholesale's affiliate,
Fresh, Inc. Both corporations were unaffiliated with the Company. 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, the Company'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 Company, 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. In December, 1997, the
Company consummated the sale of the assets and certain liabilities of its
wholly-owned subsidiary, Deering Ice Cream, Inc. to a subsidiary of Fieldbrook
Farms, Inc., Dunkirk, New York, for $1,000,000 cash, subject to later
adjustment, plus certain royalties over four years.
HOSPITALITY
Terrace Oceanside Restaurant. Terrace Oceanside Restaurant is a "casual,
upscale, tablecloth" kosher restaurant located on the Atlantic Ocean beach in
a residential condominium complex of approximately 1,400 units. In addition,
the area nearby the Restaurant has many residential condominium complexes. The
Hallandale location for the Restaurant is between Miami Beach and West Palm
Beach and is readily accessible by residents of Dade, Broward and Palm Beach
Counties, Florida, all of which have significant Orthodox Jewish populations
that observe Jewish dietary laws.
The designation of the Company's principal food-related activities as
"kosher" means that all the foods are kosher and are prepared in accordance
with Jewish dietary laws. Terrace Oceanside Restaurant in Hallandale, Florida
is under the supervision of the Orthodox Rabbinic Board of Broward and Palm
Beach Counties ("ORB"). The ORB must approve the ingredients, foods, and
preparation before it will certify a restaurant as "kosher". Therefore, the
ability of the Company to successfully continue the Terrace Oceanside
Restaurant's kosher status is dependent upon its continued compliance with the
requirements of Rabbinic certification.
The Terrace Oceanside Restaurant has seating for approximately 150 to 180
people. The Restaurant also has a lounge and cocktail area including a full
service bar. Its full service kitchen is approximately 1,500 square feet. The
Restaurant can seat parties of two to forty people comfortably. Since the
Restaurant is located in south Florida, its operations are seasonal in nature
and rely, to a significant degree, on tourism in the winter months to sustain
them. Thus, the third calendar quarter (July-September) of each year, or the
summer "slow" season has generated losses. Accordingly, as a relative cost
saving matter, the Company now closes the restaurant from approximately June
15th through approximately September 15th.
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Kosher Vacations: In the spring of 1989, the Company offered its first
kosher vacation at the Registry Resort & Spa, formerly known as the
Bonaventure Resort & Spa, Fort Lauderdale, Florida during the Jewish Passover
holiday. The Jewish Passover holiday is eight days in length and occurs in the
spring, generally around the Easter season. During Passover, observant Jews
refrain from eating grain and grain-related products or utilizing utensils
normally used with grain or grain-related products. In the last approximately
twenty years, a Passover holiday vacation "industry" has developed, whereby
families who observe the Jewish Passover rituals may go for the entire holiday
and be assured full compliance with the Passover religious requirements and at
the same time enjoy a vacation. The Company's Passover holiday vacation
package includes accommodations, food and beverages, as well as use of all of
the Registry's facilities, such as its golf courses, tennis courts, swimming
pools and spa. Today, in addition to vacations such as the ones operated by
the Company, there are Passover cruise, skiing, Caribbean, Hawaiian and
European vacations, all of which may be deemed to compete with the Company's
vacations.
The Company's 1989 Passover vacation was attended by approximately 300
persons, its 1990 Passover vacation by approximately 600 persons, and since
Passover 1992, the Company has taken over the entire capacity of the Registry
Resort & Spa for its annual Passover vacation operation at which it serves
approximately 1,300 guests. From 1992 through 1996, there was a waiting list,
and potential guests had to be turned away. The average family of four pays
approximately $6,000-$8,000 for the entire Passover vacation package, which
generally runs 9 to 12 days depending each year upon what day of the week
Passover begins.
The accommodations at the Registry Resort & Spa include nine guest
buildings, totaling 492 rooms, including suites (approximately 1,300 guests).
For Passover, 1997, 32 guest rooms, or approximately 4% of capacity of The
Registry Resort & Spa, was not utilized by the Company. The main conference
center includes extensive kitchen facilities, three ballrooms, a substantial
number of small meeting rooms and a health spa. On adjacent property, there
are two world-class championship golf courses, as well as a tennis and racquet
club. The Company's contract with the Registry Resort & Spa to use its
facilities during the Passover holiday expires after the 2002 Passover
holiday.
The Fontainebleau Hilton Resort & Spa, located in Miami Beach, Florida, has
over 1,200 guest rooms on 20 acres of oceanside gardens with rooms featuring
magnificent ocean views. The Company utilizes approximately 300 of such rooms
for its Passover program at this resort (approximately 750 guests). Each room
has three telephones, a large screen television and a luxury marble bath and
vanity area. There is a tropical lagoon, half acre rock grotto swimming pool,
along with seven lighted tennis courts, two nearby championship golf courses,
wind surfing, and of course, the ocean. The 30,000 square foot beachside spa
features state of the art equipment, aerobics classes and modern spa
facilities.
The Rye Town Hilton is located in Rye, New York, approximately 40 minutes
from New York City, on 40 acres of landscaped land with spacious
accommodations in 400 luxury rooms and suites. The facility includes an indoor
pool, a whirlpool, sauna, tennis courts and basketball court. Rooms range from
a standard room to one bedroom suites, with views of the garden or pool areas.
For its Passover vacation at the Rye Town Hilton, the Company utilizes
approximately 150 rooms (approximately 300 guests).
Food And Beverage Management: The Company's wholly owned subsidiary, A&E
Management Corp. ("A&E"), manages the food and beverage operations at The Club
at Emerald Hills in Hollywood, Florida. Under its agreement with Emerald Golf,
Inc., an unrelated corporation which operates The Club at Emerald Hills, A&E
manages Reflections Restaurant as well as the bar and lounge area and the
catering operations at The Club at Emerald Hills. Reflections is a 165 seat
restaurant and lounge. Reflections is not a kosher facility and none of A&E's
other management activities at The Club at Emerald Hills involve kosher food
or facilities. Neither operating personnel nor food products or preparation
handled in conjunction with the Company's Terrace Oceanside restaurant,
Passover holiday vacations or frozen desserts business is commingled, at any
time or in any manner, with A&E's management operations at The Club at Emerald
Hills. These procedures are to ensure absolute adherence to Orthodox Jewish
requirements to maintain the highest kosher standards and certifications at
the Company's Terrace Oceanside Restaurant and its Passover vacation venues.
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FOOD SERVICES AND DISTRIBUTION
A-One-A Produce & Provisions, Inc. In August, 1997, the Company'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 Company acquired the
assets and related liabilities of A-One-A Wholesale's affiliate, Fresh, Inc.
Both corporations were unaffiliated with the Company. 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 Company incorporated
Terrace Fresh, Inc. to operate the business of A-One-A Wholesale's affiliate,
Fresh, Inc. Revenue in 1996, prior to the Company'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 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
Company 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 Company 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 have pricing arrangements that represent a
margin above market price as an approximation of cost. However, there are no
fixed selling prices at which A-One-A Produce must sell to any customer. Some
of the Company'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 Company'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.
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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 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 Company 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 $310,000. The business of Bay Purveyors is
conducted as part of A-One-A Produce.
SALE OF FROZEN DESSERTS BUSINESS
In December, 1997, the Company'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 Company and President
of Deering, and Joseph Dane, Controller of the Company and Chief Financial
Officer of Deering, resigned their respective positions with the Company.
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.
The Company 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
Company cannot estimate whether or if such royalties, if received, will be
material.
ADVERTISING AND MARKETING
The Company currently markets its products and services through local
newspapers, the use of mailing lists and various trade publications.
The Company 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 Company's products and services. Depending upon the outcome
of any such marketing evaluations, the Company may decide to make changes with
respect to the marketing of its products and services.
COMPETITION
The casual dining restaurant industry is intensely competitive with respect
to price, service, location, themes and food quality. There are several kosher
restaurants in the South Florida area which compete with the Company's
restaurant operations and the principal target market, diners who observe the
Jewish dietary laws, is relatively small compared to the general dining
population.
The wholesale fresh produce and grocery businesses are also very
competitive, and the Company's subsidiary faces competition from other low-
cost produce providers. However, A-One-A Produce strives to maintain high
quality and exceptional service in the market by making quality products and
efficient service its priority.
24
<PAGE>
The Company believes that there are many other kosher holiday vacation
packages offered in the United States and Caribbean, all of which provide
intense competition to the Company's kosher holiday vacation packages.
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 Company is subject to various federal, state and local laws affecting
its businesses. Each of the Company's food service operations is subject to
licensing regulation by numerous governmental authorities which may include
alcohol beverage control, building, health and safety and fire agencies in the
state or municipality in which the restaurant is located. Difficulties in
obtaining or failures to obtain or maintain the necessary licenses or
approvals could have a material adverse effect on the Company's operations.
Alcoholic beverage control regulations relate to numerous aspects of the
daily operations of the Company's restaurant, including minimum age of patrons
and employees, hours of operation, advertising, purchasing, inventory control
and handling, storage and dispensing of alcoholic beverages. The failure of a
restaurant to obtain or retain a liquor or food service license would
adversely affect that particular restaurant's operations. The Company
maintains liquor liability insurance as part of its existing comprehensive
general liability insurance.
A-One-A Produce maintains a license 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.
In addition to federal, state and local laws affecting its businesses, the
Company's operations manufacturing, preparing or serving kosher foods must
adhere to Jewish religious dietary laws. The Company's kosher restaurant and
catering operations are currently under the supervision of the Orthodox
Rabbinic Board of Broward and Palm Beach Counties, Florida.
EMPLOYEES
The Lasko Family Kosher Tours, Inc. employs 6 full time employees. During
the Passover holiday, it temporarily increases its staff to service the guests
at each of the vacation venues it operates by approximately 75 to 100 people.
A&E Management Corp., managing the food and beverage and restaurant
operations at the Club at Emerald Hills, currently employs a total of
approximately 65 people, full and part time, in its operations, of which all
are kitchen, banquet and wait staff.
At the present time, The Lasko Companies, Inc., operating the Terrace
Oceanside Restaurant, has two administrative employees, a full time kitchen
staff of 5, a wait staff of 12, a Maitre' D, and an executive chef.
A-One-A Produce & Provisions, Inc. employs approximately 105 people which
includes administrative, transportation and warehouse personnel, as well as
upper-level management.
As a result of the DownEast acquisition in February, 1997, the Company
entered into a three year employment agreement with Mr. Milton Namiot,
President of DownEast, whereby Mr. Namiot served as the President and Chief
Executive Officer of the Deering subsidiary in addition to serving as Chief
Executive Officer of the Company. In connection with the sale of the Deering
subsidiary's business, Mr. Namiot resigned from his positions as an officer
and director of the Company.
25
<PAGE>
PROPERTIES
The Company has a five-year lease ending in May, 2000, at an annual rental
of $3,000 with a five-year option exercisable under certain circumstances, for
the Terrace Oceanside restaurant facility of approximately 3,750 square feet
located on the Atlantic Ocean beach in Hallandale, Florida, with the
condominium association which owns the facility.
The Lasko Family Kosher Tours, Inc. operates its current kosher holiday
vacations under separate agreements with three different venues which expire
at different times:
1. Registry Resort & Spa, in Ft. Lauderdale, Florida. The Company's
agreement to operate a Passover holiday vacation at the Registry Resort &
Spa, formerly known as the Bonaventure Resort & Spa, extends through the
1997 Passover holiday, and the Company has exercised its option to extend
the agreement for an additional five years.
2. The Fontainebleau Hilton Resort & Spa. The Company has an agreement to
operate a Passover holiday vacation at The Fontainebleau Hilton Resort &
Spa through Passover, 1999.
3. Rye Town Hilton. The Company has an agreement with the Rye Town Hilton
to operate its kosher holiday vacation operations through Passover, 1999.
A&E Management Corp. has a five year lease expiring November, 1999 with
Emerald Golf, Inc., at an annual rental of approximately $50,000 to lease
property located at The Club at Emerald Hills to operate a restaurant,
cocktail lounge and a banquet or catering operation. A&E has the option to
renew the lease for an additional five years upon the same terms and
conditions provided it is not in default and proper notice of the exercise of
the option is given.
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 five years with two five year
options to extend expiring July 31, 2002, at a rental of $220,000 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 Company 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 Company leased approximately 2,000 square feet at
2699 Stirling Road in Ft. Lauderdale, Florida, for use as its executive
offices and reservations center. The Company's executive offices are now
located in the A-One-A Produce facility in Pompano Beach, Florida. Its
reservations center is located at The Club at Emerald Hills, utilizing the
office facilities maintained by A&E Management Corp. described above.
Management believes that the above facilities will be sufficient for its
operations in the foreseeable future.
RECENT FINANCING
In August, 1997, the Company guaranteed payment on a Loan and Security
Agreement between Foothill Capital Corporation of Mechanicsville, Virginia and
the Company'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 $4,200,000, 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
Company's guaranty was adjusted accordingly.
26
<PAGE>
MANAGEMENT
DIRECTORS AND OFFICERS
The following table sets forth certain information with respect to the
Company's directors and executive officers:
<TABLE>
<CAPTION>
NAME* AGE POSITION HELD
----- --- -------------
<S> <C> <C>
Dr. Samuel H. Lasko.............. 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
Richard Power.................... 48 Director
Bernard Rubin, M.D............... 49 Director
</TABLE>
- --------
*In connection with the sale of the Deering business, Mr. Milton Namiot
resigned as an officer and director of the Company
Directors are elected on an annual basis. All directors of the Company hold
office until the next annual meeting of the shareholders or until their
successors are elected and qualified. At present, the Company'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 Company'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. Currently, there is
one vacancy on the Board of Directors.
DR. SAMUEL H. LASKO, age 52, has been President, Treasurer and a director of
the Company 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 Company and one of
its directors, and the brother-in-law of Bruce S. Phillips, a director of the
Company.
JONATHAN S. LASKO, age 26, has been a director of the Company since
September, 1994, and its Chief Operating Officer and Secretary since August,
1995. He has also been the Company'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. 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 Company, Mr.
Lasko was a part-time employee of the Company 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 Company and one of its
directors, and the nephew of Bruce S. Phillips, a director of the Company.
BRUCE S. PHILLIPS, age 54, has been a director of the Company 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
Company and its President and Treasurer, and the uncle of Jonathan S. Lasko, a
director of the Company and its Executive Vice-President, Secretary and Chief
Operating Officer.
27
<PAGE>
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
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.
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 Company.
BERNARD RUBIN, M.D., age 49, was a director of the Company from August,
1995, to February 17, 1997, when he voluntarily resigned. He was re-elected a
director at the Company'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 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.
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 Company anticipates that the Board of Directors will continue to meet at
least four times a year.
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 Company
or any of its subsidiaries to the Chief Executive Officer of the Company 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, President and
Treasurer ................... 1995 $ 31,403 $169,081(3) 750,000(7)
1996 $125,000 $ 9,517(4)(5)
1997 $150,000 $ 22,502(4)
Jonathan S. Lasko, Executive
Vice President, Secretary and
Chief Operating Officer...... 1995 $ 24,592 $169,081(3) 750,000(7)
1996 $ 70,000 $ 7,255(4)
1997 $ 95,000 $ 21,727(4)
Milton Namiot, Chief Executive
Officer(8)................... 1997 $175,000 $ 9,500(4) 125,000(8)
</TABLE>
- --------
(1) Paid by A&E Management Corp. ("A&E").
(2) Represents "S" corporation distributions in the nature of dividends of
$233,957 and $40,409.
(3) Represents combined "S" corporation distributions in the nature of
dividends through December 5, 1995, when the Company first offered and
sold its securities to the public.
28
<PAGE>
(4) Represents amounts paid for lease of automobile, automobile insurance,
cell phone and health insurance.
(5) Does not include repayments of loans from A&E, The Lasko Companies, Inc.
and the Company.
(6) Represents "S" corporation distributions in the nature of dividends.
(7) 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 Company issued to each of Samuel H. Lasko and
Jonathan D. Lasko warrants to purchase 375,000 shares of the Company's
common stock at $1.1875 per share exercisable immediately and expiring
August 31, 2000.
(8) In connection with the sale of the Company's Deering Ice Cream, Inc.
business, Mr. Namiot resigned as an officer. He was an officer and
director of the Company from February 17, 1997 until the closing of the
Deering transaction. In connection with his resignation, the termination
of this three year employment contract and his release of the Company from
the terms thereof, Mr. Namiot was vested with 50% of the options
theretofore granted him, or options to purchase 125,000 shares of the
Company's common stock.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
The following table sets forth options exercised by the Company's chief
executive officer and the Company's two other most highly compensated
executive officers during fiscal 1996, and the number and value of all
unexercised options at year end. The value of "in-the-money" options refers to
options having an exercise price which is less than the market price of the
Company's stock at fiscal year-end. On that date, none of the Company's
executive officers held exercisable options which were "in-the-money".
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
SHARES AT FY-END (#) AT FY-END ($)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/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 Company 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 Company) contained in the
Laskos employment agreements. In connection with the DownEast acquisition,
effective February 17, 1997, each of Messrs. Samuel and Jonathan Lasko
voluntarily surrendered their respective right to these options and, in
lieu thereof, the Company issued to each of Samuel H. Lasko and Jonathan
D. Lasko warrants to purchase 375,000 shares of the Company's common stock
at $1.1875 per share exercisable immediately and expiring August 31, 2000.
EMPLOYMENT AGREEMENTS AND AGGREGATE OPTIONS HOLDINGS
The Company has 5-year employment agreements, ending August 31, 2000, with
each of Dr. Samuel H. Lasko and Jonathan S. Lasko.
Under his employment agreement, Dr. Samuel H. Lasko receives an annual base
salary of $95,000 for the first two years, $125,000 for the third year,
$150,000 for the fourth year and $175,000 for the fifth year of his
employment. Under his employment agreement, Jonathan S. Lasko receives an
annual base salary of $70,000 for the first two years, $95,000 for the third
year, $115,000 for the fourth year and $125,000 for the fifth year of his
employment. In connection with the DownEast transaction, by amendments dated
February 17, 1997, to their
29
<PAGE>
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 Company issued to each of
Samuel Lasko and Jonathan Lasko, warrants to purchase 375,000 shares of its
common stock at an exercise price of $1.1875 per share. The employment
agreements also entitle the individuals to the use of an automobile and to
employee benefit plans, such as group life, health, hospitalization and life
insurance. Under each of these employment agreements, employment terminates
upon death or total disability of the employee and may be terminated by the
Company for "cause," which is defined, among other things, as the willful
failure to perform duties, embezzlement, conviction of a felony, or breach of
the employee's covenant not to compete or maintain confidential certain
information. The Company maintains a $1 million life insurance policy on the
life of Jonathan Lasko.
In connection with the DownEast transaction, the Company 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 Company.
As a result of the sale of the Deering business, Mr. Namiot resigned from his
positions as an officer and director of the Company.
In connection with the A-One-A transaction, the Company 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 Company'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 Company'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 Company 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 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 determines that such officer,
employee, consultant or advisor has the capacity to make a substantial
contribution to the success of the Company. 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 Company include subsidiaries 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. The
full text of the 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 Company'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.
30
<PAGE>
The Plan can be amended, suspended, reinstated or terminated by the Board of
Directors; provided, however, that without approval of the Company'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
Company 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 the date hereof, 630,000 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 Company, or with Common Stock of the Company 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 Company, 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 terminated with or without cause or
resigns; provided, however, in the event the Company terminates the employment
of an optionee who at the time of such termination was an officer of the
Company and had been continuously employed by the Company 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.
31
<PAGE>
In February, 1997, the following officers, directors and significant
employees have received the number of options as is designated opposite their
respective names:
<TABLE>
<CAPTION>
NUMBER OF
NAME OPTIONS(1)
---- ----------
<S> <C>
Samuel H. Lasko.................................. 125,000
Jonathan S. Lasko................................ 125,000
Steven Shulman................................... 130,000(2)
Bruce Philips.................................... 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
-------
Total........................................ 630,000
=======
</TABLE>
- --------
(1) Unless otherwise stated, these options were granted at an exercise price
of $1.1875 per share, such options to vest over three years.
(2) All of Mr. Philip's and Mr. Power's options, as well as 30,000 of Mr.
Shulman's options, vested at the time they were granted.
(3) In connection with the Company's sale of its Deering subsidiary's
business, Messrs. Namiot and Dane are no longer affiliated with the
Company. The number of options listed were vested upon consummation of
such sale. See footnote 8 to "Executive Compensation" table.
PRINCIPAL SHAREHOLDERS
The following table provides information concerning the beneficial ownership
of common stock of the Company by each director, certain executive officers,
and by all directors and officers of the Company as a group as of September
30, 1997. In addition, the table provides information concerning the
beneficial owners known to the Company to hold more than 5 percent of the
outstanding common stock of the Company as of September 30, 1997.
<TABLE>
<CAPTION>
BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP(1) CLASS(1)(2)
- ------------------------ ------------ -----------
<S> <C> <C>
Dr. Samuel H. Lasko................................... 383,750(3) 7.9%
Jonathan S. Lasko..................................... 380,000 7.8%
Richard Power......................................... 75,000 *
Steven Shulman........................................ 75,000 *
Milton Namiot(4)......................................
All Directors and Executive Officers as a Group (6
persons)............................................. 913,750 18.7%
</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) In December, 1997, following the sale of the Deering subsidiary's
business, Mr. Namiot resigned as an officer and director of the Company.
32
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In September, 1995, in a tax-free reorganization under federal income tax
laws and rules, Bon Adventure Kosher Tours, Inc. ("BAKT") was merged into the
Company. In connection with such merger, Samuel H. Lasko received 672,500
shares of the Company in exchange for his shares of common stock of BAKT, and
Jonathan S. Lasko received 632,500 shares of the Company in exchange for his
shares of common stock of BAKT.
In December, 1995, in separate tax-free reorganizations, the Company
acquired from Samuel Lasko and Jonathan Lasko all of the outstanding stock of
A&E Management Corp. and The Lasko Companies, Inc. In connection with such
reorganizations, Samuel H. Lasko and Jonathan S. Lasko each received 30,000
shares of the Company in exchange for his respective shares of A&E Management
Corp. and 25,000 shares of the Company in exchange for his respective shares
of The Lasko Companies, Inc.
In December, 1995, the Company acquired from Irving Kraut, an unaffiliated
party, all of the issued and outstanding shares of common stock of Prime
Concern Kosher Foods, Inc. in exchange for 250,000 shares of Common Stock of
the Company.
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 Company's public offering or
March 31, 1996. As noted, the Company'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 Company's offering. Pursuant
to agreements, the remaining principal of $185,549, together with all accrued
interest, was payable out of the Company'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 Company issued to each of
Samuel H. Lasko and Jonathan D. Lasko (collectively the "Laskos") warrants to
purchase 375,000 shares of the Company's common stock at $1.1875 per share.
Messrs. Laskos surrendered their respective performance options to purchase up
to 750,000 shares of the Company's common stock, contained in their respective
Employment Agreements. In addition, they entered into an option agreement to
purchase the businesses, assets or capital stock of three of the Company's
wholly owned subsidiaries, The Lasko Family Kosher Tours, Inc., The Lasko
Companies, Inc. and A&E Management, Inc. at the fair market value thereof to
be independently determined. The option is exercisable for approximately three
years commencing April 1, 1998 until February 17, 2001, or earlier under
certain circumstances, is subject to shareholders' approval, and to receipt of
an independent "fairness opinion" determining the option purchase price.
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 five years with two five year
options to extend expiring July 31, 2002 at an annual rental of $220,000. 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 Company 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 Company 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.
33
<PAGE>
SELLING SECURITIES HOLDERS
The following table sets forth the record and beneficial ownership by each
of the Selling Securities Holders, the number of shares of Common Stock or
Warrants to be offered by each and the ownership of the Common Stock after the
sale of the shares offered hereby as of the date of this Prospectus. No person
owned of record or beneficially more than 10% of the Common Stock of the
Company. The Selling Securities Holders will not pay any of the expenses
incident to the offering made by this Prospectus other than any sales,
commissions or concessions applicable to the securities offered by them
hereby. A registration statement of which this Prospectus is a part covers
securities held by others who may be precluded from public sale until some
time in the future, the Company, at its expense, will amend this Prospectus to
include such securities holders and their securities prior to any public sales
thereof.
<TABLE>
<CAPTION>
PERCENTAGE
COMMON OWNERSHIP
PREFERRED COMMON STOCK AFTER AFTER
NAME STOCK WARRANTS STOCK OFFERING OFFERING
- ---- --------- --------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Aboukhater, Houssam........ 50,000 100,000 %
Abresch, John P............ 12,500 25,000 %
Anom Trust, The............ 25,000 50,000 %
Barclay Partners........... 75,000 %
Bear Stearns as IRA
Custodian f/b/o: Jack
Shaffer................... 12,500 25,000 %
Biltmore Securities, Inc... 156,325 1,062,650 250,000* %
Carpionato, Alfred......... 125,000 250,000 %
Dunn, Bryan R.............. 12,500 25,000 %
Feinberg, Michael.......... 200,000 %
Gelfand, Mark E............ 12,500 25,000 %
Gildea, John W............. 12,500 25,000 %
Haber, Sidney and Linda.... 25,000 50,000 %
Healthcare Financial
Corporation, LLC.......... 25,000 50,000 %
Herman, Bryan.............. 62,500 125,000 %
Katz Investments II........ 50,000 100,000 %
Kaufman, Howard............ 125,000 250,000 %
Kraut, Dr. Irving.......... 125,000 250,000 %
Kulman, Craig.............. 12,500 25,000 %
Lipsky, Alan............... 62,500 125,000 %
Lyons Community Property
Trust, Phillip N. Lyons,
Trustee................... 150,000 300,000 %
Masada I Limited
Partnership............... 12,500 25,000 %
NAC Group, Inc............. 25,000 50,000 %
Namiot, Milton............. 12,500 25,000 %
O'Donnell, William P....... 12,500 25,000 %
O'Herron, Jonathan......... 50,000 100,000 %
PaineWebber as IRA
Custodian
f/b/o Thomas L. Rea....... 8,500 17,000 %
PaineWebber as SEP-IRA
Custodian
f/b/o Thomas L. Rea....... 4,000 8,000 %
Pollis, II, John P......... 12,500 25,000 %
Power, Richard D........... 50,000 100,000 %
Pronesti, Thomas M......... 12,500 25,000 %
Riggio, Roy A.............. 12,500 25,000 %
Rothstein, Martin.......... 100,000 200,000 %
Rubin, Dr. Bernard......... 15,000 30,000 %
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
COMMON OWNERSHIP
PREFERRED COMMON STOCK AFTER AFTER
NAME STOCK WARRANTS STOCK OFFERING OFFERING
- ---- --------- --------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Shriver, III, Robert S.,
P/S/P dated 1/1/89,
Robert S. Shriver, Trustee. 12,500 25,000 %
Shulman, Steven (IRA
Account)................... 50,000 100,000 %
Sitzer, Marc J.............. 12,500 25,000 %
Waldman, Cory............... 25,000 50,000 %
Westport Capital Markets,
LLC........................ 15,000 30,000 %
--------- --------- ------- --- ----
Total................... 1,498,825 3,747,650 525,000 %
========= ========= ======= === ====
</TABLE>
- --------
*Biltmore Securities has notified the Company that it intends to exercise its
warrants to purchase these shares.
35
<PAGE>
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue 25,000,000 shares of Common Stock, par
value $.001 per share, of which 5,081,400 shares are currently outstanding.
Assuming exercise of all the Warrants, there will be 11,656,550 shares of
Common Stock outstanding.
Holders of Common Stock are entitled to dividends when, as and if declared
by the Board of Directors out of funds available therefor, subject to any
priority as to dividends for any preferred stock that may be outstanding. The
Preferred Stock currently authorized and outstanding is non-voting stock
unless or until it is converted into Common Stock. Each share of Preferred
Stock is convertible into two shares of Common Stock. Holders of Common Stock
are entitled to cast one vote for each share held at all shareholder meetings
for all purposes, including the election of Directors. The holders of more
than fifty percent of the Common Stock issued and outstanding and entitled to
vote, present in person or by proxy, constitute a quorum at all meetings of
shareholders and the vote of the holders of a majority of Common Stock present
at such a meeting will decide any question brought before such meeting, except
for certain actions such as the election of directors, amendments to the
Company's Certificate of Incorporation, mergers or dissolutions which require
the vote of the holders of a majority of the outstanding Common Stock. Upon
liquidation or dissolution, the holder of each outstanding share of Common
Stock will be entitled to share equally in the assets of the Company legally
available for distribution to such shareholder after the payment of all debts
and other liabilities and after distributions to preferred shareholders, if
any, legally entitled hereto. No holder of Common Stock has any preemptive or
preferential rights to purchase or subscribe for any part of any unissued or
any additional authorized stock or any securities of the Company convertible
into shares of its stock. The outstanding shares of Common Stock are, and the
Common Stock offered hereby will be, fully paid and nonassessable.
PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of Preferred Stock,
$.001 par value, of which 1,523,825 shares are currently outstanding. The
Preferred Stock may be issued in one or more series at such time or times and
for such consideration as shall be authorized from time to time by the Board
of Directors. The Board of Directors is authorized to fix the designation of
each series of Preferred Stock and the relative rights, preferences,
limitations, qualifications, powers or restrictions thereof, including the
number of shares comprising each series, the dividend rates, redemption
rights, rights upon voluntary or involuntary liquidation, provisions with
respect to a retirement or sinking fund, conversion rights, voting rights, if
any, preemptive rights, other preferences, qualifications, limitations,
restrictions and the special or relative rights of each series not
inconsistent with the provisions of the Certificate of Incorporation. The
outstanding shares of Preferred Stock are each convertible into two shares of
Common Stock at the option of the holder and automatically are converted on
July 31, 1998, if not converted prior to that date.
WARRANTS
In addition to the 6,575,150 Warrants currently outstanding, an aggregate of
250,000 warrants were issued by the Company in connection with the DownEast
transaction ("DownEast Warrants"), 40,000 warrants have been issued to two
directors in recognition of their services to the Company ("Directors
Warrants") and 200,000 Class B Warrants were issued prior to the Company's
initial public offering. All of these warrants are identical to the Warrants,
except that the exercise price of the DownEast Warrants and the Directors
Warrants is $1.1875, and the exercise price of the Class B Warrants is $10.00.
Each Warrant entitles the holder to purchase one share of Common Stock at an
exercise price of $4.00 per share, subject to adjustment, until December 5,
2000. No holder, as such, of Warrants shall be entitled to vote or receive
dividends or be deemed the holder of shares of Common Stock for any purpose
whatsoever until such Warrants have been duly exercised and the purchase price
has been paid in full. Each Warrant is redeemable by the Company for $.05 per
Warrant, at any time, upon thirty days' prior written notice, if the last
reported sale price or average closing bid price of the Common Stock, as
reported by the principal exchange on which the Common Stock is traded, NASDAQ
or the National Quotation
36
<PAGE>
Bureau Incorporated, as the case may be, exceeds $9.00 per share for twenty
consecutive trading days ending within ten days prior to the date of the
notice of redemption. Any right to exercise a Warrant will terminate at 5:00
p.m. (New York time) on the business day immediately preceding the date of
redemption.
Upon thirty days' written notice to all holders of Warrants, the Company has
the right, subject to compliance with applicable Commission rules, to reduce
the exercise price or extend the term of the Warrants. The Warrants will be
entitled to the benefit of adjustments in the exercise price of the Warrants
and in the number of shares of Common Stock or other securities delivered upon
the exercise thereof in the event of a stock dividend, stock split,
reclassification, reorganization, consolidation or merger.
During the 60-day period commencing on the date of this Prospectus, to and
including 5:00 p.m., New York time, on , 1998, subject to
extension in the sole discretion of the Company ("Temporary Exercise Period"),
the Company has reduced temporarily the exercise price of the Warrants from
$4.00 to $1.25. 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. See "Plan of Distribution."
The Warrants may be exercised when there is a current effective registration
statement covering the shares of Common Stock underlying the Warrants. If the
Company does not or is unable to maintain a current effective registration
statement, the Warrant holders will be unable to exercise the Warrants and the
Warrants may become valueless. Moreover, if the shares of Common Stock
underlying the Warrants are not registered, or qualified for sale in the state
in which a Warrant holder resides, such Warrant holder might not be permitted
to exercise the Warrants.
Warrant certificates may be exchanged for new certificates of different
denominations and may be exercised or transferred by presenting them at the
office of the transfer agent. Holders of the Warrants may sell the Warrants if
a market exists rather than exercise them. However, there can be no assurance
that a market will continue as to such Warrants. If the Company is unable to
qualify its Common Stock underlying such Warrants for sale in any state,
holders of the Warrants in those states will have no choice but to either sell
such Warrants or allow them to expire.
Each Warrant may be exercised by surrendering the Warrant certificate, with
the formal election to purchase on the reverse side of the Warrant certificate
properly completed and executed, together with payment of the exercise price
to the Warrant Agent. Prior to their expiration or redemption by the Company,
the Warrants may be exercised in whole or, from time to time, in part. If less
than all of the Warrants evidenced by a Warrant certificate are exercised, a
new Warrant certificate will be issued for the remaining number of Warrants.
Holders of the Warrants are protected against dilution of the equity
interest represented by the underlying shares of Common Stock upon occurrence
of certain events, including, but not limited to, issuance of stock dividends.
If the Company merges, reorganizes or is acquired in such a way as to
terminate the Warrants, they may be exercised immediately prior to such
action. In the event of liquidation, dissolution or winding up of the Company,
holders of the Warrants are not entitled to participate in any distribution of
the Company's assets.
For the life of the Warrants, the holders thereof are given the opportunity,
at nominal cost, to profit from a rise in the market price of the Common Stock
of the Company. The exercise of the Warrants will result in the dilution of
the then book value of the Common Stock of the Company held by the public
investors and will also result in a dilution of their percentage ownership of
the Company. The terms upon which the Company may obtain additional capital
may be adversely effected through the period that the Warrants remain
exercisable. The holders of these Warrants may be expected to exercise them at
a time when the Company would, in all likelihood, be able to obtain equity
capital on terms more favorable than those provided for by the Warrants.
Because the Warrants may be transferred, it is possible that they may be
acquired by persons residing in states where the Company has not registered,
or is exempt from registration, such that the shares of Common Stock
underlying the Warrants may not be sold or transferred upon exercise of the
Warrants. Warrant holders residing in those states would have no choice but to
attempt to sell their Warrants or let them expire unexercised. Also, it is
possible that the Company may be unable, for any reason, to cause a
registration statement covering
37
<PAGE>
the Common Stock underlying the Warrants to be in effect when they are
exercisable. In such event, the Warrants may expire unless extended by the
Company because a registration statement, including audited financial
statements, must be in effect in order for Warrant holders to exercise their
Warrants.
SHARES ELIGIBLE FOR FUTURE SALE
2,268,900 of the 5,081,400 shares of Common Stock currently are "restricted
securities" as that term is defined under the Securities Act and in the future
may only be sold in compliance with Rules 144 and 144A promulgated under the
Securities Act or pursuant to an effective registration statement. Rule 144
provides, in essence, that a person (including a group of persons whose shares
are aggregated) and including any person who may be deemed an "affiliate" of
the Company, as that term is defined under the Securities Act, who has
satisfied a one-year holding period for such restricted securities may sell
within any three-month period, under certain circumstances, an amount of
restricted securities which does not exceed the greater of 1% of that class of
the Company's outstanding securities or the average weekly trading volume of
that class of securities during the four calendar weeks prior to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions,
notice requirements and the availability of current public information about
the Company. In addition, pursuant to Rule 144, persons who are not affiliated
with the Company and who have held their restricted securities for at least
two years are not subject to the quantity limitations or the manner of sale
restrictions of the rule.
Sales of shares by the Company's current shareholders, whether pursuant to
Rule 144 or otherwise, may have a depressing effect upon the market price of
the Common Stock in any market for the Company's securities that may develop.
To the extent that these shares enter the market, the value of the Common
Stock in the over-the-counter market may be reduced. See "Risk Factors" and
"Description of Securities".
Commission Rule 144A permits unlimited resales of restricted securities of
any issuer provided that the purchaser is a qualified institutional buyer (as
that term is defined therein) that at the end of its most recent fiscal year
has assets invested in securities of non-affiliated entities that were
purchased for a total of more than $100 million. Rule 144A allows holders of
restricted shares of the Company to sell such shares to such institutions
without regard to any volume or other restrictions.
In the event that shares of Common Stock which are not currently saleable
become saleable by means of registration, eligibility for sale under Rule 144
or otherwise and the holders of such shares of Common Stock elect to sell such
shares of Common Stock in the public market, there is likely to be a negative
effect on the market price of the Company's securities and on the ability of
the Company to obtain additional equity financing. No predictions can be made
as to the effect, if any, that sales of the Common Stock or the exercise of
the Warrants or the availability of Common Stock for sale will have on the
market price of such securities prevailing from time to time. Nevertheless,
the foregoing could adversely affect prevailing market prices. See "Risk
Factors" and "Description of Securities".
Sales of substantial amounts of shares of Common Stock, pursuant to Rule
144, Rule 144A or otherwise, could adversely affect the market prices of the
Common Stock, and/or the Warrants, and may make it more difficult for the
Company to sell equity securities in the future at a time and price that it
deems appropriate. See "Risk Factors".
TRADING SYMBOLS
The Common Stock and the Warrants are listed for quotation on NASDAQ under
the symbols "THIS" and "THISW", respectively, and the Preferred Stock being
offered hereby under the symbol . There can be no assurances that an
active trading market will continue.
TRANSFER AGENT AND WARRANT AGENT
The transfer agent for the Company's Common Stock and its Warrant Agent for
the Public and Preferred Warrants is American Stock Transfer and Trust
Company, New York, New York.
38
<PAGE>
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is not subject to the provisions of Section 203 of the Delaware
General Corporation Law. That section provides, with certain exemptions, that
a Delaware corporation may not engage in any of a broad range of business
combinations with a person or affiliate or associate of such person who is an
"interested shareholder" for a period of three years from the date that such
person became an interested shareholders unless: (i) prior to such date the
board of directors of the corporation approved either the business combination
or the transaction which resulted in the shareholder becoming an interested
shareholder, or (ii) upon consummation of the transaction which resulted in
the shareholder becoming an interested shareholder, the interested shareholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned (a) by persons who are
directors and also officers and (b) employee stock plans in which employee
participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer, or
(iii) on or subsequent to such date the business combination is approved by
the board of directors and authorized at an annual or special meeting of
shareholders, and not by written consent, by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
shareholder. An "interested shareholder" is defined to include any person, and
the affiliates and associates of such person that (i) is the owner of 15% or
more of the outstanding voting stock of the corporation or (ii) is an
affiliate or associate of the corporation and was the owner of 15% or more of
the outstanding voting stock of the corporation at any time within the three-
year period immediately prior to the date on which it is sought to be
determined whether such person is an interested shareholder.
PLAN OF DISTRIBUTION
WARRANT SOLICITATION FEE
To the extent not inconsistent with the guidelines of the National
Association of Securities Dealers, Inc. and the rules and regulations of the
Commission, the Company has agreed to pay to the Soliciting Agent a warrant
solicitation fee equal to 4% of the then current exercise price for each
solicited Warrant exercised, payable upon exercise of the Warrant. However, no
compensation will be paid to the Soliciting Agent in connection with the
exercise of the Warrants if (a) the market price of the underlying shares of
Common Stock is lower than the then current exercise price of the Warrants,
(b) the Warrants are held in a discretionary account, except where prior
specific written approval for the exercise has been received, (c) the Warrants
are exercised in an unsolicited transaction, (d) the Soliciting Agent has not
provided bona fide services in connection with the solicitation of the
Warrant, (e) the holder of the Warrant has not in writing designated the
Soliciting Agent as the party to receive the solicitation fee, or (f) these
compensation arrangements have not been disclosed at the time of the exercise.
In addition, unless exempt from Regulation M promulgated by the Commission,
the Soliciting Agent will be prohibited from engaging in any market making
activities or solicited brokerage activities with regard to the Company's
securities until the later of the termination of such solicitations activities
or the termination by waiver or otherwise of any right the Soliciting Agent
may have to receive a fee for the exercise of the Warrants following such
solicitation.
INVESTMENT BANKING AGREEMENT
On July 1, 1997, the Company entered into an Investment Banking Agreement
with Biltmore Securities under which for a period of three years Biltmore is
to provide services including, without limitation, (i) review of business
plans and projections; (ii) review of financial data as it relates to raising
financing; (iii) advising on the Company's capital structure and on
alternatives for raising capital; (iv) reviewing and advising on prospective
mergers and acquisitions, and on any financing required to complete such
transactions; (v) advising on issues relating to public offerings; (vi)
providing fairness opinions; (vii) reviewing managerial needs; and (viii)
advising on issues relating to financial public relations. In consideration,
the Company issued to Biltmore and its assignees Warrants to purchase 750,000
shares of Common Stock of the Company on 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. See "Selling Securities Holders."
39
<PAGE>
SALES OF SHARES OF COMMON STOCK
Subject to the "lock-up agreements" discussed below, certain current
shareholders may sell their shares from time to time following the date of
this Prospectus through the Soliciting Agent or any other registered
broker/dealer. Any commissions paid to such broker/dealers will be paid by
those certain current shareholders and not the Company. Any of those certain
current shareholders may be required to deliver a copy of this Prospectus with
such sales. Accordingly, the Company may be required to update and amend this
Prospectus to keep it current in accordance with applicable laws, rules and
regulations.
EXPERTS
The financial statements included in this Prospectus have been audited by
Moore Stephens, P.C., independent certified public accountants, to the extent
and for the periods set forth in their reports appearing elsewhere herein, and
are included in reliance upon such reports given upon the authority of said
firm as experts in auditing and accounting.
LEGAL MATTERS
Certain legal matters, including the legality of the issuance of the
securities offering hereby, are being passed upon for the Company by Fishman,
Merrick, Miller, Genelly, Springer, Klimek & Anderson, P.C., 30 North LaSalle
Street, Chicago, Illinois 60602.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission, a
registration statement under the Securities Act on Form SB-2 ("Registration
Statement") with respect to the securities offered hereby. No distribution of
these securities will be made until the Registration Statement, as it may be
amended, has been declared effective. This Prospectus, which constitutes a
part of the Registration Statement, does not contain all of the information
set forth in the Registration Statement and the exhibits thereto. For further
information with respect to the Company and the securities offered hereby,
reference is hereby made to the Registration Statement and the exhibits
thereto. All of these documents may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices at 7 World Trade Center, 13th Floor, New York, New York 10007
and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies may be obtained at the prescribed rates from the Public
Reference Section of the Commission at its principal office in Washington,
D.C. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference.
40
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE(S)
---------
<S> <C>
Pro Forma Combined Financial Statements (Unaudited).................. P-2
Statement of Operations for the Period ended September 30, 1997.... P-3
Statement of Operations for the Year ended December 31, 1996....... P-4
Note to Pro Forma Financial Statements............................. P-5
Report of Independent Auditors (Terrace Holdings, Inc.).............. F-1
Financial Statements
Balance Sheets as of September 30, 1997 (unaudited) and December
31, 1996.......................................................... F-2
Consolidated Statements of Operations for the years ended December
31, 1995 and 1996 and nine months ended September 30, 1996 and
1997 (unaudited).................................................. F-3
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1995 and 1996........................................ F-4
Statements of Cash Flows for the years ended December 31, 1995 and
1996 and the nine months ended September 30, 1996 and 1997
(unaudited)....................................................... F-5
Notes to Consolidated Financial Statements......................... F-6-F-17
Report of Independent Auditors (A One A Wholesale Produce, Inc.)..... F-18
Financial Statements
Balance Sheets as of June 30, 1997 (unaudited) and December 25,
1996.............................................................. F-19
Statements of Operations for the years ended December 27, 1995 and
December 25, 1996, and six months ended June 30, 1996 and 1997
(unaudited)....................................................... F-20
Statements of Stockholders' Equity for the years ended December 27,
1995 and December 25, 1996........................................ F-21
Statements of Cash Flows for the years ended December 27, 1995 and
December 25, 1996, and six months ended June 30, 1996 and 1997
(unaudited)....................................................... F-22
Notes to Financial Statements...................................... F-23-F-28
</TABLE>
P-1
<PAGE>
TERRACE HOLDINGS, INC.
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The following pro forma condensed statements of operations for the nine
months ended September 30, 1997, and the year ended December 31, 1996, give
effect to the following:
(1) The sale of the Company's Deering Ice Cream, Inc. subsidiary.
(2) The sale of the Lasko Companies, Inc., A&E Management, Inc. and the
Lasko Family Kosher Tours referred collectively as "Hospitality
Subsidiaries."
(3) The Acquisition of A One A Wholesale Produce, Inc.
The pro forma combined statements of operations give effect to these
transactions as if they had occurred at the beginning of the fiscal year
presented and were carried forward through interim period presented. The
future historical statements of operations will reflect the effects of these
transactions from the date on which they occurred.
The pro forma combined statements have been prepared by the Company's
management based upon the historical financial statements of the Company and A
One A Wholesale, Inc. These pro forma statements may not be indicative of the
results that actually would have occurred if the divestments had been in
effect on the dates indicated or which may be obtained in the future. The pro
forma financial statements should be read in conjunction with the historical
financial statements and notes contained elsewhere herein.
P-2
<PAGE>
TERRACE HOLDINGS, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICALS
-------------------------
A ONE A
TERRACE WHOLESALE,
HOLDINGS, INC. INC. SIX
NINE MONTHS MONTHS
ENDED ENDED
SEPTEMBER 30, JUNE 30, PRO FORMA PRO FORMA
1997 1997* ADJUSTMENTS COMBINED
-------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue................. $3,574,304 $8,180,688 $ -- $11,754,992
Cost of Sales........... 2,671,090 5,771,292 -- 8,442,382
---------- ---------- --------- -----------
Gross Profit........ 903,214 2,409,396 -- 3,312,610
Selling, General and
Administrative
Expenses............... 290,495(1)
1,231,151 1,883,273 77,659(3) 3,482,578
---------- ---------- --------- -----------
(Loss) Income from
Operations............. (327,937) 526,123 (368,154) (169,968)
Other Income (Expense):
Interest Expense...... (28,556) (17,432) -- (45,988)
---------- ---------- --------- -----------
(Loss) from Continuing
Operations Before
Income Taxes........... (356,493) 508,691 (368,154) (215,956)
Income Taxes............ -- 203,476 (203,476)(2) --
---------- ---------- --------- -----------
(Loss) Income from
Continuing
Operations......... $ (356,493) $ 305,215 $(164,678) $ (215,956)
========== ========== ========= ===========
(Loss) Per Share.... $ (.08) $ (.04)
========== ===========
Weighted Average
Shares Outstanding. 4,498,066 4,998,066
========== ===========
</TABLE>
- --------
* The Registrant's September 30, 1997 statement of operations includes the
statement of operations for A One A Wholesale Produce, Inc. for the quarter
then ended.
P-3
<PAGE>
TERRACE HOLDINGS, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICALS
--------------------------
A ONE A
TERRACE WHOLESALE,
HOLDINGS, INC. INC.
DECEMBER 31, DECEMBER PRO FORMA PRO FORMA
1996 25, 1996 ADJUSTMENTS COMBINED
-------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue................. $ -- $14,497,109 $ -- $14,497,109
Cost of Sales........... -- 10,306,550 -- 10,306,550
--------- ----------- ----------- -----------
Gross Profit........ -- 4,190,559 -- 4,190,559
--------- ----------- ----------- -----------
Operating Expenses:
Selling, General and
Administrative
Expenses............. 348,439 3,806,666 442,495(1) 4,597,600
Loss on Disposal...... 129,826 -- 155,317(3) 285,143
--------- ----------- ----------- -----------
Total Operating
Expenses........... 478,265 3,806,666 597,812 4,882,743
--------- ----------- ----------- -----------
(Loss) Income from
Operations......... (478,265) 383,893 (597,812) (692,184)
--------- ----------- ----------- -----------
Other Income (Expense):
Interest Expense...... -- (15,396) -- (15,396)
Interest Income....... -- 10,306 -- 10,306
--------- ----------- ----------- -----------
Total Other
(Expense).......... -- (5,090) -- (5,090)
--------- ----------- ----------- -----------
(Loss) Income Before
Income Taxes........... (478,265) 378,803 (597,812) (697,274)
Income Taxes............ -- 151,521 (151,521)(2) --
--------- ----------- ----------- -----------
Net (Loss) Income... $(478,265) $ 227,282 $ (446,291) $ (697,274)
========= =========== =========== ===========
Net (Loss) Per
Share.............. $ (.15) $ .07 $ (.14)
========= =========== ===========
Weighted Average Shares
outstanding............ 3,312,500 3,312,500 3,812,500
========= =========== ===========
</TABLE>
P-4
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
As of December 17, 1997, the Company sold its Deering Ice Cream, Inc.
subsidiary and anticipates the sale of its Hospitality Subsidiaries during the
first quarter of 1998.
INCOME STATEMENT ADJUSTMENTS:
<TABLE>
<CAPTION>
ANNUAL INTERIM
---------- ---------
<S> <C> <C>
(1) To reflect corporate overhead expenses which will
remain with publicly-held company $ 442,495 $ 290,495
========== =========
(2) To reflect reduction of income tax expense as
computed on a consolidated basis $ (151,521) $(203,476)
========== =========
(3) To reflect the amortization of goodwill
associated with the A One A acquisition $ 155,317 $ 77,659
========== =========
</TABLE>
P-5
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors of
Terrace Holdings, Inc.
We have audited the accompanying consolidated balance sheet of Terrace
Holdings, Inc. and its subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the two years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Terrace Holdings, Inc. and its subsidiaries as of December 31, 1996, and
the consolidated results of their operations and their cash flows for each of
the two years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
Moore Stephens, P. C.
Certified Public Accountants.
Cranford, New Jersey
February 17, 1997
F-1
<PAGE>
TERRACE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS: 1997 1996
- ------- ------------- ------------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents......................... $ 76,177 $1,570,907
Accounts Receivable............................... 1,336,655 123,243
Other Receivables................................. 1,312,621
Inventory......................................... 123,347 27,239
Other Current Assets.............................. 67,012 70,779
---------- ----------
Total Current Assets............................ 2,915,812 1,792,168
Property and Equipment--Net At Cost................. 616,738 392,741
Intangible Assets (Net of Accumulated Amortization). 3,830,174 415,125
Other Assets........................................ -- 190,432
---------- ----------
Total Assets...................................... $7,362,724 $2,790,466
========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY:
- -------------------------------------
<S> <C> <C>
Current Liabilities:
Accounts Payable and Accrued Expenses............. $ 988,711 $ 168,164
Accrued Payroll and Payroll Taxes................. 79,597 28,024
Deferred Revenue.................................. -- 186,412
Notes Payable..................................... 162,684 --
Line of Credit.................................... 1,025,900 --
Provision for Phase-Out Costs..................... 475,000 --
---------- ----------
Total Current Liabilities....................... 2,731,892 382,600
---------- ----------
Long-Term Debt...................................... 116,352 --
---------- ----------
Commitments and Contingencies....................... -- --
---------- ----------
Total Liabilities............................... 2,848,244 382,600
---------- ----------
Stockholders' Equity:
Convertible Preferred Stock, $.001 Par Value,
10,000,000 Shares Authorized, 1,400,000 Shares
Issued and Outstanding........................... 2,800,000 --
Common Stock--$.001 Par Value, 25,000,000 and
10,000,000 Shares Authorized, 4,881,400 and
3,312,500 Issued and Outstanding, Respectively... 4,881 3,313
Additional Paid-in Capital........................ 6,766,611 3,945,948
Retained Earnings (Deficit)....................... (5,057,012) (1,541,395)
---------- ----------
Total Stockholders' Equity...................... 4,514,480 2,407,866
---------- ----------
Total Liabilities and Stockholders' Equity...... $7,362,724 $2,790,466
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
TERRACE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
----------------------- ----------------------
1997 1996 1996 1995
----------- ---------- ----------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenue....................... $ 3,574,304 $ -- $ -- $ --
Cost of Sales................. 2,671,090 -- -- --
----------- --------- ----------- ---------
Gross Profit.............. 903,214 -- -- --
----------- --------- ----------- ---------
Operating Expenses:
Selling, General and
Administrative Expenses.... 1,231,151 249,976 348,439 41,500
Loss on Disposal............ -- 129,826 129,826 --
----------- --------- ----------- ---------
Total Operating Expenses.. 1,231,151 379,802 478,265 41,500
----------- --------- ----------- ---------
(Loss) from Operations.... (327,937) (379,802) (478,265) (41,500)
Other (Expense):
Interest Expense............ (28,556) -- -- --
----------- --------- ----------- ---------
(Loss) From Continuing
Operations............... (356,493) (379,802) (478,265) (41,500)
Discontinued Operations:
(Loss) from Operations of
Discontinued Business
Segments (Net of Income
Taxes of $450,000)......... (226,896) (584,688) (677,762) (549,654)
(Loss) on Disposal of
Business Segments,
including Provision of
$475,000 for Operating Loss
during the Phase Out Period
(Less Applicable Income
Taxes of $-0-)............. (2,932,228) -- -- --
----------- --------- ----------- ---------
Net (Loss) Income......... $(3,515,617) $(964,490) $(1,156,027) $(591,154)
=========== ========= =========== =========
(Loss) Per Share:
(Loss) from Continuing
Operations................. $ (.08) $ (.11) $ (.15) $ (.02)
(Loss) from Operations of
Discontinued Business
Segments (Net of Income
Tax)....................... (.05) (.18) (.20) (.31)
(Loss) on Disposal of
Discontinued Business
Segments................... (.66) -- -- --
----------- --------- ----------- ---------
Net (Loss) Per Share.......... $ (.79) $ (.29) $ (.35) $ (.33)
=========== ========= =========== =========
Weighted Average Shares
Outstanding.................. 4,498,066 3,312,500 3,312,500 1,791,643
=========== ========= =========== =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
TERRACE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL RETAINED TOTAL
-------------------- ---------------- PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
--------- ---------- --------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance--January 1, 1995 -- $ -- 1,675,000 $1,675 $ (75) $ (230,557) $ (228,957)
S Corp. Distributions.. -- -- -- -- -- (338,162) (338,162)
Initial Public Offering
(Net of Offering Costs
of $1,043,459)........ -- -- 1,437,500 1,438 4,345,728 -- 4,347,166
Issuance of Bridge
Units................. -- -- 200,000 200 374,800 -- 375,000
Reclassification upon
Termination of
Subchapter S Election. -- -- -- -- (774,505) 774,505 --
Net (Loss)............. -- -- -- -- -- (591,154) (591,154)
--------- ---------- --------- ------ ---------- ----------- ----------
Balance--December 31,
1995................... -- -- 3,312,500 3,313 3,945,948 (385,368) 3,563,893
Net (Loss)............. -- -- -- -- -- (1,156,027) (1,156,027)
--------- ---------- --------- ------ ---------- ----------- ----------
Balance--December 31,
1996................... -- -- 3,312,500 3,313 3,945,948 (1,541,395) 2,407,866
Asset Acquisitions..... -- -- 1,568,900 1,568 2,820,663 -- 2,822,231
Private Placement...... 1,400,000 2,800,000 -- -- -- -- 2,800,000
Net (Loss)............. -- -- -- -- -- (3,515,617) (3,515,617)
--------- ---------- --------- ------ ---------- ----------- ----------
Balance--September 30,
1997 (Unaudited)....... 1,400,000 $2,800,000 4,881,400 $4,881 $6,766,611 $(5,057,012) $4,514,480
========= ========== ========= ====== ========== =========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
TERRACE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------ -----------------------
1997 1996 1996 1995
----------- ----------- ----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net (Loss) from Continuing
Operations................. $ (356,493) $ -- $ -- $ --
----------- ----------- ----------- ----------
Adjustments to Reconcile Net
(Loss) to Net Cash (Used
for) Provided by Operating
Activities:
Depreciation and
Amortization.............. 29,059 -- -- --
Loss on Disposal of
Assets.................... -- -- -- --
Changes in Assets and
Liabilities:
(Increase) Decrease in:
Accounts Receivable...... (331,718) -- -- --
Inventory................ (3,619) -- -- --
Other Current Assets..... 41,859 -- -- --
Other Assets............. 111,703 -- -- --
Increase (Decrease) in:
Accounts Payable and
Accrued Expenses........ 394,499 -- -- --
Payroll Taxes Payable.... -- -- -- --
Deferred Revenue......... -- -- -- --
----------- ----------- ----------- ----------
Total Adjustments...... 241,783 -- -- --
----------- ----------- ----------- ----------
Net Cash--Continuing
Operations--Forward... (114,710) -- -- --
----------- ----------- ----------- ----------
DISCONTINUED OPERATIONS:
(Loss) From Discontinued
Operations................. (226,896) (964,490) (1,156,027) (591,154)
Adjustments to Reconcile Net
(Loss) to Net Cash
Operations:
Depreciation and
Amortization.............. 306,635 323,620 340,086 35,635
Bad Debts..................
Changes in Net Assets,
Liabilities and Losses..... (893,143) (155,846) (165,304) 607,012
----------- ----------- ----------- ----------
Net Cash--Discontinued
Operations--Forward..... $ (813,404) $ (796,716) $ (981,245) $ 51,493
Net Cash--Continuing
Activities--Forwarded... $ (114,710) $ -- $ -- $ --
----------- ----------- ----------- ----------
Net Cash--Discontinued
Operations--Forwarded... (813,404) (796,716) (981,245) 51,493
----------- ----------- ----------- ----------
INVESTING ACTIVITIES--
CONTINUING OPERATIONS:
Acquisition of Assets....... (108,351) (177,091) (179,308) (381,525)
Acquisition of Intangible
Asset...................... -- (675,000) (675,000) --
Purchase of A One A
Wholesale--Net of Cash
Acquired................... (3,068,570) -- -- --
----------- ----------- ----------- ----------
Net Cash--Investing
Activities--Continuing
Operations--Forward..... (3,176,921) (852,091) (854,308) (381,525)
----------- ----------- ----------- ----------
INVESTING ACTIVITIES--
DISCONTINUED OPERATIONS:
Acquisition of Assets....... (1,132,793) -- -- --
Purchase of DownEast Frozen
Desserts, LLC--Net of Cash
Acquired................... (40,138) -- -- --
----------- ----------- ----------- ----------
Net Cash--Investing
Activities--Discontinued
Operations--Forward..... (1,172,931) -- -- --
----------- ----------- ----------- ----------
FINANCING ACTIVITIES--
CONTINUING OPERATIONS:
Cash Proceeds from Initial
Public Offering............ -- -- -- 4,642,769
Offering Costs.............. -- -- -- (295,603)
Proceeds from Notes Payable. 100,000 -- -- 410,000
Payment of Notes Payable.... (29,180) (10,000) (10,000) (530,000)
Payments of Demand Notes
Payable--Stockholders and
Related Parties............ -- (153,380) (185,549) --
Proceeds from Demand Notes
Payable--Stockholders and
Related Parties............ -- -- -- 12,630
Proceeds from Line of
Credit..................... 1,025,900 --
S Corp. Distributions....... -- -- -- (338,162)
Bank Overdrafts............. -- -- -- (39,373)
Proceeds from Issuance of
Convertible Preferred
Stock...................... 2,800,000 -- -- --
----------- ----------- ----------- ----------
Net Cash--Financing
Activities--Continuing
Operations--Forward..... $ 3,896,720 $ (163,380) $ (195,549) $3,862,261
Net Cash--Continuing
Activities--Forwarded... $ (114,710) $ (796,716) $ (981,245) $ 51,493
----------- ----------- ----------- ----------
Net Cash--Discontinued
Operations--Forwarded... (813,404) -- -- --
----------- ----------- ----------- ----------
Net Cash--Investing
Activities--Continuing
Operations--Forwarded... (3,176,921) (852,091) (854,308) (381,525)
----------- ----------- ----------- ----------
Net Cash--Investing
Activities--Discontinued
Operations--Forwarded... (1,172,931) -- -- --
----------- ----------- ----------- ----------
Net Cash--Financing
Activities--Continuing
Operations--Forwarded... 3,896,720 (163,380) (195,549) 3,862,261
----------- ----------- ----------- ----------
FINANCING ACTIVITIES--
DISCONTINUED OPERATIONS:
Proceeds of Demand Notes
Payable.................... 2,459,141 -- -- --
Payment of Demand Notes
Payable.................... (1,063,148) -- -- --
----------- ----------- ----------- ----------
Net Cash--Financing
Activities--Discontinued
Operations.............. 1,395,993 -- -- --
----------- ----------- ----------- ----------
Net Increase (Decrease)
in Cash and Cash
Equivalents............. 14,747 (1,812,187) (2,031,102) 3,532,229
Cash and Cash Equivalents--
Beginning of Periods....... 61,430 3,602,009 3,602,009 69,780
----------- ----------- ----------- ----------
Cash and Cash Equivalents--
End of Periods............. $ 76,177 $ 1,789,822 $ 1,570,907 $3,602,009
=========== =========== =========== ==========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the periods
for:
Interest................... $ 149,177 $ 2,269 $ 9,020 $ 40,837
Income Taxes............... $ -- $ -- $ -- $ --
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
ARE UNAUDITED)
(1) FINANCIAL STATEMENT PRESENTATION, ORGANIZATION AND NATURE OF OPERATIONS
The financial statements as of and for the year ended December 31, 1996 are
presented on a consolidated basis and include Terrace Holdings, Inc. (formerly
known as Bon Adventure Kosher Tours, Inc.) ("Terrace") and its wholly-owned
subsidiaries, A&E Management Corp. ("A&E"), Prime Concern Kosher Foods, Inc.
("Prime") and The Lasko Companies ("Lasko") (collectively, the "Company"). The
consolidated financial statements for the period ended December 31, 1995,
include the results of operations, cash flows and changes in stockholders'
equity for the twelve months then ended with respect to Terrace, A&E and
Prime; and the results of operations, cash flows and changes in stockholders'
equity from May 11, 1995 (date of inception) to December 31, 1995, with
respect to Lasko. In July 1996, the Company disposed of all of the operating
assets of Prime (See Note 15).
As of December 31, 1996, the Company operates kosher Passover holiday
vacation venues, kosher and non-kosher restaurants and a catering operation in
southern Florida and New York.
For the year ended December 31, 1995, the Company operated one Passover
holiday vacation venue. In January 1996, the Company consummated an agreement
to assume operation of the Passover vacation venues at the Fontainebleau
("Fontainebleau") Hilton Hotel, Miami Beach, the Rye Town ("Rye Town") Hilton
Hotel, Rye, New York, and the Tamiment Resort & Conference Center
("Tamiment"), Tamiment, Pennsylvania. As a result, for the 1996 Passover
holiday, the Company operated holiday vacations at four different locations.
The contracts at the Fontainebleau and Rye Town expire after Passover 2002 and
1999, respectively. The contract to operate a Passover vacation at the
Tamiment Hotel expired after the 1996 Passover holiday and has not been
renewed for the 1997 Passover holiday.
The designation of the Company's restaurants and Passover holiday vacation
as "Kosher" means that all the foods are prepared in accordance with Jewish
dietary laws. The ability of the Company to continue successfully to maintain
Kosher status for its restaurants and holiday vacation venue is dependent upon
its continued compliance with the requirements of Rabbinic certification. Loss
of Kosher certification would have a materially adverse effect upon the
Company.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation Policy--The accompanying consolidated financial statements as
of December 31, 1996 and for the two years then ended, include the accounts of
Terrace and its subsidiaries. Intercompany transactions and balances have been
eliminated in consolidation.
Cash and Cash Equivalents--Cash equivalents are comprised of certain highly
liquid investments with a maturity of three months or less when purchased. The
carrying amount of cash and cash equivalents approximates their fair value.
Furniture, Fixtures and Equipment and Depreciation--Furniture, fixtures and
equipment are stated at cost. Depreciation and amortization is provided using
the straight-line method over the estimated useful lives of the related assets
or the remaining lease term. The costs of repairs and maintenance are expensed
as incurred.
Concentration of Credit Risk--Financial instruments that potentially subject
the Company to concentration of credit risk include cash and cash equivalents
and accounts receivable arising from its normal business activities. The
Company places its cash and cash equivalents with high credit quality
financial institutions. At December 31, 1996, the Company had approximately
$1,375,500 in a financial institution subject to normal credit risk beyond
insured amounts.
F-6
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's restaurant and catering operation in Hollywood, Florida is
leased. The landlord acts as a conduit between the Company and its customers,
and collects the Company's accounts receivable. Amounts collected by the
landlord are then disbursed to the Company. The Company's credit risk is
limited by the financial strength of the landlord and it believes such credit
risk to be limited. An allowance for doubtful accounts is deemed to be
unnecessary based upon this assessment.
The accounts receivable for the Company's other operations consist mostly of
amounts due from credit card companies which are deemed financially sound.
The Company purchases food and beverages from distributors which account for
approximately 50% of total purchases. No formal contracts exist but the
Company believes there is limited business vulnerability regarding this
concentration of purchases as the supply is available from other sources.
The hospitality industry is often affected by changes in consumer tastes,
national, regional and local economic conditions, demographic trends, traffic
patterns and the type, number and location of competing facilities. In
addition, factors such as inflation, increased food, labor and employee
benefit costs and availability of experienced management and hourly employees
may also adversely affect the hospitality industry in general and the
Company's restaurants and holiday vacation venues in particular.
The Company does not require collateral or other security to support
financial instruments subject to credit risk.
Advertising--The Company expenses advertising costs as incurred. Total
advertising costs charged to expense for the periods ended December 31, 1996
and 1995 amounted to $141,839 and $60,780, respectively.
(Loss) Per Share--(Loss) per share of common stock is based on the weighted
average number of common shares outstanding for each period presented. Such
shares amounted to 3,312,500 and 1,791,643 for the years ended December 31,
1996 and 1995, respectively. Shares issuable upon the exercise of common stock
purchase warrants and convertible preferred are excluded from the computations
since the effect on net loss per common share would be anti-dilutive.
Inventories--Inventories consist of food and beverages for the restaurant
and catering operation and are stated at the lower of cost (determined by the
first-in, first-out method) or market.
Deferred Revenue--Deferred revenue consists of deposits collected for future
vacations at the Kosher holiday vacation venues and deposits on hand for
future catering events.
Impairment--Certain long-term assets of the Company are reviewed at least
annually as to whether their carrying value has become impaired, pursuant to
guidance established in Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets." Management
considers assets to be impaired if the carrying value exceeds the future
projected cash flows from related operations (undiscounted and without
interest charges). If impairment is deemed to exist, the assets will be
written down to fair value. Management also re-evaluates the periods of
amortization to determine whether subsequent events and circumstances warrant
revised estimates of useful lives. As of December 31, 1996, management expects
these assets to be fully recoverable
(3) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
F-7
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) FAIR VALUE OF FINANCIAL INSTRUMENTS
Effective December 31, 1995, the Company adopted Statement of Financial
Accounting Standards No. 107, "Disclosure About Fair Value of Financial
Instruments," which requires disclosing fair value to the extent practicable
for financial instruments which are recognized or unrecognized in the balance
sheet. The fair value of the financial instruments disclosed herein is not
necessarily representative of the amount that could be realized or settled,
nor does the fair value amount consider the tax consequences of realization or
settlement.
In assessing the fair value of these financial instruments, the Company used
a variety of methods and assumptions, which were based on estimates of market
conditions and risks existing at that time. For cash and cash equivalents,
trade receivables, trade payables, and related party balances, it was assumed
that the carrying amount approximated fair value for the majority of 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.
(5) PROPERTY AND EQUIPMENT
The following is a summary of furniture, fixtures and equipment:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
LIFE
-------- ---------
<S> <C> <C>
Furniture, Fixtures and Equipment..................... $451,030 5-7 Years
Leasehold Improvements................................ 27,481 3-5 Years
--------
Total................................................. 478,511
Less: Accumulated Depreciation and Amortization....... 85,770
--------
Net............................................... $392,741
========
</TABLE>
Depreciation expense related to property and equipment amounted to $80,211
and $35,635 for the years ended December 31, 1996 and 1995, respectively.
(6) INTANGIBLE ASSETS
In January 1996, the Company entered into an assignment agreement to operate
Passover vacations at hotels located in Miami, Florida, Rye Town, New York and
Tamiment, Pennsylvania. The Company paid $675,000 for these agreements. This
amount net of accumulated amortization is included in intangible assets. The
intangible assets are amortized over four to six years, the life of the
related contracts. As stated in Note 11, the contract to operate a Passover
vacation at the Tamiment Hotel expired after the 1996 Passover Holiday;
therefore, the asset has been written off in its entirety. Amortization
expense amounted to $259,875 for the year ended December 31, 1996.
As a result of the Company's acquisitions during the current year, the
Company recorded additional goodwill of $4,388,820 (See Note 17B). This amount
is included in the net intangible asset of $4,719,570 at September 30, 1997.
F-8
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) NOTE PAYABLE
At September 30, 1997, long-term debt consisted of the following:
<TABLE>
<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 trucks.................................... $127,348
Notes payable in thirty-six monthly total installments of $1,154
including interest at 9.8% per annum through December 1999,
collateralized by certain truck..................................... 27,875
Notes payable in thirty-six monthly total installments of $1,150
including interest at 9.8% per annum through December 1999,
collateralized by certain truck..................................... 27,770
Notes payable in forty-eight monthly total installments of $541
including interest at 8.8% per annum through December 1997,
collateralized by certain truck..................................... 1,599
Notes payable in eighteen monthly total installments of $5,556 plus
interest of 2 1/2% above the variable interest rate per annum most
recently announced by Norwest Bank, Minneapolis through February
1999, collateralized by certain trucks.............................. 94,444
--------
Total................................................................ 279,036
Less: Current Portion................................................ 162,684
--------
Total............................................................ $116,352
========
</TABLE>
Long-term debt at September 30, 1997 matures as follows:
<TABLE>
<S> <C>
1998............................................................. $162,684
1999............................................................. 109,548
2000............................................................. 6,804
2001............................................................. --
Thereafter....................................................... --
--------
Total........................................................ $279,036
========
</TABLE>
(8) PUBLIC OFFERING
In December 1995, the Company completed a public offering (the "Offering")
of 1,437,500 units ("Units") of its securities at $3.75 per Unit.
Each Unit consisted of one share of common stock and one redeemable common
stock purchase warrant exercisable at $4.00 per share during the four year
period commencing one year after the December 5, 1995 effective date of the
Offering. The warrants are redeemable under certain conditions. The Offering
resulted in net proceeds of approximately $4,347,000 to the Company. In
connection with the Offering, the underwriter purchased an option from the
Company to purchase up to 125,000 Units (each Unit identical to the Units sold
in the Offering) and up to 16,500 shares of common stock. The option is
exercisable for a four-year period commencing one year from the effective date
of the Offering and entitles the underwriter to purchase each unit and each
share of common stock at an exercise price of $4.50, subject to adjustment in
certain events.
(9) INCOME TAXES
Under generally accepted accounting principles, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
temporary differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which temporary differences are expected to
be recovered or settled. Temporary differences include different tax and book
bases of property and equipment. Generally accepted accounting principles
requires the establishment of a deferred tax asset for all
F-9
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
deductible temporary differences and operating loss carryforwards. The
operating loss carryforwards at December 31, 1996, (assuming all operating
loss carryforwards will be available) amount to approximately $1,550,000. Such
loss carryforwards will expire at the rate of $350,000 in 2011 and $1,200,000
in 2010. At December 31, 1996, based on the amount of operating loss
carryforwards, the Company would have a deferred tax asset of approximately
$526,000. Because of the uncertainty that the Company will generate income in
the future sufficient to fully or partially utilize these carryforwards, a
valuation allowance of $526,000 has been established. Accordingly, no deferred
tax asset is reflected in these financial statements. Prior to the public
offering (See Note 8), the Company was an "S" corporation, therefore there was
no deferred tax or valuation allowance.
(10) RELATED PARTIES TRANSACTIONS
During 1996, the Company paid off an outstanding loan due to a stockholder,
which was payable on demand plus interest at the prime rate of a bank in
Southern Florida. The interest rate on the loan was 8.5%. Interest expense
related to this loan amounted to $7,667 and $15,123 for the periods ended
December 31, 1996 and 1995, respectively.
(11) BRIDGE FINANCING--NON CASH FINANCE CHARGE
During 1995, prior to the Offering, the Company received an aggregate of
$400,000 in bridge loans. The loans were repaid from the proceeds of the
Offering. Interest expense related to the loans amounted to approximately
$16,300 for the year then ended.
As additional consideration, solely for making the loans, the Company
granted the lenders the right to receive an aggregate of 200,000 units
("Bridge Units") which were substantially similar to the units sold in the
Offering. The Company valued these units at $1.87 per unit. This valuation
represented a fifty percent discount from the $3.75 Offering price. Such
discount was reflected due to restrictions imposed on the holders of the
Bridge Units as to the salability of the Bridge Units issued. Accordingly, the
statement of operations for the year ended December 31, 1995, includes a non-
cash finance charge of $375,000.
(12) COMMITMENTS
(A) Operating Leases--The Company conducts some of its operations using
facilities classified as operating leases. These facilities are primarily
restaurants and catering premises and office premises and vehicles, which
expire during the next three years. The leases for the restaurant and office
space contains renewal options set forth in the lease agreements.
Annual rent for its restaurant and catering facility located in Hollywood,
Florida, includes use of the entire premises, and is subject to increases for
utility charges in excess of a stipulated amount.
Future minimum rentals payments under the agreements are approximately as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ --------
<S> <C>
1997........................................................... $101,700
1998........................................................... 84,700
1999........................................................... 1,300
--------
Total...................................................... $187,700
========
</TABLE>
F-10
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Rent expense related to the leases for the years ended December 31, 1996 and
1995 was approximately $148,079 and $87,000, respectively.
(B) Vacation Venues--In August 1992, the Company entered into a five-year
contract with an unrelated resort in Southern Florida for exclusive rights to
the entire premises for the Passover holiday seasons for 1993 through 1997.
The contract includes a five-year renewal option which expired in January
1997. The guaranteed annual rental for the use of the resort is based on the
1993 holiday season minimum of $860,000 increased in each subsequent year by
increases in the Consumer Price Index ("CPI"). The maximum increase in any one
year is four percent. The estimated minimum payment under the contract, based
on an anticipated annual increase in the CPI of two percent, is $950,000 for
the year ended December 31, 1997.
For the year ended December 31, 1995, the Company operated one Passover
holiday vacation venue. In January 1996, the Company consummated an agreement
to assume operation of the annual Passover vacation venues at the
Fontainebleau Hilton Hotel ("Fontainebleau"), Miami Beach, the Rye Town Hilton
Hotel ("Rye Town"), Rye, New York, and the Tamiment Resort & Conference Center
("Tamiment"), Tamiment, Pennsylvania. As a result, for the 1996 Passover
holiday, the Company operated holiday vacations at four different locations.
The contracts at the Fontainebleau and Rye Town expire after Passover 2002 and
1999, respectively. The agreements include guest room commitments of 250 and
80 rooms per year for the Fontainebleau and Rye Town, respectively. The
contract to operate a Passover vacation at the Tamiment Hotel expired after
the 1996 Passover holiday and has not been renewed for the 1997 Passover
holiday.
(C) Employment Agreements--Effective September 1, 1995, the Company entered
into 5-year employment agreements with two executives, through August 31, 2000
for an aggregate base salary of $165,000 for the first two years, $220,000 for
the third year, $265,000 for the fourth year and $300,000 in the fifth year.
The employment agreements were amended on February 14, 1997. The amendment
eliminates options in such agreements in consideration of the issuance of
warrants to purchase 1,500,000 shares of the Company's common stock in
connection with a business acquisition (See Note 17B). Additionally, the
agreements were amended to provide that certain other benefits are made
available to the executives.
(13) DESCRIPTION OF SECURITIES
(A) Common Stock--The Company is authorized to issue 10,000,000 shares of
common stock, par value $.001 per share.
Holders of common stock are entitled to dividends when, as and if declared
by the Board of Directors out of funds available therefrom, subject to any
priority as to dividends for any preferred stock that may be outstanding.
There currently is no preferred stock authorized or outstanding. Holders of
common stock are entitled to cast one vote for each share held at all
stockholder meetings for all purposes, including the election of Directors.
(B) Warrants--At December 31, 1996, the Company had outstanding warrants
(the "Public Warrants") to purchase 1,762,500 shares of the Company's common
stock at four dollars ($4.00) per share issued in conjunction with the public
offering. The Public Warrants became exercisable, for a period of four years
on December 5, 1996. Each Public Warrant is redeemable by the Company for $.05
per warrant, at any time after that date, upon thirty days' prior written
notice under certain conditions.
Additionally, at December 31, 1996, the Company had outstanding warrants
(the "Bridge Warrants") to purchase 200,000 shares of its common stock at ten
dollars ($10.00) per share. The terms and conditions of the
F-11
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Bridge Warrants (other than the exercise price) are identical to the terms and
conditions of the Public Warrants (See Note 10).
(15) LOSS ON DISPOSAL
In July 1996, the Company disposed of all of the operating assets of Prime,
which operated a kosher delicatessen/fast food operation in Boca Raton,
Florida incurring a loss of $129,826. Other subsidiaries of the Company
continue to service customers in the restaurant and catering business.
(16) NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." SFAS No. 125
is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1996. The
provisions of SFAS No. 125 must be applied prospectively; retroactive
application is prohibited, and early applications is not allowed. SFAS No. 125
is not expected to have a material impact on the Company. Some provisions of
SFAS No. 125, which are unlikely to apply to the Company, have been deferred
by the FASB.
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," and
SFAS No. 129, "Disclosure of Information about Capital Structure," in February
1997.
SFAS No. 128 simplifies the earnings per share ("EPS") calculations required
by Accounting Principles Board ("APB") Opinion No. 15, and related
interpretations, by replacing the presentation of primary EPS with a
presentation of basic EPS. SFAS No. 128 requires dual presentation of basic
and diluted EPS by entities with complex capital structures. Basic EPS
includes no dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for
the period. Diluted EPS reflects the potential dilution of securities that
could share in the earnings of an entity, similar to the fully diluted EPS of
APB Opinion No. 15. SFAS No. 128 is effective for financial statements issued
for periods ending after December 15, 1997, including interim periods; earlier
application is not permitted. Earnings per share will not materially change
when SFAS No. 128 is adopted.
SFAS No. 129 does not change any previous disclosure requirements, but
rather consolidates existing disclosure requirements for ease of retrieval.
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.
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.
F-12
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The adoption of SFAS No. 131 will have no impact on the Company's consolidated
results of operations; financial position or cash flows.
(17) BUSINESS ACQUISITIONS
(A) Incorporation of New Subsidiaries--On February 14, 1997, the Company
incorporated The Lasko Family Kosher Tours, Inc., as a wholly-owned subsidiary
for the purpose of managing and operating its Passover holiday vacations
business. Accordingly, the Company's contracts related to that business
segment have been assigned to this wholly-owned subsidiary. Additionally, on
February 10, 1997, Deering Ice Cream ("Deering") (See Note 17B) was
incorporated by the Company as a wholly-owned subsidiary.
(B) Business Acquisitions--On February 17, 1997, the Company acquired all of
the assets and related liabilities of DownEast. DownEast, with principal
offices and plant located in Portland, Maine, manufactures and markets frozen
desserts under the name Deering Ice Cream. Under the Agreement signed as of
December 9, 1996, and as amended on February 7, 1997, the Company's new
wholly-owned subsidiary, Deering Ice Cream, Inc. ("Deering") acquired such
assets and related liabilities to continue the business of manufacturing and
marketing frozen desserts.
Such assets include all accounts receivable of the business, inventories,
and certain furniture and equipment. The stated liabilities assumed were
principally trade payables to suppliers of the business and certain long-term
debt.
In consideration for the acquisition, the Company issued to DownEast: (1)
918,900 shares of its common stock, valued at $763,836; 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 (3) the Registrant also paid DownEast
approximately $114,000 in cash.
On February 17, 1997, the existing employment agreements for both Samuel H.
Lasko, the Company's President, and Jonathan S. Lasko, the Company's Executive
Vice President and Chief Operating Officer (collectively the "Laskos"), were
amended to delete the provision which granted each of them performance based
warrants to purchase 750,000 shares of the Company's Common Stock. In lieu
thereof, Samuel and Jonathan Lasko each receive Warrants to purchase 375,000
shares of the Company's Common Stock at $1.1875 per share which Warrants are
immediately exercisable at any time through August 31, 2000. In addition, the
Laskos entered into an option agreement to purchase the businesses, assets or
capital stock of three of the Company's wholly owned subsidiaries, The Lasko
Family Kosher Tours, Inc., The Lasko Companies, Inc. and A&E Management, Inc.
at the fair market value thereof to be independently determined. The option is
exercisable for approximately three years commencing April 1, 1998 until
February 17, 2001, or earlier under certain circumstances, is subject to
shareholders' approval, and to receipt of an independent "fairness opinion"
determining the option purchase price. If exercised, the disposal of these
three wholly-owned subsidiaries will be accounted for as a divestment.
On February 17, 1997, in connection with the Down East transaction, 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.
On July 1, 1997, the Company consummated an Investment Banking Agreement
with Biltmore Securities, Inc. having its principal business offices in Fort
Lauderdale, Florida to perform services related to corporate
F-13
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
finance and other matters. The consideration given by the Company for the
acquisition of the above assets, consisted of Warrants to purchase 750,000
shares of Common Stock of the Company at a price of $4.00 per share,
exercisable through and including December 4, 2000.
The total cost of the acquired company was approximately $2,600,000.
The acquisition will be accounted for as a purchase, effective January 1,
1997. The operations of Deering will be included in the Company's results of
operations from that date.
In connection with the business acquisition, the Company entered into an
employment agreement with an executive who became the President and CEO of
Deering. The three year renewable employment agreement provides for an annual
base salary of $175,000 and certain other benefits including severance pay.
On July 1, 1997, the Registrant acquired all of the assets and related
liabilities of A One A Wholesale Produce, Inc. ("A One A") a Ft. Lauderdale,
Florida based produce distributor that sells and distributes fresh fruit and
vegetables to hotels, restaurants and other businesses in the southern Florida
region.
Under the agreement, A One A became a wholly-owned subsidiary of the
Company.
Such assets include all accounts receivable of the business, inventories,
and certain furniture and equipment. The stated liabilities assumed were
principally trade payables to suppliers of the business and certain long-term
debt.
In consideration for the acquisition, the Registrant issued to A One A
500,000 unregistered shares of the Company's common stock valued at
$1,000,000. The asset purchase agreement also provides for contingent
consideration based upon the achievement of specified earnings levels in
future periods. The Registrant also paid A One A $3,130,000 in cash. The total
cost of the acquired company was approximately $4,100,000 resulting in
goodwill of $3,106,341.
The acquisition was accounted for as a purchase, effective July 1, 1997. The
operations of A One A will be included in the Registrant's results of
operations from that date.
The goodwill recorded for the acquisitions is to be amortized over 20 years
using the straight-line method.
In connection with the A-One-A acquisition, the Company 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 Company'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.
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 five years with two five year options to extend expiring
July 31, 2002 at an annual rental of $220,000. 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 Company has an option to purchase the land and building in Pompano Beach,
Florida at a purchase price of $2,000,000 until December, 1998.
The following pro forma information presents the results of the combined
operations of Terrace Holdings, Inc. and Subsidiaries and A-One-A, treating
the latter as if it were a subsidiary of the Registrant 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.
F-14
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pro forma unaudited information:
<TABLE>
<CAPTION>
NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------ -----------------------
1997 1996 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total Revenues................. $11,754,992 $10,844,271 $14,497,109 $13,136,290
Net Profit (Loss).............. $ (138,297) $ 212,271 $ 30,364 $ 619,773
Net (Loss) Per Share........... $ (.03) $ .06 $ .01 $ .19
</TABLE>
(18) DISCONTINUED OPERATIONS
(A) In November 1997, the Company adopted a formal plan to sell its Deering
Ice Cream, Inc. subsidiary. The disposal occurred in December 1997. The assets
of the Deering Ice Cream, Inc. subsidiary to be sold consist primarily of
accounts receivable, inventories, property, plant and equipment and intangible
assets.
The estimated loss on the disposal of the discontinued operations of
$2,607,228 (net of income tax benefit of $-0-) represents the estimated loss
on the disposal of the assets of the Deering Ice Cream, Inc. subsidiary and a
provision of $250,000 for expected operating losses during the phase-out
period from October 1, 1997 through December 31, 1997.
The estimated net proceeds on disposal of approximately $613,000, is
included in "Other Receivables" at September 30, 1997.
Operating results of the Deering Ice Cream, Inc. subsidiary for the nine
months ended September 30, 1997 are included in the discontinued operations,
in the accompanying income statement.
Net sales of the Deering Ice Cream, Inc. subsidiary for September 30, 1997
was $5,154,824. This amount is not included in net sales in the accompanying
income statements.
Assets and liabilities of the Deering Ice Cream, Inc. subsidiary to be
disposed of consisted of the following at September 30:
<TABLE>
<CAPTION>
1997
----------
<S> <C>
Accounts Receivable........................................... $1,005,604
Inventories................................................... 996,765
Property, Plant and Equipment--Net............................ 1,584,990
Intangible Assets--Net........................................ 818,066
Other......................................................... 431,964
----------
Total Assets.............................................. 4,837,389
----------
Accounts Payable and Accrued Expenses......................... 1,599,252
Notes Payable and Lines of Credit............................. 1,395,993
----------
Total Liabilities......................................... 2,995,245
----------
Net Assets Disposed of........................................ $1,842,144
==========
</TABLE>
Assets are shown at their expected net realizable values and short-term
notes payable are shown at their face amounts.
(B) In December 1997, the Company adopted a formal plan to sell its
Hospitality subsidiary to a major shareholder. The disposal is anticipated in
the first quarter of 1998. The assets of the Hospitality subsidiary to be sold
consist primarily of accounts receivable, inventories, property, plant and
equipment and intangible assets.
The estimated loss on the disposal of the discontinued operations of
$225,000 (net of income tax benefit of $-0-) represents the estimated loss on
the disposal of the assets of the Hospitality subsidiary and a provision of
F-15
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$125,000 for expected operating losses during the phase-out period from October
1, 1997 through December 31, 1997.
The estimated net proceeds on disposal of approximately $700,000, is included
in "Other Receivables" at September 30, 1997.
Operating results of the Hospitality subsidiary for the nine months ended
September 30, 1997 are included in the discontinued operations, in the
accompanying income statement. The income statements for 1996 and 1995 have
been restated and operating results of the Hospitality subsidiary are also
shown separately.
Net sales of the Hospitality subsidiary for September 30, 1997 and December
31, 1996 were $4,556,539 and $5,497,130, respectively. This amount is not
included in net sales in the accompanying income statements.
Assets and liabilities of the Hospitality segment to be disposed of consisted
of the following at September 30:
<TABLE>
<CAPTION>
1997
----------
<S> <C>
Accounts Receivable........................................... $ 130,781
Intangible Assets--Net........................................ 330,750
Other Current Assets.......................................... 177,651
Property, Plant and Equipment--Net............................ 495,203
----------
Total Assets.............................................. 1,134,385
----------
Accounts Payable and Accrued Expenses......................... 278,322
Deferred Revenue.............................................. 56,300
----------
Total Liabilities......................................... 334,622
----------
Net Assets to Be Disposed of.............................. $ 799,763
==========
</TABLE>
Assets are shown at their expected net realizable values and payables and
deferred revenue are shown at their face amounts.
The December 31, 1996 balance sheet has not been restated.
(19) SUBSEQUENT EVENTS (UNAUDITED)
Subsequent to September 30, 1997, the Registrant acquired all of the assets
and related liabilities of Dry Dock Distributors, Inc. d/b/a Bay Purveyors,
("Bay Puveyors") a Miami, Florida based dry goods distributor sells and
distributes dry goods and dairy goods to various restaurants and other business
in the South Florida region.
Such assets include all accounts receivable of the business, inventories and
certain furniture and equipment. The stated liabilities assumed were
principally trade payables to suppliers of the business and certain long term
debt.
In consideration for the acquisition, the Registrant paid Bay Purveyors
$310,000.
The acquisition will be accounted for as a purchase. The operations of Bay
Purveyors will be included in the Registrant's results of operations next
quarter.
In August 1997, the Company guaranteed payment on a Loan and Security
Agreement between Foothill Capital Corporation of Mechanicsville, Virginia and
the Company's wholly-owned subsidiaries, Deering Ice Cream, Inc. and A-One-A
Produce and 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
F-16
<PAGE>
TERRACE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
and inventory financing currently in effect with respect to Deering Ice Cream,
Inc., and also to provide for the ongoing working capital needs of A-One-A
Produce and Provisions, Inc. In connection with the sale of the Deering
subsidiary in December 1997, these loans were paid down in the amount of
$1,396,913, leaving a principal balance of $1,400,000.
In November 1997, the Company sold 200,000 shares of unregistered Common
Stock to an unrelated party for $1.10 per share.
In August, 1997, the Company completed a private placement to accredited
investors of 1,352,500 units of its securities, each Unit consisting of one
share of convertible Preferred Stock and two Preferred Warrants to purchase
shares of the Company's Common Stock. Each share of Preferred Stock is
convertible into two shares of the Company's Common Stock and each Preferred
Warrant was issued on the exact same terms as that of the Public Warrants.
In connection with the Company's August, 1997 placement of Preferred Units,
the Company issued 156,325 Preferred Units to Biltmore Securities, Inc., and
15,000 Preferred Units to Westport Capital Markets, LLC.
Pursuant to an offering memorandum dated July 7, 1997, the Company offered
1,750,000 units at $2 per unit, each unit consisting of one share of
convertible preferred stock and two warrants, each to purchase one share of
common stock at an exercise price of $4 per share. At September 30, 1997,
1,400,000 units were issued for $2,789,000 net of the cost of the offering.
(20) UNAUDITED INTERIM STATEMENTS
The financial statements as of September 30, 1997 and for the nine months
ended September 30, 1997 and 1996 are unaudited; however, in the opinion of
management all adjustments (consisting solely of normal recurring adjustments)
necessary to make the interim financial statements not misleading have been
made. The result for interim periods are not necessarily indicative of the
results to be obtained for a full fiscal year.
F-17
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
A One A Wholesale Produce, Inc.
Pompano Beach, Florida
We have audited the accompanying balance sheet of A One A Wholesale Produce,
Inc. as of December 25, 1996, and the related statements of operations,
stockholders' equity, and cash flows for each of the two fiscal years in the
period then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our 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 financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of A One A Wholesale Produce,
Inc. as of December 25, 1996, and the results of its operations and its cash
flows for each of the two fiscal years in the period then ended in conformity
with generally accepted accounting principles.
Moore Stephens, P. C.
Certified Public Accountants.
Cranford, New Jersey
October 2, 1997
F-18
<PAGE>
A ONE A WHOLESALE PRODUCE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 25,
1997 1996
----------- ------------
(UNAUDITED)
ASSETS:
-------
<S> <C> <C>
Current Assets:
Cash................................................ $ 61,430 $ 65,901
Accounts Receivable................................. 1,004,947 1,221,363
Inventory........................................... 119,728 117,723
Other Current Assets................................ 108,871 40,048
Due from Related Party.............................. 111,703 157,694
---------- ----------
Total Current Assets.............................. 1,406,679 1,602,729
---------- ----------
Property and Equipment:
Auto and Truck...................................... 608,820 606,570
Furniture, Fixtures and Equipment................... 299,573 272,455
Leasehold Improvements.............................. 5,576 5,576
---------- ----------
Totals--At Cost..................................... 913,969 884,601
Less: Accumulated Depreciation and Amortization..... (376,523) (318,406)
---------- ----------
Property and Equipment--Net....................... 537,446 566,195
---------- ----------
Other Asset:
Security Deposits................................... 2,750 2,750
---------- ----------
Total Assets...................................... $1,946,875 $2,171,674
========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY:
-------------------------------------
<S> <C> <C>
Current Liabilities:
Accounts Payable and Accrued Expenses............... $ 673,809 $ 716,971
Line of Credit...................................... -- 150,000
Current Portion Long-Term Debt...................... 97,079 92,953
---------- ----------
Total Current Liabilities......................... 770,888 959,924
---------- ----------
Long-Term Debt:
Notes Payable....................................... 111,137 160,417
---------- ----------
Commitments and Contingencies......................... -- --
---------- ----------
Stockholders' Equity:
Common Stock, $1 Par, 1,000 Shares Authorized; 300
Shares Issued and Outstanding...................... 300 300
Additional Paid-in Capital.......................... 700 700
Retained Earnings................................... 1,063,850 1,050,333
---------- ----------
Total Stockholders' Equity........................ 1,064,850 1,051,333
---------- ----------
Total Liabilities and Stockholders' Equity........ $1,946,875 $2,171,674
========== ==========
</TABLE>
See Notes to Financial Statements.
F-19
<PAGE>
A ONE A WHOLESALE PRODUCE, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED
------------------------ ------------------------
DECEMBER DECEMBER
1997 1996 25, 1996 27, 1995
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net Sales.................... $8,180,688 $7,563,087 $14,497,109 $13,136,290
Cost of Goods Sold........... 5,771,292 5,338,241 10,306,550 9,331,348
---------- ---------- ----------- -----------
Gross Profit............. 2,409,396 2,224,846 4,190,559 3,804,942
Selling, General and
Administrative Expense...... 1,883,273 1,902,568 3,806,666 3,139,560
---------- ---------- ----------- -----------
Income from Operations..... 526,123 322,278 383,893 665,382
---------- ---------- ----------- -----------
Other Income (Expense):
Interest Income............ -- 1,183 10,306 3,327
Interest Expense........... (17,432) (1,154) (15,396) (7,436)
---------- ---------- ----------- -----------
Total Other (Expense)
Income.................. (17,432) 29 (5,090) (4,109)
---------- ---------- ----------- -----------
Net Income............... $ 508,691 $ 322,307 $ 378,803 $ 661,273
========== ========== =========== ===========
</TABLE>
See Notes to Financial Statements.
F-20
<PAGE>
A ONE A WHOLESALE PRODUCE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------- ADDITIONAL TOTAL
NUMBER OF PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance--December 27,
1995.................... 300 $300 $700 $ 866,322 $ 867,322
Net Income............... -- -- -- 378,803 378,803
Distribution to
Stockholders............ -- -- -- (194,792) (194,792)
--- ---- ---- ---------- ----------
Balance--December 25,
1996.................... 300 300 700 1,050,333 1,051,333
Net Income............... -- -- -- 508,691 508,691
Distribution to
Stockholders............ -- -- -- (495,174) (495,174)
--- ---- ---- ---------- ----------
Balance--June 30, 1997
(Unaudited)............. 300 $300 $700 $1,063,850 $1,064,850
=== ==== ==== ========== ==========
</TABLE>
See Notes to Financial Statements.
F-21
<PAGE>
A ONE A WHOLESALE PRODUCE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED
---------------------- -------------------------
DECEMBER 25, DECEMBER 27,
1997 1996 1996 1995
----------- ---------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income.................. $508,691 $322,307 $ 378,803 $ 661,273
-------- -------- --------- ---------
Adjustments to Reconcile Net
Income to Net Cash Provided
by Operating Activities:
Depreciation and
Amortization............... 58,117 29,674 82,290 60,263
Loss on Sale of Fixed
Assets..................... -- 20,179 30,719 --
Bad Debt Expense............ -- -- 42,266 42,675
Changes in Assets and
Liabilities:
(Increase) Decrease in:
Accounts Receivable........ 216,416 (89,387) (244,023) (208,023)
Inventory.................. (2,005) (12,422) 24,324 (55,423)
Prepaid Expenses........... (68,823) (742) (8,919) (31,129)
Notes Receivable--Related
Party..................... -- 39,175 39,175 (39,175)
Other Assets............... -- -- -- (2,750)
Due from Related Party..... 45,991 (46,715) (34,279) (123,410)
Increase (Decrease) in:
Accounts Payable and Other
Accrued Expenses.......... (43,162) (56,835) (38,706) 48,929
-------- -------- --------- ---------
Total Adjustments......... 206,534 (117,073) (107,153) (308,043)
-------- -------- --------- ---------
Net Cash--Operating
Activities............... 715,225 205,234 271,650 353,230
-------- -------- --------- ---------
INVESTING ACTIVITIES:
Acquisitions of Property and
Equipment.................. (29,368) (32,544) (50,783) (54,033)
-------- -------- --------- ---------
FINANCING ACTIVITIES:
Payments of Notes Payable... (45,154) (19,487) (56,804) (64,585)
Distribution to
Stockholders............... (495,174) (176,342) (194,792) (236,355)
Proceeds from Lines of
Credit..................... -- 25,000 150,000 50,000
Payments of Lines of Credit. (150,000) -- (50,000) --
Payment of Notes Payable--
Stockholders............... -- -- (77,550) --
-------- -------- --------- ---------
Net Cash--Financing
Activities............... (690,328) (170,829) (229,146) (250,940)
-------- -------- --------- ---------
Net (Decrease) Increase in
Cash..................... (4,471) 1,861 (8,279) 48,257
Cash--Beginning of Periods... 65,901 74,180 74,180 25,923
-------- -------- --------- ---------
Cash--End of Periods......... $ 61,430 $ 76,041 $ 65,901 $ 74,180
======== ======== ========= =========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOWS INFORMATION:
Cash paid during the periods
for:
Interest.................... $ 18,432 $ 1,154 $ 14,302 $ 7,436
Income Taxes................ $ -- $ -- $ -- $ --
SUPPLEMENTAL SCHEDULE OF NON-
CASH INVESTING ACTIVITIES:
Equipment Acquired by
Assuming Liability......... $ -- $ -- $ 296,637 $ 31,837
</TABLE>
See Notes to Financial Statements.
F-22
<PAGE>
A ONE A WHOLESALE PRODUCE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
ARE UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description and Nature of the Company's Operations--A One A Wholesale
Produce, Inc. (the "Company"), a Florida corporation, since December 1987,
distributes fresh fruits and vegetables to various food service providers in
the Southern Florida region.
Fiscal Year--The Company's fiscal year ends on the Wednesday nearest to
December 31. Both the 1996 and 1995 fiscal years included 52 weeks.
Use of Estimates--The financial statements are prepared in conformity with
generally accepted accounting principles and, accordingly, include amounts
that are based on management's best estimates and judgements. Actual results
could differ from those estimates.
Cash and Cash Equivalents--Cash equivalents are comprised of certain highly
liquid investments with a maturity of three months or less when purchased. The
Company did not have any cash equivalents at December 25, 1996.
Property and Equipment and Depreciation--Property and equipment are stated
at cost. Depreciation is provided principally by the straight-line method over
the estimated useful lives of the assets, which range from five to ten years.
The costs of repairs and maintenance are expressed as incurred. Depreciation
and amortization expense amounted to $82,290 and $60,263 for the years ended
December 25, 1996 and December 27, 1995, respectively.
Accounts Receivable and Bad Debts--The Company makes direct write-offs
against income when specific accounts are determined to be uncollectible.
While this method is not in conformity with generally accepted accounting
principles ("GAAP"), the financial statement effect of the difference in
methods is not material. In the opinion of management, the balance of trade
accounts receivable at the balance sheet date is collectible. Bad debt expense
for the years ended December 25, 1996 and December 27, 1995 was $42,266 and
$42,675, respectively.
Inventories--Inventories are recorded at the lower of cost or market. Cost
is determined on the first-in, first-out basis ("FIFO"). Inventory consists of
fresh fruit and vegetables.
Advertising Expenses--The Company expenses advertising costs as incurred.
Total advertising costs charged to expenses for the years ended December 31,
1996 and 1995 amounted to approximately $19,945 and $5,978, respectively.
(2) SIGNIFICANT RISKS AND UNCERTAINTIES
Concentration of Credit Risk--Financial instruments that potentially subject
the Company to concentrations of credit risk are cash and cash equivalents and
accounts receivable arising from its normal business activities.
The Company places its cash and cash equivalents with high credit quality
financial institutions. At December 25, 1996, the Company had approximately
$131,000 in a financial institution subject to normal credit risk beyond
insured amounts.
Regarding accounts receivable, the Company believes that credit risk is
limited due to the large number of entities comprising the Company's customer
base and the diversified industries in which the Company operates.
F-23
<PAGE>
A ONE A WHOLESALE PRODUCE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
As a consequence, the Company believes that its accounts receivable credit
risk exposure is limited. The Company does not require collateral to support
financial instruments subject to credit risk.
Other Concentrations--The Company is subject to 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. 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.
(3) INCOME TAXES
The Company is taxed under the provisions of Subchapter S (S corporation) of
the Internal Revenue Code and for Florida tax purposes under applicable
sections of the state income tax laws. These elections eliminate federal and
state income taxes at the corporate level and profits are taxed directly to
the Company's stockholders.
In August 1997, the Company sold its assets and related liabilities to
Terrace Holdings, Inc. ("THI"), a publicly-held company. As a result of the
sale, the Company revoked its subchapter S status and changed its name to A
One A Produce and Provisions, Inc. (See Note 10). The undistributed earnings
will be reclassified to additional paid-in capital. No tax loss carryforwards
will be available to the Company.
Income as if the entity was taxable is as follows:
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------
DECEMBER 25, DECEMBER 27,
1996 1995
------------ ------------
<S> <C> <C>
Income Before Income Taxes...................... $378,803 $661,273
Pro Forma Income Tax Effect..................... 151,521 264,509
-------- --------
Pro Forma Net Income........................ $227,282 $396,764
======== ========
</TABLE>
(4) RELATED PARTIES
The Company had sales with a related entity whose shareholders include
shareholders of the Company. Sales with the related entity totaled $362,737
and $185,927 for the years ending December 25, 1996 and December 27, 1995,
respectively.
The Company also had purchases with the same related party totaling $979,139
and $547,788 for the years ending December 25, 1996 and December 27, 1995,
respectively. The Company had net receivables of $157,694 (net of a payable of
$38,783) due from the related party at December 25, 1996. Amounts represent
accounts receivables net of payables which will be collected and paid during
the normal course of business.
(5) LINE OF CREDIT
The Company has a working capital line of credit with Suntrust Bank, South
Florida, N.A. for $300,000 at a variable interest rate at .75% over the bank's
prime-based rate. The working capital revolver is secured by a blanket lien on
all of the Company's assets, excluding amounts due from affiliates of the
Company. The principal was due in full on March 31, 1997. The Company used
$150,000 of the working capital line of credit at December 25, 1996. The
Company must maintain certain financial covenants during the term of the loan.
The
F-24
<PAGE>
A ONE A WHOLESALE PRODUCE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
financial covenants require the Company to maintain a minimum net worth of
$800,000, prohibit advances to shareholders and limit withdrawals or dividends
paid to shareholders in the aggregate to 50% of the Company's net income for
any given fiscal year.
(6) NOTES PAYABLE
At December 25, 1996, long-term debt consisted of the following:
<TABLE>
<S> <C>
Note payable in thirty-six consecutive monthly total installments of
$6,583 including interest at 9.1% per annum through June 1998,
collateralized by certain trucks.................................... $176,030
Note payable in thirty-six consecutive monthly total installments of
$1,154, including interest at 9.8% per annum through December 1998,
collateralized by a certain truck................................... 35,889
Note payable in thirty-six consecutive monthly total installments of
$1,150, including interest at 9.8% per annum through December 1998,
collateralized by a certain truck................................... 35,755
Note payable in forty-eight consecutive monthly installments of $541,
including interest at 8.8% per annum through December 1997
collateralized by a certain truck................................... 5,696
--------
Total Long-Term Debt................................................. 253,370
Less: Current Portion................................................ (92,953)
--------
Total............................................................ $160,417
========
</TABLE>
Long-term debt at December 25, 1996 matures as follows:
<TABLE>
<S> <C>
1997............................................................. $ 92,953
1998............................................................. 95,703
1999............................................................. 64,714
--------
Total........................................................ $253,370
========
</TABLE>
(7) LEASES
The Company leases office and warehouse space under an operating leases,
which was terminated on July 16, 1997. Under the termination agreement the
Company does not have any additional obligation subsequent to the June rental
payment.
Minimum future rental payments under the above mentioned operating lease as
of December 25, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 25,
------------
<S> <C>
1997............................................................ $66,060
=======
</TABLE>
In addition, the Company is liable for its pro-rata share of increases in
real estate taxes and escalations as provided in the lease agreements.
Rent expense for the years ended December 25, 1996 and December 27, 1995 was
$133,600 and $105,068, respectively.
F-25
<PAGE>
A ONE A WHOLESALE PRODUCE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In conjunction with the sale of the Company's assets and related
liabilities, the Company moved into new facilities located in Pompano Beach,
Florida (See Note 10).
(8) COMMITMENTS AND CONTINGENCIES
Employment Agreements--On May 12, 1995, the Company entered into an
employment agreement with a sales manager. The agreement commenced on June 5,
1995 and will terminate on June 12, 1998. The base compensation is $75,000 per
annum and includes an annual incentive bonus.
On November 27, 1995, the Company entered into an employment agreement with
a dock supervisor the ("employee"). The compensation for services rendered
under this agreement was $52,000 per annum. The term of this agreement was for
a period of two years.
The employee was terminated on September 16, 1997 and in accordance with the
agreement, severance pay equal to eight weeks of the employee's base
compensation was paid.
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 purchase of inventory. The letter of credit expires May 1,
1998 and is collateralized by a blanket lien on the Company's assets. At
December 25, 1996, there was no balance due pursuant to the letter of credit.
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company adopted Statement of Financial Accounting Standards ("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 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
cash and cash equivalents, related party and trade payables, it was assumed
that the carrying amount approximated fair value for the majority of these
instruments because of their short maturities.
(10) SUBSEQUENT EVENTS
(A) Sale of Business--On July 1, 1997, the Company sold its assets and
related liabilities to Terrace Holdings, Inc. ("THI"), a publicly-held
company. As consideration, THI paid cash of $3,130,000 and issued 500,000
shares of its common stock, par value valued at its average closing price for
the full trading week prior to closing of $1,000,000. In connection with the
sale, certain employment agreements were entered into between the Company's
key executives and THI.
In addition, the Company is leasing a facility under an operating lease with
a lease term for ten years through June 30, 1997. The annual base rent for
each year during the term is $209,004. The lease grants for a renewal option
to extend the term for up to three additional renewal terms of five years with
monthly rent equal to $17,417.
F-26
<PAGE>
A ONE A WHOLESALE PRODUCE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Minimum future rental payments under non-cancelable operating lease having
remaining terms in excess of one year as of December 25, 1996 is as follows:
<TABLE>
<S> <C>
1997........................................................... $ 87,085
1998........................................................... 209,004
1999........................................................... 209,004
2000........................................................... 209,004
2001........................................................... 209,004
Thereafter..................................................... 1,149,522
----------
Total...................................................... $2,072,623
==========
</TABLE>
In connection with the acquisition, the Company entered into five year
employment agreements through July 30, 2002, with both Virgil D. Scarborough
and Scott Davis who will serve as co-chief operating officers. Under their
respective agreements, each officer will receive an annual base salary of
$120,000.
(B) Other Concentrations--In October 1996, the Company become an associate
member of a cooperative of independent distribution specialists
("Cooperative") which enables the Company to enter group negotiations which
results in better pricing on purchases. During 1997, it is expected that
purchases from the Cooperative will exceed 10% of the Company's total
purchases. In December 1997, the Company became a full-time member of Pro*Act.
Management believes that there is no business vulnerability regarding this
concentration of purchases from the vendor as the produce is available from
other sources.
(C) Loan and Security Agreement--In August 1997, the Company guaranteed
payment on a Loan and Security Agreement between Foothill Capital Corporation
of Mechanicsville, Virginia and the Company's wholly-owned subsidiaries,
Deering Ice Cream, Inc. and A-One-A Produce and 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 currently in effect with respect to Deering
Ice Cream, Inc., and also to provide for the ongoing working capital needs of
A-One-A Produce and Provisions, Inc. In connection with the sale of the
Deering subsidiary in December 1997, these loans were paid down in the amount
of $1,396,913, leaving a principal balance of $1,400,000.
(11) NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." SFAS No. 125
is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1996. Earlier
application is not allowed. The provisions of SFAS No. 125 must be applied
prospectively; retroactive application is prohibited. Adoption on January 1,
1997 is not expected to have a material impact on the Company. The FASB
deferred some provisions of SFAS No. 125, which are not expected to be
relevant to the Company.
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.
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
F-27
<PAGE>
A ONE A WHOLESALE PRODUCE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
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.
(12) UNAUDITED INTERIM STATEMENTS
The financial statements as of June 30, 1997 and for the six months ended
June 30, 1997 and 1996 are unaudited; however, in the opinion of management
all adjustments (consisting solely of normal recurring adjustments) necessary
to make the interim financial statements not misleading have been made. The
result for interim periods are not necessarily indicative of the results to be
obtained for a full fiscal year.
. . . . . . . . . .
F-28
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation eliminates the personal liability
of directors to the Company or its stockholders for monetary damages for
breach of fiduciary duty to the extent permitted by Delaware law. The
Company's Certificate of Incorporation and By-Laws provide that the Company
shall indemnify its officers and directors to the extent permitted by
Subsection 145 of the General Corporation Law of the State of Delaware, which
authorizes a corporation to indemnify directors, officers, employees or agents
of the Corporation in non-derivative suits if such party acted in good faith
and in a manner such party reasonably believed to be in or not opposed to the
best interest of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
Subsection 145 further provides that indemnification shall be provided if the
party in question is successful on the merits or otherwise.
Reference is hereby made to the caption "Management--Limitation of Liability
and Indemnification of Directors" in the Prospectus which is a part of this
Registration Statement for a description of indemnification arrangements
between the Company and its directors.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of the distribution, all of which are to be borne by
the Company, are as follows:
<TABLE>
<S> <C>
SEC Registration Fee........................................... $ 10,000
NASD Fee....................................................... 4,000
NASDAQ Fees.................................................... 4,000
Transfer Agent Fees............................................ 2,000
Accounting Fees and Expenses................................... 50,000
Legal Fees and Expenses........................................ 40,000
Printing and Engraving......................................... 5,000
Miscellaneous.................................................. 5,000
--------
Total...................................................... $120,000*
========
</TABLE>
- --------
* All amounts are estimates.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
On February 17, 1997, the Company consummated an Asset Acquisition Agreement
("Agreement") acquiring all of the assets and related liabilities of DownEast
Frozen Desserts, LLC ("DE"), a Delaware limited liability company unaffiliated
with the Company, which manufactures and markets frozen desserts under the
name Deering Ice Cream with its principal offices located in Portland, Maine.
Under the Agreement signed as of December 9, 1996, and as amended as of
February 7, 1997, the Company's wholly-owned subsidiary, Deering Ice Cream,
Inc. ("Deering"), acquired such assets and related liabilities to continue the
business of manufacturing and marketing frozen desserts.
The consideration given by the Company for the acquisition of the above
assets, arrived at through arms-length negotiations between the parties,
consisted of: (1) 918,900 shares of the Company's Common Stock; (2) Warrants
to purchase 250,000 additional shares of the Company's Common Stock at an
exercise price of $1.1875 exercisable commencing February 17, 1997, the
closing date of the transaction, and expiring on August 31, 2000, and (3)
approximately $114,000.
On February 17, 1997, the existing employment agreements for both Samuel H.
Lasko, the Company's President, and Jonathan S. Lasko, the Company's Executive
Vice President and Chief Operating Officer, were
II-1
<PAGE>
amended to delete the provision which granted each of them performance based
warrants to purchase 750,000 shares of the Company's Common Stock. In lieu
thereof, Samuel and Jonathan Lasko each received Warrants to purchase 375,000
shares of the Company's Common Stock at $1.1875 per share which Warrants are
immediately exercisable at any time through August 31, 2000.
On February 17, 1997, in connection with the DownEast transaction, 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.
On February 17, 1997, in connection with the DownEast transaction, the
Company issued 75,000 shares of its Common Stock to Barclay Partners, L.L.C.
as an investment banker's or finder's fee.
On July 1, 1997, the Company consummated an Investment Banking Agreement
with Biltmore Securities, Inc. having its principal business offices in Fort
Lauderdale, Florida to perform services related to corporate finance and other
matters. The consideration given by the Company for the acquisition of the
above assets, arrived at through arms-length negotiations between the parties,
consisted of Warrants to purchase 750,000 shares of Common Stock of the
Company at a price of four dollars ($4.00) per share, exercisable through and
including December 4, 2000.
In August, 1997, the Company consummated an Asset Acquisition Agreement,
effective July 1, 1997, to acquire all of the assets and related liabilities
of A-One-A Wholesale Produce, Inc. ("A One A"), a Florida-based produce
distributor, unaffiliated with the Company, that sells and distributes fresh
fruit and vegetables to hotels, restaurants, and other businesses in south and
central Florida. Under the Agreement, A One A became a wholly-owned subsidiary
of the Company.
The consideration given by the Company for the acquisition of the assets
acquired by Deering, arrived at through arms-length negotiations between the
parties, was paid at closing and consisted of: (1) $3,130,000 in cash; and (2)
500,000, unregistered shares of the Company's Common Stock, par value $.001
per share.
In August, 1997, the Company completed a private placement to accredited
investors of 1,352,500 units of its securities, each Unit consisting of one
share of convertible Preferred Stock and two Preferred Warrants to purchase
shares of the Company's Common Stock. Each share of Preferred Stock is
convertible into two shares of the Company's Common Stock and each Preferred
Warrant was issued on the exact same terms as that of the Public Warrants.
In connection with the Company's August, 1997 placement of Preferred Units,
the Company issued 156,325 Preferred Units to Biltmore Securities, Inc., and
15,000 Preferred Units to Westport Capital Markets, LLC.
In November, 1997, the Company sold 200,000 shares of unregistered Common
Stock to Michael Feinberg the owner of The Club at Emerald Hills, Hollywood,
Florida, at $1.10 per share.
Each of the foregoing transactions was exempt from registration under the
Securities Act of 1933, as amended, pursuant to the provisions of the Section
4(2) thereof as not involving any public offering. With respect to each
transaction, no person acting on the Company's behalf offered or sold the
securities by means of any form of general solicitation or general
advertising.
II-2
<PAGE>
ITEM 27.EXHIBITS.
<TABLE>
<CAPTION>
<C> <S>
3.1 Certificate of Incorporation of Terrace Holdings, Inc.*
3.2 By-laws of Terrace Holdings, Inc.*
3.3 Agreement of Merger dated September 7, 1995 between Bon Adventure Kosher
Tours, Inc. and Terrace Holdings, Inc.*
3.4 Certificate of Ownership and Merger of Bon Adventure Kosher Tours, Inc.
into Terrace Holdings, Inc.*
3.5 Certificate of Incorporation of A&E Management Corp.*
3.6 By-laws of A&E Management Corp.*
3.9 Certificate of Incorporation of The Lasko Companies, Inc.*
3.10 By-laws of The Lasko Companies, Inc.*
3.11 Certificate of Incorporation of A One A Produce & Provisions, Inc.
3.12 By-laws of A One A Produce & Provisions, Inc.
3.13 Certificate of Incorporation of Terrace Fresh, Inc.
3.14 By-laws of Terrace Fresh, Inc.
4.1 Form of Specimen Preferred Stock Certificate**
4.2 Form of Specimen Preferred Warrant Certificate**
4.3 Form of Specimen Common Stock Certificate*
4.4 Form of Specimen Warrant Certificate*
4.5 Form of Underwriter's Purchase Option*
4.6 Form of Warrant Agreement*
5.1 Opinion of Fishman, Merrick, Miller, Genelly, Springer, Klimek &
Anderson P.C., regarding the legality of the securities being
registered**
10.1 Form of Employment Agreement, dated September 1, 1995 between Terrace
Holdings, Inc. and Samuel Lasko*
10.2 Amendment to Employment Agreement, dated February 17, 1997, between
Terrace Holdings, Inc. and Samuel H. Lasko
10.3 Form of Employment Agreement, dated September 1, 1995, between Terrace
Holdings, Inc. and Jonathan Lasko*
10.4 Amendment to Employment Agreement, dated February 17, 1997, between
Terrace Holdings, Inc. and Jonathan S. Lasko
10.5 Employment Agreement, dated September , 1997, between Terrace
Holdings, Inc. and Scott Davis**
10.6 Employment Agreement, dated September , 1997, between Terrace
Holdings, Inc. and Virgil Scarbrough**
10.7 Employment Agreement, dated September , 1997, between Terrace
Holdings, Inc. and Kenneth Cohen**
10.8 Agreement between Bonaventure Resort & Spa and Bon Adventure Kosher
Tours, Inc.*
10.9 Agreement for Lease dated October 20, 1993 relating to premises at The
Club of Emerald Hills*
10.10 Lease Agreement, dated May 10, 1995, as amended, between The Hemispheres
Condominium Association, Inc. and The Lasko Companies, Inc. relating to
a portion of The Hemispheres Ocean Club, 1960 South Ocean Drive,
Hallandale, Florida*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
10.14 Investment Banking Agreement, dated July 1, 1997 between Terrace
Holdings, Inc. and Biltmore Securities, Inc.**
10.16 Agreement to Assign and Other Matters, dated January 16, 1996, between
Terrace Holdings, Inc. and International Tours and Catering by
Ambassador, Inc.
10.17 Asset Acquisition Agreement, dated December 9, 1996 and Amended February
17, 1997, between Terrace Holdings, Inc. and DownEast Frozen Desserts,
LLC***
10.18 Asset Acquisition Agreement, dated July 6, 1997 between Terrace
Holdings, Inc. and A One A Wholesale Produce, Inc.**
10.19 Stock Purchase Agreement, dated December , 1997, between Terrace
Holdings, Inc. and Virgil Scarbrough and Scott Davis**
10.20 Sale of Assets Agreement, dated September 1, 1997, between Terrace
Holdings, Inc. and Bay Purveyors**
10.21 Guaranty dated August 7, 1997, by Terrace Holdings, Inc. in favor of
Foothill Capital Corporation**
21.1 Subsidiaries of the Registrant
23.1 Consent of Moore Stephens, P.C. (See page II-7)
23.2 Consent of Fishman, Merrick, Miller, Genelly, Springer, Klimek &
Anderson P.C. (included in Exhibit 5.1)**
24.1 Power of Attorney with respect to certain signatures in the Registration
Statement****
</TABLE>
- --------
* Incorporated by reference to the Company's Registration Statement filed in
connection with an initial public offering on December 5, 1995, SEC File
No. 33-96892-A.
**To be filed by Amendment.
*** Incorporated by reference to the 8-K filed by the Company on March 4, 1997
in connection with the Company's purchase of substantially all the assets
of DownEast Frozen Desserts, Inc. on February 17, 1997.
**** See Page II- of this Registration Statement.
ITEM 28. UNDERTAKINGS.
1. The undersigned Registrant hereby undertakes:
(a) to file, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:
(i) include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) reflect in the prospectus any facts or events which,
individually or together represent a fundamental change in the
information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a
twenty percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) include any additional or changed material information on the
plan of distribution.
provided, however, paragraphs (a)(i) and (a)(ii) do not apply if the
registration statement is on Form S-3 or S-8, and the information required
in a post-effective amendment is incorporated by reference from periodic
reports filed by the small business issuer under the Securities Exchange
Act of 1934.
II-4
<PAGE>
(b) that for determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(c) to file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(d) to provide to the underwriter at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
(e) if the Registrant relies on Rule 430A under the Securities Act, the
Registrant will:
(i) for determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant under Rule 424(b)(1), or
(4), or 497(h) under the Securities Act as part of this Registration
Statement as of the time the Commission declares it effective;
(ii) for determining any liability under the Securities Act, treat
each post-effective amendment that contains a form of prospectus as a
new registration statement for the securities offered in the
registration statement, and that offering of the securities at that
time as the initial bona fide offering of those securities.
2. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS FOR FILING ON FORM SB-2 AND AUTHORIZED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOLLYWOOD, STATE OF FLORIDA, ON THE
28TH DAY OF JANUARY, 1998.
Terrace Holdings, Inc.
/s/ Samuel H. Lasko
By: _________________________________
Samuel H. Lasko
President
POWER OF ATTORNEY
EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY CONSTITUTES AND APPOINTS
SAMUEL H. LASKO HIS TRUE AND LAWFUL ATTORNEY-IN-FACT AND AGENT, WITH FULL
POWER OF SUBSTITUTION AND RESUBSTITUTION FOR HIM IN HIS NAME, PLACE AND STEAD,
IN ANY AND ALL CAPACITIES, TO SIGN THIS REGISTRATION STATEMENT AND ANY AND ALL
AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION
STATEMENT ON FORM SB-2 AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND
OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Samuel H. Lasko President, Principal January 28, 1998
____________________________________ Financial and Accounting
Samuel H. Lasko Officer and Director
/s/ Jonathan S. Lasko Executive Vice-President, January 28, 1998
____________________________________ Secretary, Chief Operating
Jonathan S. Lasko Officer and Director
Director , 1998
____________________________________
Bruce S. Phillips
/s/ Steven Shulman Director January 28, 1998
____________________________________
Steven Shulman
Director , 1998
____________________________________
Bernard Rubin, M.D.
/s/ Richard Power Director January 28, 1998
____________________________________
Richard Power
</TABLE>
II-6
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement
of Terrace Holdings, Inc. on Form SB-2 (File No. ), of our report dated
February 17, 1997, on our audits of the consolidated financial statements of
Terrace Holdings, Inc. as of December 31, 1996, and for the two years then
ended, which report was included in the Annual Report on Form 10-K. We also
consent to the inclusion in this Registration Statement of our report dated
October 2, 1997, on our audits of the financial statements of A One A
Wholesale Produce, Inc. as of December 25, 1996 and for the two years then
ended. We also consent to the reference to our firm under the headings
"Experts."
/s/ Moore Stephens, P.C.
Moore Stephens, P.C.
Certified Public Accountants.
Cranford, New Jersey
January 28, 1998
II-7
<PAGE>
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
EXHIBITS
TO
FORM SB-2
REGISTRATION STATEMENT
OF
TERRACE HOLDINGS, INC.
----------------
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON , 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT NUMBER
------- -------- ----------
<C> <S> <C>
Certificate of Incorporation of A One A Produce &
3.11 Provisions, Inc.
3.12 By-laws of A One A Produce & Provisions, Inc.
3.13 Certificate of Incorporation of Terrace Fresh, Inc.
3.14 By-laws of Terrace Fresh, Inc.
10.2 Amendment to Employment Agreement, dated February 17,
1997, between Terrace Holdings, Inc. and Samuel H.
Lasko
10.4 Amendment to Employment Agreement, dated February 17,
1997, between Terrace Holdings, Inc. and Jonathan S.
Lasko
10.16 Agreement to Assign and Other Matters, dated January
16, 1996, between Terrace Holdings, Inc. and
International Tours and Catering by Ambassador, Inc.
21.1 Subsidiaries of the Registrant
</TABLE>
<PAGE>
ARTICLES OF INCORPORATION
OF TERRACE PRODUCE, INC.
The undersigned, being an individual, does hereby act as incorporator in
adopting the following Articles of Incorporation for the purpose of organizing a
corporation for profit, pursuant to the provisions of the Florida Business
Corporation Act.
ARTICLE I
---------
The name of the corporation is Terrace Produce, Inc. (the "Corporation").
ARTICLE II
----------
The street address and mailing address of the initial principal office of
the Corporation is:
2699 Stirling Road
Suite C-405
Fort Lauderdale, FL 33312
ARTICLE III
-----------
The number of shares that the Corporation is authorized to issue is 1,000,
all of which have no par value and are all common shares of the same series.
ARTICLE IV
----------
The name of the inital registered agent and the street address of the
initial registered office of the Corporation is as follows:
Agent: Jonathan Lasko
Office: c/o Terrace Holdings, Inc.
2699 Stirling Road
Ft. Lauderdale, Florida 33312
The written acceptance of said initial registered agent, as required by the
provisions of Section 607.0501(3) of the Florida Business Corporation Act, is
set forth following the signature and is made a part of these Articles of
Incorporation.
<PAGE>
ARTICLE V
---------
The name and address of the incorporator is:
Name: Scott P. Slykas
Address: Fishman & Merrick, P.C.
30 North LaSalle Street, Suite 3500
Chicago, IL 60602
ARTICLE VI
----------
The Corporation is organized for the purpose of transacting any and all
lawful business for which corporations may be organized under the Florida
Business Corporation Act.
ARTICLE VII
-----------
The Corporation's existence shall begin on the date that these Articles of
Incorporation are filed with the Florida Department of State, Division of
Corporations.
The undersigned incorporator has executed these Articles of Incorporation this
2nd day of June, 1997.
/s/ Scott P. Slykas
-----------------------------
Scott P. Slykas, Incorporator
2
<PAGE>
CERTIFICATE OF DESIGNATION OF
REGISTERED AGENT/REGISTERED OFFICE
PURSUANT TO THE PROVISIONS OF SECTION 607.0501, FLORIDA STATUTES, THE
UNDERSIGNED CORPORATION, ORGANIZED UNDER THE LAWS OF THE STATE OF FLORIDA,
SUBMITS THE FOLLOWING STATEMENT IN DESIGNATING THE REGISTERED OFFICE/REGISTERED
AGENT, IN THE STATE OF FLORIDA.
1. The name of the corporation is: Terrace Produce, Inc.
2. The name and address of the registered agent and office is:
Jonathan Lasko
c/o Terrace Holdings, Inc.
2699 Stirling Road
Suite C405
Fort Lauderdale, FL 33312
Having been named as registered agent and to accept service of process for the
above-named corporation at the place designated in these Articles of
Incorporation, I hereby accept the appointment as registered agent and agree to
act in this capacity. I further agree to comply with the provisions of all
statutes relating to the proper and complete performance of my duties, and I
am familiar with and accept the obligations of my position as registered agent.
By: /s/ Jonathan Lasko
-------------------------
Jonathan Lasko
Dated this 2nd day of June, 1997.
DIVISION OF CORPORATIONS, P.O. BOX 6327, TALLAHASSEE, FL 32314
<PAGE>
ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF
TERRACE PRODUCE, INC.
Pursuant to the provisions of section 607.1006, Florida Statutes, this Florida
profit corporation adopts the following articles of amendment to its articles of
incorporation:
FIRST: ARTICLE I of the Articles of Incorporation of Terrace Produce, Inc. is
---------
hereby amended to read as follows:
"The name of the corporation is A-One-A Produce & Provisions, Inc.
(the "Corporation")."
SECOND: The date of adoption of this amendment is July 14, 1997.
THIRD: The amendment was approved by the board of directors without
shareholder action as shareholder action was not required.
Signed this 14th day of July, 1997. By: /s/ Jonathan S. Lasko
----------------------------
Jonathan S. Lasko, President
<PAGE>
BY-LAWS
-------
OF
--
A-ONE-A PRODUCE & PROVISIONS, INC.
----------------------------------
a Corporation of the State of Florida
-------------------------------------
ARTICLE I
---------
OFFICES
-------
SECTION 1.1 Florida Registered Office. The corporation shall
-------------------------
continuously maintain in the State of Florida a registered office and registered
agent whose office is identical with such registered office.
SECTION 1.2 Other Offices. The corporation may have other offices within
-------------
and without the State of Florida.
ARTICLE II
----------
SHAREHOLDERS
------------
SECTION 2.1 Annual Meeting. An annual meeting of the shareholders shall
--------------
be held each year for the purpose of electing directors and for the transaction
of such other business as may come before the meeting. The time and place of the
meeting shall be designated by the board of directors.
SECTION 2.2 Special Meetings. Special meetings of the shareholders, for
----------------
any purpose or purposes, may be called either by the president, the board of
directors or by the holders of not less than one-tenth of all outstanding shares
of the corporation, entitled to vote on the matter for which the meeting is
called for the purpose or purposes stated in the call of the meeting.
SECTION 2.3 Place of Meeting. The board of directors may designate any
----------------
place, either within or without the State of Florida, the place of meeting for
any annual meeting or for any special meeting of the shareholders. If no
designation is made, the place of meeting shall be at the main offices of the
corporation.
SECTION 2.4 Action by Shareholders Without a Meeting. Unless otherwise
----------------------------------------
specified in the corporation's articles of incorporation, any action required or
permitted to be taken at a meeting of the shareholders may be taken without a
meeting, without prior notice, and without a vote if the action is taken by the
holders of the outstanding shares of each voting group entitled to vote on it
having not less than the minimum number of votes with respect to each voting
group that would be necessary to authorize or take such action at a meeting at
which all voting groups and shares
<PAGE>
entitled to vote were present and voted. In order to be effective, the action(s)
must be evidenced by one or more written consents describing the action(s)
taken, dated and signed by approving shareholders having the requisite number of
votes of each voting group entitled to vote, and delivered to the corporation at
its principal office in Florida or its principal place of business, or to the
corporation's Secretary or to any other office or agent of the corporation
having custody of the book in which the proceedings of meetings of shareholders
are recorded. No written consent shall be effective to take corporate action
unless, within 60 days of the date of the earliest dated consent delivered in
the manner required by this Section 2.4, written consents signed by the number
of holders required to take action are also delivered to the corporation.
Any written consent may be revoked before the date the corporation receives
the number of consents to authorize the proposed action(s). No revocation is
effective unless it is in writing and is received by the corporation as set
forth in this Section 2.4.
Within ten (10) days after obtaining authorization by written consent,
notice must be given to those shareholders who have not consented in writing or
who or not entitled to vote on the action. The notice shall fairly summarize the
material features of the authorized action and, if the action is one for which
dissenters' rights are provided under the articles of incorporation or by law,
the notice shall contain a clear statement of the right of shareholders
dissenting there from to be paid the fair value of their shares upon compliance
with applicable law.
A consent signed as required by this section has the effect of a meeting
vote and may be described as such in any document.
Whenever action is taken as provided in this section, the written consent
of the shareholders consenting or the written reports of inspectors appointed to
tabulate such consents shall be filed with the minutes of proceedings of
shareholders.
SECTION 2.5 Notice of Meetings. Except as provided in Chapter 607 of the
------------------
Florida Business Corporation Act, written notice stating the place, date and
hour of the meeting, and in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
(10) nor more than sixty (60) days before the date of the meeting, either
personally or by first-class mail (if said notice is mailed more than thirty
(30) days prior to the meeting, such notice may be mailed by a class of U.S.
mail other than first class) by or at the direction of the president, or the
secretary, or the officer or persons calling the meeting, to each shareholder of
record entitled to vote at such meeting. If mailed, such notice shall be deemed
to be delivered when deposited with the United States Postal Service, addressed
to the shareholder at his address as it appears on the records of the
corporation, with postage thereon prepaid. When a meeting is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken. If, however, after the adjournment the board of directors fixes a new
record date for the adjourned meeting, a notice of the adjourned meeting shall
be given as provided in this section to each shareholder of record on the new
record date entitled to vote at such meeting.
2
<PAGE>
SECTION 2.6 Waiver of Notice of Meeting. Whenever any notice is required
---------------------------
to be given to any shareholder, a waiver in writing signed by the person or
persons entitled to such notice, whether signed before, during, or after the
time of the meeting and delivered to the corporation for inclusion in the
minutes in the minutes or filing with the corporate records, shall be equivalent
to the giving of such notice. Attendance of a person at meeting shall constitute
a waiver of (i) lack of or a defective notice of the meeting , unless the person
objects at the beginning of the meeting to the holding of the meeting or the
transacting of any business at the meeting or (ii) lack of defective notice of a
particular matter at a meeting that is not within the purpose or purposes
described in the meeting notice, unless that person objects to considering the
matter when it is presented.
SECTION 2.7 Fixing of Record Date. For the purpose of determining the
---------------------
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or to receive payment of any dividend, or any rights in
respect of any change, conversion or exchange of shares or for the purpose of
any other lawful action, the board of directors of the corporation may fix in
advance a record date which shall not be more than seventy (70) immediately
preceding the date of such meeting or any other action. A determination of
shareholders of record entitled to notice of, or to vote at, a meeting of
shareholders shall apply to any adjournment of the meeting unless the board of
directors fixes a new record date, which it must do if the meeting is adjourned
to a date more than 120 days after the date fixed for the original meeting. If
no prior action is required by the board of directors, the record date for
determining shareholders entitled to take action without a meeting is the date
the first signed written consent is delivered to the corporation under Section
2.4 of these by-laws.
SECTION 2.8 Voting Lists. The officer or agent having charge of the
------------
transfer books for shares of the corporation shall make a complete list of the
shareholders entitled to vote at such meeting, arranged in alphabetical order,
showing the address of and the number of shares registered in the name of the
shareholder, and such list shall be available for inspection for a period of ten
(10) days prior to such meeting, or such shorter time as exists between the
record date and the meeting, and continuing through the date of the meeting. The
list shall be kept on file at the registered office of the corporation, or at
the office of the corporation's transfer agent or registrar, and shall,
subsequent to submission of a written request, be open to inspection by any
shareholder, or designated agent for any shareholder, for any purpose germane to
the meeting, at any time during usual business hours at the shareholder's
expense during the aforementioned period. Such list shall also be produced and
kept open at the time and place of the meeting and may be inspected by any
shareholder during the whole time of the meeting or any adjournment of said
meeting thereof. The shareholder's list shall be prima facie evidence as to who
are the shareholders entitled to examine such list or to vote at any meeting of
shareholders.
SECTION 2.9 Voting per Share. Except as otherwise provided in the
----------------
corporation's Articles of Incorporation, these by-laws or Section 607.0721 of
the Florida Business Corporation Act, each outstanding share, regardless of
class, shall be entitled to one vote upon each matter submitted to vote at a
meeting of shareholders.
3
<PAGE>
SECTION 2.10 Voting of Shares. A shareholder may vote at any meeting of
----------------
shareholders of the corporation, either in person or by proxy.
Shares standing in the name of another corporation, domestic or foreign,
may be voted by such officer, agent, or proxy as its by-laws of such corporation
may prescribe, or, in the absence of such provision, as the board of directors
of such corporation may determine and under the law of incorporation of such
corporation. In the absence of any such designation or, in the case of
conflicting designation by the corporate shareholder(s), the chairman of the
board of directors, the president, any vice-president, the secretary, and the
treasurer of the corporate shareholder, in that order, shall be presumed to be
fully authorized to vote the shares.
(a) Shares standing in the name of a deceased person, a minor ward or
an incompetent person, may be voted by his administrator, executor, court
appointed guardian, or conservator, either in person or by proxy without a
transfer of such shares in the name of such administrator, executor, court
appointed guardian, or conservator. Shares standing in the name of a
trustee may be voted by him, either in person or by proxy, but no trustee
shall be entitled to vote shares held by him or her without transfer of
such shares into his or her name or the name of his or her nominee.
(b) Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be
voted by such receiver without the transfer thereof into his name if
authority so to do be contained in an appropriate order of the court by
which such receiver was appointed.
(c) A shareholder whose shares are pledged shall be entitled to vote
such shares until the shares have been transferred into the name of the
pledgee, and thereafter the pledgee shall be entitled to vote the shares so
transferred.
(d) If shares stand of record in the names of two or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in
common, tenants by their entirety, or otherwise, or if two or more persons
have the same fiduciary relationship respecting the same shares, unless the
secretary of the corporation is given notice to the contrary and furnished
with a copy of the instrument or order approving them or creating the
relationship wherein it is so provided, then acts with respect to voting
shall have the following effect: (i) if only one votes, in person or by
proxy, that act binds all; (ii) if more than one vote, in person or by
proxy, the act of the majority so voting binds all; (iii) if more than one
votes, in person or by proxy, but the vote is evenly split on any
particular matter, each faction is entitled to vote the share or shares in
question proportionally; or (iv) if the instrument or order so filed shows
that any such tenancy is held in unequal interest, a majority or a vote
evenly split for purposes hereof shall be a majority or a vote evenly split
in interest. The principles of this paragraph shall apply, insofar as
possible, to execution of proxies, waivers, consents, or objections and for
the purpose of ascertaining the presence of a quorum.
4
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SECTION 2.11 Cumulative Voting. Each shareholder who is entitled to vote
-----------------
at an election of directors has the right to vote the number of shares held by
him or her for as many persons as there are directors to be elected and for
whose election he or she has a right to vote. Shareholders do not have the right
to cumulate their votes unless the articles of incorporation so provide.
SECTION 2.12 Proxies. Each shareholder entitled to vote at a meeting of
-------
shareholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy by signing an appointment form, or an equivalent reproduction of an
appointment form, or a executed telegram or cablegram, and delivering it to the
person so appointed, but no such proxy shall be valid after eleven months from
the date of its execution, unless otherwise provided in the proxy.
The death or incapacity of the shareholder appointing a proxy does not
affect the right of the corporation to accept the proxy's authority unless
notice of the death or incapacity is received by the secretary or other officer
or agent of the corporation designated to tabulate votes before the proxy
exercises authority under the appointment.
An appointment of a proxy is revocable by the shareholder unless the
appointment form conspicuously states that it is irrevocable and the appointment
is coupled with an interest.
SECTION 2.13 Quorum. Shares entitled to vote as a separate voting group
------
may take action on a matter at a meeting only if a quorum of those shares exists
with respect to that matter. Except as otherwise provided in the corporation's
articles of incorporation or by law, the holders of a majority of the
outstanding shares of the corporation entitled to vote on the matter by each
voting group, present in person or represented by proxy, shall constitute a
quorum at any meeting of shareholders, but in no event shall a quorum consist of
less than one third of the shares of each voting group entitled to vote. If less
than a majority of the outstanding shares entitled to vote are represented at
said meeting, a majority of the shares so represented may adjourn the meeting at
any time without further notice. After a quorum has been established at any
shareholders' meeting, the subsequent withdrawal of shareholders, so as to
reduce the number of shares entitled to vote at the meeting required for a
quorum, shall not affect the validity of any action taken at the meeting or any
adjournment thereof.
Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
SECTION 2.14 Manner of Action. If a quorum is present, action on a matter
----------------
(other than the election of directors) by a voting group is approved if the
votes cast within the voting group favoring the action exceed the votes cast
opposing the action, unless a greater or lesser number of affirmative votes is
required by the corporation's articles of incorporation or by law.
5
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SECTION 2.15 Voting for Directors. Unless otherwise provided in the
--------------------
corporation's articles of incorporation, directors will be elected by a
plurality of votes cast by the shares entitled to vote in the election at a
meeting at which a quorum is present.
SECTION 2.16 Inspectors of Election. At any meeting of shareholders, the
----------------------
chairman of the meeting may, or upon request of any shareholder shall, appoint
one or more persons as inspectors for such meeting. Upon appointment, each
inspector shall take and sign an oath faithfully to execute the duties of
inspector at a meeting with strict impartiality and to the best of his or her
ability. Such inspectors shall ascertain and report the number of shares
represented at the meeting, based upon their determination of the validity and
effect of proxies, and determine if a quorum is present; count all votes and
report the results; and do such other acts as are proper to conduct the election
and voting with impartiality and fairness to all the shareholders.
ARTICLE III
-----------
DIRECTORS
---------
SECTION 3.1 General Powers. Except as provided in the corporations's
--------------
articles of incorporation or by law, the business and affairs of the corporation
shall be managed by, or under the direction of, its board of directors.
SECTION 3.2 Number, Tenure and Qualifications. The number of directors
---------------------------------
of the corporation shall be not less than one (1) and not more than six (6).
Each director shall hold office until the next annual meeting of shareholders,
thereafter, until his successor shall have been elected, or until an earlier
resignation, removal from office or death. A director must be a natural person
of at least 18 years of age, but directors need not be citizens of the USA or
the State of Florida nor need they be shareholders of the corporation. The
number of directors may be increased or decreased from time to time by the
amendment of this section by action of either the shareholders or the board of
directors, but no decrease shall have the effect of shortening the term of any
incumbent director. A director may resign at any time by giving written notice
to the board of directors, its chairman, or to the president or secretary of the
corporation. A resignation is effective when the notice is given unless the
notice specifies a future date. The pending vacancy may be filled before the
effective date, but the successor shall not take office until the effective
date.
SECTION 3.3 Quorum. A majority of the number of directors fixed by
------
these by-laws shall constitute a quorum for transaction of business at any
meeting of the Board of Directors, provided that if less than a majority of such
number of directors are present at said meeting, a majority of the directors
present may adjourn the meeting at any time without further notice, and provided
further that whenever, for any reason, a vacancy occurs on the Board of
Directors, a quorum shall consist of the majority of the remaining directors
until the vacancy has been filled.
SECTION 3.4 Manner of Acting. The act of the majority of the directors
----------------
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, unless the act of a greater number is required by statute, these
by-laws, or the articles of incorporation.
6
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SECTION 3.5 Regular Meetings. A regular meeting of the board of
----------------
directors shall be held without other notice than this by-law, immediately after
the annual meeting of shareholders. The Board of Directors may provide, by
resolution, the time and place, either within or without the State of Florida,
for holding of additional regular meetings without other notice than such
resolution.
SECTION 3.6 Special Meetings. Special meetings of the board of directors
----------------
may be called by or at the request of the president, the chairman of the board,
or any one or more directors. The person or persons authorized to call special
meetings of the board of directors may fix any place as the place for holding
any special meeting of the board of directors called by them. Notice of any
special meeting shall be given at least two (2) days previous thereto by written
notice or orally (in person or by telephone) to each director at his business
address, provided such notice is deemed to be a reasonable time before said
meeting in light of all pertinent circumstances. If mailed, such notice shall be
deemed to be delivered when deposited with the United States Postal Service so
addressed, with postage thereon prepaid. If notice be given by telegram, such
notice shall be deemed to be delivered when the telegram is delivered to the
telegram company. The attendance of a director at any meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Notice of a meeting of the board of
directors need not be given to any director who signs a written waiver of notice
before, during or after the meeting. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the board of directors
need be specified in the notice or waiver of notice of such meeting.
SECTION 3.7 Meetings by Means of Telephone Conference Call or Other
-------------------------------------------------------
Audio/Visual Equipment. Directors of the corporation may participate in meetings
- ----------------------
of its board of directors by means of a telephone conference call or via other
audio/visual equipment provided all participants in said meeting can hear each
other at the same time. Such participation constitutes presence at said meeting.
SECTION 3.8 Vacancies. Any vacancy occurring in the board of
---------
directors and any directorship to be filled by reason of an increase in the
number of directors, may be filled by (1) election at an annual meeting or at a
special meeting of shareholders or (2) by a majority, though less than a quorum,
of the directors remaining. A director elected by the shareholders to fill a
vacancy shall hold office for the balance of the term for which he or she was
elected. A director appointed to fill a vacancy shall serve until the next
meeting of shareholders at which directors are to be elected.
SECTION 3.9 Removal of Directors. One or more of the directors may be
--------------------
removed, with or without cause, at a meeting of shareholders by the affirmative
vote of the holders of a majority of the outstanding shares then entitled to
vote at an election of directors, unless the articles of incorporation provide
the directors may be removed only for cause.:
7
<PAGE>
(a) No director shall be removed at a meeting of shareholders unless
the notice of such meeting shall state that a purpose of the meeting is to
vote upon the removal of one or more directors named in the notice. Only
the named director or directors may be removed at such meeting.
(b) If cumulative voting is authorized, a director may not be removed
if the number of votes sufficient to elect him or her under cumulative
voting is voted against his removal. If cumulative voting is not
authorized, a director may be removed only if the number of votes cast to
remove him or her exceeds the number of votes cast not to remove him or
her.
(c) If a director is elected by a class or series of shares, he or
she may be removed only by the shareholders of that class or series.
SECTION 3.10 Executive Committees. The board of directors, by resolution
--------------------
adopted by a majority of the number of directors fixed by the by-laws or
otherwise, may designate two or more directors to constitute an executive
committee, and one or more other committees, which committee(s), to the extent
provided in such resolution, shall have and exercise all of the authority of the
board of directors in the management of the corporation, except as otherwise
required by law. Vacancies in the membership of the committee shall be filled by
the board of directors at a regular or special meeting of the board of
directors. The executive committee shall keep regular minutes of its proceedings
and report the same to the board when required.
SECTION 3.11 Action Without a Meeting. Unless specifically prohibited by
------------------------
the articles of incorporation or these by-laws, any action required to be taken
at a meeting of the board of directors, or any other action which may be taken
at a meeting of the board of directors, or of any committee thereof, may be
taken without a meeting if a consent in writing, setting forth the action so
taken, shall be signed by all the directors entitled to vote with respect to the
subject matter thereof, or by all the members of such committee, as the case may
be. Any such consent signed by all the directors or all the members of the
committee shall have the same effect as a unanimous vote. Any action taken by
consent is effective when the last director or committee member executes the
consent, unless the consent specifies a different effective date.
SECTION 3.12 Compensation. The board of directors, by the affirmative
------------
vote of a majority of directors then in office, and irrespective of any personal
interest of any of its members, shall have authority to establish reasonable
compensation of all directors for services to the corporation as directors,
officers, or otherwise. By resolution of the board of directors, the directors
may be paid their expenses, if any, of attendance at each meeting of the board.
No such payment previously mentioned in this section shall preclude any director
from serving the corporation in any other capacity and receiving compensation
therefor.
SECTION 3.13 Presumption of Assent. A director of the corporation who is
---------------------
present at a meeting of the board of directors at which action on any corporate
matter is taken shall be conclusively presumed to have assented to the action
taken unless he or she has objects at the beginning of the meeting (or promptly
at his or her arrival at the meeting) to holding the meeting
8
<PAGE>
and/or transacting the specified business at the meeting, or he or she votes
against or abstains from voting regarding the action taken.
ARTICLE IV
----------
OFFICERS
--------
SECTION 4.1 Number. The officers of the corporation shall be a chairman
------
of the board, a president, a secretary, a treasurer, if desired, any number of
vice presidents, treasurers, assistant treasurers, assistant secretaries or
other officers as may be elected by the board of directors. Any two or more
offices may be held by the same person.
SECTION 4.2 Election and Term of Office. The officers of the corporation
---------------------------
shall be elected or appointed annually by the board of directors at the first
meeting of the board of directors held after each annual meeting of
shareholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as conveniently may be. Vacancies
may be filled or new offices created and filled at any meeting of the board of
directors. Each officer shall hold office until his successor shall have been
duly elected and shall have qualified or until his death or until he shall
resign or shall have been removed in the manner hereinafter provided. Election
of an officer shall not of itself create contract rights.
SECTION 4.3 Resignation. Any officer of the corporation may resign from
-----------
his or her respective office or position by delivering notice to the
corporation. The resignation is effective unless the notice specifies a later
effective date. If a resignation is made effective at a later date and the
corporation accepts the future effective date, the board of directors may fill
the pending vacancy before the effective date if the board of directors provides
that the successor does not take office until the effective date.
SECTION 4.4 Removal. Any officer elected or appointed by the board of
-------
directors may be removed by the board of directors, with or without cause, at
any time. Any officer appointed by another officer may be removed by that
officer, with or without cause.
SECTION 4.5 President. The president shall be the principal executive
---------
officer of the corporation. Subject to the direction and control of the board of
directors, he shall be in charge of the business of the corporation; he shall
see that the resolutions and directions of the board of directors are carried
into effect except in those instances in which that responsibility is
specifically assigned to some other person by the board of directors; and, in
general, he shall discharge all duties incident to the office of president and
such other duties as may be prescribed by the board of directors from time to
time. He shall preside at all meetings of the shareholders and of the board of
directors. Except in those instances in which the authority to execute is
expressly delegated to another officer or agent of the corporation or a
different mode of execution is expressly prescribed by the board of directors or
these by-laws, he may execute for the corporation certificates for its shares,
and any contracts, deeds, mortgages, bonds, or other instruments which the board
of directors has authorized to be executed, and he may accomplish such execution
either under or without the
9
<PAGE>
seal of the corporation and either individually or with the secretary, any
assistant secretary, or any other officer thereunto authorized by the board of
directors, according to the requirements of the form of the instrument. He may
vote all securities which the corporation is entitled to vote except as and to
the extent such authority shall be vested in a different officer or agent of the
corporation by the board of directors.
SECTION 4.5 The Vice-President. The vice-president (or in the event
------------------
there be more than one vice-president, each of the vice-presidents) shall assist
the president in the discharge of his duties as the president may direct and
shall perform such other duties as from time to time may be assigned to him by
the president or by the board of directors. In the absence of the president or
in the event of his inability or refusal to act, the vice-president (or in the
event there be more than one vice-president, the vice-presidents in the order
designated by the board of directors, or by the president if the board of
directors has not made such a designation, or in the absence of any designation,
then in the order of seniority of tenure as vice-president) shall perform the
duties of the president, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the president. Except in those instances in
which the authority to execute is expressly delegated to another officer or
agent of the corporation or a different mode of execution is expressly
prescribed by the board of directors or these by-laws, the vice-president (or
each of them if thee are more than one) may execute for the corporation
certificates for its shares and any contracts, deeds, mortgages, bonds or other
instruments which the board of directors has authorized to be executed, and he
may accomplish such execution either under or without the seal of the
corporation and either individually or with the secretary, any assistant
secretary, or any other officer thereunto authorized by the board of directors,
according to the requirements of the form of the instrument.
SECTION 4.6 The Treasurer. The treasurer shall be the principal
-------------
accounting and financial officer of the corporation. He shall:
(a) have charge of and be responsible for the maintenance of adequate
books of account for the corporation;
(b) have charge and custody of all funds and securities of the
corporation, and be responsible therefore and for the receipt and
disbursement thereof; and
(c) perform all the duties incident to the office of treasurer and
such other duties as from time to time may be assigned to him by the
president or by the board of directors.
If required by the board of directors, the treasurer shall give a bond for
the faithful discharge of his duties in such sum and with such surety or
sureties as the board of directors may determine.
SECTION 4.7 The Secretary. The secretary shall:
-------------
(a) record the minutes of the shareholders' and of the board of
directors' meetings in one or more books provided for that purpose;
10
<PAGE>
(b) see that all notices are duly given in accordance with the
provisions of these by-laws or as required by law;
(c) be custodian of the corporate records and of the seal of the
corporation;
(d) keep a register of the post-office address of each shareholder
which shall be furnished to the secretary by such shareholder;
(e) sign with the president, or a vice-president, or any other
officer thereunto authorized by the board of directors, certificates for
shares of the corporation, the issue of which shall have been authorized by
the board of directors, and any contracts, deeds, mortgages, bonds, or
other instruments which the board of directors has authorized to be
executed, according to the requirements of the form of the instrument,
except when a different mode of execution is expressly prescribed by the
board of directors or these by-laws;
(f) otherwise certify that by-laws, resolutions of the shareholders
and board of directors and committees thereof, and other documents of the
corporation as true and correct copies thereof;
(g) have general charge of the stock transfer books of the
corporation; and
(h) perform all duties incident to the office of secretary and such
other duties as from time to time may be assigned to him or her by the
president or by the board of directors.
SECTION 4.8 Assistant Treasurers and Assistant Secretaries. The
----------------------------------------------
assistant treasurers and assistant secretaries shall perform such duties as
shall be assigned to them by the treasurer or the secretary, respectively, or by
the president or the board of directors. The assistant secretaries may sign with
the president, or a vice-president, or any other officer thereunto authorized by
the board of directors, certificates for shares of the corporation, the issue of
which shall have been authorized by the board of directors, and any contracts,
deeds, mortgages, bonds, or other instruments which the board of directors has
authorized to be executed, according to the requirements of the form of the
instrument, except when a different mode of execution is expressly prescribed by
the board of directors or these by-laws. The assistant treasurers shall
respectively, if required by the board of directors, give bonds for the faithful
discharge of their duties in such sums and with such sureties as the board of
directors shall determine.
SECTION 4.9 Salaries. The salaries of the officers shall be fixed from
--------
time to time by the board of directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
corporation.
ARTICLE V
---------
CONTRACTS, LOANS, CHECKS AND DEPOSITS
-------------------------------------
11
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SECTION 5.1 Contracts. The board of directors may authorize any officer
---------
or officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.
SECTION 5.2 Loans. No loans shall be contracted on behalf of the
-----
corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the board of directors. Such authority may be
general or confined to specific instances.
SECTION 5.3 Checks, Drafts, etc. All checks, drafts or other orders for
--------------------
the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation, shall be signed by such officer or officers, agent or
agents of the corporation and in such manner as shall from time to time be
determined by resolution of the board of directors.
SECTION 5.4 Deposits. All funds of the corporation not otherwise
--------
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies or other depositories as the board of directors
may select.
ARTICLE VI
----------
CERTIFICATES FOR SHARES AND THEIR TRANSFER
------------------------------------------
SECTION 6.1 Certificates for Shares. The board of directors of the
-----------------------
corporation shall determine whether the corporation's shares shall be
certificated or uncertificated. Certificates representing shares of the
corporation shall be signed by the president or a vice-president or by such
officer as shall be designated by resolution of the board of directors and by
the secretary or an assistant secretary, and may be sealed with the seal or a
facsimile of the seal of the corporation. Each certificate representing shares
shall be consecutively numbered or otherwise identified, and shall also state
the name of the person to whom issued, the number and class of shares (with
designation of series, if any), the date of issue, that the corporation is
organized under Florida law, and the par value or a statement that the shares
are without par value. If the corporation is authorized and does issue shares of
more than one class or of series within a class, the certificate shall also
contain such information or statement as may be required by law. The name and
address of each shareholder, the number and class of shares held and the date on
which the certificates for the shares were issued shall be entered on the books
of the corporation. The person in whose name shares stand on the books of the
corporation shall be deemed the owner thereof for all purposes as regard the
corporation.
SECTION 6.2 Lost Certificates. If a certificate representing shares has
-----------------
allegedly been lost or destroyed the board of directors may in its discretion,
except as may be required by law, direct that a new certificate be issued upon
such indemnification and other reasonable requirements as it may impose.
SECTION 6.3 Transfers of Shares. Transfers of shares of the corporation
-------------------
shall be recorded on the books of the corporation and, except in the case of a
lost or destroyed certificate, on surrender for cancellation of the certificate
for such shares. A certificate presented for transfer must
12
<PAGE>
be duly endorsed and accompanied by proper guaranty of signature and other
appropriate assurances that the endorsement is effective.
ARTICLE VII
-----------
FISCAL YEAR
-----------
SECTION 7.1 Resolution of Directors. The fiscal year of the corporation
-----------------------
shall be fixed by resolution of the board of directors from time to time.
ARTICLE VIII
------------
DIVIDENDS
---------
SECTION 8.1 Declared by Directors. The board of directors may from time
---------------------
to time declare, and the corporation may pay, dividends on its outstanding
shares in the manner and upon the terms and conditions provided by law and its
articles of incorporation.
ARTICLE IX
----------
SEAL
----
SECTION 9.1 Corporate Seal. The corporate seal, if any, shall have
--------------
inscribed thereon the name of the corporation, the year of its incorporation,
and the words "Corporate Seal, Florida. The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any manner reproduced.
ARTICLE X
---------
AMENDMENTS
----------
SECTION 10.1 Amendments to the Corporate By-Laws. These by-laws may be
-----------------------------------
amended, altered or repealed and new by-laws may be adopted by action of the
board of directors, subject to the limitations of the law. The shareholders of
the corporation may alter, amend or repeal these by-laws or adopt new by-laws
even though these by-laws may also be amended or repealed by the board of
directors.
ARTICLE XI
----------
INDEMNIFICATION OF OFFICERS,
----------------------------
DIRECTORS, EMPLOYEES AND AGENTS
-------------------------------
SECTION 12.1 Power to Hold Harmless. The corporation shall have the power
----------------------
to indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or
13
<PAGE>
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he or she is or was a director, officer, employee or
agent of the corporation, or who is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if such person acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination of
any action, suit or proceeding by judgment or settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
or she reasonably believed to be in or not opposed to the best interest of the
corporation, or with respect to any criminal action or proceeding, that the
person had reasonable cause to believe that his or her conduct was unlawful.
SECTION 12.2 Power to Indemnify Litigant. The corporation shall have
---------------------------
power to indemnify any person who was or is a party is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the corporation to procure a judgment in its favor by reason of the fact that
such person is or was a director, officer, employee or agent of the corporation,
of is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner he or
she reasonably believed to be in, or not opposed to the best interests of the
corporation, provided that no indemnification shall be made in respect of any
claim, issue or matter as to which such persons shall have been adjudged to be
liable for negligence or misconduct in the performance of his or her duty to the
corporation, unless, and only to the extent that the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses as the
court shall deem proper.
SECTION 12.3 Reimbursement Authorized. To the extent that a director,
------------------------
officer, employee, or agent of a corporation has been successful, on the merits
or otherwise, in defense of any action, suit or proceeding referred to Sections
12.1 and 12.2 above, or in defense of any claim, issue or matter therein, such
person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him or her in connection therewith.
SECTION 12.4 Determination if Reimbursement is Proper. Any
----------------------------------------
indemnification under Sections 12.1 and 12.2 above (unless ordered by a court)
shall be made by the corporation only as authorized in the specific case, upon a
determination that indemnification of a director, officer, employee or agent is
proper in the circumstances because he or she has met the applicable standard of
conduct set forth in Section 12.1 or 12.2 above. Such determination shall be
made:
(a) by the board of directors by a majority of a quorum consisting of
directors who were not parties to such action, suit or proceeding;
14
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(b) if such a quorum is not obtainable, or, even if obtainable, by
majority vote of a committee duly designated by the board of directors (in
which directors who are parties may participate) consisting solely of two
or more directors not at the time parties to the proceeding;
(c) by independent legal counsel selected either by the board of
directors as prescribed in paragraph (a) above or by the committee as
prescribed in paragraph (b) above, or, if a quorum of the directors can not
be obtained under paragraph (a) and a committee can not be designated under
paragraph (b), then selected by majority vote of the full board of
directors (including directors who are parties to said action); or
(d) by the shareholders by a majority vote of a quorum consisting of
shareholders who were not parties to such proceeding or, if no quorum is
obtainable, by a majority vote of shareholders who were not parties to such
proceeding.
SECTION 12.5 Advancement of Expenses. Evaluation of the reasonableness
-----------------------
of expenses and authorization of indemnification shall be made in the same
manner as the determination that indemnification is permissible. However, if the
determination of permissibility is made by independent legal counsel, persons
specified by paragraph 4(c) shall evaluate the reasonableness of expenses and
may authorize indemnification.
Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the corporation in advance of the final disposition of
such action, suit or proceeding, as authorized by the board of directors in the
specific case, upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount, unless it shall ultimately be
determined that he or she is entitled to be indemnified by the corporation as
authorized in this Article.
SECTION 12.6 Court-Ordered Indemnification and Advancement of Expenses.
---------------------------------------------------------
Unless the corporation's articles of incorporation provide otherwise,
notwithstanding the corporation's failure to provide indemnification, and
despite any contrary determination of the board of directors or of the
shareholders in a specific case, a director, officer, employee, or agent of the
corporation who is or was a party to any proceeding may apply for
indemnification or advancement of expenses, or both, to the court conducting the
proceeding, to the circuit court, or to another court of competent jurisdiction.
On receipt of an application, the court, after giving notice that it considers
necessary, may order indemnification and advancement of expenses, including
expenses incurred in seeking court-ordered indemnification or advancement of
expenses, if it determines that:
(a) The director, officer, employee, or agent is entitled to
mandatory indemnification under Section 12.3, in which case the court shall
also order the corporation to pay the director reasonable expenses incurred
in obtaining court-ordered indemnification or advancement of expenses;
(b) The director, officer, employee or agent is entitled to
indemnification or advancement of expenses, or both, by virtue of the
exercise by the corporation of its power pursuant to Section 12.7; or
15
<PAGE>
(c) The director, officer, employee, or agent is fairly and
reasonably entitled to indemnification or advancement of expenses, or both,
in view of all of the relevent circumstances, regardless of whether such
person met the standard of conduct set forth in Section 12.1, 12.2 or 12.7
SECTION 12.7 Non-Exclusivity. The indemnification provided by this
---------------
article shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any contract, agreement, vote of shareholders
or disinterested directors, or otherwise, both as to action in his or her
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
However, indemnification or advancement of expenses shall not be made to or
on behalf of any director, officer, employee or agent if a judgment or other
final adjudication establishes that his actions, or omissions to act, were
material to the cause of action so adjudicated and constitute:
(a) A violation of criminal law, unless the director, officer or
employee, or agent had reasonable cause to believe his conduct was lawful
or had no reasonable cause to believe his conduct was lawful or had no
reasonable cause to believe his conduct was unlawful;
(b) A transaction from which the director, officer, employee or agent
derived an improper personal benefit;
(c) In the case of a director, a circumstance under which the
liability provisions of Florida Statute 607.0834 are applicable; or
(d) Willful misconduct or a conscious disregard for the best
interests of the corporation in a proceeding by or in the right of the
corporation to procure a judgment in its favor or in a proceeding by or in
the right of a shareholder.
SECTION 12.8 Right to Acquire Insurance. The corporation shall have
--------------------------
power to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation, as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him or her against such liability
under the provisions of this Article.
SECTION 12.9 Notice of Shareholders. If a corporation has paid indemnity
----------------------
or has advanced expenses to a director, officer, employee or agent, the
corporation shall report the indemnification or advance in writing to the
shareholders with or before the notice of the next shareholders meeting.
16
<PAGE>
SECTION 12.10 "Corporation"; Definition. For purposes of this Article,
-------------------------
references to "the corporation" shall include, in addition to the surviving
corporation, any merging corporation (including any corporation having merged
with a merging corporation) absorbed in a merger which, if its separate
existence had continued, would have had the power and authority to indemnify its
directors, officers, and employees or agents, so that any person who was a
director, officer, employee or agent of such merging corporation, or was serving
at the request of such merging corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this
Article with respect to the surviving corporation as such person would have with
respect to such merging corporation if its separate existence had continued.
SECTION 12.11 Miscellaneous Definitions. For purposes of this Article,
-------------------------
references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving at the request
of the corporation" shall include any services as a director, officer, employee
or agent of the corporation which imposes duties on, or involves services by
such director, officer, employee, or agent with respect to an employee benefit
plan, its participants, or beneficiaries. A person who acted in good faith and
in a manner he or she reasonably believed to be in the best interests of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interest of the corporation" as
referred to in this Article. The term "expenses" includes counsel fees,
including those for appeal. The term "agent" includes volunteers. The term
"proceeding" includes any threatened, pending, or completed action, suit, or
other type of proceeding, whether, civil, criminal, administrative, or
investigative and whether formal or informal.
ARTICLE XIII
------------
REPAYMENT OF DISALLOWED DEDUCTION
---------------------------------
SECTION 13.1 Full Reimbursement by Officers. Any payments made to an
------------------------------
officer of the corporation such as salary, commission, bonus, interest, rent,
medical reimbursement or entertainment expense incurred by him which, for
Federal income tax purposes, shall be disallowed in whole or in part as a
deductible expense by the Internal Revenue Service, shall be reimbursed by such
officer to the corporation to the full extent of such disallowance.
SECTION 13.2 Security for Repayment. It shall be the duty of the
----------------------
directors, as a board, to enforce payment of such amount disallowed. In lieu of
payment by the officer, subject to the determination of the directors,
proportionate amounts may be withheld from his future compensation payments
until the amount owed to the corporation has been recovered.
17
<PAGE>
ARTICLES OF INCORPORATION
OF TERRACE FRESH, INC.
The undersigned, being an individual, does hereby act as incorporator in
adopting the following Articles of Incorporation for the purpose of organizing a
corporation for profit, pursuant to the provisions of the Florida Business
Corporation Act.
ARTICLE I
---------
The name of the corporation is Terrace Fresh, Inc. (the "Corporation").
ARTICLE II
----------
The street address and mailing address of the initial principal office of
the Corporation is:
2699 Stirling Road
Suite C-405
Fort Lauderdale, FL 33312
ARTICLE III
-----------
The number of shares that the Corporation is authorized to issue is 1,000,
all of which have no par value and are all common shares of the same series.
ARTICLE IV
----------
The name of the initial registered agent and the street address of the
initial registered office of the Corporation is as follows:
Agent: Jonathan Lasko
Office: c/o Terrace Holdings, Inc.
2699 Stirling Road
Ft. Lauderdale, Florida 33312
The written acceptance of said initial registered agent, as required by the
provisions of Section 607.0501(3) of the Florida Business Corporation Act, is
set forth following the signature and is made a part of these Articles of
Incorporation.
<PAGE>
ARTICLE V
---------
The name and address of the incorporator is:
Name: Scott P. Slykas
Address: Fishman & Merrick, P.C.
30 North LaSalle Street, Suite 3500
Chicago, IL 60602
ARTICLE VI
----------
The Corporation is organized for the purpose of transacting any and all
lawful business for which corporations may be organized under the Florida
Business Corporation Act.
ARTICLE VII
-----------
The Corporation's existence shall begin on the date that these Articles of
Incorporation are filed witht he Florida Department of State, Division of
Corporations.
The undersigned incorporator has executed these Articles of Incorporation this
2nd day of June, 1997.
/s/ Scott P. Slykas
-----------------------------
Scott P. Slykas, Incorporator
2
<PAGE>
CERTIFICATE OF DESIGNATION OF
REGISTERED AGENT/REGISTERED OFFICE
PURSUANT TO THE PROVISIONS OF SECTION 607.0501, FLORIDA STATUTES, THE
UNDERSIGNED CORPORATION, ORGANIZED UNDER THE LAWS OF THE STATE OF FLORIDA,
SUBMITS THE FOLLOWING STATEMENT IN DESIGNATING THE REGISTERED OFFICE/REGISTERED
AGENT, IN THE STATE OF FLORIDA.
1. The name of the corporation is: Terrace Fresh, Inc.
2. The name and address of the registered agent and office is:
Jonathan Lasko
c/o Terrace Holdings, Inc.
2699 Stirling Road
Suite C405
Fort Lauderdale, FL 33312
Having been named as registered agent and to accept service of process for the
above-named corporation at the place designated in these Articles of
Incorporation, I hereby accept the appointment as registered agent and agree to
act in this capacity. I further agree to comply with the provisions of all
statutes relating to the proper and complete performance of my duties, and I am
familiar with and accept the obligations of my position as registered agent.
By: /s/ Jonathan Lasko
-------------------
Jonathan Lasko
Dated this 2nd day of June, 1997.
DIVISION OF CORPORATIONS, P.O. BOX 6327, TALLAHASSEE, FL 32314
3
<PAGE>
BY-LAWS
-------
OF
--
TERRACE FRESH, INC.
-------------------
a Corporation of the State of Florida
-------------------------------------
ARTICLE I
---------
OFFICES
-------
SECTION 1.1 Florida Registered Office. The corporation shall
-------------------------
continuously maintain in the State of Florida a registered office and registered
agent whose office is identical with such registered office.
SECTION 1.2 Other Offices. The corporation may have other offices
-------------
within and without the State of Florida.
ARTICLE II
----------
SHAREHOLDERS
------------
SECTION 2.1 Annual Meeting. An annual meeting of the shareholders
--------------
shall be held each year for the purpose of electing directors and for the
transaction of such other business as may come before the meeting. The time and
place of the meeting shall be designated by the board of directors.
SECTION 2.2 Special Meetings. Special meetings of the shareholders, for
----------------
any purpose or purposes, may be called either by the president, the board of
directors or by the holders of not less than one-tenth of all outstanding shares
of the corporation, entitled to vote on the matter for which the meeting is
called for the purpose or purposes stated in the call of the meeting.
SECTION 2.3 Place of Meeting. The board of directors may designate any
----------------
place, either within or without the State of Florida, the place of meeting for
any annual meeting or for any special meeting of the shareholders. If no
designation is made, the place of meeting shall be at the main offices of the
corporation.
SECTION 2.4 Action by Shareholders Without a Meeting. Unless otherwise
----------------------------------------
specified in the corporation's articles of incorporation, any action required or
permitted to be taken at a meeting of the shareholders may be taken without a
meeting, without prior notice, and without a vote if the action is taken by the
holders of the outstanding shares of each voting group entitled to vote on it
having not less than the minimum number of votes with respect to each voting
group that would be necessary to authorize or take such action at a meeting at
which all voting groups and shares
<PAGE>
entitled to vote were present and voted. In order to be effective, the action(s)
must be evidenced by one or more written consents describing the action(s)
taken, dated and signed by approving shareholders having the requisite number of
votes of each voting group entitled to vote, and delivered to the corporation at
its principal office in Florida or its principal place of business, or to the
corporation's Secretary or to any other office or agent of the corporation
having custody of the book in which the proceedings of meetings of shareholders
are recorded. No written consent shall be effective to take corporate action
unless, within 60 days of the date of the earliest dated consent delivered in
the manner required by this Section 2.4, written consents signed by the number
of holders required to take action are also delivered to the corporation.
Any written consent may be revoked before the date the corporation receives
the number of consents to authorize the proposed action(s). No revocation is
effective unless it is in writing and is received by the corporation as set
forth in this Section 2.4.
Within ten (10) days after obtaining authorization by written consent,
notice must be given to those shareholders who have not consented in writing or
who or not entitled to vote on the action. The notice shall fairly summarize the
material features of the authorized action and, if the action is one for which
dissenters' rights are provided under the articles of incorporation or by law,
the notice shall contain a clear statement of the right of shareholders
dissenting there from to be paid the fair value of their shares upon compliance
with applicable law.
A consent signed as required by this section has the effect of a meeting
vote and may be described as such in any document.
Whenever action is taken as provided in this section, the written consent
of the shareholders consenting or the written reports of inspectors appointed to
tabulate such consents shall be filed with the minutes of proceedings of
shareholders.
SECTION 2.5 Notice of Meetings. Except as provided in Chapter 607 of the
------------------
Florida Business Corporation Act, written notice stating the place, date and
hour of the meeting, and in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
(10) nor more than sixty (60) days before the date of the meeting, either
personally or by first-class mail (if said notice is mailed more than thirty
(30) days prior to the meeting, such notice may be mailed by a class of U.S.
mail other than first class) by or at the direction of the president, or the
secretary, or the officer or persons calling the meeting, to each shareholder of
record entitled to vote at such meeting. If mailed, such notice shall be deemed
to be delivered when deposited with the United States Postal Service, addressed
to the shareholder at his address as it appears on the records of the
corporation, with postage thereon prepaid. When a meeting is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken. If, however, after the adjournment the board of directors fixes a new
record date for the adjourned meeting, a notice of the adjourned meeting shall
be given as provided in this section to each shareholder of record on the new
record date entitled to vote at such meeting.
2
<PAGE>
SECTION 2.6 Waiver of Notice of Meeting. Whenever any notice is required
---------------------------
to be given to any shareholder, a waiver in writing signed by the person or
persons entitled to such notice, whether signed before, during, or after the
time of the meeting and delivered to the corporation for inclusion in the
minutes in the minutes or filing with the corporate records, shall be equivalent
to the giving of such notice. Attendance of a person at meeting shall constitute
a waiver of (i) lack of or a defective notice of the meeting , unless the person
objects at the beginning of the meeting to the holding of the meeting or the
transacting of any business at the meeting or (ii) lack of defective notice of a
particular matter at a meeting that is not within the purpose or purposes
described in the meeting notice, unless that person objects to considering the
matter when it is presented.
SECTION 2.7 Fixing of Record Date. For the purpose of determining the
---------------------
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or to receive payment of any dividend, or any rights in
respect of any change, conversion or exchange of shares or for the purpose of
any other lawful action, the board of directors of the corporation may fix in
advance a record date which shall not be more than seventy (70) immediately
preceding the date of such meeting or any other action. A determination of
shareholders of record entitled to notice of, or to vote at, a meeting of
shareholders shall apply to any adjournment of the meeting unless the board of
directors fixes a new record date, which it must do if the meeting is adjourned
to a date more than 120 days after the date fixed for the original meeting. If
no prior action is required by the board of directors, the record date for
determining shareholders entitled to take action without a meeting is the date
the first signed written consent is delivered to the corporation under Section
2.4 of these by-laws.
SECTION 2.8 Voting Lists. The officer or agent having charge of the
------------
transfer books for shares of the corporation shall make a complete list of the
shareholders entitled to vote at such meeting, arranged in alphabetical order,
showing the address of and the number of shares registered in the name of the
shareholder, and such list shall be available for inspection for a period of ten
(10) days prior to such meeting, or such shorter time as exists between the
record date and the meeting, and continuing through the date of the meeting. The
list shall be kept on file at the registered office of the corporation, or at
the office of the corporation's transfer agent or registrar, and shall,
subsequent to submission of a written request, be open to inspection by any
shareholder, or designated agent for any shareholder, for any purpose germane to
the meeting, at any time during usual business hours at the shareholder's
expense during the aforementioned period. Such list shall also be produced and
kept open at the time and place of the meeting and may be inspected by any
shareholder during the whole time of the meeting or any adjournment of said
meeting thereof. The shareholder's list shall be prima facie evidence as to who
are the shareholders entitled to examine such list or to vote at any meeting of
shareholders.
SECTION 2.9 Voting per Share. Except as otherwise provided in the
----------------
corporation's Articles of Incorporation, these by-laws or Section 607.0721 of
the Florida Business Corporation Act, each outstanding share, regardless of
class, shall be entitled to one vote upon each matter submitted to vote at a
meeting of shareholders.
3
<PAGE>
SECTION 2.10 Voting of Shares. A shareholder may vote at any meeting of
----------------
shareholders of the corporation, either in person or by proxy.
Shares standing in the name of another corporation, domestic or foreign,
may be voted by such officer, agent, or proxy as its by-laws of such corporation
may prescribe, or, in the absence of such provision, as the board of directors
of such corporation may determine and under the law of incorporation of such
corporation. In the absence of any such designation or, in the case of
conflicting designation by the corporate shareholder(s), the chairman of the
board of directors, the president, any vice-president, the secretary, and the
treasurer of the corporate shareholder, in that order, shall be presumed to be
fully authorized to vote the shares.
(a) Shares standing in the name of a deceased person, a minor ward or
an incompetent person, may be voted by his administrator, executor, court
appointed guardian, or conservator, either in person or by proxy without a
transfer of such shares in the name of such administrator, executor, court
appointed guardian, or conservator. Shares standing in the name of a
trustee may be voted by him, either in person or by proxy, but no trustee
shall be entitled to vote shares held by him or her without transfer of
such shares into his or her name or the name of his or her nominee.
(b) Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be
voted by such receiver without the transfer thereof into his name if
authority so to do be contained in an appropriate order of the court by
which such receiver was appointed.
(c) A shareholder whose shares are pledged shall be entitled to vote
such shares until the shares have been transferred into the name of the
pledgee, and thereafter the pledgee shall be entitled to vote the shares so
transferred.
(d) If shares stand of record in the names of two or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in
common, tenants by their entirety, or otherwise, or if two or more persons
have the same fiduciary relationship respecting the same shares, unless the
secretary of the corporation is given notice to the contrary and furnished
with a copy of the instrument or order approving them or creating the
relationship wherein it is so provided, then acts with respect to voting
shall have the following effect: (i) if only one votes, in person or by
proxy, that act binds all; (ii) if more than one vote, in person or by
proxy, the act of the majority so voting binds all; (iii) if more than one
votes, in person or by proxy, but the vote is evenly split on any
particular matter, each faction is entitled to vote the share or shares in
question proportionally; or (iv) if the instrument or order so filed shows
that any such tenancy is held in unequal interest, a majority or a vote
evenly split for purposes hereof shall be a majority or a vote evenly split
in interest. The principles of this paragraph shall apply, insofar as
possible, to execution of proxies, waivers, consents, or objections and for
the purpose of ascertaining the presence of a quorum.
4
<PAGE>
SECTION 2.11 Cumulative Voting. Each shareholder who is entitled to vote
-----------------
at an election of directors has the right to vote the number of shares held by
him or her for as many persons as there are directors to be elected and for
whose election he or she has a right to vote. Shareholders do not have the right
to cumulate their votes unless the articles of incorporation so provide.
SECTION 2.12 Proxies. Each shareholder entitled to vote at a meeting of
-------
shareholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy by signing an appointment form, or an equivalent reproduction of an
appointment form, or a executed telegram or cablegram, and delivering it to the
person so appointed, but no such proxy shall be valid after eleven months from
the date of its execution, unless otherwise provided in the proxy.
The death or incapacity of the shareholder appointing a proxy does not
affect the right of the corporation to accept the proxy's authority unless
notice of the death or incapacity is received by the secretary or other officer
or agent of the corporation designated to tabulate votes before the proxy
exercises authority under the appointment.
An appointment of a proxy is revocable by the shareholder unless the
appointment form conspicuously states that it is irrevocable and the appointment
is coupled with an interest.
SECTION 2.13 Quorum. Shares entitled to vote as a separate voting group
------
may take action on a matter at a meeting only if a quorum of those shares exists
with respect to that matter. Except as otherwise provided in the corporation's
articles of incorporation or by law, the holders of a majority of the
outstanding shares of the corporation entitled to vote on the matter by each
voting group, present in person or represented by proxy, shall constitute a
quorum at any meeting of shareholders, but in no event shall a quorum consist of
less than one third of the shares of each voting group entitled to vote. If less
than a majority of the outstanding shares entitled to vote are represented at
said meeting, a majority of the shares so represented may adjourn the meeting at
any time without further notice. After a quorum has been established at any
shareholders' meeting, the subsequent withdrawal of shareholders, so as to
reduce the number of shares entitled to vote at the meeting required for a
quorum, shall not affect the validity of any action taken at the meeting or any
adjournment thereof.
Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
SECTION 2.14 Manner of Action. If a quorum is present, action on a matter
----------------
(other than the election of directors) by a voting group is approved if the
votes cast within the voting group favoring the action exceed the votes cast
opposing the action, unless a greater or lesser number of affirmative votes is
required by the corporation's articles of incorporation or by law.
5
<PAGE>
SECTION 2.15 Voting for Directors. Unless otherwise provided in the
--------------------
corporation's articles of incorporation, directors will be elected by a
plurality of votes cast by the shares entitled to vote in the election at a
meeting at which a quorum is present.
SECTION 2.16 Inspectors of Election. At any meeting of shareholders,
----------------------
the chairman of the meeting may, or upon request of any shareholder shall,
appoint one or more persons as inspectors for such meeting. Upon appointment,
each inspector shall take and sign an oath faithfully to execute the duties of
inspector at a meeting with strict impartiality and to the best of his or her
ability. Such inspectors shall ascertain and report the number of shares
represented at the meeting, based upon their determination of the validity and
effect of proxies, and determine if a quorum is present; count all votes and
report the results; and do such other acts as are proper to conduct the election
and voting with impartiality and fairness to all the shareholders.
ARTICLE III
-----------
DIRECTORS
---------
SECTION 3.1 General Powers. Except as provided in the corporations's
--------------
articles of incorporation or by law, the business and affairs of the corporation
shall be managed by, or under the direction of, its board of directors.
SECTION 3.2 Number, Tenure and Qualifications. The number of directors
---------------------------------
of the corporation shall be not less than one (1) and not more than six (6).
Each director shall hold office until the next annual meeting of shareholders,
thereafter, until his successor shall have been elected, or until an earlier
resignation, removal from office or death. A director must be a natural person
of at least 18 years of age, but directors need not be citizens of the USA or
the State of Florida nor need they be shareholders of the corporation. The
number of directors may be increased or decreased from time to time by the
amendment of this section by action of either the shareholders or the board of
directors, but no decrease shall have the effect of shortening the term of any
incumbent director. A director may resign at any time by giving written notice
to the board of directors, its chairman, or to the president or secretary of the
corporation. A resignation is effective when the notice is given unless the
notice specifies a future date. The pending vacancy may be filled before the
effective date, but the successor shall not take office until the effective
date.
SECTION 3.3 Quorum. A majority of the number of directors fixed by
------
these by-laws shall constitute a quorum for transaction of business at any
meeting of the Board of Directors, provided that if less than a majority of such
number of directors are present at said meeting, a majority of the directors
present may adjourn the meeting at any time without further notice, and provided
further that whenever, for any reason, a vacancy occurs on the Board of
Directors, a quorum shall consist of the majority of the remaining directors
until the vacancy has been filled.
SECTION 3.4 Manner of Acting. The act of the majority of the directors
----------------
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, unless the act of a greater number is required by statute, these
by-laws, or the articles of incorporation.
6
<PAGE>
SECTION 3.5 Regular Meetings. A regular meeting of the board of
----------------
directors shall be held without other notice than this by-law, immediately after
the annual meeting of shareholders. The Board of Directors may provide, by
resolution, the time and place, either within or without the State of Florida,
for holding of additional regular meetings without other notice than such
resolution.
SECTION 3.6 Special Meetings. Special meetings of the board of directors
----------------
may be called by or at the request of the president, the chairman of the board,
or any one or more directors. The person or persons authorized to call special
meetings of the board of directors may fix any place as the place for holding
any special meeting of the board of directors called by them. Notice of any
special meeting shall be given at least two (2) days previous thereto by written
notice or orally (in person or by telephone) to each director at his business
address, provided such notice is deemed to be a reasonable time before said
meeting in light of all pertinent circumstances. If mailed, such notice shall be
deemed to be delivered when deposited with the United States Postal Service so
addressed, with postage thereon prepaid. If notice be given by telegram, such
notice shall be deemed to be delivered when the telegram is delivered to the
telegram company. The attendance of a director at any meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Notice of a meeting of the board of
directors need not be given to any director who signs a written waiver of notice
before, during or after the meeting. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the board of directors
need be specified in the notice or waiver of notice of such meeting.
SECTION 3.7 Meetings by Means of Telephone Conference Call or Other
-------------------------------------------------------
Audio/Visual Equipment. Directors of the corporation may participate in meetings
- ----------------------
of its board of directors by means of a telephone conference call or via other
audio/visual equipment provided all participants in said meeting can hear each
other at the same time. Such participation constitutes presence at said meeting.
SECTION 3.8 Vacancies. Any vacancy occurring in the board of directors
---------
and any directorship to be filled by reason of an increase in the number of
directors, may be filled by (1) election at an annual meeting or at a special
meeting of shareholders or (2) by a majority, though less than a quorum, of the
directors remaining. A director elected by the shareholders to fill a vacancy
shall hold office for the balance of the term for which he or she was elected. A
director appointed to fill a vacancy shall serve until the next meeting of
shareholders at which directors are to be elected.
SECTION 3.9 Removal of Directors. One or more of the directors may be
--------------------
removed, with or without cause, at a meeting of shareholders by the affirmative
vote of the holders of a majority of the outstanding shares then entitled to
vote at an election of directors, unless the articles of incorporation provide
the directors may be removed only for cause.:
7
<PAGE>
(a) No director shall be removed at a meeting of shareholders unless
the notice of such meeting shall state that a purpose of the meeting is to
vote upon the removal of one or more directors named in the notice. Only
the named director or directors may be removed at such meeting.
(b) If cumulative voting is authorized, a director may not be removed
if the number of votes sufficient to elect him or her under cumulative
voting is voted against his removal. If cumulative voting is not
authorized, a director may be removed only if the number of votes cast to
remove him or her exceeds the number of votes cast not to remove him or
her.
(c) If a director is elected by a class or series of shares, he or
she may be removed only by the shareholders of that class or series.
SECTION 3.10 Executive Committees. The board of directors, by resolution
--------------------
adopted by a majority of the number of directors fixed by the by-laws or
otherwise, may designate two or more directors to constitute an executive
committee, and one or more other committees, which committee(s), to the extent
provided in such resolution, shall have and exercise all of the authority of the
board of directors in the management of the corporation, except as otherwise
required by law. Vacancies in the membership of the committee shall be filled by
the board of directors at a regular or special meeting of the board of
directors. The executive committee shall keep regular minutes of its
proceedings and report the same to the board when required.
SECTION 3.11 Action Without a Meeting. Unless specifically prohibited by
------------------------
the articles of incorporation or these by-laws, any action required to be taken
at a meeting of the board of directors, or any other action which may be taken
at a meeting of the board of directors, or of any committee thereof, may be
taken without a meeting if a consent in writing, setting forth the action so
taken, shall be signed by all the directors entitled to vote with respect to the
subject matter thereof, or by all the members of such committee, as the case may
be. Any such consent signed by all the directors or all the members of the
committee shall have the same effect as a unanimous vote. Any action taken by
consent is effective when the last director or committee member executes the
consent, unless the consent specifies a different effective date.
SECTION 3.12 Compensation. The board of directors, by the affirmative
------------
vote of a majority of directors then in office, and irrespective of any personal
interest of any of its members, shall have authority to establish reasonable
compensation of all directors for services to the corporation as directors,
officers, or otherwise. By resolution of the board of directors, the directors
may be paid their expenses, if any, of attendance at each meeting of the board.
No such payment previously mentioned in this section shall preclude any director
from serving the corporation in any other capacity and receiving compensation
therefor.
SECTION 3.13 Presumption of Assent. A director of the corporation who
---------------------
is present at a meeting of the board of directors at which action on any
corporate matter is taken shall be conclusively presumed to have assented to the
action taken unless he or she has objects at the beginning of the meeting (or
promptly at his or her arrival at the meeting) to holding the meeting
8
<PAGE>
and/or transacting the specified business at the meeting, or he or she votes
against or abstains from voting regarding the action taken.
ARTICLE IV
----------
OFFICERS
--------
SECTION 4.1 Number. The officers of the corporation shall be a chairman
------
of the board, a president, a secretary, a treasurer, if desired, any number of
vice presidents, treasurers, assistant treasurers, assistant secretaries or
other officers as may be elected by the board of directors. Any two or more
offices may be held by the same person.
SECTION 4.2 Election and Term of Office. The officers of the
---------------------------
corporation shall be elected or appointed annually by the board of directors at
the first meeting of the board of directors held after each annual meeting of
shareholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as conveniently may be.
Vacancies may be filled or new offices created and filled at any meeting of the
board of directors. Each officer shall hold office until his successor shall
have been duly elected and shall have qualified or until his death or until he
shall resign or shall have been removed in the manner hereinafter provided.
Election of an officer shall not of itself create contract rights.
SECTION 4.3 Resignation. Any officer of the corporation may resign from
-----------
his or her respective office or position by delivering notice to the
corporation. The resignation is effective unless the notice specifies a later
effective date. If a resignation is made effective at a later date and the
corporation accepts the future effective date, the board of directors may fill
the pending vacancy before the effective date if the board of directors provides
that the successor does not take office until the effective date.
SECTION 4.4 Removal. Any officer elected or appointed by the board of
-------
directors may be removed by the board of directors, with or without cause, at
any time. Any officer appointed by another officer may be removed by that
officer, with or without cause.
SECTION 4.5 President. The president shall be the principal executive
---------
officer of the corporation. Subject to the direction and control of the board of
directors, he shall be in charge of the business of the corporation; he shall
see that the resolutions and directions of the board of directors are carried
into effect except in those instances in which that responsibility is
specifically assigned to some other person by the board of directors; and, in
general, he shall discharge all duties incident to the office of president and
such other duties as may be prescribed by the board of directors from time to
time. He shall preside at all meetings of the shareholders and of the board of
directors. Except in those instances in which the authority to execute is
expressly delegated to another officer or agent of the corporation or a
different mode of execution is expressly prescribed by the board of directors or
these by-laws, he may execute for the corporation certificates for its shares,
and any contracts, deeds, mortgages, bonds, or other instruments which the board
of directors has authorized to be executed, and he may accomplish such execution
either under or without the
9
<PAGE>
seal of the corporation and either individually or with the secretary, any
assistant secretary, or any other officer thereunto authorized by the board of
directors, according to the requirements of the form of the instrument. He may
vote all securities which the corporation is entitled to vote except as and to
the extent such authority shall be vested in a different officer or agent of the
corporation by the board of directors.
SECTION 4.5 The Vice-President. The vice-president (or in the event
------------------
there be more than one vice-president, each of the vice-presidents) shall assist
the president in the discharge of his duties as the president may direct and
shall perform such other duties as from time to time may be assigned to him by
the president or by the board of directors. In the absence of the president or
in the event of his inability or refusal to act, the vice-president (or in the
event there be more than one vice-president, the vice-presidents in the order
designated by the board of directors, or by the president if the board of
directors has not made such a designation, or in the absence of any designation,
then in the order of seniority of tenure as vice-president) shall perform the
duties of the president, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the president. Except in those instances in
which the authority to execute is expressly delegated to another officer or
agent of the corporation or a different mode of execution is expressly
prescribed by the board of directors or these by-laws, the vice-president (or
each of them if thee are more than one) may execute for the corporation
certificates for its shares and any contracts, deeds, mortgages, bonds or other
instruments which the board of directors has authorized to be executed, and he
may accomplish such execution either under or without the seal of the
corporation and either individually or with the secretary, any assistant
secretary, or any other officer thereunto authorized by the board of directors,
according to the requirements of the form of the instrument.
SECTION 4.6 The Treasurer. The treasurer shall be the principal
-------------
accounting and financial officer of the corporation. He shall:
(a) have charge of and be responsible for the maintenance of adequate
books of account for the corporation;
(b) have charge and custody of all funds and securities of the
corporation, and be responsible therefore and for the receipt and
disbursement thereof; and
(c) perform all the duties incident to the office of treasurer and
such other duties as from time to time may be assigned to him by the
president or by the board of directors.
If required by the board of directors, the treasurer shall give a bond for
the faithful discharge of his duties in such sum and with such surety or
sureties as the board of directors may determine.
SECTION 4.7 The Secretary. The secretary shall:
-------------
(a) record the minutes of the shareholders' and of the board of
directors' meetings in one or more books provided for that purpose;
10
<PAGE>
(b) see that all notices are duly given in accordance with the
provisions of these by-laws or as required by law;
(c) be custodian of the corporate records and of the seal of the
corporation;
(d) keep a register of the post-office address of each shareholder
which shall be furnished to the secretary by such shareholder;
(e) sign with the president, or a vice-president, or any other
officer thereunto authorized by the board of directors, certificates for
shares of the corporation, the issue of which shall have been authorized by
the board of directors, and any contracts, deeds, mortgages, bonds, or
other instruments which the board of directors has authorized to be
executed, according to the requirements of the form of the instrument,
except when a different mode of execution is expressly prescribed by the
board of directors or these by-laws;
(f) otherwise certify that by-laws, resolutions of the shareholders
and board of directors and committees thereof, and other documents of the
corporation as true and correct copies thereof;
(g) have general charge of the stock transfer books of the
corporation; and
(h) perform all duties incident to the office of secretary and such
other duties as from time to time may be assigned to him or her by the
president or by the board of directors.
SECTION 4.8 Assistant Treasurers and Assistant Secretaries. The
----------------------------------------------
assistant treasurers and assistant secretaries shall perform such duties as
shall be assigned to them by the treasurer or the secretary, respectively, or by
the president or the board of directors. The assistant secretaries may sign
with the president, or a vice-president, or any other officer thereunto
authorized by the board of directors, certificates for shares of the
corporation, the issue of which shall have been authorized by the board of
directors, and any contracts, deeds, mortgages, bonds, or other instruments
which the board of directors has authorized to be executed, according to the
requirements of the form of the instrument, except when a different mode of
execution is expressly prescribed by the board of directors or these by-laws.
The assistant treasurers shall respectively, if required by the board of
directors, give bonds for the faithful discharge of their duties in such sums
and with such sureties as the board of directors shall determine.
SECTION 4.9 Salaries. The salaries of the officers shall be fixed from
--------
time to time by the board of directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
corporation.
ARTICLE V
---------
CONTRACTS, LOANS, CHECKS AND DEPOSITS
-------------------------------------
11
<PAGE>
SECTION 5.1 Contracts. The board of directors may authorize any
---------
officer or officers, agent or agents, to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.
SECTION 5.2 Loans. No loans shall be contracted on behalf of the
-----
corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the board of directors. Such authority may be
general or confined to specific instances.
SECTION 5.3 Checks, Drafts, etc. All checks, drafts or other orders
--------------------
for the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation, shall be signed by such officer or officers, agent or
agents of the corporation and in such manner as shall from time to time be
determined by resolution of the board of directors.
SECTION 5.4 Deposits. All funds of the corporation not otherwise
--------
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies or other depositories as the board of directors
may select.
ARTICLE VI
----------
CERTIFICATES FOR SHARES AND THEIR TRANSFER
------------------------------------------
SECTION 6.1 Certificates for Shares. The board of directors of the
-----------------------
corporation shall determine whether the corporation's shares shall be
certificated or uncertificated. Certificates representing shares of the
corporation shall be signed by the president or a vice-president or by such
officer as shall be designated by resolution of the board of directors and by
the secretary or an assistant secretary, and may be sealed with the seal or a
facsimile of the seal of the corporation. Each certificate representing shares
shall be consecutively numbered or otherwise identified, and shall also state
the name of the person to whom issued, the number and class of shares (with
designation of series, if any), the date of issue, that the corporation is
organized under Florida law, and the par value or a statement that the shares
are without par value. If the corporation is authorized and does issue shares of
more than one class or of series within a class, the certificate shall also
contain such information or statement as may be required by law. The name and
address of each shareholder, the number and class of shares held and the date on
which the certificates for the shares were issued shall be entered on the books
of the corporation. The person in whose name shares stand on the books of the
corporation shall be deemed the owner thereof for all purposes as regard the
corporation.
SECTION 6.2 Lost Certificates. If a certificate representing
-----------------
shares has allegedly been lost or destroyed the board of directors may in its
discretion, except as may be required by law, direct that a new certificate be
issued upon such indemnification and other reasonable requirements as it may
impose.
SECTION 6.3 Transfers of Shares. Transfers of shares of the corporation
-------------------
shall be recorded on the books of the corporation and, except in the case of a
lost or destroyed certificate, on surrender for cancellation of the certificate
for such shares. A certificate presented for transfer must
12
<PAGE>
be duly endorsed and accompanied by proper guaranty of signature and other
appropriate assurances that the endorsement is effective.
ARTICLE VII
-----------
FISCAL YEAR
-----------
SECTION 7.1 Resolution of Directors. The fiscal year of the corporation
-----------------------
shall be fixed by resolution of the board of directors from time to time.
ARTICLE VIII
------------
DIVIDENDS
---------
SECTION 8.1 Declared by Directors. The board of directors may from time
---------------------
to time declare, and the corporation may pay, dividends on its outstanding
shares in the manner and upon the terms and conditions provided by law and its
articles of incorporation.
ARTICLE IX
----------
SEAL
----
SECTION 9.1 Corporate Seal. The corporate seal, if any, shall have
--------------
inscribed thereon the name of the corporation, the year of its incorporation,
and the words "Corporate Seal, Florida. The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any manner reproduced.
ARTICLE X
---------
AMENDMENTS
----------
SECTION 10.1 Amendments to the Corporate By-Laws. These by-laws may be
-----------------------------------
amended, altered or repealed and new by-laws may be adopted by action of the
board of directors, subject to the limitations of the law. The shareholders of
the corporation may alter, amend or repeal these by-laws or adopt new by-laws
even though these by-laws may also be amended or repealed by the board of
directors.
ARTICLE XI
----------
INDEMNIFICATION OF OFFICERS,
----------------------------
DIRECTORS, EMPLOYEES AND AGENTS
-------------------------------
SECTION 12.1 Power to Hold Harmless. The corporation shall have the
----------------------
power to indemnify any person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or
13
<PAGE>
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he or she is or was a director, officer, employee or
agent of the corporation, or who is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if such person acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination of
any action, suit or proceeding by judgment or settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
or she reasonably believed to be in or not opposed to the best interest of the
corporation, or with respect to any criminal action or proceeding, that the
person had reasonable cause to believe that his or her conduct was unlawful.
SECTION 12.2 Power to Indemnify Litigant. The corporation shall have
---------------------------
power to indemnify any person who was or is a party is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the corporation to procure a judgment in its favor by reason of the fact that
such person is or was a director, officer, employee or agent of the corporation,
of is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner he or
she reasonably believed to be in, or not opposed to the best interests of the
corporation, provided that no indemnification shall be made in respect of any
claim, issue or matter as to which such persons shall have been adjudged to be
liable for negligence or misconduct in the performance of his or her duty to the
corporation, unless, and only to the extent that the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses as the
court shall deem proper.
SECTION 12.3 Reimbursement Authorized. To the extent that a director,
------------------------
officer, employee, or agent of a corporation has been successful, on the merits
or otherwise, in defense of any action, suit or proceeding referred to Sections
12.1 and 12.2 above, or in defense of any claim, issue or matter therein, such
person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him or her in connection therewith.
SECTION 12.4 Determination if Reimbursement is Proper. Any
----------------------------------------
indemnification under Sections 12.1 and 12.2 above (unless ordered by a court)
shall be made by the corporation only as authorized in the specific case, upon a
determination that indemnification of a director, officer, employee or agent is
proper in the circumstances because he or she has met the applicable standard of
conduct set forth in Section 12.1 or 12.2 above. Such determination shall be
made:
(a) by the board of directors by a majority of a quorum consisting of
directors who were not parties to such action, suit or proceeding;
14
<PAGE>
(b) if such a quorum is not obtainable, or, even if obtainable, by
majority vote of a committee duly designated by the board of directors (in
which directors who are parties may participate) consisting solely of two
or more directors not at the time parties to the proceeding;
(c) by independent legal counsel selected either by the board of
directors as prescribed in paragraph (a) above or by the committee as
prescribed in paragraph (b) above, or, if a quorum of the directors can not
be obtained under paragraph (a) and a committee can not be designated under
paragraph (b), then selected by majority vote of the full board of
directors (including directors who are parties to said action); or
(d) by the shareholders by a majority vote of a quorum consisting of
shareholders who were not parties to such proceeding or, if no quorum is
obtainable, by a majority vote of shareholders who were not parties to such
proceeding.
SECTION 12.5 Advancement of Expenses. Evaluation of the reasonableness
-----------------------
of expenses and authorization of indemnification shall be made in the same
manner as the determination that indemnification is permissible. However, if the
determination of permissibility is made by independent legal counsel, persons
specified by paragraph 4(c) shall evaluate the reasonableness of expenses and
may authorize indemnification.
Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the corporation in advance of the final disposition of
such action, suit or proceeding, as authorized by the board of directors in the
specific case, upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount, unless it shall ultimately be
determined that he or she is entitled to be indemnified by the corporation as
authorized in this Article.
SECTION 12.6 Court-Ordered Indemnification and Advancement of Expenses.
---------------------------------------------------------
Unless the corporation's articles of incorporation provide otherwise,
notwithstanding the corporation's failure to provide indemnification, and
despite any contrary determination of the board of directors or of the
shareholders in a specific case, a director, officer, employee, or agent of the
corporation who is or was a party to any proceeding may apply for
indemnification or advancement of expenses, or both, to the court conducting the
proceeding, to the circuit court, or to another court of competent jurisdiction.
On receipt of an application, the court, after giving notice that it considers
necessary, may order indemnification and advancement of expenses, including
expenses incurred in seeking court-ordered indemnification or advancement of
expenses, if it determines that:
(a) The director, officer, employee, or agent is entitled to
mandatory indemnification under Section 12.3, in which case the court shall
also order the corporation to pay the director reasonable expenses incurred
in obtaining court-ordered indemnification or advancement of expenses;
(b) The director, officer, employee or agent is entitled to
indemnification or advancement of expenses, or both, by virtue of the
exercise by the corporation of its power pursuant to Section 12.7; or
15
<PAGE>
(c) The director, officer, employee, or agent is fairly and
reasonably entitled to indemnification or advancement of expenses, or both,
in view of all of the relevant circumstances, regardless of whether such
person met the standard of conduct set forth in Section 12.1, 12.2 or 12.7
SECTION 12.7 Non-Exclusivity. The indemnification provided by this
---------------
article shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any contract, agreement, vote of shareholders
or disinterested directors, or otherwise, both as to action in his or her
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
However, indemnification or advancement of expenses shall not be made to or
on behalf of any director, officer, employee or agent if a judgment or other
final adjudication establishes that his actions, or omissions to act, were
material to the cause of action so adjudicated and constitute:
(a) A violation of criminal law, unless the director, officer or
employee, or agent had reasonable cause to believe his conduct was lawful
or had no reasonable cause to believe his conduct was lawful or had no
reasonable cause to believe his conduct was unlawful;
(b) A transaction from which the director, officer, employee or
agent derived an improper personal benefit;
(c) In the case of a director, a circumstance under which the
liability provisions of Florida Statute 607.0834 are applicable; or
(d) Willful misconduct or a conscious disregard for the best
interests of the corporation in a proceeding by or in the right of the
corporation to procure a judgment in its favor or in a proceeding by or in
the right of a shareholder.
SECTION 12.8 Right to Acquire Insurance. The corporation shall have
--------------------------
power to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation, as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him or her against such liability
under the provisions of this Article.
SECTION 12.9 Notice of Shareholders. If a corporation has paid indemnity
----------------------
or has advanced expenses to a director, officer, employee or agent, the
corporation shall report the indemnification or advance in writing to the
shareholders with or before the notice of the next shareholders meeting.
16
<PAGE>
SECTION 12.10 "Corporation"; Definition. For purposes of this Article,
-------------------------
references to "the corporation" shall include, in addition to the surviving
corporation, any merging corporation (including any corporation having merged
with a merging corporation) absorbed in a merger which, if its separate
existence had continued, would have had the power and authority to indemnify its
directors, officers, and employees or agents, so that any person who was a
director, officer, employee or agent of such merging corporation, or was serving
at the request of such merging corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this
Article with respect to the surviving corporation as such person would have with
respect to such merging corporation if its separate existence had continued.
SECTION 12.11 Miscellaneous Definitions. For purposes of this Article,
-------------------------
references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving at the request
of the corporation" shall include any services as a director, officer, employee
or agent of the corporation which imposes duties on, or involves services by
such director, officer, employee, or agent with respect to an employee benefit
plan, its participants, or beneficiaries. A person who acted in good faith and
in a manner he or she reasonably believed to be in the best interests of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interest of the corporation" as
referred to in this Article. The term "expenses" includes counsel fees,
including those for appeal. The term "agent" includes volunteers. The term
"proceeding" includes any threatened, pending, or completed action, suit, or
other type of proceeding, whether, civil, criminal, administrative, or
investigative and whether formal or informal.
ARTICLE XIII
------------
REPAYMENT OF DISALLOWED DEDUCTION
---------------------------------
SECTION 13.1 Full Reimbursement by Officers. Any payments made to an
------------------------------
officer of the corporation such as salary, commission, bonus, interest, rent,
medical reimbursement or entertainment expense incurred by him which, for
Federal income tax purposes, shall be disallowed in whole or in part as a
deductible expense by the Internal Revenue Service, shall be reimbursed by such
officer to the corporation to the full extent of such disallowance.
SECTION 13.2 Security for Repayment. It shall be the duty of the
----------------------
directors, as a board, to enforce payment of such amount disallowed. In lieu of
payment by the officer, subject to the determination of the directors,
proportionate amounts may be withheld from his future compensation payments
until the amount owed to the corporation has been recovered.
17
<PAGE>
February 17, 1997
Terrace Holdings, Inc.
2699 Stirling Road
Suite C-405
Fort Lauderdale, FL 33312
Re: Amendment to Employment Agreement
Ladies and Gentlemen:
Reference is made to that certain Employment Agreement, made and entered
into as of September 1, 1995, effective September 1, 1995, by and between
Terrace Holdings, Inc., a Delaware corporation (the "Company") and myself. In
consideration of the issuance to me of warrants to purchase 750,000 shares of
the Company's common stock, upon the terms and conditions set forth in that
certain Amendment to Asset Acquisition Agreement dated as of December 9, 1996,
by and between the Company and DownEast Frozen Desserts, LLC, I hereby agree
that Paragraph 10 of my Employment Agreement is deleted in its entirety and of
no further force or effect. In all other respects, my Employment Agreement, as
hereby amended, shall remain in full force and effect.
If the foregoing correctly reflects your understanding of the amendment to
my Employment Agreement, please so indicate in the space provided below for your
signature, whereby this letter will be a legally binding amendment to my
Employment Agreement.
/s/ Samuel H. Lasko
--------------------------------
Samuel H. Lasko
ACCEPTED:
Terrace Holdings, Inc.
By: /s/ Jonathan S. Lasko, EVP
-------------------------------
Date: February 17, 1997
----------------------------
<PAGE>
February 14, 1997
Terrace Holdings, Inc.
2699 Stirling Road
Suite C-405
Fort Lauderdale, FL 33312
Re: Amendment to Employment Agreement
Ladies and Gentlemen:
Reference is made to that certain Employment Agreement, made and entered
into as of September 1, 1995, effective September 1, 1995, by and between
Terrace Holdings, Inc., a Delaware corporation (the "Company") and myself. In
consideration of the issuance to me of warrants to purchase 750,000 shares of
the Company's common stock, upon the terms and conditions set forth in that
certain Amendment to Asset Acquisition Agreement dated as of December 9, 1996,
by and between the Company and DownEast Frozen Desserts, LLC, I hereby agree
that Paragraph 10 of my Employment Agreement is deleted in its entirety and of
no further force or effect. In all other respects, my Employment Agreement, as
hereby amended, shall remain in full force and effect.
If the foregoing correctly reflects your understanding of the amendment to
my Employment Agreement, please so indicate in the space provided below for your
signature, whereby this letter will be a legally binding amendment to my
Employment Agreement.
/s/ Jonathan S. Lasko
-------------------------------
Jonathan S. Lasko
ACCEPTED:
Terrace Holdings, Inc.
By: /s/ Samuel H. Lasko, President
---------------------------------
Date: February 17, 1997
--------------------------------
<PAGE>
AGREEMENT TO ASSIGN
AND OTHER MATTERS
THIS AGREEMENT is made and entered into as of January 16, 1996, by, among
and between TERRACE HOLDINGS, INC., a Delaware corporation ("THI") and
INTERNATIONAL TOURS AND CATERING BY AMBASSADOR, INC., a New Jersey corporation
("ITC"), Jonathan Twersky ("Twersky") and Susan Bachar ("Bachar") (ITC, Twersky
and Bachar sometimes collectively called "Transferors").
RECITALS:
Bachar and Twersky collectively own all the issued and outstanding capital
stock of ITC and are its sole officers and directors;
ITC is the operator of Passover vacation operations at the Fontainebleau
Hilton, Rye Town Hilton and Tamiment Hotels (sometimes collectively called the
"Hotels") under valid and binding agreements with each of the Hotels;
Neil Rothenberg ("Rothenberg") is the former owner of the business operated
by ITC and is the owner or licensee and sub-licensor of certain assets used by
or useful to ITC in its operations, which matters, among other things, are the
subject of a separate agreement as of even date herewith between Rothenberg and
THI, the execution and consummation of which is a condition precedent to the
Closing hereunder;
<PAGE>
Transferors desire to transfer or assign certain assets and THI desires to
acquire and accept assignments of certain assets but no liabilities other than
those expressly assumed herein, from Transferors on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the terms and
conditions in this Agreement set forth, the parties hereto agree as follows:
TERMS AND CONDITIONS
1. Assignment of Agreements.
------------------------
Subject to the express written approval of each of the Hotels at or prior
to Closing hereunder, ITC hereby irrevocably and unconditionally assigns,
transfers and sets over to THI all of its rights, titles and interests in and to
all of ITC's operations at each of the Hotels under the respective ITC
agreements therewith, true and correct copies of each of which as currently in
effect is attached hereto as Exhibits 1(a)-1, 1(a)-2 and 1(a)-3 (the "Hotel
Agreements"). In connection with the assignments of the Hotel Agreements, THI
shall have no obligation to report or consult with ITC, to utilize ITC employees
or assets or in any manner deal with ITC, it being the express understanding,
agreement and contemplation of the parties that THI shall replace ITC completely
under said Hotel Agreements and THI shall have unfettered control and
responsibility for the operations under the Hotel Agreements in
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lieu and in place of ITC. Notwithstanding the foregoing sentence, THI shall
assume the obligations of ITC and honor the contracts detailed or attached
hereto as Group Exhibit 1(a)-4, for Passover 1996, between ITC and the named
rabbis, staff persons and caterers, each of whom or which is an independent
contractor with ITC.
2. Acquisition of Certain Assets.
-----------------------------
(a) ITC, at Closing, shall transfer, bargain and convey, by warranty
Bill of Sale, free and clear of any encumbrances of any kind or nature
whatsoever, to THI all its right, title and interest in and to its
customer, past customer and prospective customer mailing lists, a paper or
computer-readable copy of which is attached hereto as Exhibit 2(a) (and a
computer-readable copy of which shall be delivered to THI at Closing) and
which contains the names, addresses, etc., of not less than 500 to 700 such
customers, past customers or prospective customers.
(b) Transferors, at Closing, shall grant, license and convey to THI
the perpetual non-exclusive right, without any further cost or fee
whatsoever to be paid by THI, to use, maintain, upgrade, enhance,
sublicense or discard the current "reservations software, programs and
systems" currently used by ITC. From and after Closing, and as soon
thereafter as possible, Transferors covenant to provide THI with three
days'
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"hands-on" instructions, one of which shall be at THI's designated offices
in Florida and two of which shall be at ITC's offices in New York, on how
to use said systems, all without further cost to THI. In addition, at
Closing ITC shall assign to THI any rights ITC may have to support for such
system from the system developers or others. From and after the completion
of the "hands-on" training provided for above, ITC shall have no further
obligations or liability to THI with respect to such systems, their use,
enhancements, modifications or sublicensure.
3. Representations and Warranties of THI. THI hereby represents and
-------------------------------------
warrants to Transferors as follows:
(a) THI is a validly existing Delaware corporation with full power
and authority to enter into this Agreement and to be bound by the terms and
conditions herein contained. The execution and performance of this
Agreement and the consummation of the transaction contemplated hereby does
not breach or conflict with any term, covenant or condition of any
commitment, contract, or other agreement to which THI is a party.
(b) As soon after Closing as is practicable, THI shall be duly
qualified as a foreign corporation in each
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jurisdiction where the same shall be required for THI to carry out its
obligations under this Agreement.
4. Representations and Warranties of Transferors. Transferors hereby
---------------------------------------------
represent and warrant to THI as follows:
(a) ITC is a validly existing New Jersey corporation with full power
and authority to enter into this Agreement and to be bound by the terms and
conditions herein contained.
(b) Each of Twersky and Bachar have the full power and authority to
enter into this Agreement and be bound by the terms and conditions herein
contained which may be applicable to either of them. The execution and
performance of this Agreement and the consummation of the transaction
contemplated hereby does not breach or conflict with any term, covenant or
condition of any commitment, contract, or other agreement to which any of
the Transferors is a party or by which any of the assets being transferred
is or may be bound.
(c) Each of the Hotel Agreements attached hereto as Exhibits 1(a)-1,
1(a)-2 and 1(a)-3 and the agreements detailed or attached as Group Exhibit
1(a)-4 are in full force and effect, current, valid and binding in
accordance with their respective terms and at Closing ITC is not in breach
under any of such agreements.
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(d) ITC is not delinquent in any payments due and owing any of its
suppliers or vendors listed on Exhibit 4(d), or if any such delinquency is
noted on said Exhibit 4(d), then ITC hereby covenants to remove such
delinquency at or prior to Closing.
(e) Transferors have the unqualified although non-exclusive right to
use, operate, upgrade, sublicense, modify and enhance the reservation
system (which is described in Exhibit 4(e) attached hereto) provided for in
paragraph 2(b) of this Agreement and that such system is fully usable in
the ordinary course to the extent ITC has used it and no further warranty
of fitness for purpose beyond the foregoing is intended hereby.
5. Consideration. In consideration of receipt of the Assignments of the
-------------
Hotel Agreements in form satisfactory to THI and its counsel and the acquisition
of certain assets, all as described in this Agreement and all without the
assumption of any liabilities unless otherwise expressly assumed in this
Agreement, THI, upon Closing, shall provide the following consideration:
(a) THI shall pay to ITC or at its direction the sum of $675,000 by
certified or bank check or wired funds.
(b) THI shall reserve and provide two suites for Passover 1996 (one
two-bedroom and one three-bedroom) at the
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Fontainebleau Hilton to such persons as ITC shall designate, without room
charges or gratuities. All taxes, food charges (at $27 per day per person)
and incidental charges in connection therewith shall be paid by ITC or its
designee(s) to such suites.
(c) As additional consideration, THI shall reimburse ITC for those
expenses it has incurred and which are specifically listed on Exhibit 5(c)
attached hereto. THI has not agreed to and is not responsible or liable in
any manner whatsoever for any expenses of ITC or the Transferors except
those specifically listed on said Exhibit 5(c) and those required under
Exhibits 1(a)-1, 1(a)-2, 1(a)-3 and 1(a)-4. Similarly, Transferors have
not agreed to and are not responsible or liable in any manner whatsoever
for any expenses of THI except those specifically provided for in this
Agreement.
6. Closing and Conditions to Closing.
---------------------------------
(a) The Closing of this Agreement, at which time the matters
contemplated herein shall be fully consummated, shall take place at the
offices of ITC in Hackensack, New Jersey at 1:30 p.m. on Tuesday, January
16, 1996 or at such other time and place as the parties shall mutually
agree (the "Closing"). In addition to execution of this Agreement by all
the parties,
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the Closing shall be subject to the following conditions precedent:
(i) the approval and ratification of all of the transactions
contemplated herein by the Board of Directors of THI;
(ii) the receipt of the assignments of the Hotel Agreements
described in paragraph 5 above and the written acknowledgements,
acceptances and approvals of each of the Hotels to THI as assignee of
the Passover operations agreements of ITC at such Hotels satisfactory
to THI and its counsel and an opinion of ITC's counsel satisfactory to
THI and its counsel that none of such assignments in any way breaches
any of the Hotel Agreements attached hereto as Exhibits 1(a)-1, 1(a)-2
or 1(a)-3;
(iii) the agreement between Rothenberg and THI referred to in
the Recitals at the head of this Agreement shall have been duly
executed by the parties thereto and the closing thereof takes place
concurrent with the Closing hereunder; and
(iv) the agreement between Twersky and THI referred to in
paragraph 7(b) of this Agreement shall have been executed by the
parties thereto.
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(b) At the Closing, all representations and warranties of all parties
hereto shall be true and correct as if made thereat.
7. Covenants of the Parties.
------------------------
(a) Each of the Transferors hereby agrees that he, she or it,
directly or indirectly, will not engage in or operate a Passover vacation,
business tour or venue, or attempt to do so, from the date hereof through
the end of Passover 1997 anywhere within the Continental United States,
Mexico, Canada or the Caribbean Islands, and through the end of Passover
1998 in South Florida or the Northeastern United States.
(i) Excepted from the foregoing shall be:
(x) the hotels currently known as the Sans Souci of Miami
Beach, Miami Beach, Florida, the Tamarack Hotel in Greenfield
Park, New York and the Chateau Hotel in Camelback, Pennsylvania;
(y) any hotel or hotel-type operation controlled by
Rothenberg or in which Rothenberg has an equity ownership
interest of 5% or more; and
(z) any hotel or hotel-type operation in which Rothenberg
in the future may acquire control or an equity interest of 5% or
more;
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(ii) the covenant not to compete contained herein shall apply to
the Hotels until the earlier of January 1, 2000 or the date Rothenberg
is notified by THI or the subject Hotel either that THI will no longer
operate Passover vacations thereat or that the subject Hotel invites
"bids" from other than THI to operate future Passover vacations
thereat; and
(iii) for purposes of the covenants not to compete herein,
"control" shall mean any hotel or hotel-type facility leased by
Rothenberg under a bona-fide lease for a period of months not less
than commencing in December and ending after the relevant immediately-
subsequent Passover.
(b) For the period from ten days prior to Passover 1996 through
twenty days after the end of the Passover vacation period, Twersky agrees
to be employed by THI on terms mutually agreed upon between THI and
Twersky. Prior thereto, Mr. Twersky covenants to be available on a
consultative basis as reasonably requested by THI on terms mutually agreed
upon between THI and Twersky. Such separate agreement is a condition
precedent to Closing hereunder.
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(c) From and after the Closing, the parties hereto agree to cooperate
fully and reasonably in the transition of operations from ITC to THI for
Passover 1996 and thereafter.
8. Additional Matters.
------------------
(a) This Agreement shall be binding upon the parties hereto and their
respective successors, heirs, administrators, executors and assigns. This
Agreement shall not be assignable by any of the parties except that THI may
delegate or assign any or all of its rights or obligations hereunder to any
of its operating subsidiaries at any time.
(b) This Agreement shall be construed under the laws of the State of
New York.
(c) Except as may be required by applicable law, regulation or
judicial or administrative process, the parties hereby agree to maintain
the confidentiality of the terms of this Agreement and all constituent
matters between them. In this connection, to the extent reasonably
practicable, THI shall request confidential treatment by the Securities and
Exchange Commission and NASDAQ, to the extent allowable by law or
regulation, of the details of the terms of the transactions contemplated by
this Agreement. Any disclosure required by applicable law or regulation,
or disclosure of matters already
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in the public domain, shall not be deemed a breach by the disclosing party
of this covenant.
(d) Nothing in this Agreement shall be deemed to constitute the
parties as joint venturers, co-partners or to have any joint relationship
whatsoever other than as expressly provided for herein. Under no
circumstances shall the Transferors have any authority or right to act for
or bind THI, or THI have the authority or right to act for or bind any of
the Transferors, in any manner whatsoever and the same shall be
affirmatively communicated by the parties to the Hotels as may be necessary
to effectuate the intent of the parties hereunder.
IN WITNESS WHEREOF, the parties have hereunto caused this Agreement to be
executed as of this 16th day of January, 1996.
TERRACE HOLDINGS, INC.
By: /s/ Samuel H. Lasko
-----------------------------------
INTERNATIONAL TOURS AND
CATERING BY AMBASSADOR, INC.
By: /s/ Jonathan Twersky
-----------------------------------
President
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/s/ Jonathan Twersky
--------------------------------------
JONATHAN TWERSKY
/s/ Susan Bachar
--------------------------------------
SUSAN BACHAR
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LIST OF EXHIBITS
EXHIBIT DOCUMENT
- ------- --------
1(a)-1 Hotel Agreement with Fontainebleau Hilton
1(a)-2 Hotel Agreement with Rye Town Hilton
1(a)-3 Hotel Agreement with Tamiment Hotel
1(a)-4 Agreements with Rabbis, Staff and Caterers for Passover 1996
2(a) Customer Mailing Lists
4(d) List of Suppliers or Vendors
4(e) Reservation System
5(c) List of Expenses
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EXHIBIT 21.1
------------
SUBSIDIARIES OF THE REGISTRANT
1. The Lasko Companies, Inc.
2. A&E Management Corporation
3. The Lasko Family Kosher Tours, Inc.
4. A-One-A Produce and Provisions, Inc.
5. Terrace Fresh, Inc.
