UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 2 TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
TRANSPACIFIC INTERNATIONAL GROUP CORP.
(Name of small business issuer in its charter)
Nevada 6770 11-3860760
(State or jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
347 Fifth Avenue, Suite 1507, New York, New York 10016 (212) 213-6908
(Address and telephone number of principal executive offices)
347 Fifth Avenue, Suite 1507, New York, New York
10016
(Address of Principal place of business or intended principal
place of business)
Joel Schonfeld, 63 Wall Street, Suite 1801, New York, NY (212)
344-1600
(Name, address, and telephone number of agent for service)
Copies to:
Schonfeld & Weinstein, L.L.P.
63 Wall Street, Suite 1801
New York, New York 10005
(212) 344-1600
Walter J. Gumersell, Esq.
Rivkin, Radler & Kremer, Esqs.
EAB Plaza
Uniondale, New York 11556-0111
(516-357-3125)
Approximate date of proposed sale to the public as soon as practicable after
the effective date of this Registration Statement and Prospectus.
The registrant hereby amends this registration statement on such
date or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended (the "Securities Act")
or until the registration statement shall become effective on such date as
the
Commission, acting pursuant to said Section 8(a), may determine.
1<PAGE>
CALCULATION OF REGISTRATION FEE
No registration fee is due on a Reconfirmation Offering under Rule 419.
Cross Reference Sheet
Showing the Location In Prospectus of
Information Required by Items of Form SB-2
Part I. Information Required in Prospectus
Item
No. Required Item Location or Caption
1. Front of Registration Statement Front of Registration
and Outside Front Cover of Statement and outside
Prospectus front cover of Prospectus
2. Inside Front and Outside Back Inside Front Cover Page
Cover Pages of Prospectus of Prospectus and Outside
Front cover Page of Prospectus
3. Summary Information and Risk Prospectus Summary;
Factors High Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Prospectus Summary -
Price Determination of Offering
Price; Risk Factors
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution Not Applicable
9. Legal Proceedings Legal Proceedings
10. Directors, Executive Officers, Management
Promoters and Control Persons
11. Security Ownership of Certain Principal Shareholders
Beneficial Owners and Management
2<PAGE>
Part I Information Required in Prospectus Caption in Prospectus
12. Description of Securities Description of Securities
13. Interest of Named Experts and Legal Opinions; Experts Counsel
14. Disclosure of Commission Position Statement as
to
on Indemnification for Securities Indemnification
Act Liabilities
15. Organization Within Last Management, Certain
Five Years Transactions
16. Description of Business Business
17. Management's Discussion and Management's Discussion and
and Analysis or Plan of Analysis
Operation
18. Description of Property Not Applicable
19. Certain Relationships and Related Certain Transactions
Transactions
20. Market for Common Stock and Prospectus Summary
Related Stockholder Matters
21. Executive Compensation Executive Compensation
22.Financial StatementsFinancial Statements
3<PAGE>
PROSPECTUS
TRANSPACIFIC INTERNATIONAL GROUP CORP.
(a Nevada corporation)
RECONFIRMATION OFFER
This Prospectus relates to the Reconfirmation Offer of 3,000 shares of
common stock of Transpacific International Group Corp. ("Transpacific") sold
in Transpacific's initial public offering (the "Shares" or "Common Stock").
Pursuant to Rule 419 ("Rule 419") of the Securities Act of 1933, as amended
(the "Securities Act"), shareholders representing at least 80% of
Transpacific's maximum offering proceeds ($14,400) must elect to reconfirm
their investments (the "Reconfirmation Offer"). (See "INVESTORS RIGHTS AND
SUBSTANTIVE PROTECTION UNDER RULE 419"). Pursuant to Rule 419, each
purchaser
of common stock in Transpacific's initial public offering (the "Rule 419
Investors") shall have no fewer than 20
business days and no more
than 45 business days from the effective date of the
post-effective amendment to notify Transpacific in writing that the Rule 419
Investor elects to remain an investor. If Transpacific has not recorded such
written notification by the 20th business day following the post-
effective amendment, funds held in the escrow account shall be sent by first
class mail or other equally prompt means to the Rule 419 investors within five
busines days. Once a Rule 419 Investor has sent his/her Letter of
Reconfirmation to Transpacific, such Letter of Reconfirmation may not be
revoked.
Pursuant to an Agreement and Plan of Merger between Transpacific and
Coffee Holding Co., Inc., a corporation organized and existing under the
laws of State of New York ("Coffee" or the "Company), dated October 31, 1997
(the "Merger Agreement"), Coffee shall be merged into Transpacific with
Transpacific as the surviving entity (the "Merger") (the "Surviving Entity").
Thus on the Effective Date (as defined in the Merger Agreement), all Coffee
shareholders shall become shareholders of Transpacific as a result of the
Merger.
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING
AT PAGE .
THE TRANSPACIFIC SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Transpacific has filed with the Commission a Registration Statement on Form
SB-2 under the Securities Act with respect to the common shares subject to
the Reconfirmation Offer hereto. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to Transpacific and
the Shares, reference is made to the Registration Statement, exhibits and
schedules.
Additional information, as it relates to Transpacific is available upon
request from Schonfeld & Weinstein, L.L.P., 63 Wall Street, Suite 1801, New
York, New York 10005; and as it relates to Coffee, is available upon request
from Andrew Gordon, President, Coffee Holding Co., Inc., 4401 First Avenue,
Brooklyn, New York 11232.
No. Of Shares Offering
sold in initial Price Per Gross Proceeds Proceeds paid Net
Proceeds
public offering Share to the Company out for expenses in Escrow
3,000 $6.00 $18,000 $1,800(1) $16,200
(1) 10% of the offering proceeds of Transpacific's initial public offering
($1,800) were released to Transpacific pursuant to Rule 419. Only
$1,015 of this amount has been expended. The remaining $785 remains
in a separate account.
The Date of this Prospectus is .
4<PAGE>
The following are Transpacific's expenses for its initial public offering(1):
Escrow Fee.......................................................$ 250.00
Securities and Exchange Commission Registration Fee..............$ 100.00
Legal Fees.......................................................$ 20,000.00
Accounting Fees..................................................$ 3,000.00
Printing and Engraving...........................................$ 500.00
Blue Sky Qualification Fees and Expenses.........................$ 1,000.00
Miscellaneous....................................................$ 150.00
Transfer Agent Fee...............................................$ 300.00
TOTAL......................................................$25,300.00 (3)
The following are Transpacific's estimated expenses for the reconfirmation
offering:
Securities and Exchange Commission Registration Fee.. ........$ 0
Legal Fees....................................................$35,000.00(2)
Accounting Fees...............................................$ 15,000.00(2)
Printing and Engraving........................................$ 2,500.00(2)
Miscellaneous.................................................$ 500.00(2)
Transfer Agent Fees...........................................$ 1,500.00(2)
TOTAL...........................................................$ 54,500.00
(1) Have been/will be paid by Transpacific
(2) Have been/will be paid by Coffee
(3) This amount was paid/will be paid in part by funds received in
Transpacific's private placement of November 1995.
5<PAGE>
TABLE OF CONTENTS
Page #
PROSPECTUS SUMMARY
INVESTORS' RIGHTS AND SUBSTANTIVE PROTECTION
UNDER RULE 419
RISK FACTORS
MERGER
USE OF PROCEEDS
SELECTED FINANCIAL DATA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
BUSINESS
MANAGEMENT
CERTAIN TAX CONSIDERATIONS
DESCRIPTION OF SECURITIES
PRINCIPAL SHAREHOLDERS
CERTAIN TRANSACTIONS
PLAN OF DISTRIBUTION
LEGAL MATTERS
EXPERTS
TRANSPACIFIC INTERNATIONAL GROUP CORP. FINANCIAL
STATEMENTS
COFFEE HOLDING CO. INC. FINANCIAL STATEMENTS
TRANSPACIFIC INTERNATIONAL GROUP CORP. AND
COFFEE HOLDING CO., INC. PROFORMA CONDENSED
BALANCE SHEET
6<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information contained in this
Prospectus and is qualified by the more detailed information and consolidated
financial statements (including notes thereto) appearing elsewhere in this
Prospectus. Investors should carefully consider the information set forth
under the heading "Risk Factors". Unless otherwise indicated, the capital
structure, the number of shares outstanding and the per share data and
information in this Prospectus have been adjusted to give effect to the
Merger described herein.
Transpacific International Group Corp.
Transpacific International Group Corp. ("Transpacific") was
incorporated in the State of Nevada on October 9, 1995 for the sole purpose
of acquiring or merging with an unspecified operating business.
Transpacific has no operating assets and has not engaged in any business
activities, other than to seek out and investigate other businesses for
potential merger or acquisition.
On August 12, 1996, Transpacific commenced a "blank check" offering
pursuant to Rule 419 ("Rule 419") promulgated under the Securities Act,
which generated $18,000 in gross proceeds from approximately 35 different
investors (the "Rule 419 Investors"). Pursuant to Rule 419, all of the gross
proceeds from that offering, less 10%, and the Transpacific Shares purchased
by the Rule 419 Investors, are being held in escrow pending (i) distribution
of a prospectus to each of them describing any prospective business
acquisition by Transpacific and (ii) the subsequent confirmation
ers of at least 80% of the shares owned by the Rule 419 Investors that they
elect to remain investors. (See "INVESTORS RIGHTS AND SUBSTANTIVE
PROTECTION UNDER RULE 419").
The executive offices of Transpacific are located at 347 Fifth Avenue,
Suite 1507, New York, New York 10016. The telephone number is (212) 213-6908.
Coffee Holding Co., Inc.
Coffee Holding Co., Inc. ("Coffee") was incorporated in the State of New
York on January 22, 1971. Coffee commenced operations in 1971, and began its
business trading green coffee. Since then, Coffee has diversified its
operations to include distribution of roasted and blended coffees, as well
as sales of green coffees. Coffee's business now incorporates many segments
of the coffee industry, including roasting and packaging their own line of
blended coffees, such as "Via Roma" and "Cafe Caribe," roasting and
packaging private label coffee for large supermarket chains, roasting and
packaging specialized blended "gourmet" coffees, selling or brokering green
coffee to small roasters or coffee shop operators, and operating their own
warehouse equipped with modern roasting and packaging machinery. (See
"BUSINESS - Coffee").
The executive offices of Coffee are located at 4401 First Avenue, Brooklyn,
New York 11232 . Coffee's phone number is (718) 832-0800.
7<PAGE>
Reconfirmation Offering Conducted in Compliance with Rule 419
Transpacific is a blank check company and, consequently, this
Reconfirmation Offering is being conducted in compliance with the Commission's
Rule 419. The Rule 419 Investors have certain rights and will receive the
substantive protection provided by the rule. To that end, the securities
purchased by investors and the funds received in Transpacific's initial public
offering are deposited and held in an escrow account established pursuant to
Rule 419 (the "Escrow Account"), and shall remain in the Escrow Account until
an acquisition meeting specific criteria is completed (hereinafter the
"Deposited Funds" and "Deposited Securities".) Before the acquisition can be
completed and before the Deposited Funds and Deposited Securities can be
released to Transpacific and the Rule 419 Investors, respectively,
Transpacific is required to update the Registration Statement with a
post-effective amendment, and within five business days after the
effective date thereof, Transpacific is required to furnish the Rule 419
Investors with the prospectus produced thereby containing the terms of a
reconfirmation offer and information regarding the proposed acquisition
candidate and its business, including audited financial statements. According
to Rule 419, investors must have no fewer than 20 and no more than 45
business days from the effective date of the post-effective amendment to
decide to reconfirm their investment and remain an investor or, alternately,
require the return of their investment, minus certain deductions. Each Rule
419 Investors shall have 20 business days from the date of this
prospectus to reconfirm his/her investment in Transpacific. Any Rule 419
Investor not making any decision within said 20 business day period
will automatically have his/her investment funds returned. The rule further
provides that if Transpacific does not complete an acquisition meeting the
specified criteria within 18 months of the effective date of its initial
public offering, all of the Deposited Funds in the Escrow Account must be
returned to Rule 419 Investors. (See "Investors' Rights and Substantive
Protection Under Rule 419 - - Reconfirmation Offering.")
8<PAGE>
Reconfirmation Offer
This prospectus relates to a reconfirmation by Transpacific shareholders
of their investments in Transpacific. Pursuant to Rule 419, the proceeds of
Transpacific's initial public offering and the securities purchased pursuant
thereto, both of which are currently held in the Escrow Account, will not be
released from the Escrow Account until (1)Transpacific executes an agreement
for an acquisition or merger meeting certain criteria; (2) a post-effective
amendment which includes the terms of the reconfirmation offer, as well as
information about the Merger Agreement and audited financial statements is
filed; and (3) Transpacific conducts a reconfirmation offer pursuant to which
shareholders representing 80% of Transpacific's initial public offering
proceeds elect to reconfirm their investments. This 80% shall be computed
twenty (20) business days after the effective date of this
post-effective amendment. Once an investor has sent his/her Letter of
Reconfirmation to Transpacific, such Letter of Reconfirmation may not be
revoked. In the event the Rule 419 Investors do not vote to reconfirm the
offering, the Deposited Funds shall be returned to investors on a pro rata
basis. Such funds will be returned within 5 business days of
failure to approve the Merger.
Terms of the Merger Agreement
The terms of the Merger are set forth in the Merger Agreement and
consummation of the Merger is conditioned upon, among other things, the
acceptance of the Reconfirmation Offer by holders of at least 80% of the
shares owned by the Rule 419 Investors. (See "PROSPECTUS SUMMARY -
Reconfirmation Offer"). As a result of the consummation of the Merger, Coffee
will be merged into Transpacific, with Transpacific as the Surviving Entity.
Upon consummation of the Merger, (i) each shareholder who holds shares of
Transpacific's common stock registered pursuant to a registration statement
declared effective by the Securities and Exchange Commission on August 12,
1996 ("Registered Common Stock") prior to the Merger and who accepts the
Reconfirmation Offer shall continue to hold his or her share certificate(s)
representing Transpacific's Registered Common Stock; and (ii) each
stockholder of Registered Common Stock who rejects the Reconfirmation Offer
will be paid his or her pro rata share of the amount in the Escrow Account of
approximately $5.40 per share. In the event the escrowed funds exceed $16,200
at the consummation of the Merger, those funds shall be distributed on a pro
rata basis to those Transpacific shareholders who reject the reconfirmation
offering. At the Effective Date of the Merger, 100% of
the issued and outstanding shares of Coffee shall be canceled. Transpacific
common stock shall be split ten for one (10:1), after which 3,000,000 shares
shall be issued to Coffee shareholders after the Effective Date, current
Transpacific shareholders shall own 1,000,000 shares, representing 25% of the
Surviving Entity. This amount includes certain Transpacific shareholders who
are also shareholders of Coffee. (See "MERGER"- Terms and Conditions of
Merger, and "Certain Transactions")
9<PAGE>
Recent Developments
Prior to execution of the Merger Agreement, certain inside shareholders of
Transpacific entered into an agreement with Andrew Gordon and David Gordon,
both officers, directors and shareholders of Coffee, as well as other persons
(the "Gordon Group"), pursuant to which the Gordon Group purchased a total of
92,000 shares of Transpacific Common Stock at $.10 per share from the
following inside shareholders of Transpacific: Ho Cheong Chio; Hong Cao; Weng
Ip; Po Wa Lee. Both the stock and the proceeds of this sale are held in
escrow with Schonfeld & Weinstein, L.L.P., pending consummation of the Merger,
at which time the shares shall be transferred to the Gordon Group and the
funds released to those selling shareholders. Such shares shall bear legends
restricting their transfer. If the Merger is not consummated within the 18
month period proscribed by Rule 419, Schonfeld & Weinstein, L.L.P. shall
return the stock certificates to the Transpacific selling shareholders, and
the funds to the Gordon Group.
Approval of the Merger Agreement
The Transpacific Board of Directors believes that the Merger
represents a good investment opportunity for Transpacific's shareholders and
recommends that the Rule 419 Investors elect to accept the Reconfirmation
Offering. Transpacific's Board of Directors recommends that Rule 419
Investors, when determining whether or not to reconfirm their investments,
also consider, Coffee's working capital and sales revenues (See "MERGER"-
Terms and Conditions of Merger).
The Merger Agreement was approved by the directors and shareholders of
Coffee by written consent dated October 31, 1997. The Merger Agreement was
confirmed by the unanimous consent of the directors of Transpacific on October
31, 1997.
Accounting Treatment
Although Transpacific is the legal surviving corporation, for accounting
purposes, the Merger is treated as a purchase business acquisition of
Transpacific by Coffee (a reverse acquisition) and a recapitalization of
Coffee. Coffee is the acquirer for accounting purposes because the former
Coffee stockholders received the larger portion of the common stockholder
interests and voting rights retained by the former Transpacific stockholders.
Because Coffee is the acquirer for accounting purposes under APB Opinion No.
16, the Surviving Entity shall adopt Coffee's fiscal year end, October 31.
High Risk Factors
Investments in the securities of Transpacific are highly speculative,
involve a high degree of risk, and only persons who can afford the loss of
their entire investment should vote to reconfirm their investments. (See
"RISK FACTORS.")
Use of Proceeds
In its initial public offering, Transpacific generated $18,000 in
proceeds. 10% ($1,800) of the Deposited Funds was released to Transpacific
prior to this Reconfirmation Offering. (See "Investors' Rights and
Substantive Protection Under Rule 419 - Reconfirmation Offering.")
Transpacific intends to use this sum for expenses incurred in the offering,
including, but not limited to, accounting expenses, transfer agent fees,
printing fees and certificates of good standing. The remaining $16,200 will
remain in the non-interest-bearing escrow account maintained by Atlantic
Liberty Savings Bank, which bank acts as escrow agent pursuant to Rule 419 of
Regulation C. No portion of the Deposited Funds has been or will be expended
to merge Coffee into Transpacific. The Deposited Funds will be transferred
to Transpacific pursuant to the Merger Agreement if and when a business
combination is effected. (See "USE OF PROCEEDS.")
10<PAGE>
Certain Income Tax Consequences
In management's opinion, the Merger is intended to qualify as a
"tax-free
reorganization" for purposes of the United States federal income tax so that
stockholders of Transpacific and Coffee subject to United States tax will not
recognize gain or loss from the transaction. In addition, the transaction is
not intended to result in the recognition of gain or loss to either Coffee or
Transpacific in the respective jurisdictions where each of them is subject to
taxation. NO OPINION OF COUNSEL NOR A RULING FROM THE INTERNAL REVENUE
SERVICE HAS BEEN OBTAINED IN REFERENCE TO THE FOREGOING. THE FOREGOING IS FOR
GENERAL INFORMATION ONLY AND TRANSPACIFIC STOCKHOLDERS SHOULD CONSULT THEIR
OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TRANSACTION
TO THEM.
INVESTORS' RIGHTS AND SUBSTANTIVE PROTECTION UNDER RULE 419
Deposit of Offering Proceeds and Securities
Rule 419 requires that in a blank check offering, offering proceeds,
after deduction for underwriting commissions, underwriting expenses and dealer
allowances, and the securities purchased by investors in such an offering, be
deposited into an escrow or trust account governed by an agreement which
contains certain terms and provisions specified by the rule. Under Rule 419,
the Deposited Funds and Deposited Securities will be released to Transpacific
and to the 419 Investors, respectively, only after Transpacific has met the
following three basic conditions. First, Transpacific must execute an
agreement(s) for an acquisition or merger meeting certain prescribed
criteria. Second, Transpacific must file a post-effective amendment to its
registration statement which includes the terms of a reconfirmation offer that
must contain conditions prescribed by the rule. The post-effective amendment
must also contain information regarding the acquisition or merger
candidate(s)and its business(es), including audited financial statements.
Third, Transpacific must conduct the reconfirmation offer and satisfy all of
the prescribed conditions, including the condition that a certain minimum
number of investors must elect to remain investors. After Transpacific
submits a signed representation to the escrow agent that the requirements of
Rule 419 have been met, and after the acquisition or merger is consummated,
the escrow agent can release the Deposited Funds and Deposited Securities.
11<PAGE>
Accordingly , Transpacific has entered into an escrow agreement with
Atlantic Liberty Savings Bank (the "Escrow Agent") which provides that:
(1) The proceeds are to be deposited into the Escrow Account maintained
by the Escrow Agent promptly upon receipt. Rule 419 permits 10% of the
Deposited Funds to be released to Transpacific prior to the reconfirmation
offering. The Deposited Funds and any dividends or interest thereon, if any,
are to be held for the sole benefit of the investors and can only be invested
in bank deposits, in money market mutual funds or federal government
securities or securities for which the principal or interest is guaranteed by
the federal government.
(2) All securities issued in connection with the offering and any other
securities issued with respect to such securities, including securities issued
with respect to stock splits, stock dividends or similar rights are to be
deposited directly into the Escrow Account promptly upon issuance. The
identity of the investors are to be included on the stock certificates or
other documents evidencing the Deposited Securities. The Deposited Securities
held in the Escrow Account are to remain as issued and are to be held for the
sole benefit of the investors' who retain the voting rights, if any, with
respect to the Deposited Securities held in their names. The Deposited
Securities held in the Escrow Account may not be transferred, disposed of nor
any interest created therein other than by will or the laws of descent and
distribution, or pursuant to a qualified domestic relations order as defined
by the Internal Revenue Code of 1986 or Table 1 of the Employee Retirement
Income Security Act.
12<PAGE>
Prescribed Merger Criteria
Rule 419 requires that before the Deposited Funds and the Deposited
Securities can be released, Transpacific must first execute an agreement to
acquire an acquisition candidate(s) or merge with a merger candidate(s)
meeting certain specified criteria. The agreement(s) must provide for the
acquisition(s), merger(s) of a business(es) or assets for which the fair value
of the business represents at least 80% of the maximum offering proceeds. The
agreement(s) must include, as a condition precedent to their consummation, a
requirement that the number of investors representing 80% of the maximum
offering proceeds must elect to reconfirm their investment. For purposes of
the offering, the fair value of the business(es) or assets to be acquired must
be at least $14,400 (80% of $18,000). Based on its audited financial
statements, Coffee has a fair value in excess of $14,400. (See "Coffee
Holding Co., Inc. Financial Statements.")
Post-Effective Amendment
Once the agreement(s) governing the acquisition(s), merger(s) of a
business(es) meeting the above criteria has been executed, Rule 419 requires
Transpacific to update the registration statement with a post-effective
amendment. The post-effective amendment must contain information about the
proposed acquisition candidate(s) and its business(es), including audited
financial statements, the results of this Reconfirmation Offering and the use
of the funds disbursed from the Escrow Account. The post-effective amendment
must also include the terms of the reconfirmation offer mandated by Rule
419. The reconfirmation offer must include certain prescribed conditions
which must be satisfied before the Deposited Funds and Deposited Securities
can be released from the Escrow Account.
Reconfirmation Offering
The reconfirmation offer must commence after the effective date of the
post-effective amendment. Pursuant to Rule 419, the terms of the
reconfirmation offer must include the following conditions:
(1) The prospectus contained in the post-effective amendment will be sent
to each Rule 419 Investor whose securities are held in the Escrow Account
within 5 business days after the effective date of the post-effective
amendment.
(2) Each investor will have no fewer than 20 and no more than 45
business days from the effective date of the post-effective amendment to
notify Transpacific in writing that the investor elects to remain an Rule 419
Investor. The confirmations will be tabulated 20
business days from the Effective Date. Rule 419 Investors who submit
their Letter of Reconfirmation to Transpacific shall not have the right
to revoke such letter.
(3) If Transpacific does not receive written notification from an
investor within 20 business days following the Effective Date, the pro
rata portion of the Deposited Funds (and any related interest or dividends)
held in the Escrow Account on such Rule 419 Investor's behalf will be returned
to the investor within 5 business days by first class mail or other
equally prompt means.
(4) The acquisition(s) will be consummated only if a minimum number of
Rule 419 Investors representing 80% of the maximum offering proceeds equaling
$14,400 elect to reconfirm their investment.
(5) If a consummated acquisition has not occurred by February 12, 1998
(18 months from the date of original prospectus), the Deposited Funds held in
the Escrow Account shall be returned to all Rule 419 Investors on a pro rata
basis within 5 business days by first class mail or other equally
prompt means.
13<PAGE>
Release of Deposited Securities and Deposited Funds
The Deposited Funds and Deposited Securities may be released to
Transpacific and the Rule 419 Investors, respectively, after:
(1) The Escrow Agent has received a signed representation from
Transpacific and any other evidence acceptable by the Escrow Agent that:
(a) Transpacific has executed an agreement for the acquisition of
or merger with a target business for which the fair market value of the
business represents at least 80% of the maximum offering proceeds and has
filed the required post-effective amendment;
(b) The post-effective amendment has been declared effective, the
mandated reconfirmation offer having the conditions prescribed by Rule 419 has
been completed and that Transpacific has satisfied all of the prescribed
conditions of the reconfirmation offer.
(2) The acquisition of, or merger with, a business (including shareholder
approval of the merger or acquisition) with the fair value of at least 80% of
the maximum proceeds.
RISK FACTORS
Investment in the securities offered hereby involves a high degree of
risk. Prospective investors should carefully consider, together with the
other information appearing in this Prospectus, the following factors, among
others, in evaluating Coffee and its business before or reconfirming their
investments in Transpacific.
Lack of Diversification
If this Merger is consummated, Transpacific will be involved in no other
business combination. This lack of diversification may subject Transpacific
shareholders to economic fluctuations within those industries in which Coffee
conducts business.
Coffee's business is centered around essentially one product: coffee. To
date, Coffee's operations have been limited to several segments of the Coffee
industry: sales of green coffee; roasting, blending, packaging and
distributing proprietary blends of coffee; roasting, blending, packaging and
distributing private label coffee; roasting and distributing gourmet coffee.
Any decrease in demand for coffee would have a material adverse effect on
Coffee's business, operating results and financial condition.
Reliance on Key Existing and Future Personnel
Coffee's success will depend to a large degree upon the efforts and abilities
of its officers and key management employees, Andrew Gordon, President,
Treasurer, and Chief Executive Officer, and David Gordon, Coffee's Executive
Vice President-Operations and Secretary. The loss of the services of one or
more of its key employees could have a material adverse effect on Coffee's
business prospects and potential earning capacity. Coffee has not entered
into
employment agreements with either Andrew Gordon or David Gordon. Coffee has
no key person life insurance on either Andrew Gordon or David Gordon. Coffee
will need to continue to recruit and retain additional members of senior
management to manage anticipated growth, but there can be no assurance that
Coffee will be able to recruit or retain additional members of senior
management on terms suitable to Coffee. (See "Management - Directors,
Executive Officers and Other Key Employees.")
14<PAGE>
Growth Strategy
The Company is pursuing an aggressive growth strategy, the success of which
will depend in large part upon its ability to expand its client base and
enter
new segments of the coffee industry through acquisitions of existing
companies. Even if the Company is successful in enhancing profitability
after
acquiring additional companies, there can be no assurance as to how long a
period of time accomplishing such profitability will take or the levels of
future profitability that can be achieved. Acquisitions involve a number of
risks, including, the diversion of management's attention, issues related to
the assimilation of the operations and personnel of the acquired businesses,
and potential adverse effects on the Company's operating results. There can
be no assurance that the Company will find attractive acquisition candidates
in the future, that acquisitions can be consummated on acceptable terms, that
any acquired companies can be integrated successfully into the Company's
operations or that any such acquisitions will not have an adverse effect on
the Company's financial condition or results of operations.
Successful achievement of the Company's expansion plans will depend in part
upon its ability to: (i) select and compete successfully in new markets; (ii)
hire, train and retain qualified personnel; (iii) expand roasting
facilities.
The Company may incur significant start-up costs in connection with entering
new markets. There can be no assurance that the Company will achieve its
planned expansion goals on a timely basis, if at all, or manage its growth
effectively. Failure to expand or manage its growth could have a material
adverse effect on the Company's financial condition or results of
operations.
See "Business - Growth Strategy," and "Management's Discussion and Analysis
of
Financial Conditions and Results of Operations".
Control of Transpacific
After consummation of the Merger, including the Stock Split, the current
shareholders of Coffee will control the vote of 88.5% of Transpacific's
issued
and outstanding common shares. As a result, the former Coffee shareholders
will have the ability to control the outcome of substantially all issues
submitted to Transpacific's shareholders. (See "PRINCIPAL SHAREHOLDERS" and
"MERGER- Terms and Conditions of the Merger Agreement")
Dilution
The holders of the restricted common shares of Transpacific have
acquired
their interest in Transpacific at an average cost per share which was
significantly less than that which the public investors paid for their
securities. Consequently, the public investors will bear the majority of the
risk of any loss that may be incurred in Transpacific's operations. A
confirmation of the investment in the Common Stock will result in an
immediate
substantial dilution of the investor's investment.
Lack of Public Market for Securities/Probable Inability to Resell Securities
Prior to the closing of the Merger, there will have been no public
trading market for Transpacific's Common Stock. Given the small size of the
initial public offering, the relatively minimal public float, and lack of
participation of a professional underwriter, there is only a very limited
likelihood of any active and liquid public trading market developing for the
shares. If such a market does develop, the price of Transpacific's common
stock may be volatile. Thus, investors run the risk that they will never be
able to sell their Shares. In any event, there are additional state
securities laws preventing resale transactions. No potential market makers
have been solicited by Transpacific. There can be no assurances that any
broker will ever agree to make a market in Transpacific's securities. (See
"DESCRIPTION OF SECURITIES")
15<PAGE>
Need for Additional Financing
In order to achieve and maintain Coffee's planned growth rate, Coffee
believes that it may have to obtain bank financing or sell additional debt or
equity (or hybrid) securities in public and private financing. In addition,
Coffee may incur debt or issue equity securities in order to finance
acquisitions. Any such financing could dilute the interests of current
shareholders in this offering. There can be no assurance that any such
additional financing will be available or, if it is available, that it will
be
in such amounts and on such terms as will be satisfactory to Coffee.
Competition
The market for coffee is fragmented and highly competitive, and competition
is
increasing substantially. Coffee competes with other suppliers and
distributers of green coffee, whole bean and roasted coffees; its whole bean
coffees compete directly against specialty coffees sold at retail through
supermarkets and a growing number of specialty coffee stores. Coffee's
private labels compete with many other well known brand names. Additionally,
its gourmet coffees compete with coffee sold in a growing number of espresso
stands, carts, and gourmet coffee stores. Both Coffee's whole bean coffees
and its processed coffee compete indirectly against all other brands on the
market. The coffee industry is dominated by several large companies such as
Kraft General Foods, Inc., Proctor & Gamble Co., and Nestle, S.A., many of
which have begun marketing gourmet coffee products in addition to non-gourmet
coffees. Other competitors, some of which may have greater financial and
other resources than Coffee, may also enter the markets in which Coffee
currently operates or intends to expand. There can be no assurance that
Coffee will be able to compete successfully against these competitors.
Fluctuations in Availability and Cost of Green Coffee
Coffee is the world's second largest traded commodity and its supply and
price are subject to volatility beyond the control or influence of Coffee.
Supply and price can be affected by many factors such as weather, politics
and
economics in the producing countries.
Coffee prices are extremely volatile. Coffee believes that increases in
the cost of its purchased coffee can, to a certain extent, be passed through
to its customers in the form of higher prices for beans and processed coffee
sold by Coffee stores. Coffee believes that its customers will accept
reasonable price increases made necessary by increased costs. Coffee's
ability to raise prices, however, may be limited by competitive pressures if
other major coffee wholesalers and retailers do not raise prices in response
to increased coffee prices. Coffee's inability to pass through higher coffee
prices in the form of higher retail prices for beans and beverages could have
a material adverse effect on Coffee. Alternatively, if coffee prices remain
too low, there could be adverse impacts on the level of supply and quality of
coffees available from producing countries, which could have a material
adverse effect on the Company. Since the early 1980's, Coffee has been
selling higher quality gourmet coffee, such as espresso. Although most
coffee
trades in the commodity market, gourmet coffee tends to trade on a negotiated
basis at a substantial premium above commodity coffee pricing, depending upon
the origin, supply and demand at the time of purchase.
16<PAGE>
No Dividends and None Anticipated
Transpacific has not paid any dividends and does not contemplate or
anticipate paying any dividends on its common stock in the foreseeable
future.
Arbitrary Offering Price
The price at which the Transpacific's Shares had been offered to the
public in Transpacific's initial public offering had been arbitrarily
determined by Transpacific. There is no relationship between the initial
offering price of the Shares to Transpacific's assets, book value, net worth
or other economic or recognized criteria of value. In no event should the
offering price be regarded as an indication of any future market price of the
securities.
Possible Future Rule 144 Sales
There are currently 97,000 Transpacific restricted common shares issued
and outstanding. These shares are "restricted securities" as defined by Rule
144 of the Securities Act. Under Rule 144, restricted securities which have
been beneficially owned for at least one year may be sold in brokers'
transactions or directly to market makers, subject to certain quantity and
other limitations. Generally, under Rule 144 a person may sell, in any
three-month period, an amount equal to the greater of (i) the average weekly
trading volume, if any, of the common stock during the four calendar weeks
preceding the sale or (ii) 1% of the company's outstanding common stock.
After the Merger, and subsequent Stock Split (See "Merger") Transpacific will
have outstanding 4,000,000 shares of Common Stock, including 30,000 shares
held in escrow (3,000 before the Stock Split) (See "MERGER-Terms and
Conditions of Merger Agreement"). Shares beneficially owned for two years
by
non-affiliates of the Company may be sold without regard to these quantity or
other limitations. As of the date hereof, 5,000 shares may be sold pursuant
to Rule 144. The possibility of sales of substantial amounts of such stock
could have a depressive effect on the price of the common stock in any market
which may develop.
Conflicts of Interest
Transpacific's officers and directors are engaged in various business
ventures. Thus, there may be conflicts of interest in the allocation of time
between Transpacific's business and such other businesses. These activities
may conflict with the interests of Transpacific. As a result of their other
interests, they may personally benefit from decisions or recommendations made
with respect to the business of Transpacific. Whereas conflicts may arise,
management is aware of its fiduciary duty to Transpacific and will act in
good
faith and endeavor on an equitable basis to resolve any conflicts which may
arise, on an equitable basis.
Caution to Public Investors
For all of the aforesaid reasons, and others set forth herein, these
securities involve a high and substantial degree of risk. Any public
investor
considering reconfirming his/her investment in Transpacific should be aware
of
these and other factors as set forth in this Prospectus. No public investor
considering reconfirming his/her investment in Transpacific should do so if
he/she anticipates a need for immediate return on his investment.
Reconfirmation should only be made by investors who can afford to absorb a
total loss and have no need for immediate return on their investments.
17<PAGE>
Dependence on Qualified Personnel and Key Individuals
Upon completion of the Merger, Transpacific's officers and directors
will
resign, and new officers and directors will be appointed. Neither
Transpacific nor Coffee can assure current Transpacific shareholders of the
qualifications of such persons to run a publicly owned company. Coffee is
dependent on certain key officers, employees and directors. The loss of the
services of any of such persons during this period could adversely affect
Transpacific's prospects. See, "MANAGEMENT - Directors and Executive
Officers."
Determination of the Ratio of Shares in the Merger Transaction; No
Independent
Valuation
The number of Transpacific shares to be issued pursuant to the Merger
Agreement was determined by negotiation between Coffee and Transpacific and
does not necessarily bear any relationship to Coffee's asset value, net worth
or other established criteria of value and should not be considered
indicative
of the actual value of Coffee. Furthermore, neither Coffee nor Transpacific
has obtained either an appraisal of Coffee's or Transpacific's securities or
an opinion that the Merger is fair from a financial perspective.
Failure of Sufficient Number of Investors to Reconfirm Investment
The Merger cannot be consummated unless, in connection with the
reconfirmation offering required by Rule 419, the Rule 419 Investors
representing 80% of the maximum offering proceeds elect to reconfirm their
investments. Rule 419 Investors must affirmatively elect to reconfirm their
investments; no response within the twenty business day period
Transpacific must grant its shareholders to reconfirm will be viewed as a vote
not to reconfirm. If,after completion of the reconfirmation offering being
conducted pursuant hereto, a sufficient number of Rule 419 Investors do not
reconfirm their investment, the Merger will not be consummated. In such
event, none of the deposited securities held in escrow will be issued and the
deposited funds will be returned to Rule 419 Investors on a pro rata basis.
As a consequence, since Transpacific expects to use the 10% allowed to it
pursuant to Rule 419, the Rule 419 Investors will be returned only 90% of
their invested funds.
Penny Stock Regulation
Broker-dealer practices in connection with transactions in "penny-stock"
are regulated by certain penny stock rules adopted by the Securities and
Exchange Commission. Penny stocks generally are equity securities with a
price of less than $5.00 (other than securities registered on certain
national securities exchanges or quoted on the NASDAQ system, provided that
current price and volume information with respect to transactions in such
securities is provided by the exchange or system). The penny stock rules
require a broker-dealer, prior to a transaction in a penny stock not otherwise
exempt from the rules, to deliver a standardized risk disclosure regarding
penny stocks and the nature and level of risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer's account. In addition,
the penny stock rules require that prior to a transaction in a penny stock not
otherwise exempt from such rules the broker-dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the penny
stock rules. If Transpacific's Common Stock becomes subject to the penny
stock rules, investors in this offering may find it more difficult to sell
their shares.
18<PAGE>
MERGER
Background of the Merger Agreement
Transpacific was organized on October 9, 1995 under the laws of the State
of Nevada in order to provide a vehicle to acquire or merge with a business or
company. On August 12, 1995, Transpacific commenced a "blank check" offering
pursuant to Rule 419 ("Rule 419") promulgated under the Securities Act. The
purpose of the offering was to cause Transpacific to become a publicly held
reporting company under the Securities Exchange Act of 1934, as amended. The
offering was successful in raising $18,000 in gross proceeds from Rule 419
Investors. Pursuant to Rule 419, $16,200 of the net proceeds from that
offering, the 97,000 restricted shares of common stock and 3,000 Transpacific
shares purchased by the Rule 419 Investors, were placed in escrow pending (i)
distribution of a prospectus to each of the Rule 419 Investors describing any
prospective business acquisition by Transpacific and (ii) the subsequent reconfi
rmation by the holders of at least 80% of the shares owned by the Rule 419
Investors that they have elected to remain investors.
In the event approval of the Merger is not obtained from at least 80% of
the Rule 419 Investors, then the shares deposited in the Rule 419 Escrow will
not be released to the Rule 419 Investors. Instead, the $16,200 net offering
proceeds in the Rule 419 Escrow will be released to the Rule 419 Investors in
proportion to their investment, at approximately $5.40 per share. In the
event the escrowed funds exceed $16,200 at the consummation of the Merger, the
excess funds shall be returned on a pro rata basis to those registered common
shareholders rejecting the reconfirmation offer. The Rule 419 Investors paid
$6.00 per share in Transpacific's initial public offering.
Pursuant to Rule 419, the value of Coffee must represent at least 80% of
the maximum offering proceeds, or $14,400. Based upon independent audited
financial statements, Coffee has a business value of not less than $14,400.
(See "Coffee Holding Co., Inc. Financial Statements.")
Terms and Conditions of Merger Agreement
STOCKHOLDERS OF TRANSPACIFIC WISHING TO OBTAIN A COPY OF THE MERGER AGREEMENT,
WHICH IS INCORPORATED INTO THIS PROSPECTUS BY REFERENCE, MAY OBTAIN ONE
WITHOUT CHARGE BY WRITING TO SCHONFELD & WEINSTEIN, L.L.P. ATTENTION: JOEL
SCHONFELD, 63 WALL STREET, SUITE 1801, NEW YORK, NEW YORK 10005.
Pursuant to the Merger Agreement, Coffee will be merged into
Transpacific. Consummation of the transaction contemplated by the Merger
Agreement (the "Merger") is conditioned upon, among other things,
reconfirmation by holders of least 80% of the shares owned by the Rule 419
Investors. Upon consummation of the Merger, (i) Transpacific shall institute
a ten for one (10:1) Stock Split (the "Stock Split"), after which 3,000,000
shares of common stock shall be issued to former Coffee shareholders. Each
shareholder who holds shares of Transpacific Common Stock registered pursuant
to a registration statement declared effective by the Securities and Exchange
Commission on August 12, 1996 ("Registered Common Stock") prior to the Merger
and who accepts the Reconfirmation Offer shall, after consummating of the
Merger and subsequent Stock Split, hold ten (10) shares for every one (1)
share held prior to the Merger and subsequent Stock Split. Coffee will merge
into Transpacific with Transpacific as the Surviving Entity. The Merger is
intended to be consummated in such a manner as to be tax-free to all parties
involved under Internal Revenue Code Section 368(a)(1)(A); (ii) each Rule 419
investor who rejects the Reconfirmation Offer will be paid his or her pro rata
share of the amount in the Escrow Account of approximately $5.40 per share;
(iii) holders of Transpacific common stock, the resale of which is restricted
under United States Securities laws ("Restricted Common Stock") prior to the
Merger shall continue to hold his/her share certificate representing
Transpacific Restricted Common Stock, which stock shall be subject to the ten
for one (10:1) Stock Split. Consummation of the Merger is not subject to any
governmental approvals.
19<PAGE>
As a result of the Stock Split, the 3,000 shares currently held in escrow
shall become 30,000 shares of Transpacific Registered Common Stock, and the
97,000 Restricted Common Stock shall become 970,000.
The result of the Merger, assuming that 80% of the Transpacific
stockholders reconfirm their investments, is that former Coffee shareholders
shall own 88.5% of the Surviving Entity while current Transpacific
shareholders, including those Transpacific shareholders who are also
shareholders of Coffee, shall own 25% of Transpacific. (See "Certain
Transactions")
Stockholders of Transpacific desiring to accept the Reconfirmation Offer
are directed to sign the enclosed Letter of Reconfirmation form and return it
to Schonfeld & Weinstein, Attention: Joel Schonfeld, Esq., 63 Wall Street,
Suite 1801, New York, New York 10005, who will forward each Letter of
Reconfirmation to the Atlantic Liberty Savings, Transpacific's escrow agent.
Any Transpacific stockholder who fails to return his or her form so that it
is
received by Mr. Schonfeld by (20 business
days from the date hereof) will be deemed to have rejected the Reconfirmation
Offer and will automatically be sent a check within five business days
representing his or her pro rata share of the
funds in the Escrow Account for the benefit of the Rule 419 Investors.
Certain Income Tax Consequences
The Merger is intended to qualify as a "tax-free reorganization" for
purposes of the United States federal income tax so that stockholders of
Transpacific and Coffee will not recognize gain or loss from the
transaction.
In addition, the transaction is not expected to result in the recognition of
gain or loss to either Transpacific or Coffee in the respective jurisdictions
where each of them is subject to taxation. NO OPINION OF COUNSEL NOR A
RULING
FROM THE INTERNAL REVENUE SERVICE HAS BEEN OBTAINED IN REFERENCE TO THE
FOREGOING. THE FOREGOING IS FOR GENERAL INFORMATION ONLY AND TRANSPACIFIC
STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER TO THEM.
Fees and Expenses
Shareholders of Coffee shall bear all costs and expenses incurred in
connection with the Merger and the Reconfirmation Offering, since the only
funds available to Transpacific are the $16,200 in cash held in escrow
pursuant to Rule 419, none of which may be used by either Transpacific or
Coffee prior to the consummation of the Merger.
USE OF PROCEEDS
The gross proceeds of Transpacific's initial public offering was
$18,000. Pursuant to Rule 15c2-4 under the Securities Exchange Act of 1934
(the "Exchange Act"), all of those proceeds must be held in escrow until all
of the shares are sold. Pursuant to Rule 419 under the Securities Act, after
all of the Shares are sold, 10% of the Deposited Funds ($1,800) may be
released from escrow to Transpacific. Transpacific requested the release of
this 10%. To date, $785 has been expended for accounting fees with the
remaining $1,015 being held in a separate account. Upon the consummation of
the Merger and the reconfirmation thereof, which reconfirmation offering must
precede such consummation, pursuant to Rule 419, $18,000 (plus any interest
or
dividends received, but less any portion disbursed to Transpacific pursuant
to
Rule 419(b)(2)(C)(vi) and any amount returned to investors who did not
reconfirm their investment pursuant to Rule 419 or approximately $16,200)
will
be released to Coffee.
20<PAGE>
SELECTED FINANCIAL DATA
(All amounts expressed in US$)
Transpacific International Group Corp.:
10/9/95 to 10/1/96 to
9/30/96 6/30/97
Net Income from Operations $ 0 $ 0
Total Current Assets 2,730 783
Other Assets 0 0
Total Assets 2,730 783
Total Current Liabilities 0 0
Long-term Liabilities 0 0
Dividends 0
0
Total Stockholders equity 0 0
Coffee Holding Co., Inc. 10/31/95 to 10/31/96 to
10/31/96 07/31/97
Net Income from Operations 499,517
1,256,757
Total Current Assets 3,912,386
4,606,567
Other Assets 1,340,464
63,927
Total Assets 5,252,840 5,958,690
Total Liabilities 4,531,468 4,093,561
Total Current Liabilities 3,403,051 3,002,344
Dividends 0 0
Total Stockholders equity 721,372
1,865,129
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TRANSPACIFIC INTERNATIONAL GROUP CORP.
General
Transpacific was organized under the laws of the State of Nevada on
October 9, 1995. Since inception, the primary activity of Transpacific has
been directed to organizational efforts, and obtaining initial financing and
conducting its initial public offering pursuant to which Transpacific offered
and sold 3,000 shares of common stock at $6.00 per share. Pursuant to Rule
419, the proceeds of Transpacific's initial public offering ($18,000) less
10%
($1,800) have been placed in escrow pending consummation of a merger or
acquisition. (See "INVESTORS' RIGHTS AND SUBSTANTIVE PROTECTION UNDER RULE
419"). In the event no merger or acquisition is consummated within eighteen
(18) months from the effective date of Transpacific's initial public offering
(February 12, 1998). Transpacific shall return investors' money, less
$1,800,
on a pro rata basis.
Transpacific was organized for the purposes of creating a corporate vehicle
to
seek,
investigate and, if such investigation warranted, engaging in Business
combinations presented to it by persons or firms who or which desire to
employ
Transpacific's funds in their business or to seek the perceived advantages of
a publicly-held corporation. Transpacific's principal business objective is
to seek long-term growth potential in a business combination venture rather
than to seek immediate, short-term earnings.
21<PAGE>
Transpacific does not currently engage in any business activities which
provide any cash flow. Transpacific's business is sometimes referred to as a
"blank check" company because investors entrust their investment monies to
Transpacific's management before they have a chance to analyze any ultimate
use to which their money may be put. Although substantially all of the
Deposited Funds of this offering are intended to be utilized generally to
effect a business combination, such proceeds are not otherwise being
designated for any specific purposes. Pursuant to Rule 419, prospective
investors who invest in Transpacific will have an opportunity to evaluate the
specific merits or risks of only the business combination management decides
to enter into.
Management anticipates that it may be able to effect only one potential
business combination, due primarily to Transpacific's limited financing.
Results of Operations
Transpacific's public offering was declared effective on August 12,
1996. Transpacific offered a total of 3,000 shares (par value $.0001) at an
offering price of $6.00 per share, for an aggregate of $18,000.00. On
February 10, 1997 , Transpacific closed on 3,000 shares for a total gross
proceeds of $18,000.00. Pursuant to Rule 419 of the Securities Act, net
proceeds of $16,200.00 together with all securities issued are being held in
escrow pending the consummation of an acquisition or merger.
After the closing of the Merger, the business of Transpacific will be
the
business of Coffee. (See "BUSINESS - Coffee"). The resources of Coffee will
be the resources available to Transpacific to fulfill the business purpose of
marketing, manufacturing and distributing coffee. Coffee believes the
combined cash resources and available credit of Coffee and Transpacific will
be sufficient to run operations for one year.
At June 30, 1997, Transpacific's current assets amounted to $783, while
current liabilities amounted to $-0-. In addition, Transpacific's
organization costs amounted to $- 0- for the period ended June 30, 1997.
In the event approval of the Merger is not obtained from at least 80% of
the Rule 419 Investors, then the shares deposited in the Rule 419 Escrow will
not be released to the Rule 419 Investors. Instead, the $16,200 net offering
proceeds in the Rule 419 Escrow will be released to the Rule 419 Investors in
proportion to their investment, at approximately $5.40 per share. In the
event the escrowed funds exceed $14,400 at the consummation of the Merger,
the
excess funds shall be returned on a pro rata basis to those registered common
shareholders rejecting the reconfirmation offer. The Rule 419 Investors paid
$6.00 per share in Transpacific's initial public offering.
22<PAGE>
COFFEE HOLDING CO., INC.
The Company is engaged in several aspects of the coffee industry, including
wholesales of green coffee beans, roasting, packaging and distributing
proprietary and private brands of coffee, as well as gourmet coffee. (See
"BUSINESS - Coffee").
Year Ended October 31, 1996 compared to Year Ended October 31, 1995
Year Ended
October 31,
1996 1995
Net Sales $21,162,100 $23,923,561
Cost of Sales $18,775,383 $22,881,314
Operating Expenses $ 1,878,672 $ 1,470,084
Net Income (loss) $ 499,517 $ ( 429,062)
Net Sales for the year ended October 31, 1996 were $21,161,100 compared
to $23,923,561, a decrease of $2,761,461 (13%). This decrease was a result
of
fluctuations in the price of green coffee. In fiscal year 1995, coffee sold
at approximately $1.30 lb., as compared to an approximate price of $1.05 lb.
in Coffee's fiscal year 1996. Although Coffee experienced a decrease in
revenues, its sales volumes increased. However, despite sales increase in
fiscal year 1996, lower coffee prices resulted in decreased sales revenues.
Cost of sales decreased $4,105,931 (17.9%) from $22,881,314 in 1995 to
$18,775,383 in 1996. Cost of sales as a percentage of sales decreased from
95.6% in 1995 to 88.7% in 1996. This decrease is due to fluctuation in the
price of green coffee.
Coffee is a commodity traded on the Commodities and Futures Exchange.
Coffee prices fluctuate according to various factors, including supply and
demand. Over the past ten years, the average price per pound of coffee ranged
from $.80 to $1.50. However, within the past ten years, prices have varied
from a low of $.49 per pound in 1991 to a high of $3.18 in May 1997. The $.49
per pound price occurred when there was a perceived glut on the market which
drove the future price down to an unnatural low, while the $3.18 per pound in
May was the result of panic purchasing, which drove the price of coffee beans
up to an unnatural high. These panic lows and highs usually last for but a
short period of time when rumors or news affects the futures market.
The present price for coffee beans on the commodities market is $1.44 per
pound. Management believes that coffee prices will remain stable for the
foreseeable future.
The Company enters into contracts with its customers to supply them with
coffee; either raw beans or ground, blended and packaged coffees, depending on
its clients' needs. To protect itself from the varying price of green
coffee, the Company enters into the futures market. The Company will
purchase
coffee beans on the present market when it believes the price is low, and
immediate delivery to the Company's clients is required. To fulfil future
contracts, the Company buys futures which will insure that the Company can
obtain coffee beans at a designated price at a later date. This enables the
Company to stabilize its pricing with its customers for the finished product.
By purchasing futures, the Company can lock in a good price for its coffee,
stabilizing the prices for future purchase. The Company further uses the
method of stabilizing its cost of beans by purchasing puts and calls on the
coffee commodities exchange. By doing this, the Company can obtain a coffee
future by exercising a call or can divest of a coffee future by exercising a
put. This method allows the Company to keep an even and constant flow of
coffee at a regulated price so as to avoid wide and varied differences in the
price of its coffee from one season to the next. While such use of options
and futures helps to reduce flucutations in Coffee's purchse price, it does
not eliminate the flucuations entirely, as evidenced by the variation in costs
of sales from fiscal year 1995 to 1996. The price of the coffee on the
futures market as well as the current market is a reflection of the quantity
and quality of coffee crops, as well as anticipated crops. Coffee crops are
effected by weather conditions and extreme temperature fluctuations.
23<PAGE>
Global consumption of coffee has increased approximately 2% per year over
the past 7 years. Management believes that this increase in the consumption
of coffee at that rate is likely to continue for the foreseeable future.
The Company is engaged in a concerted effort to increase its sales
revenues and production. Since 1995, the Company has refurbished and
improved all of its existing equipment to prepare for in increase in
production. As part of this effort, the Company recently purchased a new
roaster which will go into operation in January 1998. The Company believes
that the new roaster will enable the Company to increase its production of
roasted beans by two times its present capacity. The Company has also begun
efforts to increase its sales through private label contracts with
supermarkets and other chain stores. One of the Company's largest clients is
ShopRite. The Company believes that its improved equipment will allow it to
increase its capacity and successfully serve its growing customer base.
Additionally, the Company has increased its work force from eight to its
present twenty-two full time employees. The Company is further working to
increase sales of its proprietary brand coffees, through increase sales and
marketing efforts.
Liquidity and Capital Resources. The Company recently terminated a
line of credit from Finova Capital Corporation ("Finova"), pursuant to which
Finova made available to the Company up to $2,500,000. This line of
credit, combined with the Company's existing cash flow, allowed the Company to
meet its capital requirements on an on-going basis.
On November 21, 1997, Coffee entered into a loan agreement with
NationsCredit Commerical Corporation ("Loan Agreement"). The maximum amount
of the loans that can be issued under the Loan Agreement is $5,000,000. The
interest rate on any loan is 1% in excess of NationsCredit's prime rate. The
maturity date of the Loan Agreement is November 20, 2000. The amounts are
advanced based upon accounts receivable, inventory and equipment. The Company
granted NationsCredit a security interest in all of the Company's property.
As of December 15, 1997, the Company had $3,118,624.30 outstanding with
NationsCredit Commercial Corp. Management of Coffee believes this line of
credit, combined with the Company's existing cash flow should be sufficient to
meet the Company's capital requirements on an on-going basis for its existing
operations over the next twelve (12) months. No officer, director or
principal shareholder of Coffee is affiliated or has any interest in
NationsCredit Commercial Corp.
Coffee recently purchases a roaster for approximately $288,000. Coffee made
a 10% deposit on this roaster, with the balance to be financed under the Loan
Agreement.
Coffee
Operating Expenses for 1996 were $1,878,672 and $1,470,084 in 1995, an
increase of $408,588 (27.8%) while interest expenses remained consistent
($310,000 in 1996 compared to $313,953 in 1995, a decrease of $3,953 or
1.3%),
selling and administrative expenses increased from $911,103 in 1995 to
$1,154,341 in 1996 an increase of $243,238 or 26.67%. However, selling and
administrative expenses were 61.44% of operating expenses and 61.98% in
1995.
Additionally, salaries increased to $413,740 in 1996 from $245,028 in 1995,
an
increase of $168,712 (68.89%). Salaries as a percentage of operating
expenses
increased from 16.67% in 1995 to 22.02% in 1996. Operating expenses as a
percentage of net sales increased from 6.14% in 1995 to 8.88% in 1996. This
increase was a result of increased maintenance of Coffee's facility,
including
a new roaster and other new machinery, as well as increased utilities
required
for the increase in volume of coffee processed and packaged by Coffee.
Additionally, as Coffee's volume increases, so do other of its operating
costs, such as packaging and trucking.
24<PAGE>
As a result of all of the above, Coffee generated net income of $499,517 in
1996, and a net loss of $(429,062) in 1995.
Nine Month Period Ended July 31, 1997 as
Compared to Nine Month Period Ended July 31, 1996
Nine Month Period
Ended July 31,
1997 1996
Net Sales $18,547,105 $15,014,380
Cost of Sales $15,586,862 $13,514,933
Operating Expenses $ 1,703,486 $ 1,204,138
Net Income (loss) $ 1,143,757 $ 312,819
Net sales for the nine month periods ended July 31, 1997 and July 31, 1996,
were $18,547,105 and $15,014,380, respectively, resulting in an increase of
$3,532,725 (23.5%). This increase is a result of an increase in sales
volumes, due to Coffee's efforts to expand its business. Higher prices of
green coffee contributed to this increase. Cost of sales increased from
$13,514,933 to $15,586,862, a $2,071,929 (15.3%) increase. The increase in
cost of sales is due to additional expenses associated with the greater sales
volumes, such as higher packaging costs, higher trucking costs, higher
utility
costs, and additional pay roll costs. The cost of sales as a percentage of
net sales decreased from 90% for the nine month period ended July 31, 1997 to
84% for the nine month period ended July 31, 1996.
Operating expenses for the nine month periods ended July 31, 1997 and 1996
were $1,703,486 and $1,204,138, respectively. This increase of $499,348
(41.5%) was due to an increase in selling and administrative expenses and
interest expenses. Selling and administrative expenses increased from
$819,548 to $1,221,400 (and increase of $401,852 or 49%). This increase is a
result of costs involved with the increase in volume of coffee roasted,
blended and packaged by Coffee. However, as a percentage of operating
expenses, selling and administrative expenses increased from 68.1% to only
71.7%. Interest expenses increased $97,496 (48.5%) from $200,819 to
$298,315,
as a result of fluctuations in Coffee's line of credit. Interest expenses as
a percentage of operating expenses increased from 16.7% this period in 1996
to
17.5% this period in 1997.
As a result of the above, net income increased from $312,819 for the nine
month period ended July 31, 1996 to $1,143,757 for the nine month period
ended
July 31, 1997.
25<PAGE>
BUSINESS
TRANSPACIFIC INTERNATIONAL GROUP CORP.
General
Transpacific was organized under the laws of the State of Nevada on
October 9, 1995. Since inception, the primary activity of Transpacific has
been directed to organizational efforts, and obtaining initial financing and
conducting its initial public offering pursuant to which Transpacific offered
and sold 3,000 shares of common stock at $6.00 per share. Pursuant to Rule
419, the proceeds of Transpacific's initial public offering ($18,000) less
10%
($1,800) have been placed in escrow pending consummation of a merger or
acquisition. (See "INVESTORS' RIGHTS AND SUBSTANTIVE PROTECTION UNDER RULE
419"). In the event no merger or acquisition is consummated within eighteen
(18) months from the effective date of Transpacific's initial public offering
(February 12, 1998). Transpacific shall return investors' money, on a pro
rata basis.
Transpacific was organized for the purposes of creating a corporate vehicle
to
seek,
investigate and, if such investigation warranted, engaging in Business
combinations presented to it by persons or firms who or which desire to
employ
Transpacific's funds in their business or to seek the perceived advantages of
publicly-held corporation. Transpacific's principal business objective is to
seek long-term growth potential in a business combination venture rather than
to seek immediate, short-term earnings.
Transpacific does not currently engage in any business activities which
provide any cash flow. Transpacific's business is sometimes referred to as a
"blank check" company because investors entrust their investment monies to
Transpacific's management before they have a chance to analyze any ultimate
use to which their money may be put. Although substantially all of the
Deposited Funds of this offering are intended to be utilized generally to
effect a business combination, such proceeds are not otherwise being
designated for any specific purposes. Pursuant to Rule 419, prospective
investors who invest in Transpacific will have an opportunity to evaluate the
specific merits or risks of only the business combination management decides
to enter into.
Management anticipates that it may be able to effect only one potential
business combination, due primarily to Transpacific's limited financing.
26<PAGE>
COFFEE HOLDING CO., INC.
General
Coffee Holding Co., Inc. was incorporated pursuant to the laws of the
State of New York on January 22, 1971. Coffee began operations in 1971 as a
wholesaler of green coffee, purchasing green coffee from commodities houses
and suppliers, and selling to coffee roasters. In 1975, Coffee began
roasting
and selling coffee under proprietary labels such as Via Roma. Currently,
Coffee roasts, grinds, blends and sells coffee under labels such as Cafe
Caribe,Don Manuel, and Fifth Avenue. Coffee owns the registered trademarks
for these brands.
In the early 1980's, Coffee began to expand expanding its operations,
and began selling gourmet coffee, which is higher quality coffee, such as
espresso. These coffee's are sold to higher end coffee bars, and specialty
stores. Gourmet coffee is sold in whole beans, or grounded and blended.
Coffee's business is divided into four (4) categories:
(1) Wholesale green coffee; (2) Roasting, grinding, blending and
packaging proprietary brand coffee; (3) Roasting, grinding, blending and
packaging private label coffee; and (4) Roasting and packaging specialized
"gourmet" coffee.
Wholesale Green Coffee
Coffee sells or brokers green gourmet beans to many smaller roasters and
gourmet coffee shop operators located throughout the continental United
States. Coffee purchases green coffee from approximately ten (10) suppliers
located primarily in the tri-state area. These suppliers supply Coffee with
beans from countries around the world including Columbia, Zimbabwe, Brazil
and
Ethiopia, among others. Coffee carries over fifty (50) different types of
coffee. Green gourmet beans are sold (unroasted) direct from the warehouses
to small roasters and gourmet bean stores. These stores and roasters will
roast the beans themselves. Such wholesales account for approximately 35% of
Coffee's gross revenues.
This end of the business represents the fastest growing segment of the
industry as gourmet coffee houses are increasing all over the United States.
Currently, Coffee has over 190 customers in this category with profits
ranging
from $.04 to over $1.00 per pound, depending upon the size of the customers,
the size of the order, type of coffee.
Roasting, Grinding, Blending and Packing Proprietary Line of Branded Coffees
Coffee roasts, grinds and blends coffee in its factory located at 4401
First Avenue, Brooklyn, New York. These coffees are packaged at Coffee's
facilities, as well, and shipped directly from the premises.
Since 1975, Coffee has acquired trademark registration rights for several
name brands of coffee. There names include Cafe Caribe, Cafe Supremo, Via
Roma, Don Manuel and Fifth Avenue. Coffee roasts, grinds, and blends these
beans according to Coffee recipes, then sells the coffees packaged in its
proprietary brands labels to supermarkets, wholesalers and individually owned
stores throughout the United States.
27<PAGE>
Each of Coffee's proprietary brands is aimed at a particular segment of
the coffee market. Coffee distributes "Cafe Caribe" in regular, decaffeinated
and instant forms, and "Fifth Avenue" in regular and decaffeinated. The
average profit margin on these items under normal conditions is approximately
28%. Sales of Coffee's proprietary brands comprise approximately 15% of
Coffee's sales revenues.
All of Coffee's roasted and ground blends are available in cans and brick
packs.
Roasting, Grinding, Blending and Packing Private Label Coffee
45% of Coffee's sales revenues comes from sales of coffees which Coffee
roasts, grinds, blends and packs under private labels. Currently, Coffee
roasts and packs coffee for some of the largest supermarket chains east of the
Mississippi River, including ShopRite. Coffee has no written contract
with ShopRite. Coffee sells approximately 5% of its coffee to ShopRite, and
the loss of ShopRite as a customer would not have a material adverse effect on
Coffee. Private label coffee is a highly competitive end of the
business with profit margins between 8% and 15%. However, the volume of
private label coffee that Coffee distributes can be as much as five (5) times
as great as its proprietary brands.
Roasting and Packing Gourmet Coffee
The most recent end of Coffee's business is roasting and packing
specialized blended and flavored coffees for the food service/ office coffee
service end of the business. As with private label coffees, roasted and
packed gourmet coffee is sensitive to fluctuations in coffee prices. Margins
for this segment of Coffee's business run approximately 15%.
Intellectual Property
Coffee holds trademarks for all of its proprietary name coffee brands.
The trademark for "Cafe Caribe" was originally registered with the U.S.
Department of Commerce, United States Patent and Trademark Office on November
9, 1954 for twenty (years). It was renewed on November 9, 1974 for twenty
(20) years, and renewed on July 18, 1995 for ten (10) years from the date the
registration was due to expire (November 9, 2004).
The trademark for "Via Roma" was registered with the United States
Patent
and Trademark office on August 10, 1976 for a twenty (20) year period. It
was
renewed on August 10, 1996 for a ten (10) year period.
Coffee holds the trademark "Sterling's Deluxe", which was registered
with
the United States Patent and Trademark Office on July 25, 1967 for a twenty
(20) year period, and renewed on June 7, 1988 for a twenty (20) year period,
to expire July 25, 2007. This trademark was originally held by M. & S.
Gordon
Co., Inc. and assigned to Coffee. On January 23, 1996, Coffee granted The
Quaker Oats Company the right to use the name "Sterling" on a coffee
product.
Coffee no longer distributes "Sterling Deluxe" coffee.
Coffee holds the trademark for "Fifth Avenue". This trademark was first
issued on December 16, 1988. Coffee filed a Declaration under Sections 8 and
15 on October 17, 1997, which will keep the "Fifth Avenue" trademark in full
force until August 11, 2002.
The trademark for "Don Manuel" is held by the Company. It was
originally
registered on August 1, 1967, and renewed on June 7, 1988 for a twenty (20)
year period to expire August 1, 2007.
28<PAGE>
Competition
Coffee is engaged in a business whereby it competes with similar
businesses which sell, roast and distribute coffee. Additionally, Coffee's
proprietary brand coffees compete with the many other brand coffees available
in supermarket and specialty stores. Currently, the coffee market is
dominated by several large companies, such as Kraft General Foods, Inc.,
Proctor & Gamble Co., and Nestle S.A. Other of Coffee's competitors, such as
Chock Full of Nuts, Mother Parker, Teatly and Continental Coffee Co., have
greater access to capital, are more familiar with the industry, and are more
widely recognized by potential consumers.
Legal Proceedings
Coffee is not a party to any legal proceedings which could materially
effect its business.
Employees
Coffee currently has 22 full time and 5 part time employees. Coffee's
employees do not belong to any unions. Management of Coffee enjoys good
working relationships with its employees.
Property
Coffee leases its executive offices and plant located at 4401-05 First
Avenue, Brooklyn, New York, from the New York City Industrial Development
Agency ("IDA"). In 1989, Coffee effectively purchased the property through
the IDA when the IDA issued bonds for the purchase of the property.
Coffee also leases a warehouse located at 4425a First Avenue, Brooklyn,
New York from T and O Management, of Brooklyn, New York (the "Lessor").
The Lessor is not affiliated in any way to Coffee or its officers, directors
or principal shareholders . The warehouse is 7,500 square feet. Coffee
pays $3,900 per month rent for this warehouse. This lease expires August 31,
2002.
Coffee's facilities are adequate for its current operations.
Year 2000 Issue
Coffee's current computer system has been updated to comply with any
issues relating to the upcoming change in the century. Coffee does not
anticipate incurring significant expense with regard to Year 2000 issues.
MANAGEMENT
Directors and Executive Officers
Set forth below is certain information regarding the directors and
executive officers of Transpacific and Coffee. The officers and directors of
Transpacific are expected to resign upon consummation of the Merger.
TRANSPACIFIC
Set forth below is information regarding the officers and directors of
the Transpacific.
Name Age Position with Transpacific
Ho Cheong Chio 46 President, Chairman of the Board
The Bank of America Building of Directors
27/F-A-D Avenida
Doutor Mario
Soares, Macau
David Chang 42 Secretary, Treasurer,
116 Pinehurst Ave., #L21 Director
New York, NY 10033
Christian Constantinov 41 Director
922 Old Post Rd.
Bedford, NY 10506
____________________
(1) May be deemed "Promoters" of Transpacific, as that term is defined under
the Securities Act.
29<PAGE>
BIOGRAPHY
Ho Cheong Chio, 46, has been President and Chairman of the Board of Directors
of Transpacific since Transpacific's organization. Since 1982, Mr. Chio has
been the owner and manager of Far East Trading Co., a trading company located
in Hong Kong. Mr. Chio graduated from South China Normal University High
School, located in Canton, China.
David Chang, 42, has been Secretary, Treasurer and a director of Transpacific
since its organization. Mr. Chang is a certified public accountant, and has
had his own accounting and tax practice since 1992. From 1989 to 1992, Mr.
Chang was employed as a certified public accountant with James D. Miller,
P.C., in New York. Mr. Chang received his M.S. in Accounting and Taxation
from American University, and his B.A. in English Literature from Zhongshan
University, Canton, China.
Christian Constantinov, 41, has been a director of Transpacific since December
4, 1995. Since 1991, Mr. Constantinov has been a professor at McGill
University in Montreal, Canada. From 1990 to 1995, he was a vice president of
Sony Classical Production, Inc. Mr. Constantinov received his M.A. in Piano
from the Conservatory of Sofia in Sofia, Bulgaria, and is a graduate of the
Graduate School of Engineering in Sofia.
COFFEE
Set forth below is information regarding the officers and directors of
Coffee:
Name Age Position with the Company
David Gordon 33 Executive Vice President - Operations
22 Barclay Road
Secretary, Director
Scarsdale, NY 10538
Andrew Gordon 36 President, CEO, Treasurer, Director
251 Meiser Avenue
Staten Island, NY 10306
Gerard DeCapua 36 Director
1771 Burnett Street
Brooklyn, NY 11242
Biography
David Gordon, 33, has been Executive Vice President - Operations and
Secretary
since October 28, 1997. Mr. Gordon was Vice President, as well as Operating
Manager of Coffee from 1983 until October 28, 1997. He has been a director
of
Coffee since 1983. As Executive Vice President - Operations, Mr. Gordon is
responsible for Coffee's sales and plant operations. Mr. Gordon attended
Baruch College in New York City. He is the brother of Andrew Gordon,
President, CEO, Treasurer and a director of Coffee.
Andrew Gordon, 36, has been President, Chief Executive Officer and Treasurer
since October 28, 1997. He was a Vice President from 1981 to October 28,
1997. Mr. Gordon has been a director of the Company since 1981. Mr. Gordon
is responsible for the purchase of green coffee, as well as for trading
coffee. Mr. Gordon received a BBA degree from Emory University in Atlanta,
Georgia. He is the brother of David Gordon, Executive Vice President -
Operations, Secretary and a director of Coffee.
Gerard DeCapua, 36, has been a director of Coffee since October 28, 1997.
Mr.
DeCapua has had his own law practice located in Rockville Centre, New York
since 1985. He received his law degree from Pace University School of Law.
30<PAGE>
Executive Compensation
Transpacific
Transpacific has not compensated any officers, directors or employees to
date.
Coffee
The following summary compensation table sets forth compensation
information for services performed during each of the three (3) fiscal years
ended October 31, 1997, 1996, 1995 by Coffee's executive officers.
SUMMARY COMPENSATION TABLE
Name and Principal Fiscal Annual
Position(3) Year Compensation (1)
David Gordon 1997(2) $ 95,513
Executive -Vice President - 1996 $160,932
Operations, Secretary 1995 $ 92,297
Andrew Gordon 1997(2) $100,810
President, CEO 1996 $168,180
Treasurer 1995 $ 99,545
Sterling Gordon 1997(2) $ 52,966
Former President 1996 $ 73,928
1995 $ 52,966
Rachelle Gordon 1997(2) $ 29,455
Former Secretary 1996 $ 38,435
and Treasurer 1995 $ 27,970
(1) Includes salary, bonus, medical, pension and housing allowance.
(2) Estimated.
(3) On October 28, 1997, Sterling Gordon and Rachelle Gordon resigned from
their respective positions. On October 28, 1997, Andrew Gordon became
President, Treasurer and CEO of Coffee, and David Gordon became Executive
Vice
President - Operations and Secretary.
31<PAGE>
DESCRIPTION OF SECURITIES
TRANSPACIFIC
Common Stock
Transpacific is authorized to issue twenty million (20,000,000) shares of
common stock, $.0001 par value per share, of which 100,000 shares were issued
and outstanding as of the date of this prospectus. 97,000 shares were
issued to eight (8) shareholders in 1995. Transpacific relied on an exemption
pursuant to Section 4(2) of the Securities Act of 1933, as amended, when
issuing these shares. The 100,000 shares includes the 3,000
shares of Registered Common Stock subject to the Reconfirmation Offering.
Each outstanding share of common stock of Transpacific is entitled to one
vote, either in person or by proxy, on all matters that may be voted upon by
the owners thereof at meetings of the stockholders.
The holders of Transpacific common stock (i) have equal ratable rights
to
dividends from funds legally available therefor, when, as and if declared by
the Board of Directors of Transpacific; (ii) are entitled to share ratably in
all of the assets of Transpacific available for distribution to holders of
common stock upon liquidation, dissolution or winding up of the affairs of
Transpacific; (iii) do not have preemptive, subscription or conversion
rights,
or redemption or sinking fund provisions applicable thereto; and (iv) are
entitled to one non-cumulative vote per share on all matters on which
stockholders may vote at all meetings of stockholders.
All shares of registered Common Stock which are the subject of this
Reconfirmation Offering, when issued, will be fully paid for and
non-assessable, with no personal liability attaching to the ownership
thereof. The holders of shares of common stock of Transpacific do not have
cumulative voting rights, which means that the holders of more than 50% of
such outstanding shares voting for the election of directors can elect all of
the directors of Transpacific if they so choose and, in such event, the
holders of the remaining shares will not be able to elect any of
Transpacific's directors. At the completion of the Reconfirmation Offering,
the present officers and directors and present shareholders of Transpacific,
including those Transpacific shareholders who are also shareholders of
Coffee,
will beneficially own 25% of the then outstanding shares, with the former
Coffee shareholders in possession of 88.5% of Transpacific's stock. (See
"MERGER-Terms and Conditions of Merger" and "Certain Transactions").
Reports to Stockholders
Transpacific intends to continue to furnish its stockholders with annual
reports containing audited financial statements as soon as practicable at the
end of each fiscal year. Transpacific's fiscal year ends on September 30.
Non-Cumulative Voting
The holders of shares of Transpacific Common Stock do not have
cumulative
voting rights, which means that the holders of more than 50% of such
outstanding shares, voting for the election of directors, can elect all of
the
directors to be elected, if they so chose. In such event, the holders of the
remaining shares will not be able to elect any of Transpacific's directors.
Transpacific's current shareholders, including those Transpacific
shareholders
who are also shareholders of Coffee, will own 25% of the common shares
outstanding after the Merger. (See "Certain Transactions.")
32<PAGE>
Dividends
Transpacific was only recently organized, has no earnings, and has paid
no dividends to date. Since Transpacific was formed as a blank check company
with its only intended business being the search for an appropriate Business
combination, Transpacific does not anticipate having any earnings until such
time that a business combination is reconfirmed by the stockholders.
However,
there are no assurances that upon the consummation of a business combination,
Transpacific will have earnings or issue dividends. Therefore, it is not
expected that cash dividends will be paid to stockholders until after a
business combination is reconfirmed.
Transfer Agent
Transpacific has appointed Oxford Transfer Co., 115 North Maryland
Avenue, Suite 130, Glendale, California as the Transfer Agent for
Transpacific.
COFFEE
Common Stock
Coffee is authorized to issue two hundred (200) shares of common stock,
no par value, of which 100 shares were issued and outstanding as of the date
of this prospectus. Each outstanding share of common stock of Transpacific
is entitled to one vote, either in person or by proxy, on all matters that
may
be voted upon by the owners thereof at meetings of the stockholders.
The holders of shares of Coffee Common Stock do not have cumulative
voting rights, which means that the holders of more than 50% of such
outstanding shares, voting for the election of directors, can elect all of
the
directors to be elected, if they so chose. In such event, the holders of the
remaining shares will not be able to elect any of Coffee's directors.
Coffee's current shareholders will own 88.5% of the common shares
outstanding
after the Merger.
Dividends
Coffee has paid no dividends to date.
Transfer Agent
Coffee intends to appoint Oxford Transfer Co., 115 North Maryland Avenue,
Suite 130, Glendale, California, as its Transfer Agent after the Merger.
33<PAGE>
PRINCIPAL SHAREHOLDERS
TRANSPACIFIC
The following table sets forth certain information regarding the
beneficial ownership of the Transpacific's Common Stock as of the date of
this
Prospectus by (i) each person known to Transpacific to beneficially own 5% or
more of Transpacific's Common Stock, (ii) each director of Transpacific and
(iii) all directors and executive officers of Transpacific as a group. All
information with respect to beneficial ownership has been furnished to
Transpacific by the respective director, executive officer or 5% shareholder,
as the case may be.
Amount and Nature of Amount and Nature of
Beneficial Ownership Beneficial Ownership
Prior to the Merger(1) After the Merger (2)
Number Percent Number Percent
Beneficial Owners of Shares of Class of Shares of Class
Ho Cheong Chio (1) 0 0 0 0
The Bank of China Building
27/F-A-D Avenida
Doutor Mario
Soares, Macau
David Chang (1) 0 0 0 0
116 Pinehurst Ave., #L21
New York, NY 10033
Christian Constantinov (1) 0 0 0 0
922 Old Post Rd.
Bedford, NY 10506
Thomas Geisel(5) 8,982 9.0% 89,820 2.2%
89 Summit Avenue
Suite 222
Summit, NJ 07901
Mark Russo(5) 8,982 9.0% 89,820 2.2%
89 Summit Avenue
Suite 222
Summit, NJ 07901
David Gordon(3)(4)(5) 27,020 27.0% 270,200 6.8%
22 Barclay Road
Scarsdale, NY 10538
Andrew Gordon(3)(4)(5) 27,020 27.0% 270,200 6.8%
251 Meiser Avenue
Staten Island, NY 10306
Juemin Chu 9,000 9.0% 90,000 2.3%
67-113 Dartmouth Street
Forest Hills, NY 11375
Total Officers
and Directors
as a group 0 0 0 0
Total Officers
and Directors
(3 persons)
_________________________
(1) May be deemed "Promoters" of Transpacific, as that term is defined under
the Securities Act.
(2) Based on 4,000,000 shares outstanding; after the ten for one (10:1) Stock
Split.
(3) Does not include any shares to be distributed to Andrew Gordon or David
Gordon at the Merger.
(4) Andrew Gordon and David Gordon are officers and directors of Coffee (See
"MANAGEMENT - Coffee")
(5) Represents shares previously owned by shareholders of Transpacific and
purchased in a private transaction for $.10 per share. (See "Certain
Transactions").
34<PAGE>
COFFEE
The following table sets forth certain information regarding the
beneficial ownership of the Coffee's Common Stock as of the date of this
Prospectus by (i) each person known to Coffee to beneficially own 5% or more
of Coffee's Common Stock, (ii) each director of Coffee and (iii) all directors
and executive officers of Coffee as a group. All information with respect to
beneficial ownership has been furnished to Coffee by the respective director,
executive officer or 5% shareholder, as the case may be.
Amount and Nature of Amount and Nature of
Beneficial Ownership Beneficial Ownership
Prior to the Merger After the Merger (1)(4)
Number of Percent of Number of Percent of
Beneficial Owners Shares Class Shares(5) Class
David Gordon(2)(4) 20.833 21% 900,200 22.5%
22 Barclay Road
Scarsdale, NY 10538
Andrew Gordon(2)(4) 20.833 21% 900,200 22.5%
251 Meisher Avenue
Staten Island, NY 10306
Rachelle Gordon 58.340 58% 1,740,000 43.5%
Grantor Retained
Annuity Trust(3)
Gerard DeCapua 0 0 0 0
1771 Burnett Street
Brooklyn, NY 11242
Total officers and
directors as a Group (3)
persons 41.666 42% 1,800,400 45%
(1) Based on 4,000,000 shares to be outstanding after the merger; after
the ten for one (10:1) Stock Split.
(2) Andrew Gordon and David Gordon are also shareholders of
Transpacific. (See "Certain Transactions").
(3) The trustees of this trust are Andrew Gordon and David Gordon,
officers, directors and shareholders of Coffee. The beneficiaries are the
estates of Andrew Gordon and David Gordon, respectively.
(4) Computation of shares to be held after the Merger includes shares of
Transpacific currently held by Coffee shareholders.
(5) The 3,000,000 post-Stock Split shares of Transpacific to be issued
upon consummation of the Merger shall be distributed to current Coffee
shareholders on a pro-rata basis.
35<PAGE>
CERTAIN TRANSACTIONS
Transpacific International Group Corp. was incorporated in Nevada on
October 9, 1995. On November 29, 1995, Transpacific issued 97,000 shares of
common stock, par value $.0001. On August 12, 1996 , Transpacific's
initial public offering was declared effective by the Securities and Exchange
Commission. Pursuant to this offering, 3,000 shares of common stock were
offered at $6.00 per share on a "best efforts, all or nothing basis." As a
result of the public offering, $18,000.00 was raised. This offering closed on
February 10, 1996.
On October 27, 1997, Ho Cheong Chio, Hong Cao, Weng I. Ip and Po Wa Lee
sold their shares of Transpacific to the following people:
Thomas Geisel 8,982 shares
Mark Russo 8,982 shares
Bill Walsh 1,996 shares
David Gordon 27,020 shares
Andrew Gordon 27,020 shares
Juemin Chu 9,000 shares
Rose-Marie Fox 3,925 shares
Cavendish Ltd. 2,000 shares
Andreas O. Tobler 1,925 shares
Mordechai Book 750 shares
Rene Kunz 200 shares
Phillip Levy 100 shares
Renato Strauss 100 shares
These shares were purchased for $.10 per share for a total of $9,200,
pursuant to an exemption provided by Section 4(1) of the Securities Act of
1933, as amended. The price of $.10 per share was determined through
negotiations between the selling inside shareholders and the purchasers.
The shares and the $9,200 are being held in escrow with Schonfeld & Weinstein,
L.L.P., Transpacific's counsel, pursuant to an agreement dated October 27,
1997. The funds shall be released to the shareholders, and the stock
certificates released to the purchasers upon consummation of the business
combination, i.e., the Securities and Exchange Commission's declaration of
effectiveness of Transpacific's post-effective amendment and successful
reconfirmation offering as proscribed in Rule 419. In the event the business
combination is not consummated, the shares shall be returned to Messrs.
Ho,Hong, Weng and Po, and the funds released to the purchasers.
As of July 31, 1997 Sterling Gordon and Rachelle Gordon, former officers of
Coffee, held subordinated loans to Coffee, in the amounts of $77,147.49 and
$60,317,87, respectively. These loans bear interest at the rate of 10% per
annum.
INFORMATION CONCERNING TRANSPACIFIC
Transpacific has heretofore filed the following with the Commission
pursuant to the Securities Exchange Act of 1934 , as amended:
(1) Annual Report on Form 10-KSB for the fiscal year ended September 30,
1996;
(2) Quarterly Report on Form 10-QSB for the quarterly period ended
December 31, 1996;
(3) Quarterly Report on Form 10-QSB for the quarterly period ended March
31, 1997; and
(4) Quarterly Report on Form 10-QSB for the quarterly period ended June
30, 1997.
The above-mentioned reports are not incorporated by reference, but copies
may be obtained at the offices of the Securities and Exchange Commission.
(See "FURTHER INFORMATION.")
36<PAGE>
LEGAL MATTERS
An opinion as to the validity of the securities offered hereby has
been passed upon for Transpacific by Schonfeld & Weinstein, L.L.P., 63 Wall
Street, Suite 1801, New York, New York, counsel to Transpacific. The
principals of Schonfeld & Weinstein, L.L.P., Joel Schonfeld and Andrea I.
Weinstein, are both shareholders of Transpacific, owning 666 and 334 shares,
respectively. No proceeds of Transpacific's initial public offering were paid
to Schonfeld & Weinstein, L.L.P.
EXPERTS
The financial statements of Coffee included in this prospectus have
been audited by Ira D. Ganzfriend & Company, Certified Public Accountants, 260
Fifth Avenue, New York, New York 10007, independent auditors, and are
included in reliance upon the reports of such firm given upon their authority
as experts in accounting and auditing. The financial statements of
Transpacific for the years ended September 30, 1996 included in this
Prospectus have been so included in reliance on the report of German W.
Chacon, 79 Euclid Avenue, Ardsley, New York, Certified Public Accountant,
given on the authority of said firms as an expert in accounting and
auditing.
LITIGATION
Transpacific knows of no litigation pending, threatened or contemplated,
or unsatisfied judgements against it, or any proceedings in which it is a
party. Transpacific knows of no legal actions pending or threatened or
judgements entered against Transpacific's officer and directors in their
capacity as such.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Articles of Incorporation of Transpacific provide indemnification of
directors and officers and other corporate agents to the fullest extent
permitted pursuant to the laws of Nevada. The Articles of Incorporation also
limit the personal liability of Transpacific's directors to the fullest
extent permitted by the Nevada Revised Statutes. The Nevada Revised Statutes
contain provisions entitling directors and officers of Transpacific to
indemnification from judgments, fines amounts paid in settlement and
reasonable expenses, including attorney's fees, as the result of an action or
proceeding in which they may be involved by reason of being or having been a
director or officer of Transpacific, provided said officers or directors
acted
in good faith.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling
Transpacific pursuant to the foregoing provisions, or otherwise, Transpacific
has been informed 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
Transpacific of expenses incurred or paid by a director, officer or
controlling person of Transpacific 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, Transpacific 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 Act and will be governed by the final adjudication of such
issue.
37<PAGE>
FURTHER INFORMATION
Transpacific is subject to the reporting requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith will
file periodic reports, proxy statements and other information with the
Securities and Exchange Commission (the"Commission"). Such periodic reports,
proxy statements and other information filed by Transpacific can be inspected
without charge at the Public Reference Room maintained by the Commission at
450 Fifth Street, NW, Washington, D.C. 20549 or at the Commission's web
site:
www.sec.gov. Copies of such material can be obtained at prescribed rates
upon
request from the Public Reference Section of the Commission at 450 Fifth
Street, NW, Washington, D.C. 20549.
Transpacific has filed with the Commission in Washington, D.C., a
Registration Statement under the Securities Act with respect to the Common
Stock offered by this Prospectus. 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 Transpacific and this offering,
reference is made to the Registration Statement, including the exhibits filed
therewith, copies of which may be obtained at prescribed rates from the
Commission at the public reference facilities maintained by the Commission or
at the Commission's web site: www.sec.gov. Descriptions contained in this
Prospectus as to the contents of any contract or other document filed as an
exhibit to the Registration Statement are not necessarily complete and each
such description is qualified by reference to such contract or document.
38<PAGE>
Transpacific International Group Corp.
Financial Statements
(A development stage company)
For the periods October 9, 1995 (date of inception)
To September 30, 1996 (audited), and October 1, 1996 to
June 30, 1997 (audited)
TABLE OF CONTENT
Page #
Report of Independent Auditor
Balance sheet - as of September 30, 1996
Statement of operations & retained earnings
Period October 9, 1995 (Date of Inception)
to September 30, 1996
Statement of change in stockholders' equity
Period October 9, 1995 (Date of Inception)
to September 30, 1996
Statement of cash flows
Period October 9, 1995 (Date of Inception)
to September 30, 1996
Notes to the financial statements
Schedule 1
German W. Chacon 78 Euclid Ave - Ardsley, N.Y. 10502
Certified Public Accountant Tel (914) 693-5029 Fax (914)
693-5030
TRANSPACIFIC INTERNATIONAL GROUP CORP.
(A Development Stage Company)
AUDITOR'S REPORT ON FINANCIAL STATEMENTS
For the period from October 9, 1995 (Date of Inception)
to September 30, 1996
Independent Auditor's Report
The Stockholders
Transpacific International Group, Corp.
We have audited the accompanying balance sheet of Transpacific International
Group Corp. (a development stage company) as of September 30, 1996 and the
related statements of operations, retaining earnings, and cash flows for 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 my audit.
We have conducted my audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of
material misstatement. An audit includes examining, on a test basis,
evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that my audit provides a reasonable basis
for my opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Transpacific International
Group Corp. as of September 30, 1996, and the results of their operations and
cash flows for the period then ended, in conformity with generally accepted
accounting principles.
German Chacon
December 16, 1996
New York, New York 10502
39<PAGE>
TRANSPACIFIC INTERNATIONAL GROUP CORP.
(A Development Stage Company)
BALANCE SHEET
AS OF SEPTEMBER 30, 1996
ASSETS
CURRENT ASSETS
Cash 2,730
Total Current Assets 2,730
OTHER ASSETS
Organization costs 0
Deferred offering costs 0
Total Other Assets 0
TOTAL ASSETS 2,730
CURRENT LIABILITIES
Accounts payable 0
Total Current Liabilities 0
STOCKHOLDER'S EQUITY
Common Stock $.0001 par value, 20 million
shares authorized, $97,000
shares issued and outstanding 10
Paid in Capital (Note 2) 24,997
Deficit accumulated during
the development stage (22,276)
2,730
Total Liabilities and Equity 2,730
See accompanying independent accountant's report
and notes to the financial statements
40<PAGE>
TRANSPACIFIC INTERNATIONAL GROUP CORP.
(A Development Stage Company)
STATEMENT OF OPERATIONS & DEFICIT ACCUMULATED
DURING THE DEVELOPMENT STATE
PERIOD FROM OCTOBER 9, 1995 (Date of Inception)
TO SEPTEMBER 30, 1996
Operating Income:
Revenues 0
Interest Income 189
Cost of revenues 0
Gross profit 189
Operating expenses:
General & administrative expenses 0
Professional fees(Schedule 1) 22,465
Operating income (loss) (22,276)
Non operating (income) expenses:
Depreciation 0
Amortization 0
Interest & bank charges 0
Income (loss) before taxes (22,276)
Provision for income taxes 0
Net income (loss) (22,276)
Deficit accumulated during
development stage beginning/end (22,276)
# of common shares outstanding
from date of inception 97,000
See accompanying independent accountant's report
and notes to the financial statements
41<PAGE>
TRANSPACIFIC INTERNATIONAL GROUP CORP.
(A Development Stage Company)
STATEMENT OF CHANGE IN STOCKHOLDERS' EQUITY
PERIOD FROM OCTOBER 9, 1995 (Date of Inception)
TO SEPTEMBER 30, 1996
Common Stock
Additional Total
Paid-in Stockholders'
Shares Amount Capital Equity
Issuance of common stock
Nov-29-1995 86,000 9 22,162 22,171
Issuance of common stock
Nov-29-1995 11,000 1 2,835 2,836
97,000 10 24,997 25,007
Deficit accumulated during the
development stage for amounts
applicable to the statement of
operations (22,276) (22,276)
97,000 10 2,721 2,730
See accompanying independent accountant's report
and notes to the financial statements
43<PAGE>
TRANSPACIFIC INTERNATIONAL GROUP CORP.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
PERIOD FROM OCTOBER 9, 1995 (Date of Inception)
TO SEPTEMBER 30, 1996
Operating activities:
Net income (loss) (22,276)
Non cash charges (credit to earnings):
Depreciation and amortization 0
Changes in operating assets and liabilities: 0
Net cash provided (used) in operating activities (22,276)
Cash provided by (used) in investing activities:
Equity increase (decrease) (25,007)
Net cash provided (used) in investing activities (25,007)
Financing activities:
Net cash provided (used) in financing activities 0
Net increase (decrease) in cash 0
Cash at October 9, 1995 (date of inception) 0
Cash at September 30, 1996 0
Supplemental disclosure of cash flow information:
Interest paid, net of amount capitalized 0
Income taxes paid 0
See accompanying independent accountant's report
and notes to the financial statements
44<PAGE>
TRANSPACIFIC INTERNATIONAL GROUP CORP.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
PERIOD FROM OCTOBER 9, 1995 (Date of Inception)
TO SEPTEMBER 30, 1996
1.NATURE OF THE BUSINESS
Transpacific International Group Corp. (A Development Stage Company), was
organized in 1995, as a blank check company which plans to look for a
suitable
business to merge with or acquire. Operations since October 9, 1995 have
consisted primarily of the first capital contribution by the insiders, and
coordination activities with the law firm regarding the SEC registration of
the company.
2.STOCKHOLDERS' EQUITY
The company was duly organized under the laws of the State of Nevada. The
company authorized twenty million (20,000,000) shares of Common Stock at
$.0001 par value. The company raised $25,007, in 1995, through a
Subscription
Agreement. (See the statement of changes in stockholders' equity.)
3.RELATED PARTY TRANSACTIONS
Joel Schonfeld, attorney at law, is a legal firm whose partners are
stockholders of Transpacific International Group Corp. During 1995, the
company advanced Joel Schonfeld $20,000 representing legal fees. It is
estimated that the company will pay Joel Schonfeld an additional $5,000 in
1996 upon completion of the SEC Securities Registration Agreement.
4.STATEMENT OF CASH FLOWS
Cash Equivalents - The Company recognizes cash deposited in its bank account
as cash equivalents for purposes of the Statement of Cash Flows.
5.RULE 419 REQUIREMENTS
Rule 419 requires that offering proceeds after deduction for underwriting
commissions, underwriting expenses and dealer allowances issued be deposited
into an escrow or trust account (the "Deposited Funds" and "Deposited
Securities," respectively) governed by an agreement which contains certain
terms and provisions specified by the Rule. Under Rule 419, the Deposited
Funds and Deposited Securities will be released to the Company and to the
investors, respectively, only after the Company has met the following three
basic conditions. First, the Company must execute an agreement(s) for an
acquisition(s) meeting certain prescribed criteria. Second, the Company must
file a post-effective amendment to the registration statement which includes
the terms of a reconfirmation offer that must contain conditions prescribed
by
the rules. The post-effective amendment must also contain information
regarding the acquisition candidate(s) and its business(es), including
audited
financial statements. The agreement(s) must include, as a condition
precedent
to their consummation, a requirement that the number of investors
representing
80% of the maximum proceeds must elect to reconfirm their investments.
Third,
the Company must conduct the reconfirmation offer and satisfy all of the
prescribed conditions, including the condition that investors representing
80%
of the Deposited Funds must elect to remain investors. The post-effective
amendment must also include the terms of the reconfirmation offer mandated by
Rule 419. The reconfirmation offer must include certain prescribed
conditions
which must be satisfied before the Deposited Funds and Deposited Securities
can be released from escrow. After the Company submits a signed
representation to the Escrow Agent that the requirements of Rule 419 have
been
met and after the acquisition(s) is consummated, the Escrow Agent can release
the Deposited Funds and Deposited Securities. Investors who do not reconfirm
their investments will receive the return of a pro-rata portion thereof; and
in the event investors representing less than 80% of the Deposited Funds
reconfirm their investments, the Deposited Funds will be returned to the
investors on a pro-rata basis.
45<PAGE>
Schedule 1
TRANSPACIFIC INTERNATIONAL GROUP CORP.
(A Development Stage Company)
GENERAL & ADMINISTRATION EXPENSES
PERIOD FROM OCTOBER 9, 1995 (Date of Inception)
TO SEPTEMBER 30, 1996
Legal fees 20,000
Other professional fees 2,465
Total General & administrative expenses 22,465
See accompanying independent accountant's report
and notes to the financial statements
46<PAGE>
TRANSPACIFIC INTERNATIONAL GROUP CORP.
Financial Statements for the Period Ending
June 30, 1997
TABLE OF CONTENT
Report of Independent Auditor
Balance sheet - as of June 30, 1997
Statement of operations & deficit accumulated
during the development stage
Nine months ended June 30, 1997
and the Period October 9, 1995 (Date of Inception)
to June 30, 1997
Statement of change in stockholders' equity
Nine months ended June 30, 1997
and the Period October 9, 1995 (Date of Inception)
to June 30, 1997
Statement of cash flows
Nine months ended June 30, 1997
and the Period October 9, 1995 (Date of Inception)
to June 30, 1997
Notes to the financial statements
General and administrative expenses
Nine months ended June 30, 1997
and the Period October 9, 1995 (Date of Inception)
to June 30, 1997
47<PAGE>
German W. Chacon 78 Euclid Ave - Ardsley, N.Y. 10502
Certified Public Accountant Tel (914) 693-5029 Fax (914) 693-5030
<PAGE>
TRANSPACIFIC INTERNATIONAL GROUP CORP.
(A Development Stage Company)
AUDITOR'S REPORT ON FINANCIAL STATEMENTS
For the period from October 9, 1995 (Date of Inception)
to June 30, 1997, and the nine months ended
June 30, 1997
Independent Auditor's Report
The Stockholders
Transpacific International Group, Corp.
We have audited the accompanying balance sheet of Transpacific International
Group Corp. (a development stage company) as of June 30, 1997, and the related
statements of operations, retaining earnings, and cash flows for the period
and nine months 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 audit.
We conducted the audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that my audit provides a reasonable basis
for my opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Transpacific International
Group Corp. as of June 30, 1997, and the results of their operations and cash
flows for the period from October 9, 1995 (Date of Inception) to June 30, 1997
and the nine months then ended, in conformity with generally accepted
accounting principles.
German W. Chacon
July 24, 1997
New York, New York 10502
48<PAGE>
TRANSPACIFIC INTERNATIONAL GROUP CORP.
(A Development Stage Company)
BALANCE SHEET
AS OF JUNE 30, 1997
ASSETS
CURRENT ASSETS
Cash 783
Total Current Assets 783
OTHER ASSETS
Organization costs 0
Deferred offering costs 0
Total Other Assets 0
TOTAL ASSETS 783
CURRENT LIABILITIES
Accounts payable 0
Total Current Liabilities 0
STOCKHOLDER'S EQUITY
Common Stock $.0001 par value, 20 million shares
authorized, 97,000 shares issued and
outstanding 10
Paid in Capital (Note 2) 24,997
Deficit accumulated during
the development stage (24,224)
783
Total Liabilities and Equity 783
See accompanying independent accountant's report
and notes to the financial statements
49<PAGE>
TRANSPACIFIC INTERNATIONAL GROUP CORP.
(A Development Stage Company)
STATEMENT OF OPERATIONS & DEFICIT ACCUMULATED
DURING THE DEVELOPMENT STAGE
Nine Months ended June 30, 1997, and
the Period from October 9, 1995 (Date of Inception)
to June 30, 1997
October 9,
Nine months 1995
Ended (inception)
June 30, to June 30,
1997 1997
Operating Income:
Revenues 0 0
Interest Income 15 217
Cost of revenues 0 0
Gross profit 15 217
Operating expenses:
General & administrative expenses 0 0
Professional fees(Sch 1) 1,965 24,430
Operating income (loss) ( 1,950) (24,213)
Non operating (income) expenses:
Depreciation & Amortization 0 0
Interest & Bank Charges 11 11
Income (loss) before taxes ( 1,961) (24,224)
Provision for income taxes 0 0
Net income (loss) ( 1,961) (24,224)
Deficit accumulated during development stage
beginning through September 30, 1996 (22,263) 0
Deficit accumulated during development stage
beginning through June 30, 1997 (24,224) (24,224)
# of common shares outstanding
from date of inception 97,000 97,000
See accompanying independent accountant's report
and notes to the financial statements
50<PAGE>
TRANSPACIFIC INTERNATIONAL GROUP CORP.
(A Development Stage Company)
STATEMENT OF CHANGE IN STOCKHOLDERS' EQUITY
Nine months ended June 30, 1997, and
the Period from October 9, 1995 (Date of Inception)
to June 30, 1997
Additional Total
Paid-in Stockholders'
Shares Capital Equity
Issuance of common stock
Nov-29-1995 86,000 22,171 22,171
Issuance of common stock
Nov-29-1995 11,000 2,836 2,836
97,000 25,007 25,007
Deficit accumulated during the
development stage for amounts
applicable to the statement of
operations (24,224) (24,224)
97,000 783 783
See accompanying independent accountant's report
and notes to the financial statements
51<PAGE>
TRANSPACIFIC INTERNATIONAL GROUP CORP.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
Nine Months ended June 30, 1997, and
the Period from October 9, 1995 (Date of Inception)
to June 30, 1997
October 9,
Nine Months 1995
Ended (inception)
June 30, to June 30,
1997 1997
Operating activities:
Net income (loss) (1,961) (24,224)
Non cash charges (credit to earnings):
Depreciation and amortization 0 0
Changes in operating assets and liabilities: 0 0
Net cash provided (used) in operating activities (1,961) (24,224)
Cash provided by (used) in investing activities:
Equity increase (decrease) 0 25,007
Net cash provided (used) in investing activities 0 25,007
Financing activities:
Net cash provided (used) in financing activities 0 0
Net increase (decrease) in cash (1,961) 783
Cash at October 9, 1995 (date of inception) 2,744 0
Cash at June 30, 1997 783 783
Supplemental disclosure of cash flow information:
Interest paid, net of amount capitalized 11 11
Income taxes paid 0 0
See accompanying independent accountant's report
and notes to the financial statements
52<PAGE>
German W. Chacon 78 Euclid Ave - Ardsley, N.Y. 10502
Certified Public Accountant Tel (914) 693-5029 Fax (914) 693-5030
<PAGE>
AUDITOR'S REPORT ON SUPPLEMENT INFORMATION
Our audit of the basic financial statements of Transpacific International
Group Corp. for the nine months ending June 30, 1997, were made primarily to
form an opinion on such financial statements taken as a whole. The
supplementary information contained in the following pages is presented for
the propose of additional analysis and, although not required for a fair
presentation of financial position, results of operations, and changes in
financial position, was subjected to the procedures applied in the audits of
the basic financial statements. In our opinion, the supplementary information
is fairly presented in all material respects in relation to the basic
financial statements.
German W. Chacon
New York, N.Y.
July 24, 1997
53<PAGE>
TRANSPACIFIC INTERNATIONAL GROUP CORP.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD OCTOBER 9, 1995 (Date of Inception)
TO JUNE 30, 1997
A.NATURE OF THE BUSINESS
Transpacific International Group Corp. (A Development Stage Company), was
organized in 1995, as a blank check company which plans to look for a suitable
business to merge with or acquire. Since October 9, 1995, operations have
consisted primarily of the first capital contribution by the insiders, and
coordination activities with the law firm regarding the SEC registration of
the company.
B.STOCKHOLDERS' EQUITY
The company was duly organized under the laws of the State of Nevada. The
company authorized twenty million (20,000,000) shares of Common Stock at
$.0001 par value. The company raised $25,007, in 1995, through a Subscription
Agreement. (See the statement of changes in stockholders' equity.)
C.RELATED PARTY TRANSACTIONS
Joel Schonfeld, attorney at law, is a legal firm whose partners are
stockholders of Transpacific International Group Corp. During 1995, the
company advanced Joel Schonfeld $20,000, representing legal fees, for the
completion of the SEC Securities Registration Agreement.
D.STATEMENT OF CASH FLOWS
Cash Equivalents - The Company recognizes cash deposited in its bank account
as cash equivalents for purposes of the Statement of Cash Flows.
54<PAGE>
E. RULE 419 REQUIREMENTS
Rule 419 requires that offering proceeds after deduction for underwriting
commissions, underwriting expenses and dealer allowances issued be deposited
into an escrow or trust account (the "Deposited Funds" and "Deposited
Securities," respectively) governed by an agreement which contains certain
terms and provisions specified by the Rule. Under Rule 419, the Deposited
Funds and Deposited Securities will be released to the Company and to the
investors, respectively, only after the Company has met the following three
basic conditions. First, the Company must execute an agreement(s) for an
acquisition(s) meeting certain prescribed criteria. Second, the Company must
file a post-effective amendment to the registration statement which includes
the terms of a reconfirmation offer that must contain conditions prescribed by
the rules. The post-effective amendment must also contain information
regarding the acquisition candidate(s) and its business(es), including audited
financial statements. The agreement(s) must include, as a condition precedent
to their consummation, a requirement that the number of investors representing
80% of the maximum proceeds must elect to reconfirm their investments. Third,
the Company must conduct the reconfirmation offer and satisfy all of the
prescribed conditions, including the condition that investors representing 80%
of the Deposited Funds must elect to remain investors. The post-effective
amendment must also include the terms of the reconfirmation offer mandated by
Rule 419. The reconfirmation offer must include certain prescribed conditions
which must be satisfied before the Deposited Funds and Deposited Securities
can be released from escrow. After the Company submits a signed
representation to the Escrow Agent that the requirements of Rule 419 have been
met and after the acquisition(s) is consummated, the Escrow Agent can release
the Deposited Funds and Deposited Securities. Investors who do not reconfirm
their investments will receive the return of a pro-rata portion thereof; and
in the event investors representing less than 80% of the Deposited Funds
reconfirm their investments, the Deposited Funds will be returned to the
investors on a pro-rata basis.
It is expected that the Company's year end will be changed to that of its
merger candidate once a merger is completed.
55<PAGE>
Schedule 1
October 9,
TRANSPACIFIC INTERNATIONAL GROUP CORP. Nine months 1995
(A Development Stage Company) Ended (inception)
GENERAL & ADMINISTRATION EXPENSES June 30, to June 30,
Nine Months ended June 30, 1997, and 1997 1997
the period from October 9, 1995 (Date of Inception)
to June 30, 1997
Legal fees 0 20,000
Other professional fees 1,965 4,430
Total General & administrative expenses 1,965 24,430
See accompanying independent accountant's report
and notes to the financial statements
56<PAGE>
COFFEE HOLDING CO., INC.
FINANCIAL STATEMENTS
AND AUDITORS' REPORT
YEARS ENDED OCTOBER 31, 1996 AND 1995
CONTENTS
Page
AUDITORS' REPORT
FINANCIAL STATEMENTS
Balance Sheets
Statements of Income and Retained Earnings
Statement of Cash Flows
Notes to Financial Statements
SUPPLEMENTARY INFORMATION
Report on Supplementary Information
Cost of Sales
Selling and Administrative Expenses
57<PAGE>
IRA D. GANZFRIED & COMPANY
Certified Public Accountants
260 Fifth Avenue
New York, New York 10001
(212) 686-9310
Fax: (212) 686-4489
Board of Directors
Coffee Holding Co., Inc.
We have audited the accompanying balance sheets of Coffee
Holding Co., Inc. as at October 31, 1996 and 1995, and the related statements
of income, retained earnings, and cash flows for the years 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. These 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
Coffee Holding Co., Inc. as at October 31, 1996 and 1995, and the results of
its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
IRA D. GANZFRIED & COMPANY
December 19, 1996
New York, New York
58<PAGE>
COFFEE HOLDING CO., INC.
BALANCE SHEET
ASSETS
(Pledged - Note 5)
For the years ended
October 31,
1996 1995
CURRENT ASSETS:
Cash $ 33,430 $ 24,402
Due From Broker 123,977 51,707
Accounts Receivable,net of allowances 2,650,672 3,037,927
of $134,200 as of October 31, 1996,
$130,230 in October 31, 1995
(notes 2 and 7)
Inventories (Note 1 and 3) 875,261 817,075
Prepaid Expenses And Other
Current Assets 29,802 29,792
Total Current Assets 3,713,142 3,960,903
PROPERTY AND PLANT EQUIPMENT:
At Cost, Less Accumulated Depreciation
of $1,294,816 and $1,090,735
(Notes 1,4 and 6) 1,263,623 1,408,716
DEFERRED AND OTHER ASSETS: (Note 4) 76,831 85,102
TOTAL ASSETS $5,053,596 $5,454,721
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Mortgage Payable-Current Portion
(Note 6) $ 50,000 $ 50,000
Due To Factor (Note 7) 1,998,175 -0-
Notes Payable - Bank -0- 1,816,545
Current Portion Lease Obligation -0- 9,203
Accounts Payable And Accrued Expense 1,354,876 2,308,484
Total Current Liabilities 3,403,051 4,184,232
OTHER LIABILITIES:
Mortgage Payable-Noncurrent Portion
(Note 6) 629,167 679,167
Loans Payable-Officers/Shareholder
(Note 9) 499,250 499,697
Total Other Liabilities 1,128,417 1,178,864
SHAREHOLDER'S EQUITY:
Common Stock, No Par Value, 200 Shares
Authorized, 100 Shares Issued And
Outstanding 460,000 460,000
Retained Earnings 62,128 (368,375)
Total Shareholder's Equity 522,128 91,625
TOTAL LIABILITIES AND
SHAREHOLDER'S EQUITY $5,053,596 $5,454,721
========== ==========
The accompanying notes are an integral part of the financial statements.
59<PAGE>
COFFEE HOLDING CO., INC.
STATEMENTS OF INCOME
For the years ended
October 31,
1996 1995
Net Sales $21,162,100 $23,923,561
Cost of Sales 18,775,383 22,881,314
Gross Profit 2,386,717 1,042,247
Operating Expenses:
Selling And Administrative 1,223,355 1,041,333
Salaries - Officers 413,740 245,028
Interest 310,591 313,953
Total Operating Expenses 1,947,686 1,600,314
Income (Loss) Before Local Income Taxes 439,031 (558,067)
Local Income Taxes 8,528 1,225
Net Income (Loss) 430,503 (559,292)
=========== ===========
Pro Forma
Provision for Income Taxes $ 172,000 $ -0-
Income Before Extraordinary Item 258,503 (559,292)
Extraordinary Item - Utilization of
Operating Loss Carry Forward 172,000 -0-
Net Income $ 430,503 $(559,292)
The accompanying notes are an integral part of the financial statements.
60<PAGE>
COFFEE HOLDING CO., INC.
STATEMENT OF CASH FLOWS
Increase (Decrease) In Cash And Cash Equivalents
For The Year Ended
October 31,
1996 1995
Cash Flows From Operating Activities:
Cash Received From Customers $21,408,071 $23,777,867
Cash Paid To Suppliers And Employees (21,146,027) (23,671,237)
Interest Paid (310,591) (313,953)
Income Taxes ( 8,528) (1,225)
Net Cash Provided By (Used In)
Operating Activities (57,075) (208,548)
Cash Flow From Investing Activities:
Capital Expenditure (58,988) (123,253)
(Increase) Decrease In Deposits And
Other Assets 3,111 9,632
Net Cash Provided By
(Used In) Investing Activities (55,877) (113,621)
Cash Flow From Financing Activities:
Borrowings (Repayments) Under Lease
Obligation (9,203) (56,049)
Borrowings (Repayments) Under Factor
Arrangements 1,998,175 -0-
Increase (Decrease) In Notes Payable-Bk (1,816,545) 430,480
Decrease In Long Term Debt
And Mortgage (50,000) (50,000)
Increase (Decrease) In Loans
Payable-Officers/Shareholder (447) (200)
Net Cash Provided By (Used In)
Financing Activities $ 121,980 $ 324,231
Net Increase (Decrease) In Cash And
Cash Equivalents 9,028 2,062
Cash And Cash Equivalents At
Beginning of Year 24,402
22,340
Cash And Cash Equivalents At End
Of Year $ 33,430 $ 24,402
=========== ===========
The accompanying notes are an integral part of financial statements.
61<PAGE>
Cont.
COFFEE HOLDING CO., INC.
STATEMENT OF CASH FLOWS
Reconciliation of Net Income (Loss) To Net Cash Provided
By (Used In) Operating Activities:
For Year Ended
October 31,
1996 1995
Net Income $ 499,517 $ (429,062)
Adjustments To Reconcile Net Income(LOSS)
To Net Cash Provided By
(Used In) Operating Activities:
Depreciation & Amortization 209,243 196,593
(Increase) Decrease In Accounts
Receivable 318,239 (212,602)
(Increase) Decrease In Due From Broker (72,270) 89,204
(Increase) Decrease In Inventory (58,186) 101,582
(Increase Decrease In Prepaid
Expenses And Current Assets (10) (576)
Increase (Decrease) In Accounts
Payable And Other Current Liabilities (953,608) 46,313
Net Cash Provided By (Used In)
Operating Activities $ (57,075) $ (208,548)
============ ==========
The accompanying notes are an integral part of the financial statements.
62<PAGE>
COFFEE HOLDING CO., INC.
STATEMENTS OF CHANGES IN STOCKHOLDERÆS EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1996 AND 1995
Common Stock
Shares Retained
Issued and Earnings
Outstanding Amount (Deficit) Total
BALANCES, Nov. 1, 1994 100 $460,000 $190,917 $650,917
Net Income for the year
October 31, 1995 -0- -0- (559,292) (559,292)
BALANCES, Oct. 31, 1995 100 460,000 (368,375) 91,625
Net Income for the year
October 31, 1996 -0- -0- 430,503 430,503
BALANCE - OCT. 31, 1996 100 $460,000 $ 62,128 $522,128
====== ======== ======== ========
The accompanying notes are an integral part of the financial
statements.
63<PAGE>
COFFEE HOLDING CO., INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMPANY'S ACTIVITIES
Coffee Holding Co., Inc. is a distributor of coffee to the wholesale trade.
The company roast the coffee beans, grinds and packs the coffee. The company
also sells green coffee.
INVENTORIES
Inventories are valued at lower of cost or market on a first in
first out basis.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, accounts receivable, accounts payable and accrued liabilities
are reflected in the financial statements at cost, which approximates
fair value because of the short-term maturity of those instruments. The
fair values of the CompanyÆs debt obligations are disclosed in Note
6.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment is stated at cost. Major
expenditures for property and those which substantially increase useful lives
are capitalized. Maintenance, repairs, and minor renewals are expensed as
incurred. When assets are retired or otherwise disposed of, their costs and
related accumulated depreciation are removed from the accounts and resulting
gains or losses are included in income. Depreciation is provided for by the
straight-line method over the estimated useful lives of the assets.
FUTURES CONTRACTS AND OPTIONS
The Company trades coffee futures and forward contracts on the coffee futures
market. The profit or loss both realized and unrealized are reported on the
Income Statement, as a reduction in purchases under Cost of Sales.
All futures and forward contracts are adjusted at Balance Sheet
date to market value if material and is shown on the Balance Sheet as
due from broker.
For the years ended October 31, 1996 and October 31, 1995, realized
and unrealized gains and losses from trading was $409,583 and $15,750
respectively.
64<PAGE>
COFFEE HOLDING CO., INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 1996 AND 1995
INCOME TAXES
Federal and state income taxes have not been provided for because the
shareholder has elected to treat the Company as a small business corporation
for income tax purposes as provided in the Internal Revenue Code and the
applicable state statutes. As such, the corporation income or loss and
credits are passed through to the shareholder, and combined with her other
personal income and deductions to determine taxable income on her individual
return. Local income tax has been provided for herein based on applicable
rates, and availability of a net operating loss carry over.
2. ACCOUNTS RECEIVABLE
For the year ended October 31, 1996, a bad debt allowance in the
amount of $134,200 has been provided. The allowance for bad debts for
the year ended October 31, 1995 was $130,230.
The accounts receivables are factored with recourse, See Note 7 for
factoring agreement.
3. INVENTORIES
Inventories, at cost, are summarized as follows:
1996
1995
Packed Coffee $ 225,110 $ 254,665
Green Coffee 509,131 451,387
Packaging Supplies 141,020 111,023
Total Cost $ 875,261 $ 817,075
=========== ===========
65<PAGE>
COFFEE HOLDING CO., INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 1996 AND 1995
4. PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the
following:
Estimated
useful life
years 1996 1995
Building and
Improvements 31.5 $1,055,665 $1,054,842
Machinery and
Equipment 7 1,247,159 1,193,540
Transportation
Equipment 5 37,551 37,551
Furniture and
Fixture 7 77,064 72,518
2,417,439 2,358,451
Less: accumulated depreciation 1,294,816 1,090,735
1,122,623 1,267,716
Land 141,000 141,000
Net property and equipment $1,263,623 $1,408,716
========== ==========
Depreciation for the years 1996 and 1995 was $204,081 and
$191,432 respectively.
5. DEPOSITS AND OTHER ASSETS
In 1989, the company acquired its own building through a
mortgage financing arrangement. In connection with the
securing of a mortgage, fees and legal expense were incurred
in the amount of $105,395. These mortgage costs are being
amortized over the life of the mortgage. For the year 1995
and 1994 $5,162 of the above amount was amortized each year.
Deferred and other assets consist of the following:
1996 1995
Unamortized Bond Cost $ 67,109 $ 72,271
Security Deposits 9,032 12,141
Sundry Investment 690 690
Total $ 76,831 $ 85,102
========== ==========
66 <PAGE>
COFFEE HOLDING CO., INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 1996 AND 1995
6. MORTGAGE PAYABLE
On June 1, 1989 the company financed through New York City
Industrial Development Agency a mortgage on land and
building in the amount of $1,050,000. The agreement
provides for monthly payments in the amount of $4,166.67
plus interest based on a weekly variable rate set by Bear
Stearns & Co. Final payment on the notes is due November
1, 2009. Payment of the bonds are secured by a title
insured first mortgage on land and building. As of
statement date the total due on the mortgage is $ 679,167
Portion considered current 50,000
Non current portion $ 629,167
==========
7. DUE TO FACTOR
The Company has entered into a factoring arrangement to provide
working capital. As of statement date the factor has advanced $1,998,175
to the company. The company has given a security interest in accounts
receivable, inventory and machinery and equipment. The stockholder has
personally guaranteed up to $200,000 of the advances.
Terms of the agreement with the factor provides for advances on 80%
of the net amount of eligible accounts together with advances of up to
50% of eligible finished goods and raw material inventory. The inventory
advance shall not exceed the lesser of the account advance or $400,000.
Interest on the outstanding balance due to the factor is 2% above the
prime rate. The agreement covers all the accounts receivable and the
inventory of the company.
The Company is and shall be the owner of the collateral free and
clear of all liens, security interests, claims and encumbrances of every
kind and nature, except in factorÆs favor or as otherwise consented
to in writing by the factor. The company shall indemnify and defend
factor from and against all cost, loss and expense with regard to the
collateral.
8. LOANS PAYABLE - OFFICERS/SHAREHOLDER
Loans payable - officers/shareholder for the years end 1996 and
1995 were $499,250 and $499,697 respectively. The loans bear
interest at 10% and have maturity dates in excess of one year.
(See Note 6). Interest has been provided for in these statements.
67<PAGE>
COFFEE HOLDING CO., INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 1996 AND 1995
9. MORTGAGE LOAN AGREEMENT
Under the provision of the Letter of Credit Reimbursement Agreement
dated October 31, 1996, the Corporation is required to maintain the
following covenants.
Minimum Working Capital $ 300,000
Minimum Current Ratio 1.25:1
Minimum Net Worth 850,000
Maximum Leverage 3.75.1
Maximum Capital Expediture 50,000
At October 31, 1996, the Covenant were as follows:
Working Capital 509,000
Current Ratio 1.15:1
Net Worth 1,220,622
Leverage Ratio 2.19:1
Capital Expediture were approximately 10,000 above
the Covenant.
If the Company continues to maintain this level of
profitability, it will come into compliance with all
covenants.
We have classified the Mortgage according to its short
term and long term portions because of the probability
of compliance within the next twelve months.
In addition, Officers and StockholderÆs have subordinated
$490,000 of their loans.
10. PRO FORMA INCOME TAXES
The pro forma amounts presented on the accompanying statements of
income reflect the amount of income taxes, and the resulting income after
taxes, as if Coffee Holding Co., Inc. had not made the election to be
taxed as an S Corporation. The pro forma computation of taxes was
calculated at an effective rate of 40%.
68<PAGE>
AUDITOR'S REPORT ON SUPPLEMENTARY INFORMATION
Board of Directors
Coffee Holding Co., Inc.
Our audits of the basic financial statements were made primarily to form an
opinion on such financial statements taken as a whole. The supplementary
information contained in the following pages is presented for the purpose of
additional analysis and, although not required for a fair presentation of
financial position, results of operations and cash flows, was subjected to the
audit procedures applied in the audit of the basic financial statements. In
our opinion, the supplementary information is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
Ira D. Ganzfried & Company
New York, New York
December 19, 1996
69<PAGE>
COFFEE HOLDING CO., INC.
ADDITIONAL INFORMATION
For the Years Ended
October 31,
1996 1995
COST OF SALES
Inventories - Beginning $ 817,075 $ 918,657
Purchases 18,178,624 22,153,607
Freight-In 215,979 254,635
Payroll-Packaging 231,864 182,817
Depreciation of Machinery & Building Imp. 196,190 179,332
Real Estate Tax 10,914 9,341
$19,650,646 $23,698,389
Less: Inventories - Ending 875,261 817,075
Total Cost Of Sales $18,775,385 $22,881,314
=========== ===========
SELLING AND ADMINISTRATIVE EXPENSES
Salaries - Office $ 40,577 $ 30,000
Payroll Taxes 37,858 37,850
Advertising and Promotion 103,335 54,459
Auto Expenses 4,588 5,241
Brokerage 82,398 55,534
Contributions 2,525 1,550
Depreciation - Furniture 7,891 12,099
Dues and Subscriptions 7,344 5,858
Freight Out 301,752 308,371
Insurance 166,021 134,358
Office Supplies, Services 33,434 31,615
Professional Fees 22,977 19,652
Repairs and Maintenance 74,124 44,707
Telephone 32,588 31,970
Travel and Entertainment 64,824 51,516
Miscellaneous 3,089 679
Utilities 98,668 80,482
Provision For Bad Debt 134,200 130,230
Amortized Mortgage Cost 5,162 5,162
Total Selling And Administrative
Expenses $ 1,223,355 $ 1,041,333
=========== ===========
See auditor's report on supplementary information.
70<PAGE>
To The Board of Directors
Coffee Holding Co., Inc.
4401 First Avenue
Brooklyn, NY 11236
We have reviewed the accompanying balance sheet of Coffee Holding Co.,
Inc. as at July 31, 1997, and the related statement of income and retained
earnings and cash flows for the nine months then ended in accordance with
Statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants. All information included
in these financial statements is the representation of the management of
Coffee Holding Co., Inc.
A review consists principally of inquiries of Company personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
The Company, with the consent of its shareholders, has elected under the
Internal Revenue Code to be an "S" Corporation. In lieu of corporation income
taxes, the shareholders of an "S" Corporation are taxed on their proportionate
share of the Company's taxable income. Therefore, no provision or liability
for federal income taxes has been included in these financial statements.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements in order for them to
be in conformity with generally accepted accounting principles.
Ira D. Ganzfried & Company
September 22, 1997
New York, New York
71<PAGE>
COFFEE HOLDING CO., INC.
BALANCE SHEET
AS AT JULY 31, 1997
A S S E T S
CURRENT ASSETS:
Cash $ 84,684
Due From Broker 840,332
Accounts Receivable - Net of Allowance
of $250,00 2,305,143
Inventories 1,137,960
Prepaid Expenses And Other Current
Assets 39,204
Total Current Assets $ 4,407,323
PROPERTY AND EQUIPMENT:
At Cost (Less Accumulated Depreciation
of $1,400,777) 1,288,196
DEFERRED AND OTHER ASSETS 63,927
TOTAL ASSETS $ 5,759,446
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Mortgage Payable - Current Portion $ 50,000
Due to Factor 1,925,254
Accounts Payable And Accrued Expenses 1,027,090
Total Current Liabilities $ 3,002,344
OTHER LIABILITIES:
Mortgage Payable - Non Current Portion 591,967
Loans Payable - Officers/Stockholder 499,250
Total Other Liabilities 1,091,217
STOCKHOLDERS' EQUITY:
Common Stock, No Par, 200 Shares
Authorized, 100 Shares Issued And
Outstanding 460,000
Retained Earnings 1,205,885
Total Stockholders' Equity 1,665,885
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,759,446
===========
See Accountants' Review Report
72<PAGE>
COFFEE HOLDING CO., INC.
STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED JULY 31, 1997
NET SALES $18,547,105
COST OF SALES 15,586,862
GROSS PROFIT 2,960,243
OPERATING EXPENSES:
Selling And Administrative $1,221,400
Salaries - Officers 183,771
Interest 298,315
Total Operating Expenses 1,703,486
INCOME BEFORE LOCAL INCOME 1,256,757
LESS: LOCAL TAXES 113,000
NET INCOME $ 1,143,757
===========
See Accountants' Review Report
73<PAGE>
COFFEE HOLDING CO., INC.
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 1997
Increase (Decrease) In Cash And Cash Equivalents
Cash Flow From Operating Activities:
Cash Received From Customers $ 18,176,279
Cash Paid To Suppliers And Employees (17,433,998)
Interest Paid (298,315)
Taxes Paid (113,000)
Net Cash Provided By (Used In)
Operating Activities $ 330,966
Cash Flow From Investing Activities:
Capital Expenditure (182,495)
Decrease In Deposits and
Other Assets 12,904
Net Cash Provided By (Used In)
Investing Activities (169,591)
Cash Flow From Financing Activities:
Decrease In Long Term Debt
And Mortgage (37,200)
Decrease In Loans Payable
Officers -0-
Decrease In Equipment Loan -0-
Decrease in Factor Borrowings (72,921)
Net Cash Provided By (Used In)
Financing Activities (110,121)
Net Increase (Decrease) In Cash And
Cash Equivalents 51,254
Cash And Cash Equivalents Beginning 33,430
Cash And Cash Equivalents Ending $ 84,684
==========
See Accountants' Review Report
74<PAGE>
Cont.
COFFEE HOLDING CO., INC.
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 1997
Reconciliation Of Net Income To Net Cash Provided By (Used In)
Operating Activities:
Net Income (Loss) $1,143,757
Adjustments To Reconcile Net Income (Loss) To Net Cash
Provided By (Used In) Operating Activities:
Depreciation $ 159,751
(Increase) Decrease In Accounts
Receivable (370,826)
(Increase) Decrease In Inventory (262,699)
(Increase) Decrease In Prepaid Expenses
And Current Assets (9,402)
Increase (Decrease) In Accounts Payable
And Other Current Liabilities (329,615)
Total Adjustments (812,791)
Net Cash Provided By (Used In)
Operating Activities $ 330,966
==========
See Accountants' Review Report
75<PAGE>
COFFEE HOLDING CO., INC.
STATEMENT OF CHANGES IN STOCKHOLDERÆS EQUITY
AS AT JULY 31, 1997
Common Stock
Shares Retained
Issued and Earnings
Outstanding Amount (Deficit) Total
BALANCES, Nov. 1, 1996 100 $460,000 $ 62,128 $ 522,128
Net Income for the
nine months ended
July 31, 1997 -0- -0- 1,143,757 1,143,757
BALANCES, July 31, 1997 $ 100 $460,000 $1,205,885 $1,665,885
====== ======== ========== ==========
See Accountants' Review Report
76<PAGE>
COFFEE HOLDING CO., INC.
ADDITIONAL INFORMATION
FOR THE NINE MONTHS ENDED JULY 31, 1997
COST OF SALES:
Inventory - Beginning $ 875,261
Purchases 15,229,463
Freight - In 229,254
Payroll - Packaging 232,621
Real Estate Tax 8,208
Depreciation of Machinery & Building & Improvements
150,015
16,724,822
Less: Inventory - Ending 1,137,960
Total Cost Of Sales $ 15,586,862
============
SELLING AND ADMINISTRATIVE EXPENSES:
Salaries - Other $ 22,500
Payroll Taxes 41,999
Advertising And Promotion 74,020
Automobile Expense 14,041
Brokerage 175,399
Contributions 2,018
Depreciation - Furniture 5,865
Dues & Subscriptions 4,344
Freight - Out 215,152
Insurance 110,978
Office Supplies, Services 20,068
Professional Fees 17,876
Repairs And Maintenance 80,041
Telephone 21,918
Travel And Entertainment 55,641
Utilities 105,669
Amortized Mortgage Cost 3,871
Provision For Bad Debts 250,000
Total Selling And Administrative Expenses $ 1,221,400
============
See Accountants' Review Report
77<PAGE>
COFFEE HOLDING CO., INC.
NOTES AND COMMENTS
JULY 31, 1997
NOTES 1 - INVENTORIES:
Inventories shown are as submitted by management.
NOTES 2 - PROPERTY AND EQUIPMENT:
Major classes of property and equipment consist of
the following:
Building & Improvements $1,101,443
Machinery And Equipment 1,374,875
Transportation Equipment 39,592
Furniture And Fixtures 84,024
2,599,934
Less: Accumulated Depreciation 1,452,738
1,147,196
Land 141,000
Net Property And Equipment $1,288,196
==========
NOTES 3 - DUE TO FACTOR:
The company has entered into a factoring arrangement to
provide working capital. As of statement date, the factor has
advanced $1,925,254 to the company. The company has given a
security interest in accounts receivable, inventory and machinery
and equipment. The stockholder has personally guaranteed up to
$200,000 of the advances.
NOTE 4 - MORTGAGE PAYABLE:
On June 1, 1989 the company financed through New York
City Industrial Development Agency a mortgage on land
and building in the amount of $1,050,000. The
agreement provides for monthly payments in the amount
of $4,166.67 plus interest based on a weekly variable
rate set by Bear, Stearns & Co. Final payment on the
notes is due November 1, 2009.
78<PAGE>
COFFEE HOLDING CO., INC.
NOTES AND COMMENTS
JULY 31, 1997
NOTE 4 - MORTGAGE PAYABLE (CONTINUED):
Payment of the notes are secured by a title insured
first mortgage on land and building. As of statement date the
total due on the mortgage is $641,967
Portion Considered Current 50,000
Non Current Portion $591,967
========
NOTE 5 - LOANS PAYABLE - OFFICERS/SHAREHOLDER:
Loans payable - officers/shareholder at July 31, 1997
were $499,250. The loans bear interest at 10% per
annum and have maturity dates in excess of one year.
Interest has been provided for in these statements.
NOTE 6 - MORTGAGE LOAN AGREEMENT:
Under the provision of the Letter of Credit Reimbursement
Agreement dated January 31, 1997, the Corporation is required to
maintain the following covenants.
Minimum Working Capital $300,000
Minimum Current Ratio 1.25:1
Minimum Net Worth 850,000
Maximum Leverage 3.75:1
Maximum Capital Expediture 50,000
At July 31, 1997, the Covenants, were as follows:
Working Capital 1,604,223
Current Ratio 1.53:1
Net Worth 2,364,379
Leverage Ratio (includes Officers loans) 1.52:1
We have classified the Mortgage according to its short
term and long term portions because of the probability of compliance
within the next twelve months.
In addition, officers and Stockholders have subordinated
$490,000 of their loans.
79<PAGE>
COFFEE HOLDING CO., INC.
NOTES AND COMMENTS
JULY 31, 1997
NOTE 7 - PROVISION FOR BAD DEBTS
Management has determined that of the total accounts
receivable of $3,505,313, the probability is that $250,000 of
the accounts receivable will be uncollectible.
The estimated uncollectible accounts receivable has
been deducted against income.
80<PAGE>
SUPPLEMENTARY
INFORMATION
Our report on our review of the basic financial statements of Coffee
Holding Co., Inc. for the nine months ended July 31, 1997, appears on page 1.
That review was made for the purpose of expressing limited assurance that
there are no material modifications that should be made to the financial
statements in order for them to be in conformity with generally accepted
accounting principles. The information included in the accompanying schedules
of cost of goods sold and selling and administrative expenses for the nine
months ended July 31, 1997 is presented only for supplementary analysis
purposes. Such information has been subjected to the inquiry and analytical
procedures applied in the review of the basic financial statements, and we are
not aware of any material modifications that should be made thereto.
Ira D. Ganzfried & Company
September 22, 1997
New York, New York
81<PAGE>
TRANSPACIFIC INTERNATIONAL GROUP CORP. AND
COFFEE HOLDING CO., INC. PROFORMA CONDENSED BALANCE SHEET
82<PAGE>
TRANSPACIFIC INTERNATIONAL GROUP CORP.
PRO-FORMA BALANCE SHEET
AS AT JULY 31, 1997
A S S E T S
Transpacific Coffee Combined
International Holding
Group Corp. Co. Inc.
CURRENT ASSETS:
Cash $ 783 $ 925,016 $ 925,799
Accounts Receivable -0- 2,305,143 2,305,143
Merchandise Inventory -0- 1,137,960 1,137,960
Inventories -0- -0- -0-
Prepaid Items -0- 39,204 39,204
Total Current Assets $ 783 $ 4,407,223 $ 4,408,106
OTHER ASSETS:
Property and Equipment -0- 1,288,196 1,288,196
Deferred and Other Assets -0- 63,927 63,927
Good Will - Unamortized -0- -0- -0-
TOTAL ASSETS $ 783 $ 5,759,446 $ 5,760,229
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Mortgage Payable
Current Portion -0- $ 50,000 $ 50,000
Due to -0- 1,925,254 1,925,254
Accounts Payable &
Accruals -0- 1,027,090 1,027,090
Total Current Liabilities -0- $ 3,002,344 $ 3,002,344
OTHER LIABILITIES:
Mortgage Payable-Non
Current Portion -0- 591,967 591,967
Loans Payable - Officers -0- 499,250 499,250
Total Other Liabilities -0- 1,091,217 1,091,217
STOCKHOLDERS' EQUITY:
Capital Stock 10 460,000 460,010
Paid In Capital 24,997 -0- 24,997
(Deficit) Retained Earnings (24,224) 1,205,885 1,181,661
Total Stockholders'
Equity $ 783 $1,665,885 1,666,668
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 783 $5,759,446 $5,760,229
========= ========== ==========
A S S E T S
Pro-Forma Pro-Forma
Adjustment Balance Sheet
CURRENT ASSETS:
Cash $ -0- $ 925,799
Accounts Receivable -0- 2,305,143
Merchandise Inventory -0- 1,137,960
Inventories -0- -0-
Prepaid Items -0- 39,204
Total Current Assets $ -0- $4,408,106
OTHER ASSETS:
Property and Equipment -0- 1,288,196
Deferred and Other Assets -0- 63,927
Good Will - Unamortized 433,125 433,125
TOTAL ASSETS $ 433,125 $6,193,354
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Mortgage Payable
Current Portion -0- $ 50,000
Due to -0- 1,925,254
Accounts Payable &
Accruals -0- 1,027,090
Total Current
Liabilities -0- $3,002,344
OTHER LIABILITIES:
Mortgage Payable-Non
Current Portion -0- 591,967
Loans Payable - Officers -0- 499,250
Total Other Liabilities -0- 1,091,217
STOCKHOLDERS' EQUITY:
Capital Stock -0- 460,010
Paid In Capital 450,000 474,997
(Deficit) Retained Earnings (16,875) 1,164,786
Total Stockholders'
Equity $ 433,125 $2,099,793
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 433,125 $6,193,354
========= ==========
83<PAGE>
TRANSPACIFIC INTERNATIONAL GROUP CORP.
PRO-FORMA STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED JULY 31, 1997
Transpacific Coffee Combined
International Holding
Group Corp. Co. Inc.
OPERATING INCOME:
Sales Revenues $ -0- $ 18,547,105 $ 18,547,105
Cost of Sales -0- 15,586,862 15,586,862
Gross Profit -0- 2,960,243 2,960,243
OPERATING EXPENSES:
Selling &
Administrative $ 1,965 $ 1,221,400 $ 1,223,365
Salaries - Officers -0- 183,771 183,771
Interest (4) 298,315 298,311
Total Operating Expenses $ 1,961 $ 1,703,486 $ 1,705,447
Income - before other
deductions (1,961) 1,256,757 1,254,796
Other Deduction -
Goodwill Amortized -0- -0- -0-
Income Before Taxes (1,961) 1,256,757 1,254,796
Less: Local Taxes -0- 113,000 113,000
Net Income $ (1,961) $ 1,143,757 $ 1,141,796
========== ========== ==========
Pro-Forma Pro-Forma
Adjustment Statement
Of Income
OPERATING INCOME:
Sales Revenues $ -0- $ 18,547,105
Cost of Sales -0- 15,586,862
Gross Profit -0- 2,960,243
OPERATING EXPENSES:
Selling &
Administrative $ -0- $ 1,223,365
Salaries - Officers -0- 183,771
Interest -0- 298,311
Total Operating Expenses $ -0- $ 1,705,447
Income - before other deductions -0- 1,254,796
Other Deduction -
Goodwill Amortized (16,875) (16,875)
Income Before Taxes (16,875) 1,237,921
Less: Local Taxes -0- 113,000
Net Income $ (16,875) $ 1,124,921
========= ==========
84<PAGE>
TRANSPACIFIC INTERNATIONAL GROUP CORP.
PRO-FORMA NOTES
FOR THE NINE MONTHS ENDED JULY 31, 1997
NOTE 1:
The purpose of the pro-forma statements is to give effect to
the merger of Coffee Holding Co., Inc. (ôCoffeeö) and
Transpacific International Group Corp. (ôTranspacificö).
Transpacific will be the legal surviving entity, however, for accounting
purposes, the merger will be treated as a purchase business acquisition
of Transpacific by Coffee (a reverse acquisition) and a
recapitalization of Coffee.
NOTE 2:
After the merger, the new entity will adopt the October 31
fiscal year end of Coffee, the accounting acquirer.
NOTE 3:
Goodwill is recorded, on a pro-forma basis, based on the expected
relative value of Transpacific as compared to the accounting acquirer,
Coffee. Goodwill is expected to be amortized over a 20 year period using the
straight-line method.
85<PAGE>
COFFEE HOLDING CO., INC.
PRO-FORMA STATEMENTS OF INCOME
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1996
Transpacific Coffee Combined
International Holding
Group Corp. Co. Inc.
Net Sales -0- $21,162,100 $21,162,100
Cost of Sales -0- 18,775,383 18,775,383
Gross Profit -0- 2,386,717 2,386,717
Operating Expenses:
Selling And
Administrative 1,965 1,154,341 1,156,306
Salaries - Officers -0- 413,740 413,740
Interest (4) 310,591 310,587
Total Operating Expenses 1,961 1,878,672 1,880,633
Income (Loss) Before
Other Deduction (1,961) 508,045 506,084
Other Deduction-
Amortization Of Goodwill -0- -0- -0-
Income (Loss) Before
Local Income Taxes (1,961) 508,045 506,084
Local Income Taxes -0- 8,528 8,528
Net Income $ (1,961) $ 499,517 $ 497,556
========= =========== ==========
Pro-Forma Pro-Forma
Adjustment Statement
Of
Income
Net Sales -0- $21,162,100
Cost of Sales -0- 18,775,383
Gross Profit -0- 2,386,717
Operating Expenses:
Selling And Administrative -0- 1,156,306
Salaries - Officers -0- 413,740
Interest -0- 310,587
Total Operating Expenses -0- 1,880,633
Income (Loss) Before
Other Deduction -0- 506,084
Other Deduction-
Amortization Of Goodwill 11,250 11,250
Income (Loss) Before
Local Income Taxes -0- 494,834
Local Income Taxes -0- 8,528
Net Income $ -0- $ 486,306
========== ===========
Pro-forma adjustments represent 1/40 of Goodwill value of $450,000
86<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Section 757 of the Nevada Revised Statutes for Domestic and Foreign
Corporations, provides for the indemnification of Transpacific's officers,
directors and corporate employees and agents under certain circumstances as
follows:
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS;
ADVANCEMENT OF EXPENSES. - (1) A corporation may 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 investigative, except an action by or in the right of the
corporation, by reason of the fact that he 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
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 he acted in good faith and in a manner he
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 conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, 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
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
reasonable cause to believe that his conduct was unlawful.
(2) A corporation may indemnify any person who was or is a party or 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 he 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 expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the corporation and except that no indemnification
shall be made in respect of any claim, issue or matter as to which such
person
shall have been adjudged to be liable to the corporation unless and only to
the extent that the Court of Chancery or 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 circumstance of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such court shall deem proper.
87<PAGE>
(3) 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 in subsections (1) and (2) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorney's fees) actually and
reasonably incurred by him in connection therewith.
(4) Any indemnification under subsections (1) and (2) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in
subsections
(1) and (2) of this section. Such determination shall be made (a) by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (b) if such a quorum
is not obtainable, or, even if obtainable a quorum of disinterested directors
so directs, by independent legal counsel in a written opinion, or (c) by the
stockholders or (d) if a majority vote of a quorum consisting of directors
who
were not parties to the act, suit or proceeding so orders, by independent
legal counsel in a written opinion.
(5) The articles of incorporation, the bylaws or an agreement made by
the corporation may provide that the expenses of officers and directors
incurred in defending a civil or criminal action, suit or proceeding must be
paid by the corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of an undertaking
by or on behalf of the director or officer to repay the amount if it is
ultimately determined by a court of competent jurisdiction that he is not
entitled to be indemnified by the corporation. The provisions of this
subsection do not affect any rights to advancement of expenses to which
corporate personnel other than directors or officers may be entitled under
any
contract or otherwise by law.
(6) The indemnification and advancement of expenses authorized in or
ordered by a court pursuant to this section:
(a) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under the articles
of incorporation or any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, for either an action in his official
capacity or an action in another capacity while holding his office, except
that indemnification, unless ordered by a court pursuant to subsection 2 or
for the advancement of expenses made pursuant to subsection 5, may not be
made
to or on behalf of any director or officer if a final adjudication
establishes
that his acts or omissions involved intentional misconduct, fraud or a knowing
violation of the law and was material to the cause of action. (b) Continues
for a person who has ceased to be a director, officer, employee or agent and
inures to the benefit of the heirs, executors and administrators of such a
person.
88<PAGE>
Section 752.1 of the statute reads as follows: A corporation may
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 him and incurred by him in any such
capacity or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under this
section.
If a claim under the above paragraph is not paid in full by Transpacific
within 30 days after a written claim has been received by Transpacific, the
claimant may at anytime thereafter bring suit against Transpacific to recover
the unpaid amount of the claim. If the claimant is successful, it is
entitled
to be paid the expense of prosecuting such claim, as well.
Transpacific will, to the fullest extend permitted by Section 757 of the
Nevada Revised Statutes for Domestic and Foreign Corporations, indemnify any
and all persons whom it has the power to indemnify against any and all of the
expense, liabilities and loss, and this indemnification shall not be deemed
exclusive of any other rights to which the indemnities may be entitled under
any By-law, agreement, or otherwise, both as to action in his/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 persons.
Transpacific may, at its own expense, maintain insurance to protect itself
and
any director, officer, employee or agent of Transpacific against any such
expense, liability or loss, whether or not Transpacific would have the power
to indemnify such person against such expense, liability or loss under the
Nevada statute.
89<PAGE>
Item 25. Expenses of Issuance and Distribution
The other expenses payable by Coffee in connection with the issuance and
distribution of the securities being registered pursuant to this
Reconfirmation Offer are estimated as follows:
Securities and Exchange Commission
Registration Fee......................... $ 0
Legal Fees............................... $35,000.00
Accounting Fees.......................... $15,000.00
Printing and Engraving................... $ 2,500.00
Miscellaneous............................ $ 500.00
Transfer Agent Fee....................... $ 1,500.00
TOTAL..................................... $54,500.00
Pursuant to the Merger Agreement, Coffee shall pay for all expenses
incurred in connection with the Reconfirmation Offer.
90<PAGE>
Item 26. Recent Sales of Unregistered Securities
Transpacific issued 97,000 shares on November 29, 1995 to its initial
stockholders for $25,006. This offering was conducted pursuant to the
private placement exemption contained in Section 4(2) of the Securities Act of
1933, as amended.
Name/Address
Consideration Shares
Beneficial of Common Price
Owner (1) Stock Purchased(2) Paid
Ho Cheong Chio 86,000 $22,170.80
The Bank of China Building
27/F-A-D Avenida
Doutor Mario
Soares, Macao
Hong Cao 2,000 $ 515.60
203 Howard St.
Waverly, NY 14892
Weng I. Ip 2,000 $ 515.60
Rua Do Bairainho No. 5
4F (A) Edf. Lei Si
Macau
Po Wa Lee 2,000 $ 515.60
Rua de Uniao, 4-M, 4
Macao
Rose-Marie Fox 1,500 $ 386.70
354 East 50th Street
New York, NY 10022
Andreas O. Tobler 1,500 $ 386.70
400 E. 70 St., #2703
New York, NY 10021
Howard Jiang 1,000 $ 257.80
67-113 Dartmouth St.
Forest Hills, N.Y. 11375
Joel Schonfeld 666 $ 171.69
63 Wall St., Ste. 1801
New York, NY 10005
Andrea I. Weinstein 334 $ 86.11
63 Wall St., Ste. 1801
New York, NY 10005
Total Officers
and Directors (one (1) person)
__________________________
(1) May be deemed "Promoters" of Transpacific, as that term is defined
under the Securities Act.
(2) These Shares were sold under the exemption of Section 4(2) of the
Securities Act.
Neither Transpacific nor any person acting on its behalf offered or sold the
securities by means of any form of general solicitation or general
advertising.
Each purchaser represented in writing that he/she acquired the securities for
his own account. A legend was placed on the certificates stating that the
securities have not been registered under the Act and setting forth the
restrictions on their transferability and sale. Each purchaser signed a
written agreement that the securities will not be sold without registration
under the Act or exemption therefrom.
91<PAGE>
EXHIBITS
Item 27.
2.0 Merger Agreement**
3.1 Certificate of Incorporation.*
3.2 By-Laws.*
4.1 Specimen Certificate of Common Stock.*
4.6 Form of Escrow Agreement.*
5.0 Opinion of Counsel.
24.0 Accountant's Consent to Use Opinion.
24.1 Counsel's Consent to Use Opinion.
99.0 Agreement Among Management.*
99.1 Letter of Reconfirmation
99.2 Loan Agreement Between Coffee Holding Co., Inc. and NationsCredit
Commercial Corp. dated November 21, 1997
*as filed with original SB-2 Registration Statement
**as filed with PostEffective Amendment No. 1
92<PAGE>
Item 28.
UNDERTAKINGS
The registrant undertakes:
(1) To file, during any period in which offers or sales are being made,
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10 (a) (3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after the
Effective Date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement, including
(but not limited to) any addition or deletion of managing underwriter;
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be treated 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 thereof.
(3) To remove from registration by means of a post-effective amendment any
of
the securities being registered which remain unsold at the termination of the
offering.
(4) To deposit into the Escrow Account at the closing, certificates in such
denominations and registered in such names as required by Transpacific to
permit prompt delivery to each purchaser upon release of such securities from
the Escrow Account in accordance with Rule 419 of Regulation C under the
Securities Act. Pursuant to Rule 419, these certificates shall be deposited
into an escrow account, not to be released until a business combination is
consummated.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to any provisions contained in its Certificate of
Incorporation, or by-laws, or otherwise, the registrant 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 registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant 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 registrant 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 indemnification by it is
against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
93<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 of filing on Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned, in the
City of , State of , on December 18 ,1997
TRANSPACIFIC INTERNATIONAL GROUP CORP.
(Registrant)
BY: Ho Cheong Chio
Ho Cheong Chio, President
David Chang
David Chang, Chief Accounting Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
and on the dates stated.
Ho Cheong Chio
Ho Cheong Chio DATED December 18, 1997
President, Director
David Chang
David Chang DATED December 18, 1997
Secretary, Director
Christian Constantinov
Christian Constantinov DATED December 18, 1997
Director
<PAGE>
December 18, 1997
Securities and Exchange Commission
Washington, D.C.
Re: TRANSPACIFIC INTERNATIONAL GROUP CORP.
To Whom It May Concern:
Transpacific International Group Corp. (the "Company") is a corporation duly
incorporated and validly existing and in good standing under the laws of the
state of Nevada. The Company has full corporate powers to own its property
and conduct its business, as such business is described in the prospectus.
The Company is qualified to do business as a foreign corporation in good
standing in every jurisdiction in which the ownership of property and the
conduct of business requires such qualification.
This opinion is given in connection with the reconfirmation of Three Thousand
(3,000) Shares of Common Stock at a price of $6.00 per Share, sold in the
Company's initial public offering.
I have acted as counsel to the company in connection with the preparation of
the Registration Statement on Form SB-2, pursuant to which such Shares are
being registered and, in so acting, I have examined the originals and copies
of the corporate instruments, certificates and other documents of the Company
and interviewed representatives of the Company to the extent I deemed it
necessary in order to form the basis for the opinion hereafter set forth. In
such examination I have assumed the genuineness of all signatures and
authenticity of all documents submitted to me as certified or photostatic
copies. As to all questions of fact material to this opinion
which have not been independently established, I have relied upon statements
or certificates of officers or representatives of the Company.
All of the 3,000 Shares subject to the reconfirmation are now currently held
in escrow as per Rule 419.
Based upon the foregoing, I am of the opinion that the 3,000 Shares of Common
Stock of the Company currently held in escrow pursuant to Rule 419 and subject
to a reconfirmation are fully paid and non-assessable and there will be no
personal liability to the owners thereof.
The undersigned hereby consents to the use of this opinion in connection with
such Registration Statement and its inclusion as an exhibit accompanying such
Registration Statement.
Very truly yours,
Schonfeld & Weinstein, LLP
SCHONFELD & WEINSTEIN, LLP
<PAGE>
IRA D. GANZFRIED & COMPANY
Certified Public Accountants
260 Fifth Avenue
New York, New York 10001
(212) 686-9310
Fax: (212) 686-4489
To the Board of Directors of
Transpacific International Group Corp.
347 Fifth Avenue, Suite 1507
New York, New York 10016
Re: Coffee Holding Co., Inc.
The undersigned, Lester S. Ganzfried, a certified public accountant,
does
hereby consent to the use of my opinions dated December 19, 1996 and
September
22, 1997, to Coffee Holding Co., Inc. to be used and filed in connection with
the Post-Effective Amendment to Transpacific International Group Corp.'s
Registration Statement and Prospectus on Form SB-2, as filed with the
Securities and Exchange Commission. I also consent to the use of my name
under the caption "Experts" in the above-mentioned Post-Effective Amendment.
Ira D. Ganzfried & Company
By: Lester S. Ganzfried
Dated: December 22, 1997
New York, New York
BY: LESTER S. GANZFRIED, C.P.A.
<PAGE>
GERMAN W. CHACON
Certified Public Accountants
78 Euclid Avenue
Ardsley, New York 10502
To The Board of Directors of
Transpacific International Group Corp.
347 Fifth Avenue, Suite 1507
New York, New York 10016
Re: TRANSPACIFIC INTERNATIONAL GROUP CORP.
The undersigned, German W. Chacon, a certified public accountant, do
hereby consent to the use of my opinions dated December 16, 1996 and July
24, 1997, to Transpacific International Group Corp. to be used and filed in
connection with the Post-Effective Amendment to Transpacific International
Group Corp.'s SB-2 Registration Statement and Prospectus, as filed with the
Securities and Exchange Commission. I also consent to the use of my name
under the caption "Experts" in the above-mentioned Registration Statement.
German W. Chacon
Dated: December 23, 1997
New York, New York
<PAGE>
To The Board of Directors of
Transpacific International Group Corp.
347 Fifth Avenue, Suite 1507
New York, New York 10016
Re: Transpacific International Group Corp.
We, SCHONFELD & WEINSTEIN, hereby consent to the use of our opinion dated
December 18, 1997, to Transpacific International Group Corp. to be used and
filed in connection with the SB-2 Registration Statement and Prospectus, as
filed with the Securities and Exchange Commission.
Schonfeld & Weinstein LLP
SCHONFELD & WEINSTEIN, LLP
Dated: December 18, 1997
New York, New York
<PAGE>
TRANSPACIFIC INTERNATIONAL GROUP CORP.
SHAREHOLDER RECONFIRMATION
To The Board of Directors
Transpacific International Group Corp.
347 Fifth Avenue
Suite 1507
New York, New York 10016
The undersigned, owner of shares of Transpacific International
Group Corp. (the "Shares"), purchased in Transpacific International Group
Corp.'s initial public offering, hereby acknowledges that these Shares are
being held in escrow pursuant to Rule 419 of Regulation C under the Securities
Act of 1933, as amended ("Rule 419"). I further acknowledge that I have 20
business days from the effective date of the post-effective
amendment [( )] to notify Transpacific International Group Corp. that I
will remain an investor in Transpacific International Group Corp. I am aware
that if Transpacific International Group Corp. has not received this notice
within 20 business days following the effective date of the
post-effective amendment, my pro rata funds which are currently held in escrow
shall be sent by first class mail, or other equally prompt means, to me within
five business days.
I have read over the post-effective amendment of Transpacific
International Group Corp. and wish to reconfirm my investment.
Name (print or type) Signature
Street Address
City, State, Zip Code Social Security Number
Phone Number
Please return the enclosed Letter of Reconfirmation to Schonfeld & Weinstein,
L.L.P., 63 Wall Street, Suite 1801, New York, New York 10005. The
Shareholder Reconfirmation receipts will be tabluated on [ ],
1998. Please make sure this letter is received by Schonfeld & Weinstein by
[ ].
<PAGE>
SUBSCRIPTION AGREEMENT AND INVESTMENT LETTER
FOR
TRANSPACIFIC INTERNATIONAL GROUP CORP.
Dear Mr. Schonfeld:
This will acknowledge that the undersigned hereby subscribes to
purchase shares of the Common Stock, par value $.0001 per share, of
TRANSPACIFIC INTERNATIONAL GROUP CORP. a corporation formed under the laws of
Nevada (the "Company"), at $.2578 per share, for an aggregate purchase price
of $ . The undersigned acknowledges that these shares have not been and
are not being registered under the Securities Act of 1933, as amended, and
that the certificates received by the undersigned will bear a legend
indicating that transfer of these shares is restricted by reason of the fact
that the said shares have not been so registered.
The undersigned represents that he/she is acquiring these shares for his
own account, for investment purposes only and not with a view of resale or
other distribution thereof, nor with the intention of selling, transferring or
otherwise disposing of all or any part of such shares for any particular
price, or at any particular time, or upon happening of any particular event or
circumstance, except selling, transferring, or disposing of said shares made
upon full compliance with all applicable provisions of the Securities Act of
1933 and the Securities Exchange Act of 1934, and the Rules and Regulations
promulgated by the Securities and Exchange Commission thereunder; and that
such shares must be held indefinitely unless they are subsequently registered
under the Securities Act of 1933 or an exemption from such registration is
available, and that any routine sales of securities made in reliance upon Rule
144 can be made only in limited amounts in accordance with the terms and
conditions of that Rule.
The undersigned also acknowledges that he/she has received the following
information in connection with his purchase of the aforementioned shares of
Common Stock of the Company, and that no other representations, statements or
inducements were made to cause him to purchase these shares;
1. The Company was duly organized under the laws of the State of
Nevada. The Company has authorized twenty million (20,000,000) shares of
Common Stock at $.0001 par value.
2. The Company is a developmental company with limited activities and
which has no significant assets or liabilities at this time. The Company
intends to raise approximately $25,000 through these Subscription Agreements.
An additional $18,000 will be raised in a public or private offering to take
place in the immediate future.
3. TRANSPACIFIC INTERNATIONAL GROUP CORP. is a blank check company which
plans to look for a suitable business to merge with or acquire.
4. Because the Company is a newly organized company and has no
significant assets therefore, the Company cannot give any assurance that it
will be successful, and investors stand a substantial risk of losing their
entire investment.
5. There is no finder in connection with this transaction, and no
commissions are to be paid to any individual or entity in connection with this
transaction.
6. The purchase price of the shares being purchased hereby has been
arbitrarily determined and bears no relationship to the assets or book value
of the Company, or other customary investment criteria. There is no present
market for the Common Stock of the Company, and there is no assurance that a
trading market for the shares will ever develop. Moreover, even if a trading
market for the Common Stock develops, there is no assurance that such trading
market will be maintained.
7. None of the securities of the Company to be purchased hereunder have
been registered with any state regulatory or securities agency or bureau, nor
has any regulatory agency passed upon the merits of the Common Stock of the
Company or the accuracy of the information contained herein.
8. The Company intends to use the proceeds of this offering primarily to
fund a public offering and such funds will be used to obtain and formalize all
documentation and agreements in preparing said offering.
9. The undersigned has been apprised of the fact that the Company has
not registered to do business in the State of New York, nor in any state other
than Nevada and has no assurance that they will register to do business in any
state in the future.
10. In connection with the purchase of these shares of the Company's
Common Stock, the undersigned also acknowledges that:
(a) I have not received any general solicitation of general
advertising regarding the purchase of these shares;
(b) I have sufficient knowledge and experience of financial and
business matters so that I am able to evaluate the merits and risks of
purchasing the Company's Common Stock, and I have had substantial experience
in previous private and public purchases of securities;
(c) I have adequate means to provide for my personal needs, and
possess the ability to bear the economic risk of holding the Common Stock
purchased hereunder indefinitely, and can afford a complete loss on the
purchase of these securities;
(d) During the transaction and prior to purchase, I have read this
investment letter and have full opportunity to ask questions of and receive
answers from the Company and its founders and officers, and to receive such
information contained herein or any additional information requested. I do
not desire to receive any further information; and
(e) I understand the meaning of the first two paragraphs of this
Investment Letter, and that a restrictive legend will be placed on the
certificates representing the shares purchased hereunder, and that
instructions will be placed with the Transfer Agent for the Common Stock
prohibiting the transfer of my shares purchased hereunder absent full
compliance with the Securities Act of 1933 and the Securities Exchange Act of
1934.
CALIFORNIA RESIDENTS
THE COMPANY DOES NOT DO BUSINESS IN, AND DOES NOT DO BUSINESS WITH ANY
PERSON OR GROUP LOCATED IN, SOUTH AFRICA. THIS INFORMATION IS ONLY ACCURATE
AS OF THE DATE HEREOF AND PROSPECTIVE PURCHASERS MAY CONTACT THE SECRETARY OF
STATE OF THE STATE OF CALIFORNIA FOR UPDATED INFORMATION AT: SOUTH AFRICA
BUSINESS NOTICE, OFFICE OF THE SECRETARY OF STATE, 1230 J STREET, ROOM 100,
SACRAMENTO, CALIFORNIA 95814, TELEPHONE NUMBER (916) 326-6427.
NEW YORK RESIDENTS
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK DOES NOT PASS UPON OR
ENDORSE THE MERITS OF ANY PRIVATE OFFERING. NO OFFERING DOCUMENT HAS BEEN
FILED WITH OR OTHERWISE APPROVED BY THE DEPARTMENT OF SECURITIES OR THE
DEPARTMENT OF LAW AND PUBLIC SAFETY OF THE STATE OF NEW YORK. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
NEW JERSEY RESIDENTS
THE ATTORNEY GENERAL OF THE STATE OF NEW JERSEY DOES NOT PASS UPON OR
ENDORSE THE MERITS OF ANY PRIVATE OFFERING. NO OFFERING DOCUMENT HAS BEEN
FILED WITH OR OTHERWISE APPROVED BY THE DEPARTMENT OF SECURITIES OR THE
DEPARTMENT OF LAW AND PUBLIC SAFETY OF THE STATE OF NEW JERSEY. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
I hereby subscribe to the shares set forth on page one (1) of this
Subscription Agreement and Investment Letter, and am tendering herewith my
check for the full amount of my subscription, made payable to the Company.
$ shares
Dated:
AGREED AND ACKNOWLEDGED
Name
Address
Phone Number
Soc. Sec. Number
<PAGE>
NationsCredit Commercial Funding
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement (as it may be amended, this "Agreement")
is entered into on November 21, 1997, between NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION ("Lender"),
having an address at 1177 Avenue of the Americas, 36th Floor, New York, New
York 10036 and COFFEE HOLDING CO., INC. ("Borrower"), whose chief executive
office is located at 4401 First Avenue, Brooklyn, New York 11232-0005
("Borrower's Address"). The Schedules to this Agreement are an integral part
of this Agreement and are incorporated herein by reference. Terms used, but
not defined elsewhere, in this Agreement are defined in ScheduleáB.
1. LOANS AND CREDIT ACCOMMODATIONS.
1.1 Amount. Subject to the terms and conditions contained in this
Agreement, Lender will:
(a) Revolving Loans and Credit Accommodations. From time to
time during the Term at Borrower's request, make revolving loans to Borrower
("Revolving Loans"), and make letters of credit, bankers acceptances and other
credit accommodations ("Credit Accommodations") available to Borrower in each
case to the extent that there is sufficient Availability at the time of such
request to cover, dollar for dollar, the requested Revolving Loan or Credit
Accommodation; provided, that after giving effect to such Revolving Loan or
Credit Accommodation, (x) the outstanding balance of all monetary Obligations
(including the principal balance of any Term Loan and, solely for the purpose
of determining compliance with this provision, the Credit Accommodation
Balance) will not exceed the Maximum Facility Amount set forth in Section 1(a)
of Schedule A and (y) none of the other Loan Limits set forth in Section 1 of
Schedule A will be exceeded. For this purpose, "Availability" means:
(i) the aggregate amount of Eligible Accounts (less maximum
existing or asserted taxes, discounts, credits and allowances) multiplied by
the Accounts Advance Rate set forth in Section l(b)(i) of Schedule A but not
to exceed the Accounts Sublimit set forth in Section l(c) of Schedule A,
plus
(ii) the lower of cost or market value of Eligible Inventory
multiplied by the Inventory Advance Rate(s) set forth in Section l(b)(ii) of
Schedule A, but not to exceed the Inventory Sublimit(s) set forth in Section
1(d) of Schedule A;
minus
(iii) all Reserves which Lender has established pursuant to
Section 1.2 (including those to be established in connection with the
requested Revolving Loan or Credit Accommodation);
minus
(iv) the outstanding balance of all of the monetary Obligations
(excluding the Credit Accommodation Balance and the principal balance of the
Term Loan); and
plus
(v) the Overadvance Amount, if any, set forth in Section l(g) of
Schedule A.
(b) Term Loan. On the date of this Agreement, make (i) an
advance to Borrower computed with respect to the value of Borrower's Eligible
Equipment (the ("Equipment Advance") in the principal amount, if any, set
forth in Section 2(a)(i) of Schedule A, and (ii) an advance to Borrower
computed with respect to the value of Borrower's Eligible Real Property (the
"Real Property Advance") in the principal amount, if any, set forth in Section
2(a)(ii) of Schedule A. The Equipment Advance and the Real Property Advance
are collectively referred to as the "Term Loan."
1.2 Reserves. Lender may from time to time establish and revise such
reserves as Lender deems appropriate in its sole discretion ("Reserves") to
reflect (i) events, conditions, contingencies or risks which affect or may
affect (A) the Collateral or its value, or the security interests and other
rights of Lender in the Collateral or (B) the assets, business or prospects of
Borrower or any Obligor, (ii) Lender's good faith concern that any Collateral
report or financial information furnished by or on behalf of Borrower or any
Obligor to Lender is or may have been incomplete, inaccurate or misleading in
any material respect, (iii) any fact or circumstance which Lender determines
in good faith constitutes, or could constitute, a Default or Event of Default
or (iv) any other events or circumstances which Lender determines in good
faith make the establishment or revision of a Reserve prudent. Without
limiting the foregoing, Lender shall (x) in the case of each Credit
Accommodation issued for the purchase of Inventory (a) which meets the
criteria for Eligible Inventory set forth in clauses (i), (ii), (iii), (v) and
(vi) of the definition of Eligible Inventory, (b) which is or will be in
transit to one of the locations set forth in Section 9(d) of Schedule A, (c)
which is fully insured in a manner satisfactory to Lender and (d)áwith
respect to which Lender is in possession of all bills of lading and all other
documentation which Lender has requested, all in form and substance
satisfactory to Lender in its sole discretion, establish a Reserve equal to
the cost of such Inventory (plus all duties, freight, taxes, insurance, costs
and other charges and expenses relating to such Credit Accommodation or such
Eligible Inventory) multiplied by a percentage equal to 100% minus the
Inventory Advance Rate applicable to Eligible Inventory and (y) in the case of
any other Credit Accommodation issued for any purpose, establish a Reserve
equal to the full amount of such Credit Accommodation plus all costs and other
charges and expenses relating to such Credit Accommodation. In addition, (x)
Lender shall establish a permanent Reserve in the amount set forth in Section
l(f) of Schedule A, and (y) if the outstanding principal balance of the Term
Loan advance with respect to Eligible Equipment exceeds the percentage set
forth in Section 2(a)(i) of Schedule A of the appraised value of such Eligible
Equipment, Lender may establish an additional Reserve in the amount of such
excess (and, for this purpose, if payments of principal on the Term Loan
advances against Eligible Equipment and Real Property are not calculated
separately, payments of principal of the Term Loan made by Borrower shall be
deemed to apply to the Term Loan advance with respect to Eligible Equipment
and Real Property, respectively, in proportion to the original principal
amounts of such advances). Lender may, in its discretion, establish and
revise Reserves by deducting them in determining Availability or by
reclassifying Eligible Accounts or Eligible Inventory as ineligible. In no
event shall the establishment of a Reserve in respect of a particular actual
or contingent liability obligate Lender to make advances hereunder to pay such
liability or otherwise obligate Lender with respect thereto.
1.3 Other Provisions Applicable to Credit Accommodations. Lender
may, in its sole discretion and on terms and conditions acceptable to Lender,
make Credit Accommodations available to Borrower either by issuing them, or by
causing other financial institutions to issue them supported by Lender's
guaranty or indemnification; provided, that after giving effect to each Credit
Accommodation, the Credit Accommodation Balance will not exceed the Credit
Accommodation Limit set forth in Section 1(e) of Schedule A. Any amounts paid
by Lender in respect of a Credit Accommodation will be treated for all
purposes as a Revolving Loan which shall be secured by the Collateral and bear
interest, and be payable, in the same manner as a Revolving Loan. Borrower
agrees to execute all documentation required by Lender or the issuer of any
Credit Accommodation in connection with any such Credit Accommodation.
1.4 Repayment. Accrued interest on all monetary Obligations shall be
payable on the first day of each month. Principal of the Term Loan shall be
repaid as set forth in Section 2(b) of Schedule A. If at any time any of the
Loan Limits are exceeded, Borrower will immediately pay to Lender such amounts
(or provide cash collateral to Lender with respect to the Credit Accommodation
Balance in the manner set forth in Section 7.3), as shall cause Borrower to be
in full compliance with all of the Loan Limits. Notwithstanding the foregoing
Lender may, in its sole discretion, make or permit Revolving Loans, the Term
Loan, any Credit Accommodations or any other monetary Obligations to be in
excess of any of the Loan Limits; provided, that Borrower shall, upon Lender's
demand, pay to Lender such amounts as shall cause Borrower to be in full
compliance with all of the Loan Limits. All unpaid monetary Obligations shall
be payable in full on the Maturity Date (as defined in Section 7.1) or, if
earlier, the date of any early termination pursuant to Section 7.2.
1.5 Minimum Borrowing. Subject to the terms and conditions of this
Agreement, Borrower agrees to (i) borrow sufficient amounts to cause the
outstanding principal balance of the Loans to equal or exceed, at all times
prior to the Maturity Date, the Minimum Loan Amount set forth in Section 4 of
Schedule A and (ii) maintain Availability sufficient to enable Borrower to do
so. However, Lender shall not be obligated to loan Borrower the Minimum Loan
Amount other than in accordance with all of the terms and conditions of this
Agreement.
2. INTEREST AND FEES.
2.1 Interest. All Loans and other monetary Obligations shall bear
interest at the Interest Rate(s) set forth in Section 3 of Schedule A, except
where expressly set forth to the contrary in this Agreement or another Loan
Document; provided, that after the occurrence of an Event of Default, all
Loans and other monetary Obligations shall, at Lender's option, bear interest
at a rate per annum equal to two percent (2%) in excess of the rate otherwise
applicable thereto (the "Default Rate") until paid in full (notwithstanding
the entry of any judgment against Borrower or the exercise of any other right
or remedy by Lender), and all such interest shall be payable on demand.
Changes in the Interest Rate shall be effective as of the date of any change
in the Prime Rate. Notwithstanding anything to the contrary contained in this
Agreement, the aggregate of all amounts deemed to be interest hereunder and
charged or collected by Lender is not intended to exceed the highest rate
permissible under any applicable law, but if it should, such interest shall
automatically be reduced to the extent necessary to comply with applicable law
and Lender will refund to Borrower any such excess interest received by
Lender.
2.2 Fees and Warrants. Borrower shall pay Lender the following fees,
and issue Lender the following warrants, which are in addition to all interest
and other sums payable by Borrower to Lender under this Agreement, and are not
refundable:
(a) Closing Fee. A closing fee in the amount set forth in Section
6(a) of Schedule A, which shall be deemed to be fully earned as of, and
payable on, the date hereof.
(b) Facility Fees. A facility fee for the Initial Term in the
amount set forth in Section 6(b)(i) of Schedule A (which shall be fully earned
as of the date of this Agreement and shall be payable in equal installments
due, respectively, on the date of this Agreement and on each anniversary
thereof during the Initial Term), and a facility fee for each Renewal Term in
the amount set forth in Section 6(b)(ii) of Schedule A (which shall be fully
earned as of the first day of such Renewal Term and shall be payable in equal
installments due, respectively, on the first day of such Renewal Term and on
each anniversary thereof during such Renewal Term).
(c) Servicing Fee. A monthly servicing fee in the amount set
forth in Section 6(c) of Schedule A, in consideration of Lender's
administration and other services for each month (or part thereof), which
shall be fully earned as of, and payable in advance on, the date of this
Agreement and on the first date of each month thereafter so long as any of the
Obligations are outstanding.
(d) Unused Line Fee. An unused line fee at a rate equal to the
percentage per annum set forth in Section 6(d) of Schedule A of the amount by
which the Maximum Facility Amount exceeds the average dally outstanding
principal balance of the Loans and the Credit Accommodation Balance during the
immediately preceding month (or part thereof), which fee shall be payable, in
arrears, on the first day of each month so long as any of the Obligations are
outstanding and on the Maturity Date.
(e) Minimum Borrowing Fee. A minimum borrowing fee equal to the
excess, if any, of (i) interest which would have been payable in respect of
each period set forth in Section 6(e)(i) of Schedule A if, at all times during
such period, the principal balance of the Loans was equal to the Minimum Loan
Amount over (ii) the actual interest payable in respect of such period, which
fee shall be fully earned as of the last day of such period and payable on the
date set forth in Section 6(e)(ii) of Schedule A and on the Maturity Date,
commencing with the immediately following period.
(f) Success Fee. A success fee in the amount set forth in
Section 6(f) of Schedule A, which shall be fully earned as of the date of this
Agreement and payable as set forth in Section 6(f) of Schedule A.
(g) Warrants. Warrants to acquire the capital stock of
Borrower, as summarized in Section 6(g) of Schedule A and as more fully set
forth in a separate warrant agreement executed by Borrower contemporaneously
with this Agreement.
(h) Credit Accommodation Fees. All of the fees relating to
Credit Accommodations set forth in Section 6(i) of Schedule A.
2.3 Computation of Interest and Fees. All interest and fees shall be
calculated daily on the closing balances in the Loan Account based on the
actual number of days elapsed in a year of 360 days. For purposes of
calculating interest and fees, if the outstanding daily principal balance of
the Revolving Loans is a credit balance, such balance shall be deemed to be
zero.
2.4 Loan Account; Monthly Accountings. Lender shall maintain a loan
account for Borrower reflecting all advances, charges, expenses and payments
made pursuant to this Agreement (the "Loan Account"), and shall provide
Borrower with a monthly accounting reflecting the activity in the Loan
Account. Each accounting shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Lender), unless Borrower
notifies Lender in writing to the contrary within sixty days after such
account is rendered, describing the nature of any alleged errors or
admissions. However, Lender's failure to maintain the Loan Account or to
provide any such accounting shall not affect the legality or binding nature
of the Obligations. Interest, fees and other monetary Obligations due and
owing under this Agreement (including fees and other amounts paid by Lender to
issuers of Credit Accommodations) may, in Lender's discretion, be charged to
the Loan Account, and will thereafter be deemed to be Revolving Loans and will
bear interest at the same rate as other Revolving Loans.
3. SECURITY INTEREST.
3.1 To secure the full payment and performance of all of the
Obligations, Borrower hereby grants to Lender a continuing security interest
in all of Borrower's property and interests in property, whether tangible or
intangible, now owned or in existence or hereafter acquired or arising,
wherever located, including Borrower's interest in all of the following,
whether or not eligible for lending purposes: (i) all Accounts, Chattel Paper,
Instruments, Documents, Goods (including Inventory, Equipment, farm products
and consumer goods), Investment Property, General Intangibles, Deposit
Accounts and money, (ii) all proceeds and products of all of the foregoing
(including proceeds of any insurance policies, proceeds of proceeds and claims
against third parties for loss or any destruction of any of the foregoing) and
(iii) all books and records relating to any of the foregoing.
4. ADMINISTRATION.
4.1 Lock Boxes and Blocked Accounts. Borrower will, at its expense,
establish (and revise from time to time as Lender may require) collection
procedures acceptable to Lender, in Lender's sole discretion, for the
collection of checks, wire transfers and other proceeds of Accounts ("Account
Proceeds"), which may include (i) directing all Account Debtors to send all
such proceeds directly to a post office box designated by Lender either in the
name of Borrower (but as to which Lender has exclusive access) or, at Lender's
option, in the name of Lender (a "Lock Box") or (ii) depositing all Account
Proceeds received by Borrower into one or more bank accounts maintained in
Borrower's name (each, a "Blocked Account"), under an arrangement acceptable
to Lender with a depository bank acceptable to Lender, pursuant to which all
funds deposited into each Blocked Account are to be transferred to Lender in
such manner, and with such frequency, as Lender shall specify or (iii) a
combination of the foregoing. Borrower agrees to execute, and to cause its
depository banks to execute, such Lock Box and Blocked Account agreements and
other documentation as Lender shall require from time to time in connection
with the foregoing. On the date of this Agreement, Borrower will execute and
deliver to Lender a Blocked Account agreement, in form and substance
satisfactory to Lender.
4.2 Remittance of Proceeds. Except as provided in Section 4.1, all
proceeds arising from the sale or other disposition of any Collateral shall be
delivered, in kind, by Borrower to Lender in the original form in which
received by Borrower not later than the following Business Day after receipt
by Borrower. Until so delivered to Lender, Borrower shall hold such proceeds
separate and apart from Borrower's other funds and property in an express
trust for Lender. Nothing in this Section 4.2 shall limit the restrictions on
disposition of Collateral set forth elsewhere in this Agreement.
4.3 Application of Payments. Lender may, in its sole discretion,
apply, reverse and re-apply all cash and non-cash proceeds of Collateral or
other payments received with respect to the Obligations, in such order and
manner as Lender shall determine, whether or not the Obligations are due, and
whether before or after the occurrence of a Default or an Event of Default.
For purposes of determining Availability, such amounts will be credited to the
Loan Account and the Collateral balances to which they relate upon Lender's
receipt of advice from Lender's Bank (set forth in Section 11 of Schedule A)
that such items have been credited to Lender's account at Lender's Bank (or
upon Lender's deposit thereof at Lender's Bank in the case of payments
received by Lender in kind), in each case subject to final payment and
collection. However, for purposes of computing interest on the Obligations,
such items shall be deemed applied by Lender three Business Days after
Lender's receipt of advice of deposit thereof at Lender's Bank.
4.4 Notification; Verification. Lender or its designee may, from
time to time, whether or not a Default or Event of Default has occurred: (i)
verify directly with the Account Debtors the validity, amount and other
matters relating to the Accounts and Chattel Paper, by means of mail,
telephone or otherwise, either in the name of Borrower or Lender or such other
name as Lender may choose; and (ii) notify Account Debtors that Lender has a
security interest in the Accounts and that payment thereof is to be made
directly to Lender. Upon the occurrence of a Default or Event of Default,
Lender or its designee may, from time to time, demand, collect or enforce
payment of any Accounts and Chattel Paper (but without any duty to do so).
4.5 Power of Attorney. Borrower hereby grants to Lender an
irrevocable power of attorney, coupled with an interest, authorizing and
permitting Lender (acting through any of its officers, employees, attorneys or
agents), at any time (whether or not a Default or Event of Default has
occurred and is continuing, except as expressly provided below), at Lender's
option, but without obligation, with or without notice to Borrower, and at
Borrower's expense, to do any or all of the following, in Borrower's name or
otherwise: (i) execute on behalf of Borrower any documents that Lender may, in
its sole discretion, deem advisable in order to perfect and maintain Lender's
security interests in the Collateral, to exercise a right of Borrower or
Lender, or to fully consummate all the transactions contemplated by this
Agreement and the other Loan Documents (including such financing statements
and continuation financing statements, and amendments thereto, as Lender shall
deem necessary or appropriate) and to file as a financing statement any copy
of this Agreement or any financing statement signed by Borrower; (ii) execute
on behalf of Borrower any document exercising, transferring or assigning any
option to purchase, sell or otherwise dispose of or lease (as lessor or
lessee) any real or personal property which is part of the Collateral or in
which Lender has an interest; (iii) execute on behalf of Borrower any invoices
relating to any Accounts, any draft against any Account Debtor, any proof of
claim in bankruptcy, any notice of Lien or claim, and any assignment or
satisfaction of mechanic's, materialman's or other Lien; (iv) execute on
behalf of Borrower any notice to any Account Debtor; (v) receive and otherwise
take control in any manner of any cash or non-cash items of payment or
proceeds of Collateral; (vi) endorse Borrower's name on all checks and other
forms of remittances received by Lender; (vii) pay contest or settle any Lien,
charge, encumbrance, security interest and adverse claim in or to any of the
Collateral, or any judgment based thereon, or otherwise take any action to
terminate or discharge the same; (viii) after the occurrence of a Default or
Event of Default, grant extensions of time to pay, compromise claims relating
to, and settle Accounts, Chattel Paper and General Intangibles for less than
face value and execute all releases and other documents in connection
therewith; (ix) pay any sums required on account of Borrower's taxes or to
secure the release of any Liens therefor; (x) pay any amounts necessary to
obtain, or maintain in effect, any of the insurance described in Section 5.12;
(xi) settle and adjust, and give releases of, any insurance claim that relates
to any of the Collateral and obtain payment therefor; (xii) instruct any third
party having custody or control of any Collateral or books or records
belonging to, or relating to, Borrower to give Lender the same rights of
access and other rights with respect thereto as Lender has under this
Agreement; and (xiii) after the occurrence of a Default or Event of Default,
change the address for delivery of Borrower's mail and receive and open all
mail addressed to Borrower. Any and all sums paid, and any and all costs,
expenses, liabilities, obligations and reasonable attorneys' fees incurred, by
Lender with respect to the foregoing shall be added to and become part of the
Obligations, shall be payable on demand, and shall bear interest at a rate
equal to the highest interest rate applicable to any of the Obligations.
Borrower agrees that Lender's rights under the foregoing power of attorney or
any of Lender's other rights under this Agreement or the other Loan Documents
shall not be construed to indicate that Lender is in control of the business,
management or properties of Borrower.
4.6 Disputes. Borrower shall promptly notify Lender of all disputes
or claims relating to Accounts and Chattel Paper. Borrower will not, without
Lender's prior written consent, compromise or settle any Account or Chattel
Paper for less than the full amount thereof, grant any extension of time of
payment of any Account or Chattel Paper, release (in whole or in part) any
Account Debtor or other person liable for the payment of any Account or
Chattel Paper or grant any credits, discounts, allowances, deductions, return
authorizations or the like with respect to any Account or Chattel Paper;
except that prior to the occurrence of an Event of Default, Borrower may take
any of such actions in the ordinary course of its business, provided that
Borrower promptly reports the same to Lender.
4.7 Invoices. At Lender's request, Borrower will cause all invoices
and statements which it sends to Account Debtors or other third parties to be
marked, in a manner satisfactory, to Lender, to reflect Lender's security
interest therein.
4.8 Inventory.
(a) Returns. Provided that no Event of Default has occurred and
is continuing, if any Account Debtor returns any Inventory to Borrower in the
ordinary course of its business, Borrower will promptly determine the reason
for such return and promptly issue a credit memorandum to the Account Debtor
in the appropriate amount (sending a copy to Lender). After the occurrence of
an Event of Default, Borrower will (i) hold the returned Inventory in trust
for Lender; (ii) segregate all returned Inventory from all of Borrower's other
property; (iii) conspicuously label the returned Inventory as Lender's
property; and (iv) immediately notify Lender of the return of such Inventory,
specifying the reason for such return, the location and condition of the
returned Inventory and, at Lender's request, deliver such returned Inventory
to Lender at an address specified by Lender.
(b) Other Covenants. Borrower will not, without Lender's prior
written consent, (i) store any Inventory with any warehouseman or other third
party other than as set forth in Section 9(d) of Schedule A and on Schedule
4.8 hereto; provided, that the Inventory stored at the locations listed on
Scehdule 4.8 hereto must not exceed, in the aggregate, 20% of Borrower's total
Inventory at any one time, or (ii) sell any Inventory on a sale-or-return,
guaranteed sale, consignment, or other contingent basis. All of the Inventory
has been produced only in accordance with the Fair Labor Standards Act of 1938
and all rules, regulations and orders promulgated thereunder, if applicable.
4.9 Access to Collateral, Books and Records. At reasonable times,
and on one Business Day's notice, prior to the occurrence of a Default or an
Event of Default, and at any time and with or without notice after the
occurrence of a Default or an Event of Default, Lender or its agents shall
have the right to inspect the Collateral, and the right to examine and copy
Borrower's books and records. Lender shall take reasonable steps to keep
confidential all information obtained in any such inspection or examination,
but Lender shall have the right to disclose any such information to its
auditors, regulatory agencies, attorneys and participants, and pursuant to any
subpoena or other legal process. Borrower agrees to give Lender access to any
or all of Borrower's premises to enable Lender to conduct such inspections and
examinations. Such inspections and examinations shall be at Borrower's
expense and the charge therefor shall be $750 per person per day (or such
higher amount as shall represent Lender's then current standard charge), plus
reasonable out-of-pocket expenses. Lender may, at Borrower's expense, use
Borrower's personnel, computer and other equipment, programs, printed output
and computer readable media, supplies and premises for the collection, sale or
other disposition of Collateral to the extent Lender, in its sole discretion,
deems appropriate. Borrower hereby irrevocably authorizes all accountants and
third parties to disclose and deliver to Lender, at Borrower's expense, all
financial information, books and records, work papers, management reports and
other information in their possession regarding Borrower. Borrower will not
enter into any agreement with any accounting firm, service bureau or third
party to store Borrower's books or records at any location other than
Borrower's Address without first obtaining Lender's written consent (which
consent may be conditioned upon such accounting firm, service bureau or other
third party agreeing to give Lender the same rights with respect to access to
books and records and related rights as Lender has under this Agreement).
5. REPRESENTATIONS, WARRANTIES AND COVENANTS.
To induce Lender to enter into this Agreement, Borrower represents,
warrants and covenants as follows (it being understood that (i) each such
representation and warranty will be deemed remade as of the date on which each
Loan is made and each Credit Accommodation is provided and shall not be
affected by any knowledge of, or any investigation by, Lender, and (ii) the
accuracy of each such representation, warranty and covenant will be a
condition to each Loan and Credit Accommodation):
5.1 Existence and Authority. Borrower is duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation or formation. Borrower is qualified and licensed to do
business in all jurisdictions in which any failure to do so would have a
material adverse effect on Borrower. The execution, delivery and performance
by Borrower of this Agreement and all of the other Loan Documents have been
duly and validly authorized, do not violate Borrower's articles or certificate
of incorporation, by-laws or other organizational documents, or any law or any
agreement or instrument or any court order which is binding upon Borrower or
its property, do not constitute grounds for acceleration of any indebtedness
or obligation under any agreement or instrument which is binding upon Borrower
or its property, and, except as set forth on Schedule 5.1 hereto, do not
require the consent of any Person. This Agreement and such other Loan
Documents have been duly executed and delivered by, and are enforceable
against, Borrower, and all other Obligors who have signed them, in accordance
with their respective terms (except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other laws relating to
or limiting creditors' rights or by equitable principles generally (regardless
of whether enforcement is sought in equity or at law)). Sections 9(g) and
9(h) of Schedule A set forth the ownership of Borrower and the names and
ownership of Borrower's Subsidiaries as of the date of this Agreement.
5.2 Name; Trade Names and Styles. The name of Borrower set forth in
the heading to this Agreement is its correct and complete legal name as of the
date hereof. Listed in Sections 9(a), 9(b) and 9(c) of Schedule A are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Lender at least thirty days' prior written notice before
changing its name or doing business under any other name. Borrower has
complied with all laws relating to the conduct of business under a fictitious
business name. Borrower represents and warrants that (i) each trade name does
not refer to another corporation or other legal entity; (ii) all Accounts
invoiced under any such trade names are owned exclusively by Borrower and are
subject to the security interest of Lender and the other terms of this
Agreement; and (iii) all schedules of Accounts, including any sales made or
services rendered using any trade name shall show Borrower's name as assignor.
5.3 Title to Collateral; Permitted Liens. Borrower has good and
marketable title to, or a valid leasehold interest in, the Collateral. All
Equipment leased by Borrower is listed on Schedule 5.3 hereto, which Schedule
5.3 sets forth a complete description of such leased Equipment. The
Collateral now is and will remain free and clear of any and all liens,
charges, security interests, encumbrances and adverse claims, except for
Permitted Liens. Lender now has, and will continue to have, a first-priority
perfected and enforceable security interest in all of the Collateral, subject
only to the Permitted Liens, and Borrower will at all times defend Lender and
the Collateral against all claims of others. None of the Collateral which is
Equipment is or will be affixed to any real property in such a manner, or with
such intent, as to become a fixture. Except for leases or subleases as to
which Borrower has delivered to Lender a landlord's waiver in form and
substance satisfactory to Lender, Borrower is not a lessee or sublessee under
any real property, lease or sublease pursuant to which the lessor or sublessor
may obtain any rights in any of the Collateral, and no such lease or sublease
now prohibits, restrains, impairs or conditions, or will prohibit, restrain,
impair or condition, Borrower's right to remove any Collateral from the
premises. Whenever any Collateral is located upon premises in which any third
party has an interest (whether as owner, mortgagee, beneficiary under a deed
of trust, lien or otherwise), Borrower shall, whenever requested by Lender,
cause each such third party to execute and deliver to Lender, in form and
substance acceptable to Lender, such waivers and subordinations as Lender
shall specify, so as to ensure that Lender's rights in the Collateral are, and
will continue to be, superior to the rights of any such third party. Borrower
will keep in full force and effect, and will comply with all the terms of, any
lease of real property where any of the Collateral now or in the future may be
located.
5.4 Accounts and Chattel Paper. As of each date reported by
Borrower, all Accounts which Borrower has reported to Lender as being Eligible
Accounts comply in all respects with the criteria for eligibility established
by Lender and in effect at such time. All Accounts and Chattel Paper are
genuine and in all respects what they purport to be, arise out of a completed,
bona fide and unconditional and non-contingent sale and delivery of goods or
rendition of services by Borrower in the ordinary course of its business and
in accordance with the terms and conditions of all purchase orders, contracts
or other documents relating thereto, each Account Debtor thereunder had the
capacity to contract at the time any contract or other document giving rise to
such Accounts and Chattel Paper were executed, and the transactions giving
rise to such Accounts and Chattel Paper comply with all applicable laws and
governmental rules and regulations.
5.5 Investment Property. Borrower will take any and all actions
required or requested by Lender, from time to time, to (i) cause Lender to
obtain exclusive control of any Investment Property in a manner acceptable to
Lender and (ii) obtain from any issuers of Investment Property and such other
Persons as Lender shall specify, for the benefit of Lender, written
confirmation of Lender's exclusive control over such Investment Property and
take such other actions as Lender may request to perfect Lender's security
interest in such Investment Property. For purposes of this Section 5.5,
Lender shall have exclusive control of Investment Property if (A) such
Investment Property consists of certificated securities and Borrower delivers
such certificated securities to Lender (with appropriate endorsements if such
certificated securities are in registered form); (B) such Investment Property
consists of uncertificated securities and either (x) Borrower delivers such
uncertificated securities to Lender or (y) the issuer thereof agrees, pursuant
to documentation in form and substance satisfactory to Lender, that it will
comply with instructions originated by Lender without further consent by
Borrower; and (C) such Investment Property consists of security entitlements
and either (x) Lender becomes the entitlement holder thereof or the
appropriate securities intermediary agrees, pursuant to documentation in form
and substance satisfactory to Lender, that it will comply with entitlement
orders originated by Lender without further consent by Borrower.
5.6 Place of Business; Location of Collateral. Borrower's Address is
Borrower's chief executive office and the location of its books and records. In
addition, except as provided in the immediately following sentence, Borrower
has places of business and Collateral located only at the locations set forth
on Sections 9(d) and 9(e) of Schedule A. Borrower will give Lender at least
thirty days' prior written notice before opening any additional place of
business, changing its chief executive office or the location of its books and
records, or moving any of the Collateral to a location other than Borrower's
Address or one of the locations set forth in Sections 9(d) and 9(e) of
Schedule A, and will execute and deliver all financing statements and other
agreements, instruments and documents which Lender shall require as a result
thereof.
5.7 Financial Condition, Statements and Reports. All financial
statements delivered to Lender by or on behalf of Borrower have been prepared
in conformity with GAAP and completely and fairly reflect the financial
condition of Borrower, at the times and for the periods therein stated.
Between the last date covered by any such financial statement provided to
Lender and the date hereof (or, with respect to the remaking of this
representation in connection with the making of any Loan or the providing of
any Credit Accommodation, the date such Loan is made or such Credit
Accommodation is provided), there has been no material adverse change in the
financial condition or business of Borrower. Borrower is solvent and able to
pay its debts as they come due, and has sufficient capital to carry on its
business as now conducted and as proposed to be conducted. All schedules,
reports and other information and documentation delivered by Borrower to
Lender with respect to the Collateral are, or will be, when delivered, true,
correct and complete as of the date delivered or the date specified therein.
5.8 Tax Returns and Payments; Pension Contributions. Borrower has
timely filed all tax returns and reports required by applicable law, has
timely paid all applicable taxes, assessments, deposits and contributions
owing by Borrower and will timely pay all such items in the future as they
became due and payable. Borrower may, however, defer payment of any contested
taxes; provided, that Borrower (i) in good faith contests Borrower's
obligation to such taxes by appropriate proceedings promptly and
diligently instituted and conducted; (ii)ánotifies Lender in writing
of the commencement of, and any material development in, the proceedings;
(iii) posts bonds or takes any other steps required to keep the contested
taxes from becoming a Lien upon any of the Collateral and (iv) maintains
adequate reserves therefor in conformity with GAAP. Borrower is unaware of
any claims or adjustments proposed for any of Borrower's prior tax years which
could result in additional taxes becoming due and payable by Borrower.
Borrower has paid, and shall continue to pay all amounts necessary to fund all
present and future pension, profit sharing and deferred compensation plans in
accordance with their terms, and Borrower has not withdrawn from participation
in, permitted partial or complete termination of, or permitted the occurrence
of any other event with respect to, any such plan which could result in any
liability of Borrower, including any liability to the Pension Benefit Guaranty
Corporation or any other governmental agency.
5.9 Compliance with Laws. Borrower has complied in all material
respects with all provisions of all applicable laws and regulations, including
those relating to Borrower's ownership of real or personal property, the
conduct and licensing of Borrower's business, the payment and withholding of
taxes, ERISA and other employee matters, safety and environmental matters.
5.10 Litigation. Section 9(f) of Schedule A discloses all claims,
proceedings, litigation or investigations pending or (to the best of
Borrower's knowledge) threatened against Borrower. There is no claim, suit,
litigation, proceeding or investigation pending or (to the best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or
before any governmental agency (or any basis therefor known to Borrower) which
may result, either separately or in the aggregate, in any material adverse
change in the financial condition or business of Borrower, or in any material
impairment in the ability of Borrower to carry on its business in
substantially the same manner as it is now being conducted. Borrower will
promptly inform Lender in writing of any claim, proceeding, litigation or
investigation in the future threatened or instituted by or against Borrower.
5.11 Use of Proceeds. All proceeds of all Loans will be used solely
for lawful business purposes.
5.12 Insurance. Borrower will at all times carry property, liability
and other insurance, with insurers acceptable to Lender, in such form and
amounts, and with such deductibles and other provisions, as Lender shall
require, and Borrower will provide evidence of such insurance to Lender, so
that Lender is satisfied that such insurance is, at all times, in full force
and effect. Each property insurance policy shall name Lender as loss payee
and shall contain a lender's loss payable endorsement in form acceptable to
Lender, each liability insurance policy shall name Lender as an additional
insured, and each business interruption insurance policy shall be collaterally
assigned to Lender, all in form and substance satisfactory to Lender. All
policies of insurance shall provide that they may not be cancelled or changed
without at least thirty days' prior written notice to Lender, shall contain
breach of warranty coverage, and shall otherwise be in form and substance
satisfactory to Lender. Upon receipt of the proceeds of any such insurance,
Lender shall apply such proceeds in reduction of the Obligations as Lender
shall determine in its sole discretion. Borrower will promptly deliver to
Lender copies of all reports made to insurance companies.
5.13 Financial and Collateral Reports. Borrower has kept and will
keep adequate records and books of account with respect to its business
activities and the Collateral in which proper entries are made in accordance
with GAAP reflecting all its financial transactions, and will cause to be
prepared and furnished to Lender the following (all to be prepared in
accordance with GAAP, unless Borrower's certified public accountants concur in
any change therein and such change is disclosed to Lender):
(a) Collateral Reports. On or before the fifteenth day of each
month, an aging of Borrower's Accounts, Chattel Paper and notes receivable,
and monthly Inventory reports, all in such form, and together with such
additional certificates, schedules and other information with respect to the
Collateral or the business of Borrower or any Obligor, as Lender shall
request; provided, that Borrower's failure to execute and deliver the same
shall not affect or limit Lender's security interests and other rights in any
of the Accounts, nor shall Lender's failure to advance or lend against a
specific Account affect or limit Lender's security interest and other rights
therein. Together with each such schedule, Borrower shall furnish Lender with
copies (or, at Lender's request, originals) of all contracts, orders,
invoices, and other similar documents, and all original shipping instructions,
delivery receipts, bills of lading, and other evidence of delivery, for any
goods the sale or disposition of which gave rise to such Accounts, and
Borrower warrants the genuineness of all of the foregoing. In addition,
Borrower shall deliver to Lender the originals of all Instruments, Chattel Paper
, security agreements, guaranties and other documents and property evidencing
or securing any Accounts, immediately upon receipt thereof and in the same
form as received, with all necessary endorsements. Lender may destroy or
otherwise dispose of all documents, schedules and other papers delivered to
Lender pursuant to this Agreement (other than originals of Instruments,
Chattel Paper, security agreements, guaranties and other documents and
property, evidencing or securing any Accounts) six months after Lender
receives them, unless Borrower requests their return in writing in advance and
arranges for their return to Borrower at Borrower's expense.
(b) Annual Statements. Not later than ninety days after the
close of each fiscal year of Borrower, unqualified (except for a qualification
for a change in accounting principles with which the accountant concurs)
audited financial statements of Borrower and its Subsidiaries as of the end of
such year, on a consolidated and consolidating basis, certified by a firm of
independent certified public accountants of recognized standing selected by
Borrower but acceptable to Lender, together with a copy of any management
letter issued in connection therewith and a letter from such accountants
acknowledging that Lender is relying on such financial statements;
(c) Interim Statements. Not later than twenty days after the
end of each month hereafter, and sixty days after the last month of Borrower's
fiscal year, unaudited interim financial statements of Borrower and its
Subsidiaries as of the end of such month and of the portion of Borrower's
fiscal year then elapsed, on a consolidated and consolidating basis, certified
by the principal financial officer of Borrower as prepared in accordance with
GAAP and fairly presenting the consolidated financial position and results of
operations of Borrower and its Subsidiaries for such month and period subject
only to changes from audit and year-end adjustments and except that such
statements need not contain notes;
(d) Projections, Etc. Such business projections, Availability
projections, business plans, budgets and cash flow statements for Borrower and
its Subsidiaries as Lender shall request from time to time;
(e) Shareholder Reports, Etc. Promptly after the sending or
filing thereof, as the case may be, copies of any proxy, statements, financial
statements or reports which Borrower has made available to its shareholders
and copies of any regular, periodic and special reports or registration
statements which Borrower files with the Securities and Exchange Commission or
any governmental authority which may be substituted therefor, or any national
securities exchange;
(f) ERISA Reports. Upon request by Lender, copies of any annual
report to be filed pursuant to the requirements of ERISA in connection with
each plan subject thereto, and
(g) Other Information. Such other data and information
(financial and otherwise) as Lender, from time to time, may reasonably
request, bearing upon or related to the Collateral or Borrower's and each of
its Subsidiary's financial condition or results of operations.
5.14 Litigation Cooperation. Should any third-party suit or
proceeding be instituted by or against Lender with respect to any Collateral
or in any manner relating to Borrower, Borrower shall, without expense to
Lender, make available Borrower and its officers, employees and agents, and
Borrower's books and records, without charge, to the extent that Lender may
deem them reasonably necessary in order to prosecute or defend any such suit
or proceeding.
5.15 Maintenance of Collateral, Etc. Borrower will maintain all of
its Equipment in good working condition, ordinary wear and tear excepted, and
Borrower will not use the Collateral for any unlawful purpose. Borrower will
immediately advise Lender in writing of any material loss or damage to the
Collateral and of any investigation, action, suit, proceeding or claim
relating to the Collateral or which may result in an adverse impact upon
Borrower's business, assets or financial condition.
5.16 Notification of Changes. Borrower will promptly notify Lender
in writing of any change in its officers or directors, the opening of any new
bank account or other deposit account, or any material adverse change in the
business or financial affairs of Borrower or the existence of any circumstance
which would make any representation or warranty of Borrower untrue in any
material respect or constitute a material breach of any covenant of Borrower.
5.17 Further Assurances. Borrower agrees at its expense, to take all
actions, and execute or cause to be executed and delivered to Lender all
promissory notes, security agreements, agreements with landlords, mortgagees
and processors and other bailees, subordination and intercreditor agreements
and other agreements, instruments and documents as Lender may request from
time to time to perfect and maintain Lender's security interests in the
Collateral and to fully effectuate the transactions contemplated by this
Agreement.
5.18 Negative Covenants. Except as set forth in Section 13 of
Schedule A, Borrower will not, without Lender's prior written consent, (i)
merge or consolidate with another Person, form any new Subsidiary or
acquire any interest in any Person; (ii) acquire any assets except in the
ordinary course of business and as otherwise permitted by this Agreement and
the other Loan Documents; (iii) enter into any transaction outside the
ordinary course of business; (iv) sell or transfer any Collateral or other
assets, except that Borrower may sell finished goods Inventory in the ordinary
course of its business; (v) make any loans to, or investments in, any
Affiliate or other Person in the form of money or other assets; (vi) incur any
debt outside the ordinary course of business; (vii) guaranty or otherwise
become liable with respect to the obligations of another party or entity;
(viii) pay or declare any dividends or other distributions on Borrower's
stock, if Borrower is a corporation (except for dividends payable solely in
capital stock of Borrower) or with respect to any equity interests, if
Borrower is not a corporation; (ix)áredeem, retire, purchase or
otherwise acquire, directly or indirectly, any of Borrower's capital stock or
other equity interests; (x) make any change in Borrower's capital structure;
(xi)ádissolve or elect to dissolve; (xii) pay any principal or interest
on any indebtedness owing to an Affiliate; (xiii) enter into any transaction
with an Affiliate other than on arms-length terms; or (xiv) agree to do any of
the foregoing.
5.19 Financial Covenants.
(a) Capital Expenditures. Borrower will not expend or commit to
expend, directly or indirectly, for capital expenditures (including capital
lease obligations) in excess of the amount set forth in Section 8(a) of
Schedule A as the Capital Expenditure Limitation in any fiscal year.
(b) Net Worth. Borrower will at all times maintain a net worth
of at least the amount set forth in Section 8(b) of Schedule A.
(c) Tangible Net Worth. Borrower will at all times maintain a
minimum tangible net worth of at least the amount set forth in Section 8(c) of
Schedule A.
(d) Working Capital. Borrower will at all times maintain
working capital of at least the amount set forth in Section 8(d) of Schedule
A.
(e) Net Losses. Borrower will not permit its cumulative net
loss to exceed the amount set forth in Section 8(e) of Schedule A.
(f) Net Income. Borrower will not permit its cumulative net
income to be less than the amount set forth in Section 8(f) of Schedule A.
(g) Leverage. Borrower will not permit the ratio of its total
liabilities to its net worth to exceed, at any time, the ratio set forth in
Section 8(g) of Schedule A.
(h) Other Financial Covenants. Borrower will comply with any
additional financial covenants set forth in Section 8(j) of Schedule A.
6. RELEASE AND INDEMNITY.
6.1 Release. Borrower hereby releases Lender and its Affiliates and
their respective directors, officers, employees, attorneys and agents and any
other Person affiliated with or representing Lender (the "Released Parties")
from any and all liability arising from acts or omissions under or pursuant to
this Agreement, whether based on errors of judgment or mistake of law or fact,
except for those arising from willful misconduct. However, in no circumstance
will any of the Released Parties be liable for lost profits or other
special or consequential damages. Such release is made on the date hereof
and remade upon each request for a Loan or Credit Accommodation by Borrower.
Without limiting the foregoing:
(a) Lender shall not be liable for (i) any shortage or
discrepancy in, damage to, or loss or destruction of, any goods, the sale or
other disposition of which gave rise to an Account; (ii) any error, act,
omission, or delay of any kind occurring in the settlement, failure to settle,
collection or failure to collect any Account; (iii) settling any Account in
good faith for less than the full amount thereof; or (iv) any of Borrower's
obligations under any contract or agreement giving rise to an Account; and
(b) In connection with Credit Accommodations or any underlying
transaction, Lender shall not be responsible for the conformity of any goods
to the documents presented, the validity or genuineness of any documents,
delay, default or fraud by Borrower, shippers and/or any other Person.
Borrower agrees that any action taken by Lender, if taken in good faith, or
any action taken by an issuer of any Credit Accommodation, under or in
connection with any Credit Accommodation, shall be binding on Borrower and
shall not create any resulting liability to Lender. In furtherance thereof,
Lender shall have the full right and authority to clear and resolve any
questions of non-compliance of documents, to give any instructions as to
acceptance or rejection of any documents or goods, to execute for Borrower's
account any and all applications for steamship or airway guaranties,
indemnities or delivery orders, to grant any extensions of the maturity of,
time of payment for, or time of presentation of, any drafts, acceptances or
documents, and to agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions of
any of the Credit Accommodations or applications and other documentation
pertaining thereto.
6.2 Indemnity. Borrower hereby agrees to indemnify the Released
Parties and hold them harmless from and against any and all claims, debts,
liabilities, demands, obligations, actions, causes of action, penalties, costs
and expenses (including attorneys fees), of every nature, character and
description, which the Released Parties may sustain or incur based upon or
arising out of any of the transactions contemplated by this Agreement or the
other Loan Documents or any of the Obligations, including any transactions or
occurrences relating to the issuance of any Credit Accommodation, the
Collateral relating thereto, any drafts thereunder and any errors or omissions
relating thereto (including any loss or claim due to any action or inaction
taken by the issuer of any Credit Accommodation) (and for this purpose any
charges to Lender by any issuer of Credit Accommodations shall be conclusive
as to their appropriateness and may be charged to the Loan Account), or any
other matter, cause or thing whatsoever occurred, done, omitted or suffered to
be done by Lender relating to Borrower or the Obligations (except any such
amounts sustained or incurred as the result of the willful misconduct of the
Released Parties). Notwithstanding any provision in this Agreement to the
contrary, the indemnity agreement set forth in this Section shall survive any
termination of this Agreement.
7. TERM.
7.1 Maturity Date. Lender's obligation to make Loans and to provide
Credit Accommodations under this Agreement shall initially continue in effect
until the Initial Maturity Date set forth in Section 7 of Schedule A (the
"Initial Term"); provided, that such date shall automatically be extended (the
Initial Maturity Date, as it may be so extended, being referred to as the
"Maturity Date") for successive additional terms of three years each (each a
"Renewal Term"), unless one party gives written notice to the other, not less
than sixty days prior to the Maturity Date, that such party elects not to
extend the Maturity Date. This Agreement and the other Loan Documents and
Lender's security interests in and Liens upon the Collateral, and all
representations, warranties and covenants of Borrower contained herein and
therein, shall remain in full force and effect after the Maturity Date until
all of the monetary Obligations are indefeasibly paid in full.
7.2 Early Termination. Lender's obligation to make Loans and to
provide Credit Accommodations under this Agreement may be terminated prior to
the Maturity Date as follows: (i) by Borrower, effective thirty business days
after written notice of termination is given to Lender or (ii) by Lender at
any time after the occurrence of an Event of Default, without notice,
effective immediately; provided, that if any Affiliate of Borrower is also a
party to a financing arrangement with Lender, no such early termination under
clause (i) above shall be effective unless such Affiliate simultaneously
terminates its financing arrangement with Lender. If so terminated under this
Section 7.2, Borrower shall pay to Lender (i) an early termination fee (the
"Early Termination Fee") in the amount set forth in Section 6(h) of Schedule A
plus (ii) any earned but unpaid Facility Fee. Such fee shall be due and
payable on the effective date of termination and thereafter shall bear
interest at a rate equal to the highest rate applicable to any of the
Obligations. In addition, if Borrower so terminates and repays the
Obligations without having provided Lender with at least thirty days' prior
written notice thereof, an additional amount equal to thirty days of interest
at the applicable Interest Rate(s), based on the average outstanding amount of
the Obligations for the six month period immediately preceding the date of
termination.
7.3 Payment of Obligations. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay in full all Obligations,
whether or not all or any part of such Obligations are otherwise then due and
payable. Without limiting the generality of the foregoing, if, on the
Maturity Date or on any earlier effective date of termination, there are any
outstanding Credit Accommodations, then on such date Borrower shall provide to
Lender cash collateral in an amount equal to 110% of the Credit Accommodation
Balance to secure all of the Obligations (including estimated attorneys' fees
and other expenses) relating to said Credit Accommodations or such greater
percentage or amount as Lender reasonably deems appropriate, pursuant to a
cash pledge agreement in form and substance satisfactory to Lender.
7.4 Effect of Termination. No termination shall affect or impair any
right or remedy of Lender or relieve Borrower of any of the Obligations until
all of the monetary Obligations have been indefeasibly and irrevocably paid in
full. Upon indefeasible and irrevocable payment and performance in full of
all of the monetary Obligations (and the provision of cash collateral with
respect to any Credit Accommodation Balance as required by Section 7.3) and
termination of this Agreement, Lender shall promptly deliver to Borrower
termination statements, requests for reconveyances and such other documents as
may be reasonably required to terminate Lender's security interests in the
Collateral.
8. EVENTS OF DEFAULT AND REMEDIES.
8.1 Events of Default. The occurrence of any of the following events
shall constitute an "Event of Default" under this Agreement, and Borrower
shall give Lender immediate written notice thereof: (i) if any warranty,
representation, statement, report or certificate made or delivered to Lender
by Borrower or any of Borrower's officers, employees or agents is untrue or
misleading; (ii) if Borrower fails to pay when due any principal or interest
on any Loan or any other monetary Obligation; (iii) if Borrower breaches any
covenant or obligation contained in (a) any of the first sentence of Section
5.1, Section 5.5, Section 5.8, clauses (b), (c), (d) or (f) of Section 5.13 or
Section 5.14 of this Agreement and such breach has not been cured to Lender's
satisfaction within 10 days' of the occurrence thereof or (b) any Section of
this Agreement, other than those listed in clause (a), or any other Loan
Document or fails to perform any other non-monetary Obligation; (iv) if any
levy, assessment, attachment, seizure, lien or encumbrance (other than a
Permitted Lien) is made or permitted to exist on all or any part of the
Collateral; (v) if one or more judgments aggregating in excess of $25,000, or
any injunction or attachment, is obtained against Borrower or any Obligor
which remains unstayed for more than ten days or is enforced; (vi) the
occurrence of any default under any financing agreement, security agreement or
other agreement, instrument or document executed and delivered by (A) Borrower
with, or in favor of, any Person other than Lender or (B) Borrower or any
Affiliate of Borrower with, or in favor of, Lender or any Affiliate of Lender;
(vii) the dissolution, death, termination of existence in good standing,
insolvency or business failure or suspension or cessation of business as usual
of Borrower or any Obligor (or of any general partner of Borrower or any
Obligor if it is a partnership) or the appointment of a receiver, trustee or
custodian for all or any part of the property of, or an assignment for the
benefit of creditors by Borrower or any Obligor, or the commencement of any
proceeding by Borrower or any Obligor under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law
or statute of any jurisdiction, now or in the future in effect, or if Borrower
makes or sends a notice of a bulk transfer or calls a meeting of its
creditors; provided that in the event of the death or bankruptcy of any
Obligor, Borrower shall have thirty days from the date of such occurrence to
replace such Obligor with a Person acceptable to Lender; (viii) the
commencement of any proceeding against Borrower or any Obligor under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect; (ix) the actual or attempted revocation or termination of,
or limitation or denial of liability upon, any guaranty of the Obligations, or
any security document securing the Obligations, by any Obligor; (x) if
Borrower makes any payment on account of any indebtedness or obligation which
has been subordinated to the Obligations other than as permitted in the
applicable subordination agreement, or if any Person who has subordinated such
indebtedness or obligations attempts to limit or terminate its subordination
agreement; (xi) if there is any actual or threatened indictment of Borrower or
any Obligor under any criminal statute or commencement or threatened
commencement of criminal or civil proceedings against Borrower or any Obligor,
pursuant to which the potential penalties or remedies sought or available
include forfeiture of any property of Borrower or such Obligor; (xii) if there
is a change in the record or beneficial ownership of an aggregate of more than
49% of the outstanding shares of stock of Borrower (or partnership or
membership interests if it is a partnership or limited liability company), in
one or more transactions, compared to the ownership of outstanding shares of
stock (or partnership or membership interests) of Borrower as of the date
hereof, without the prior written consent of Lender, which consent shall not
be unreasonably withheld; (xiii) if there is any change in the chief executive
officer, chief operating officer or chief financial officer of Borrower;
(xiv)áif an Event of Default occurs under any Loan and Security
Agreement between Lender and an Affiliate of Borrower; or (xv) if Lender
determines in good faith that the Collateral is insufficient to fully secure
the Obligations or that the prospect of payment of performance of the
Obligations is impaired.
8.2 Remedies. Upon the occurrence of any Default, and at any time
thereafter, Lender, at its option, may cease making Loans or otherwise
extending credit to Borrower under this Agreement or any other Loan Document.
Upon the occurrence of any Event of Default, and at any time thereafter,
Lender, at its option, and without notice or demand of any kind (all of which
are hereby expressly waived by Borrower), may do any one or more of the
following: (i) cease making Loans or otherwise extending credit to Borrower
under this Agreement or any other Loan Document; (ii) accelerate and declare
all or any part of the Obligations to be immediately due, payable and
performable, notwithstanding any deferred or installment payments allowed by
any instrument evidencing or relating to any of the Obligations; (iii) take
possession of any or all of the Collateral wherever it may be found, and for
that purpose Borrower hereby authorizes Lender, without judicial process, to
enter onto any of Borrower's premises without interference to search for, take
possession of, keep, store, or remove any of the Collateral, and remain (or
cause a custodian to remain) on the premises in exclusive control thereof,
without charge for so long as Lender deems it reasonably necessary in order to
complete the enforcement of its rights under this Agreement or any other
agreement; provided, that if Lender seeks to take possession of any of the
Collateral by court process, Borrower hereby irrevocably waives (A)áany
bond and any surety, or security relating thereto required by law as an
incident to such possession, (B) any demand for possession prior to the
commencement of any suit or action to recover possession thereof and (C) any
requirement that Lender retain possession of, and not dispose of any such
Collateral until after trial or final judgment; (iv) require Borrower to
assemble any or all of the Collateral and make it available to Lender at one
or more places designated by Lender which are reasonably convenient to Lender
and Borrower, and to remove the Collateral to such locations as Lender may
deem advisable; (v) complete the processing, manufacturing or repair of any
Collateral prior to a disposition thereof and, for such purpose and for the
purpose of removal, Lender shall have the right to use Borrower's premises,
vehicles and other Equipment and all other property without charge; (vi) sell,
lease or otherwise dispose of any of the Collateral, in its condition at the
time Lender obtains possession of it or after further manufacturing,
processing or repair, at one or more public or private sales, in lots or in
bulk, for cash, exchange or other property, or on credit (a "Sale"), and to
adjourn any such Sale from time to time without notice other than oral
announcement at the time scheduled for Sale (and, in connection therewith, (A)
Lender shall have the right to conduct such Sale on Borrower's premises
without charge, for such times as Lender deems reasonable, on Lender's
premises, or elsewhere, and the Collateral need not be located at the place of
Sale; (B) Lender may directly or through any of its Affiliates purchase or
lease any of the Collateral at any such public disposition, and if permissible
under applicable law, at any private disposition and (C)áany Sale of
Collateral shall not relieve Borrower of any liability Borrower may have if
any Collateral is defective as to title, physical condition or otherwise at
the time of sale); (vii) demand payment of and collect any Accounts, Chattel
Paper, Instruments and General Intangibles included in the Collateral and, in
connection therewith, Borrower irrevocably authorizes Lender to endorse or
sign Borrower's name on all collections, receipts, Instruments and other
documents, to take possession of and open mail addressed to Borrower and
remove therefrom payments made with respect to any item of Collateral or
proceeds thereof and, in Lender's sole discretion, to grant extensions of time
to pay, compromise claims and settle Accounts, General Intangibles and the
like for less than face value; and (viii) demand and receive possession of any
of Borrower's federal and state income tax returns and the books and records
utilized in the preparation thereof or relating thereto. In addition to the
foregoing remedies, upon the occurrence of any Event of Default resulting from
a breach of any of the financial covenants set forth in Section 5.19, Lender
may, at its option, upon not less than ten days' prior notice to Borrower,
reduce any or all of the Advance Rates set forth in Section 1(b) of Schedule A
to the extent Lender, in its sole discretion, deems appropriate. In addition
to the rights and remedies set forth above, Lender shall have all the other
rights and remedies accorded a secured party after default under the UCC and
under all other applicable laws, and under any other Loan Document, and all of
such rights and remedies are cumulative and non-exclusive. Exercise or
partial exercise by Lender of one or more of its rights or remedies shall not
be deemed an election or bar Lender from subsequent exercise or partial
exercise of any other rights or remedies. The failure or delay of Lender to
exercise any rights or remedies shall not operate as a waiver thereof, but all
rights and remedies shall continue in full force and effect until all of the
Obligations have been fully paid and performed. If notice of any sale or
other disposition of Collateral is required by law, notice at least seven days
prior to the sale designating the time and place of sale in the case of a
public sale or the time after which any private sale or other disposition is
to be made shall be deemed to be reasonable notice, and Borrower waives any
other notice. If any Collateral is sold or leased by Lender on credit terms
or for future delivery, the Obligations shall not be reduced as a result
thereof until payment is collected by Lender.
8.3 Application of Proceeds. Subject to any application required by
law, all proceeds realized as the result of any Sale shall be applied by
Lender to the Obligations in such order as Lender shall determine in its sole
discretion. Any surplus shall be paid to Borrower or other persons legally,
entitled thereto; but Borrower shall remain liable to Lender for any
deficiency. If Lender, in its sole discretion, directly or indirectly enters
into a deferred payment or other credit transaction with any purchaser at any
Sale, Lender shall have the option, exercisable at any time, in its sole
discretion, of either reducing the Obligations by the principal amount of the
purchase price or deferring the reduction of the Obligations until the actual
receipt by Lender of the cash therefor.
9. GENERAL PROVISIONS.
9.1 Notices. All notices to be given under this Agreement shall be
in writing and shall be given either personally, by reputable private delivery
service, by regular first-class mail or certified mail return receipt
requested, addressed to Lender or Borrower at the address shown in the heading
to this Agreement, or by facsimile to the facsimile number shown in Section
9(i) of Schedule A, or at any other address (or to any other facsimile number)
designated in writing by one party to the other party in the manner prescribed
in this Section 9.1. All notices shall be deemed to have been given when
received or when delivery is refused by the recipient.
9.2 Severability. If any provision of this Agreement, or the
application thereof to or circumstance, is held to be void or unenforceable by
any, court of competent jurisdiction, such defect shall not affect the
remainder of this Agreement, which shall continue in full force and effect.
9.3 Integration. This Agreement and the other Loan Documents
represent the final, entire and complete agreement between Borrower and
Lender and supersede all prior and contemporaneous negotiations, oral
representations and agreements, all of which are merged and integrated into
this Agreement. THERE ARE NO ORAL UNDERSTANDINGS, REPRESENTATIONS OR
AGREEMENTS BETWEEN THE PARTIES WHICH ARE NOT SET FORTH IN THIS AGREEMENT OR
THE OTHER LOAN DOCUMENTS.
9.4 Waivers. The failure of Lender at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or
any other Loan Documents shall not waive or diminish any right of Lender later
to demand and receive strict compliance therewith. Any waiver of any default
shall not waive or affect any other default, whether prior or subsequent, and
whether or not similar. None of the provisions of this Agreement or any other
Loan Document shall be deemed to have been waived by any act or knowledge of
Lender or its agents or employees, but only by a specific written waiver
signed by an authorized officer of Lender and delivered to Borrower. Borrower
waives demand, protest, notice of protest and notice of default or dishonor,
notice of payment and nonpayment, release, compromise, settlement, extension
or renewal of any commercial paper, Instrument, Account, General Intangible,
Document, Chattel Paper, Investment Property or guaranty at any time held by
Lender on which Borrower is or may in any way be liable, and notice of any
action taken by Lender, unless expressly required by this Agreement, and
notice of acceptance hereof.
9.5 Amendment. The terms and provisions of this Agreement may not be
amended or modified except in a writing executed by Borrower and a duly
authorized officer of Lender.
9.6 Time of Essence. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement and the other Loan
Documents.
9.7 Attorneys Fees and Costs. Borrower shall reimburse Lender for
all reasonable attorneys' and paralegals' fees (including in-house attorneys
and paralegals employed by Lender) and all filing, recording, search, title
insurance, appraisal, audit, and other costs incurred by Lender, pursuant to,
in connection with, or relating to this Agreement, including all reasonable
attorneys' fees and costs Lender incurs to prepare and negotiate this
Agreement and the other Loan Documents; to obtain legal advice in connection
with this Agreement and the other Loan Documents or Borrower or any Obligor;
to administer this Agreement and the other Loan Documents (including the cost
of periodic financing statement, tax lien and other searches conducted by
Lender); to enforce, or seek to enforce, any of its rights; prosecute actions
against, or defend actions by, Account Debtors; to commence, intervene in, or
defend any action or proceeding; to initiate any complaint to be relieved of
the automatic stay in bankruptcy; to file or prosecute any probate claim,
bankruptcy claim, third-party claim, or other claim; to examine, audit, copy,
and inspect any of the Collateral or any of Borrower's books and records; to
protect, obtain possession of, lease, dispose of, or otherwise enforce
Lender's security interests in, the Collateral, and to otherwise represent
Lender in any litigation relating to Borrower. If either Lender or Borrower
files any lawsuit against the other predicated on a breach of this Agreement,
the prevailing party in such action shall be entitled to recover its
reasonable costs and attorneys' fees, including reasonable attorneys' fees and
costs incurred in the enforcement of, execution upon or defense of any order,
decree, award or judgment. All attorneys' fees and costs to which Lender may
be entitled pursuant to this Section shall immediately become part of the
Obligations, shall be due on demand, and shall bear interest at a rate equal
to the highest interest rate applicable to any of the Obligations.
9.8 Benefit of Agreement; Assignability. The provisions of this
Agreement shall be binding upon and inure to the benefit of the respective
successors, assigns, heirs, beneficiaries and representatives of Borrower and
Lender; provided, that Borrower may not assign or transfer any of its rights
under this Agreement without the prior written consent of Lender, and any
prohibited assignment shall be void. No consent by Lender to any assignment
shall release Borrower from its liability for any of the Obligations. Lender
shall have the right to assign all or any of its rights and obligations under
the Loan Documents, and to sell participating interests therein, to one or
more other Persons, and Borrower agrees to execute all agreements, instruments
and documents requested by Lender in connection with each such assignment and
participation.
9.9 Headings; Construction. Section and subsection headings are used
in this Agreement only for convenience. Borrower and Lender acknowledge that
the headings may not describe completely the subject matter of the applicable
Sections or subsections, and the headings shall not be used in any manner to
construe, limit, define or interpret any term or provision of this Agreement.
This Agreement has been fully reviewed and negotiated between the parties and
no uncertainty or ambiguity in any term or provision of this Agreement shall
be construed strictly against Lender or Borrower under any rule of
construction or otherwise.
9.10 GOVERNING LAW; CONSENT TO FORUM, ETC. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED, AND SHALL BE DEEMED TO HAVE BEEN MADE, IN
NEW YORK, NEW YORK, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF SUCH STATE APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED
ENTIRELY IN SUCH STATE. BORROWER HEREBY CONSENTS AND AGREES THAT THE STATE
AND FEDERAL COURTS IN NEW YORK, NEW YORK OR THE STATE IN WHICH ANY OF THE
COLLATERAL IS LOCATED SHALL HAVE NON-EXCLUSIVE JURISDICTION TO HEAR AND
DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND LENDER PERTAINING TO
THIS AGREEMENT, ANY OTHER LOAN DOCUMENTS OR ANY MATTER ARISING OUT OF OR
RELATED TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS. BORROWER EXPRESSLY
SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT
COMMENCED IN ANY SUCH COURT, AND WAIVES ANY OBJECTION WHICH BORROWER HAVE
BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON
CONVENIENS. BORROWER ALSO AGREES THAT ANY CLAIM OR DISPUTE BROUGHT BY
BORROWER AGAINST LENDER PURSUANT TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR
ANY MATTER ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT SHALL BE
BROUGHT EXCLUSIVELY IN THE STATE AND FEDERAL COURTS OF NEW YORK COUNTY.
BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER
PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE IN THE MANNER AND SHALL BE
DEEMED RECEIVED AS SET FORTH IN SECTION 9.1 FOR NOTICES, TO THE EXTENT
PERMITTED BY LAW. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO
AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY LENDER OF ANY JUDGMENT OR
ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT
TO ENFORCE THE SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION.
9.11 WAIVER OF JURY TRIAL, ETC. BORROWER WAIVES (i) THE RIGHT TO
TRIAL BY JURY (WHICH LENDER ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR
COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN
DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL OR ANY CONDUCT, ACTS OR OMISSIONS
OF LENDER OR BORROWER OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS,
EMPLOYEES, ATTORNEYS OR AGENTS OR ANY OTHER PERSONS AFFILIATED WITH LENDER OR
BORROWER, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE; (ii) THE RIGHT TO
INTERPOSE ANY CLAIMS, DEDUCTIONS, SETOFFS OR COUNTERCLAIMS OF ANY KIND IN ANY
ACTION OR PROCEEDING INSTITUTED BY LENDER WITH RESPECT TO THE LOAN DOCUMENTS
OR ANY MATTER RELATING THERETO, EXCEPT FOR COMPULSORY COUNTERCLAIMS; (iii)
NOTICE PRIOR TO LENDER'S TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY
BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER
TO EXERCISE ANY OF LENDER'S REMEDIES AND (iv) THE BENEFIT OF ALL VALUATION,
APPRAISEMENT AND EXEMPTION LAWS. BORROWER ACKNOWLEDGES THAT THE FOREGOING
WAIVERS ARE A MATERIAL INDUCEMENT TO LENDER'S ENTERING INTO THIS AGREEMENT AND
THAT LENDER IS RELYING UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH
BORROWER. BORROWER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING
WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.
IN WITNESS WHEREOF, Borrower and Lender have signed this Agreement as of
the date set forth in the heading.
Borrower: Lender:
COFFEE HOLDING CO., INC. NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT FUNDING
DIVISION
By By
Name Its Authorized Signatory
Title
Schedule A
Description of Certain Terms
This Schedule is an integral part of the Loan and Security Agreement
between COFFEE HOLDING CO., INC. and NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION (the "Agreement").
1. Loan Limits for Revolving Loans:
(a) Maximum Facility Amount:
$5,000,000
(b) Advance Rates:
(i) Accounts
Advance Rate:
85%; provided, that if the Dilution Percentage exceeds 4%, such advance rate
will be reduced by the number of full or partial percentage points of such
excess
(ii) Inventory
Advance
Rate(s):
(A) Finished
goods:
60%
(B) Raw
materials:
60%
(C) Work in
process:
Not Applicable
(c) Accounts Sublimit: Not Applicable
(d) Inventory
Sublimit(s):
(i) Overall sublimit on advances against Eligible Inventory
$750,000 or, if less, the aggregate advances against Accounts at any time of
determination
(ii) Sublimit on advances against finished goods Not
Applicable
(iii) Sublimit on advances against raw materials Not
Applicable
(e) Credit Accommodation Limit: $500,000
(f) Permanent Reserve Amount: Not Applicable
(g) Overadvance Amount: Not Applicable
2. Loan Limits for Term Loan:
(a) Principal Amount:
(i) Equipment Advance: The lesser of $500,000 and 80% of the
appraised auction sale value of Borrower's Eligible Equipment
(ii) Real Property Advance: Not Applicable
(b) Repayment Schedule:
(i) Equipment Advance: The Equipment Advance shall be repaid in
equal consecutive monthly installments amortized over 60 months payable on the
first day of each calendar month commencing January 1, 1998, with the entire
unpaid balance due and payable on the Maturity Date
(ii) Real Property Advance: Not Applicable
3. Interest Rates:
(a) Revolving Loans: 1% per annum in excess of the Prime
Rate
(b) Term Loan: 1% per annum in excess of the Prime Rate
4. Minimum Loan Amount:
$2,750,000
5. Maximum Days:
(a) Maximum days after original invoice date for Eligible
Accounts:
90 days
(b) Maximum days after original invoice date due date for Eligible
Accounts:
60 days
6. Fees:
(a) Closing Fee: Not Applicable
(b) Facility Fee:
(i) Initial Term: $50,000
(ii) Renewal Term(s)
$75,000
(c) Servicing Fee: $300 per month
(d) Unused Line Fee: Not Applicable
(e) Minimum Borrowing Fee:
(i) Applicable period: Each year
(ii) Date payable: Each anniversary of the date of the
Agreement
(f) Success Fee: Not Applicable
(g) Warrants: Not Applicable
(h) Early Termination Fee: 3% of the Maximum Facility Amount if
terminated during the first year of the Term, 2% of the Maximum Facility
Amount if terminated during the second year of the Term, and 1% of the Maximum
Facility Amount if terminated thereafter and prior to the Maturity Date;
provided that the Early Termination Fee will be waived by Lender if Borrower
transfers the Loans and all of its other Obligations hereunder to another
division of NationsCredit Commercial Corporation or NationsBank, N.A.
(i) Fees for letters of credit and other Credit Accommodations (or
guaranties thereof by Lender):
1% per annum of the face amount of each open Credit
Accommodation, plus all costs and fees charged by the issuer
7. Initial Maturity Date: November 20, 2000
8. Financial Covenants:
(a) Capital Expenditure Limitation:
Not Applicable
(b) Minimum Net Worth Requirement:
Not Applicable
(c) Minimum Tangible Net Worth:
Not Applicable
(d) Minimum Working Capital:
Not Applicable
(e) Maximum Cumulative Net Loss: Not Applicable
(f) Minimum Cumulative Net Income: Not Applicable
(g) Maximum Leverage Ratio: Not Applicable
(i) Limitation on
Equipment Leases:
Not Applicable
(h) Limitation on Purchase Money Security Interests: Not
Applicable
Not Applicable
(j) Additional Financial Covenants: Not Applicable
9. Borrower Information:
(a) Prior Names of Borrower: None
(b) Prior Trade Names of Borrower: None
(c) Existing Trade Names of Borrower: None
(d) Inventory Locations: Continental Terminals, Inc.
738 Third Avenue
Brooklyn, New York 11232
(e) Other Locations: 4425a First Avenue
Brooklyn, New York 11232
(f) Litigation: Borrower is currently involved in a workmen's
compensation claim which is not material to the financial condition or
operation of the business of Borrower
(g) Ownership of Borrower: Andrew Gordon - 21%
David Gordon - 21%
Rachelle Gordon - 58%
Grantor Retained
Annuity Trust
(h) Subsidiaries (and ownership thereof): None
(i) Facsimile Numbers:
Borrower: 718-832-0892
Lender: 212-597-1666
10. Description of Real Property: None
11. Lender's Bank: First Chicago NBD
12. Other Covenants: None
13. Exceptions to Negative Covenants: None
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule A
as of the date set forth in the heading to the Agreement.
Borrower: Lender:
COFFEE HOLDING CO., INC. NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL
FUNDING DIVISION
By
By
Name Its Authorized Signatory
Title
Schedule B
Definitions
This Schedule is an integral part of the Loan and Security
Agreement between COFFEE HOLDING CO., INC. and NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION (the
"Agreement").
As used in the Agreement. the following terms have the following
meanings:
"Account" means any right to payment for Goods sold or leased or for
services rendered which is not evidenced by an Instrument or Chattel Paper;
whether or not it has been earned by performance.
"Account Debtor" means the obligor on an Account or Chattel Paper.
"Account Proceeds" has the meaning set forth in Section 4.1.
"Affiliate" means, with respect to any Person, a relative, partner,
shareholder, member, manager, director, officer, or employee of such Person,
any parent or subsidiary of such Person, or any Person controlling, controlled
by or under common control with such Person or any other Person affiliated,
directly or indirectly, by virtue of family membership, ownership, management
or otherwise.
"Agreement" and "this Agreement" mean the Loan and Security
Agreement of which this Schedule B is a part and the Schedules thereto.
"Availability" has the meaning set forth in Section 1.1(a).
"Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C.
ºá101 et seq.), as the same may be amended from time to time.
"Blocked Account" has the meaning set forth in Section 4.1.
"Borrower" has the meaning set forth in the heading to the
Agreement.
"Borrower's Address" has the meaning set forth in the heading to the
Agreement.
"Business Day" means a day other than a Saturday or Sunday or any
other day on which Lender or banks in New York are authorized to close.
"Chattel Paper" has the meaning set forth in the UCC.
"Collateral" means all property and interests in property, in or
upon which a security interest or other Lien is granted pursuant to this
Agreement or the other Loan Documents.
"Credit Accommodation" has the meaning set forth in Section 1.1(a).
"Credit Accommodation Balance" means the sum of (i) the aggregate
undrawn face amount of all outstanding Credit Accommodations and (ii) all
interest, fees and costs due or, in Lender's estimation, likely to become due
in connection therewith.
"Default" means any event which with notice or passage of time, or
both, would constitute an Event of Default.
"Default Rate" has the meaning set forth in Section 2.1.
"Deposit Account" has the meaning set forth in the UCC.
"Dilution Percentage" means the gross amount of all returns,
allowances, discounts, credits, write-offs and similar items relating to
Borrower's Accounts computed as a percentage of Borrower's gross sales,
calculated on a ninety (90) day rolling average.
"Document" has the meaning set forth in the UCC.
"Early Termination Fee" has the meaning set forth in Section 7.2.
"Eligible Account" means, at any time of determination, an Account
which satisfies the general criteria set forth below and which is otherwise
acceptable to Lender (provided, that Lender may, in its sole discretion,
change the general criteria for acceptability of Eligible Accounts upon at
least fifteen days' prior notice to Borrower). An Account shall be deemed to
meet the current general criteria if (1) neither the Account Debtor nor any of
its Affiliates is an Affiliate, creditor or supplier of Borrower; (ii) it does
not remain unpaid more than the earlier to occur of (A) the number of days
after the official invoice date set forth in Section 5(a) of Schedule A or (B)
the number of days after the original invoice due date set forth in Section
5(b) of Schedule A; (iii) the Account Debtor or its Affiliates are not past
due on other Accounts owing to Borrower comprising more than 50% of all of the
Accounts owing to Borrower by such Account Debtor or its Affiliates; (iv) all
Accounts owing by the Account Debtor or its Affiliates do not represent more
than 20% of all otherwise Eligible Accounts (except in the case of the
Preferred Products Account, which Account may represent up to 25% of all
otherwise Eligible Accounts) (provided, that Accounts which are deemed to be
ineligible solely by reason of this clause (iv)áshall be considered
Eligible Accounts to the extent of the amount thereof which does not exceed
20% of all otherwise Eligible Accounts); (v) no covenant, representation or
warranty contained in this Agreement with respect to such Account (including
any of the representations set forth in Section 5.4) has been breached; (vi)
the Account is not subject to any contra relationship, counterclaim, dispute
or set-off (provided, that Accounts which are deemed to be ineligible solely
by reason of this clause (vi) shall be considered Eligible Accounts to the
extent of the amount thereof which is not affected by such contra
relationships, counterclaims, disputes or set-offs); (vii) the Account
Debtor's chief executive office or principal place of business is located in
the United States or Provinces of Canada which have adopted the Personal
Property Security Act or a similar act, unless (A) the sale is fully backed by
a letter of credit, guaranty or acceptance acceptable to Lender in its sole
discretion, and if backed by a letter of credit, such letter of credit has
been issued or confined by a bank satisfactory to Lender, is sufficient to
cover such Account, and if required by Lender, the original of such letter of
credit has been delivered to Lender or Lender's agent and the issuer thereof
notified of the assignment of the proceeds of such letter of credit to Lender
or (B) such Account is subject to credit insurance payable to Lender issued by
an insurer and on terms and in an amount acceptable to Lender; (viii) it is
absolutely owing to Borrower and does not arise from a sale on a
bill-and-hold, guarantied sale, sale-or-return, sale-on-approval, consignment,
retainage or any other repurchase or return basis or consist of progress
billings; (ix) Lender shall have verified the Account in a manner satisfactory
to Lender; (x) the Account Debtor is not the United States of America or any
state or political subdivision (or any department, agency or instrumentality
thereof unless Borrower has compiled with the Assignment of Claims Act of 1940
(31 U.S.C. ºá203 et seq.) or other applicable similar state or
local law in a manner satisfaction, to Lender; (xi) it is at all times subject
to Lender's duly perfected, first priority security interest and to no other
Lien that is not a Permitted Lien, and the goods giving rise to such Account
(A) were not, at the time of sale, subject to any Lien except Permitted Liens
and (B) have been delivered to and accepted by the Account Debtor, or the
services giving rise to such Account have been performed by Borrower and
accepted by the Account Debtor; (xii) the Account is not evidenced by Chattel
Paper or an Instrument of any kind and has not been reduced to judgment;
(xiii) the Account Debtor's total indebtedness to Borrower does not exceed
the amount of any credit limit established by Borrower or Lender and the
Account Debtor is otherwise deemed to be creditworthy by Lender (provided,
that Accounts which are deemed to be ineligible solely by reason of this
clause (xiii) shall be considered Eligible Accounts to the extent the amount
of such Accounts does not exceed the lower of such credit limits); (xiv) there
are no facts or circumstances existing, or which could reasonably be
anticipated to occur, which might result in any adverse change in the Account
Debtor's financial condition or impair or delay the collectibility of all or
any portion of such Account; (xv) Lender has been furnished with all documents
and other information pertaining to such Account which Lender has requested,
or which Borrower is obligated to deliver to Lender, pursuant to this
Agreement; (xvi) Borrower has not made an agreement with the Account Debtor to
extend the time of payment thereof beyond the time periods set forth in clause
(ii) above without the prior written consent of Lender; and (xvii) Borrower
has not posted a surety or other bond in respect of the contract under which
such Account arose.
"Eligible Equipment" means, at any time of determination, Equipment
owned by Borrower which Lender, in its sole discretion, deems to be eligible
for borrowing purposes.
"Eligible Inventory" means, at any time of determination, Inventory
(other than packaging materials and supplies) which satisfies the general
criteria set forth below and which is otherwise acceptable to Lender
(provided, that Lender may, in its sole discretion, change the general
criteria for acceptability of Eligible Inventory upon at least fifteen days'
prior written notice to Borrower). Inventory shall be deemed to meet the
current general criteria if (i) it consists of raw materials or finished
goods, or work-in-process that is readily marketable in its current form; (ii)
it is in good, new and saleable condition; (iii) it is not slow-moving
obsolete, unmerchantable, returned or repossessed; (iv) it is not in the
possession of a processor, consignee or bailee, or located on premises leased
or subleased to Borrower, or on premises subject to a mortgage in favor of a
Person other than Lender, unless such processor, consignee, bailee or
mortgagee or the lessor or sublessor of such premises, as the case may be, has
executed and delivered all documentation which Lender shall require to
evidence the subordination or other limitation or extinguishment of such
Person's rights with respect to such Inventory and Lender's right to gain
access thereto; (v) it meets all standards imposed by any governmental agency
or authority; (vi) it conforms in all respects to any covenants, warranties
and representations set forth in the Agreement; (vii) it is at all times
subject to Lender's duly perfected, first priority security, interest and no
other Lien except a Permitted Lien; and (viii)áit is situated at an
Inventory Location listed in Section 9(d) of Schedule A or other location of
which Lender has been notified as required by Section 5.6.
"Eligible Real Property" means, at any time of determination, Real
Property owned by Borrower which Lender, in its sole discretion, deems to be
eligible for borrowing purposes.
"Equipment" means all Goods which are used or bought for use
primarily in business (including farming or a profession) or by a Person who
is a non-profit organization or governmental subdivision or agency, and which
are not Inventory, farm products or consumer goods, including all machinery,
molds, machine tools, motors, furniture, equipment, furnishings, fixtures,
trade fixtures, motor vehicles, tools, parts, dies and jigs, and all
attachments, accessories, accessions, replacements, substitutions, additions
or improvements to, or spare parts for, any of the foregoing.
"Equipment Advance" has the meaning set forth in Section 1.1(b).
"ERISA" means the Employee Retirement Income Security Act of 1974
and all rules, regulations and orders promulgated thereunder.
"Event of Default" has the meaning set forth in Section 8.1.
"GAAP" means generally accepted accounting principles as in effect
from time to time, consistently applied.
"General Intangibles" has the meaning set forth in the UCC, and
includes all books and records pertaining to the Collateral and other business
and financial records in the possession of Borrower or any other Person,
inventions, designs, drawings, blueprints, patents, patent applications,
trademarks, trademark applications (other than "intent to use" applications
until a verified statement of use is filed with respect to such applications)
and the goodwill of the business symbolized thereby, names, trade names, trade
secrets, goodwill, copyrights, registrations, licenses, franchises, customer
lists, security and other deposits, causes of action and other rights in all
litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, rights to purchase or sell real or personal property rights
licensor or licensee of any kind, telephone numbers, internet addresses,
proprietary, information, purchase orders, and all insurance policies and
claims (including life insurance, key man insurance, credit insurance,
liability insurance, property insurance and other insurance), tax refunds and
claims, letters of credit, banker's acceptances and guaranties, computer
programs, discs, tapes and tape files in the possession of Borrower or any
other Person, claims under guaranties, security interests or other security
held by or granted to Borrower, all rights to indemnification and all other
intangible property of every kind and nature.
"Goods" means all things which are movable at the time the security
interest attaches or which are fixtures (other than money, Documents,
Instruments, Investment Property Accounts, Chattel Paper, General Intangibles,
or minerals or the like (including oil and gas) before extraction), including
standing timber which is to be cut and removed under a conveyance or contract
for sale, the unborn young of animals, and growing crops.
"Initial Term" has the meaning set forth in Section 7.1.
"Instrument" has the meaning set forth in the UCC.
"Inventory" means all Goods held for sale or lease or furnished or
to be furnished under contracts of service, including all raw materials, work
in process, finished goods, goods in transit and materials and supplies which
are or might be used or consumed in a business or used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of such
Goods, and all products of the foregoing, and shall include interests in goods
represented by Accounts, returned, reclaimed or repossessed goods and rights
as an unpaid vendor.
"Investment Property" shall mean all of Borrower's securities,
whether certificated or uncertificated, securities entitlements, securities
accounts, commodity contracts and commodity accounts.
"Lender" has the meaning set forth in the heading to the Agreement.
"Lien" means any interest in property securing an obligation owed
to, or a claim by, a Person other than the owner of the property, whether such
interest is based on common law, statute or contract, including rights of
sellers under conditional sales contracts or title retention agreements and
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting property. For the purpose of this Agreement, Borrower shall be
deemed to be the owner of any property which it has acquired or holds subject
to a conditional sale agreement or other arrangement pursuant to which title
to the property has been retained by or vested in some other Person for
security purposes.
"Loan Account" has the meaning set forth in Section 2.4.
"Loan Documents" means the Agreement and all notes, guaranties,
security agreements, certificates, landlord's agreements, Lock Box and Blocked
Account agreements and all other agreements, documents and instruments now or
hereafter executed or delivered by Borrower or any Obligor in connection with,
or to evidence the transactions contemplated by this Agreement.
"Loan Limits" means, collectively, the Availability limits and all
other limits on the amount of Loans and Credit Accommodations set forth in
this Agreement.
"Loans" means, collectively, the Revolving Loans and any Term Loan.
"Lock Box" has the meaning set forth in Section 4.1.
"Maturity Date" has the meaning set forth in Section 7.1.
"Obligations" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at
any time owing by Borrower to Lender, whether evidenced by this Agreement or
any other Loan Document, whether arising from an extension of credit, opening
of a Credit Accommodation, guaranty, indemnification or otherwise (including
all fees, costs and other amounts which may be owing to issuers of Credit
Accommodations and all taxes, duties, freight, insurance, costs and other
expenses, costs or amounts payable in connection with Credit Accommodations or
the underlying goods), whether direct or indirect (including those acquired by
assignment and any participation by Lender in Borrower's indebtedness owing to
others), whether absolute or contingent, whether due or to become due, and
whether arising before or after the commencement of a proceeding under the
Bankruptcy Code or any similar statute, including all interest, charges,
expenses, fees, attorney's fees, expert witness fees, audit fees, letter of
credit fees, loan fees, Early Termination Fees, Minimum Borrowing Fees and any
other sums chargeable to Borrower under this Agreement or under any other Loan
Document.
"Obligor" means any guarantor, endorser, acceptor, surety or other
person liable on, or with respect to, the Obligations or who is the owner of
any property which is security for the Obligations, other than Borrower.
"Permitted Liens" means: (i) purchase money security interests in
specific items of Equipment in an aggregate amount not to exceed the limit set
forth in Section 8(h) of Schedule A; (ii) leases of specific items of
Equipment in an aggregate amount not to exceed the limit set forth in Section
8(i) of Schedule A; (iii) Liens for taxes not yet due and payable;
(iv)áadditional Liens which are fully subordinate to the security
interests of Lender and are consented to in writing by Lender; (v) security
interests being terminated concurrently with the execution of this Agreement;
(vi) Liens of materialmen, mechanics, warehousemen or carriers arising in the
ordinary course of business and securing obligations which are not delinquent;
(vii) Liens incurred in connection with the extension, renewal or refinancing
of the indebtedness secured by Liens of the type described in clause (i) or
(ii) above; provided, that any extension, renewal or replacement Lien is
limited to the property encumbered by the existing Lien and the principal
amount of the indebtedness being extended, renewed or refinanced does not
increase; (viii)áLiens in favor of customs and revenue authorities
which secure payment of customs duties in connection with the importation of
goods; (ix) security deposits posted in connection with real property, leases
or subleases; and (x) Liens existing on the date of this Agreement which are
listed, and the property subject thereto described, in Schedule C but only to
the respective date, if any, set forth in such Schedule C for the removal and
termination of any such Liens. Lender will have the right to require, as a
condition to its consent under clause (iv) above, that the holder of the
additional Lien sign an intercreditor agreement in form and substance
satisfactory to Lender, in its sole discretion, acknowledging that the Lien is
subordinate to the security interests of Lender, and agreeing not to take any
action to enforce its subordinate Lien so long as any Obligations remain
outstanding, and that Borrower agree that any uncured default in any
obligation secured by the subordinate Lien shall also constitute an Event of
Default under this Agreement.
"Person" means an, individual, sole proprietorship, partnership,
joint venture, limited liability company, trust, unincorporated organization,
association, corporation, government or any agency or political division
thereof, or any other entity.
"Prime Rate" means, at any given time, the prime rate as quoted in
The Wall Street Journal as the base rate on corporate loans posted as of such
time by at least 75% of the nation's 30 largest banks (which rate is not
necessarily the lowest rate offered by such banks).
"Real Property" means the real property described in Section 10 of
Schedule A.
"Real Property Advance" has the meaning set forth in Section 1.1(b).
"Released Parties" has the meaning set forth in Section 6.1.
"Renewal Term" has the meaning set forth in Section 7.1.
"Reserves" has the meaning set forth in Section 1.2.
"Revolving Loans" has the meaning set forth in Section 1.1(a).
"Sale" has the meaning set forth in Section 8.2.
"Subsidiary" means any corporation or other entity of which a Person
owns, directly or indirectly, through one or more intermediaries, more than
50% of the capital stock or other equity interest at the time of
determination.
"Term" means the period commencing on the date of this Agreement and
ending on the Maturity Date.
"Term Loan" has the meaning set forth in Section 1.1(b).
"UCC" means, at any given time, the Uniform Commercial Code as
adopted and in effect at such time in the State of New York.
All accounting terms used in this Agreement, unless otherwise indicated,
shall have the meanings given to such terms in accordance with GAAP. All
other terms contained in this Agreement, unless otherwise indicated, shall
have the meanings provided by the UCC, to the extent such terms are defined
therein. The term "including," whenever used in this Agreement, shall mean
"including but not limited to." The singular form of any term shall include
the plural form, and vice versa, when the context so requires. References to
Sections, subsections and Schedules are to Sections and subsections of, and
Schedules to, this Agreement. All references to agreements and statutes shall
include all amendments thereto and successor statutes in the case of statutes.
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule B
as of the date set forth in the heading to the Agreement.
Borrower: Lender:
COFFEE HOLDING CO., INC. NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL
FUNDING DIVISION
By _________________________ By___________________________
Name Its Authorized Signatory
Title
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule C
as of the date set forth in the heading to the Agreement.
Borrower: Lender:
COFFEE HOLDING CO., INC. NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL
FUNDING DIVISION
By
By
Name Its Authorized Signatory
Title
