SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REPORT ON FORM 10-KSB
|X| Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended March 31, 1998.
|_| Transition Report pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the transition period from ___________________ to _______________.
Commission File No. 0-21079
PERRY'S MAJESTIC BEER, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-3314168
(State of or other jurisdiction (IRS Employer of
incorporation or organization) Identification No.)
38 West 32nd Street
Suite 801
New York, New York 10001
(Address of Principal (Zip Code)
Executive Officers)
Registrant's telephone number, including area code: (212) 564-2260
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.0001 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of the Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year were $676,716.
The aggregate market value of the voting stock held by non- affiliates of the
Registrant, computed by reference to the closing price of such stock as of June
17, 1998, was approximately $472,917.
Number of shares outstanding of the issuer's Common Stock as of June 17, 1998
was 3,783,335.
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PART I
Item 1. BUSINESS.
General
Perry's Majestic Beer, Inc., (the "Company") a Delaware corporation, was
formed in December, 1995. The Company is engaged in the marketing, distribution
and sale of all natural applesauce and applesauce blends through its
wholly-owned subsidiary, Quigley's Orchard ("Quigley's"), as well as the sale of
and marketing of Perry's Majestic Beer, a microbrewed beer which uses
organically grown barley and hops. The Company acquired Riverosa, Inc., the
owner of Perry's Majestic Beer, Inc. in August 1996. In September, 1996 the
Company expanded its line of microbrewed products by acquiring the Post Road
Beer label from Old Marlborough Brewing Company. In view of increased
competition in the micro-brewing industry, and the significant capital
requirements which would be required for further expansion in that industry, the
Company decided to diversify its product base in March 1997 with the acquisition
of all rights to produce and market Quigley's Orchard Applesauce, a product line
of 100% natural single serve applesauces. Quigley's was acquired through the
purchase of all issued and outstanding stock of Orchard Annie, Inc., a
corporation wholly-owned and controlled by Mark Butler, Vice President, Chief
Operating Officer, and a director of the Company. In consideration for the stock
of Orchard Annie, the Company paid Mr. Butler $66,000 and issued him 50,000
shares of Common Stock of the Company. The Agreement also provided for royalty
payments to Mr. Butler equal to $0.50 per case on the first 500,000 cases of
Quigley's applesauce and $0.25 per case thereafter for a fifteen (15) years
term. The royalty was subsequently amended to $.25 per case for the first
500,000 twelve (12) unit cases and $.125 a case for each twelve (12) unit case
thereafter during the fifteen (15) year term..
In furtherance of its plan to focus marketing efforts on its applesauce
products and decrease its presence in the micro-brewery industry, in May, 1998
the Company sold all assets, rights and inventory relating to its Post Road beer
and ale products to The Brooklyn Brewery Company for $330,000,. The Company
received $10,000 at closing and a promissory note for $320,000 payable as
follows: $150,000 on June 1, 1998, $65,000 on July 1, 1998 and the balance in
bimonthly payments commencing on September 1, 1998. The Company retains a
security interest in the Post Road assets as collateral for the promissory note.
The Company's Quigley's all natural applesauce line, is currently marketed
to supermarkets, vending companies, convenience stores such as 7-11, gourmet
stores and other retail outlets by independent unaffiliated third party brokers
and distributors. The Company intends to increase distribution of its Quigley's
products to food service accounts and mass merchandisers during the next twelve
(12) months. The Company's applesauce products are produced by an independent
unaffiliated food processor using specifications and formulations provided by
the Company.
The Company's organic beer is contract brewed by an independent
unaffiliated brewery, Hoboken Brewing Company, of Hoboken, New Jersey using the
specifications and recipes provided by the Company. During the past year the
Company has reduced its efforts to market its Perry's Majestic brand. Five
distributors distribute the beer and the Company has no plans to increase the
distribution for this product.
The Company has shifted its emphasis from the sale and marketing of
micro-brewed beer to the development, expansion and marketing of all natural
applesauce and applesauce blends as a means of establishing an identity as a
specialty niche food marketer under the Quigley's Orchard label. Consequently,
the Company does not anticipate any growth of sales for Perry's Majestic Beer.
The Company's executive offices are currently located at 38 West 32nd
Street, Suite 801, New York, New York 10001 and its telephone number is (212)
564-2260. The Company's fiscal year end is March 31. As of June 18, 1998 the
Company employed a total of three full time employees.
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Recent Developments
In May, 1998 the company sold all assets, rights and inventory related its
Post Road Ale brand to The Brooklyn Brewery Company for $330,000. The Company
received $10,000 at closing and a promissory note for $320,000, payable as
follows: $150,000 on June 1, 1998, $65,000 on July 1, 1998 and the balance in
bimonthly payments commencing on September 1, 1998. The Company maintains a
security interest in the Post Road assets as collateral for the promissory note.
As part of the agreement, Brooklyn Brewery placed $35,000 in escrow to satisfy
the outstanding tax liability of an officer of Old Marlborough Brewing Company,
and entered into an employment agreement with A. J. Moran, who had joined the
Company upon its acquisition of Post Road. The Company terminated its employment
agreement with Mr. Moran.
On May 14, 1998 the Company entered into a letter of intent with Village
Cannery of Vermont, Inc. whereby the Company was granted an option to acquire
all of the assets of Village Cannery for the sum of $2,000,000 on or before
September 1, 1998. Village Cannery is a producer of organic and all natural
applesauces under the tradenames of Village Cannery and Vermont Village as well
as sauces, salsas, jams and other such items. The Company does not presently
have funds available to exercise this option and has not identified any
potential source for such funds. The Company's ability to exercise this option
will be dependent upon its success in identifying sources for such financing, on
a timely basis, and on terms acceptable to the Company.
On June 16, 1998 Matthew Harriton resigned as a member of the Company's
Board of Directors.
On July 2, 1998, the Company acquired the rights, title and interest,
customer lists, distribution rights and related recipes for applesauce and
applesauce blends of Leroux Creek applesauce brand for the sum of $650,000 from
the Leroux Creek Food Corporation. The Company paid $62,500 and executed a note
with the seller in the amount of $587,500 with 9% interest payable on or before
January 2,1999. The parties agreed that the $62,500 would be liquidated damages
in the event the Company is not able to locate adequate financing. In the event
the Company can not make the payment when due the ownership of the Leroux Creek
brand will revert to the seller. The Company does not presently have funds
available to pay the note in full and has not identified any potential source
for such funds. The Company's ability to pay the note and retain ownership of
the Leroux Creek brand will be dependent upon its success in identifying sources
for such financing, on a timely basis, and on terms acceptable to the Company.
The Company also issued options to purchase 250,000 shares of common stock at
fair market value at the date of the grant.
Industry Overview
Applesauce Industry
Applesauce products are a highly competitive sector of the food industry.
Supermarket sales of applesauce, which account for a majority of all applesauce
sales, totaled 324.3 million dollars in 1997, an increase of 5% compared to
1996, according to National Food Institute. The category is dominated by Motts,
Knouse and private label applesauces that the Company will compete against, all
of which have greater financial resources, operating history, production
facilities and distribution and marketing networks than the Company
Applesauce is sold both in glass jars and in plastic cups. It is available in a
variety of fruit blends as well as traditional apple flavor, and in organic and
all natural styles
Sales to supermarkets usually require the payment of a fee called a slotting
allowance. In addition to supermarket sales, applesauce is routinely marketed
through natural food stores, vending machines, food service operations,
convenience stores, retail outlets, mass merchandising stores and gourmet
stores.
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Beer Industry
The Company participates in the specialty beer segment of the $50 billion
domestic beer market. The Company produces Perry's, a microbrew organic beer. A
microbrewed beer is defined as a beer that brews fewer than 15,000 barrels per
year. The microbrewing industry is highly competitive and is dominated by a few
large companies, each of which is far better established and better capitalized
than the Company. During the past year the microbrewing industry has seen
continued consolidation, making it increasingly difficult to establish a
significant market for a small, single product microbrewed beer or ale.
Product Diversity and Quality
Applesauce
The Company's Quigley's Orchard is a line of applesauce and applesauce
blends currently available in six ounce decorated cups in the following flavors:
country apple, apple-raspberry, apple-strawberry and apple-cherry. Applesauce is
primarily sold in glass jars (pints and quarts) or in four (4) ounce servings
sold on grocery shelves in multi packs. Quigley's is produced in a single-serve,
individually identified container similar to yogurt. This package is intended
for single serve and is a fat free, all natural snack alternative. It is sold
from the refrigeration section of retail stores as well in salad bars, in
convenience stores, and from vending machines distinguishing the product from
other applesauces which are sold predominantly on grocery shelves.
The Company plans to introduce a four ounce six pack in September 1998 for
sale in supermarkets, and to schools, hospitals and other food service accounts.
The Company intends to continue to expand its product line with additional
blends such as apple-cinnamon, apple-mango during the next 12 months.
Beer
Perry's Majestic Beer is brewed with organic hops and barley. It is
available in one style, Perry's Ploughman's Pale Ale. In view of the competition
and consolidation occurring in the beer industry, and the significant capital
requirements which would be required in order to enable the Company to further
develop its beer products, the Company has decided to focus its efforts in
establishing its Quigley's line of applesauces and does not anticipate adding
any new styles of beer.
Government Regulation
Applesauce
The manufacture, distribution and sale of the Company's applesauce
products are subject to various federal, state and local laws governing the
production, sale, advertising, labeling and ingredients of food products.
Although the Company believes it and its distributors and co-packer are
currently in compliance with all material federal, state and local governmental
laws and regulations, there can be no assurance that the Company, its
distributors and co-packers will be able to comply with such laws and
regulations in the future or that new governmental laws and regulations will not
be introduced which would prevent or temporarily inhibit the development,
distribution and sale of the Company's products to consumers. If any of the
Company's distributors or co-packers were to violate any such law or regulation,
it could result in fines, recalls, seizure or confiscation of products marketed
by the Company.
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The Company has, to its knowledge, complied with all current food labeling
and packaging requirements, including significant labeling requirements that
became effective in 1994.
The Company has not experienced any regulatory problems in the past and
has not been subject to any fines or penalties. No assurance can be given,
however, that future change in applicable law, regulations or the interpretation
Beer
The Company's business is highly regulated by federal, state and local
laws and regulations, federal and state laws and regulations govern licensing
requirements, trade and pricing practices, permitted and required labeling,
advertising, promotion and marketing practices, relationships with distributors
and related matters. For example, federal and state regulators require warning
labels and signage on the Company's products. The Company believes that it has
obtained all regulatory permits and licenses necessary to operate its business
in the states where the Company's products are currently being distributed.
Failure on the part of the Company to comply with federal, state or local
regulations could result in the loss or revocation or suspension of the
Company's licenses, permits or approvals and accordingly could have a material
adverse effect on the Company's business. Governmental entities also levy
various taxes, license fees and other similar charges and may require bonds to
ensure compliance with applicable laws and regulations. The Company must also
comply with numerous federal, state and local environmental protection laws. The
Company is operating within existing laws and regulations or is taking action
aimed at assuring compliance therewith. The Company does not expect compliance
with such laws and regulations to materially affect the company's capital
expenditures, earnings or competitive position.
The federal government and each of the states levy excise taxes on
alcoholic beverages, including beer. The federal excise tax is currently $18.00
per barrel ($1.30 per case of 24-12 oz. containers) and the state excise taxes
range from $23.80 per barrel to $1.24 per barrel. Federal excise taxes are
typically included in the price charged to retailers by the distributors. All
excise taxes are ultimately passed on to the consumer. It is possible that in
the future the rate of excise taxation could be increased by both the federal
government and a number of state governments. Further increases in excise taxes
on beer, if enacted, could materially and adversely affect the Company's
financial condition and results of operations. There is a small brewers federal
excise tax credit that grants each brewing company with production under
2,000,000 barrels a year an $11.00 credit per barrel on its first 60,000 barrels
produced annually. The Company is currently able to take advantage of a $660,000
annual credit pursuant to this exemption. Although the Company is not aware of
any plans by the federal government to reduce or eliminate this small brewer's
credit or by federal or state authorities to increase the excise tax rate, and
such change could have a material adverse effect on the Company.
Certain states, including California, Connecticut, Delaware, Iowa, Maine,
Massachusetts, Michigan, New York, Oregon and Vermont, and a small number of
local jurisdictions, have adopted restrictive beverage packaging laws and
regulations that require deposits on beverage containers. Congress and a number
of additional state or local jurisdictions may adopt a similar legislation in
the future, and in such event, the Company may be required to incur significant
expenditures in order to comply with such legislation. Changes to federal and
state excise taxes on beer production, federal and state environmental
regulations, including laws relating to packaging and waste discharge, or any
other federal and state laws or regulations which affect the Company's products
could materially adversely affect the Company's results of operations.
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Sales, Distribution and Marketing
The Company sells its Quigley's Orchard applesauce through a system of
independent unaffiliated brokers and distributors. Food brokers act as agents
for the Company within designated territories or specific supermarket or related
chain stores and receive commissions, usually 5%. The distributors sell directly
to retail establishments such as supermarkets, convenience stores, food service
accounts, mass merchandising accounts and vending accounts and gourmet stores.
The Company currently has 25 brokers and 11 distributors. The Company
anticipates adding a minimum of ten new distributors over the next 12 months.
The Company sells its beer product directly to beer distributors who sell
directly to retail establishments such as grocery stores, convenience stores,
bars, restaurants and other retail establishments. The Company's beer is
currently distributed in five (5) states. The Company has not entered into any
other distribution arrangements and there can be no assurance that the Company
will be able to enter into distribution arrangements with other local
distributors on terms satisfactory to the Company or at all.
The Company's marketing efforts for Quigley's Orchard include advertising
in vending publications, store advertising flyers, local distributor price books
as well as tastings at appropriate locations. The Company does not have any
marketing plans for Perry's Majestic Beer.
Suppliers
The Company purchases its fruit flavors from one supplier. The Company
does not have any written agreement with these suppliers and is aware of other
suppliers for ingredients of equal quality at comparable pricing. Apples are
purchased through the manufacturing supplier and are included in the cost of
production. However, there can be no assurance that alternative sources of
supply would be able to meet the requirements of the Company, and if the Company
were unable to arrange for alternate source of supply in a timely manner, such
failure could have a material adverse effect on the Companies business,
operating results and financial condition.
The Company purchases its barley and hops for its beers each from one supplier.
The Company has no written agreement with these suppliers and is aware of other
suppliers for ingredients of equal quality at comparable pricing. However, there
can be no assurance that alternative sources of supply would be able to meet the
requirements of the Company, and if the Company were unable to arrange for
alternate source of supply in a timely manner, such failure could have a
material adverse effect on the Companies business, operating results and
financial condition.
Manufacturing/Contract Brewing
The Company's Quigley's Orchard applesauce is manufactured at an
independent unaffiliated co-packer in accordance with the Company's recipes
which remain the exclusive property of the Company. The Company has no written
agreement with this manufacturer and is aware of other manufacturers of equal
quality at comparable pricing. However, there can be no assurance that
alternative sources of production would be able to meet the requirements of the
Company, and if the Company were unable to arrange for alternate source of
production in a timely manner, such failure could have a material adverse effect
on the Companies business, operating results and financial condition.
The Company purchases its product as finished product. Accordingly, the
Company's raw materials inventory is not significant.
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Perry's Majestic Beer is produced under contract with Hoboken Brewing
Company, an independent unaffiliated brewery which produces, bottles and labels
Perry's using the Company's name and logo. The contract provides for a term of
one (1) year and for the brewing of the beer in accordance with the Company's
formula. The Company's formula remains the exclusive property of the Company.
There can be no assurance that this brewery will continue to provide services to
the Company. In the event the Company is unable to continue its relationship
with this brewery for any reason, the Company would have to enter into a
relationship with another brewery which is able to produce organic beer to the
Company's standards. Although the Company believes that there are other such
brewing facilities which would be available, there can be no assurance that the
Company will be able to enter into such an agreement with another brewing
facility, or to do so on terms which are similarly favorable.
Alcohol Beverage Regulation and Taxation
The manufacture and sale of alcoholic beverages is a highly regulated and
taxed business. The Company's operations may be subject to more restrictive
regulations and increased taxation by federal, state and local governmental
entities than are those of non-alcohol related businesses. Federal, state and
local laws and regulations govern the production and distribution of beer. These
laws and regulations govern permitting, licensing, trade practices, labeling,
advertising, marketing, distributor relationships and related matters. Federal,
state and local governmental entities also levy various taxes, license fees and
other similar charges and may require bonds to ensure compliance with applicable
laws and regulations. Failure by the Company to comply with applicable federal,
state or local laws and regulations could result in penalties, fees, suspension
or revocation of permits, licenses or approvals. There can be no assurances that
other or more restrictive laws or regulations will not be enacted in the future.
Licenses and Permits
The Company purchases beer from one contract brewer and sells it to
distributors pursuant to a federal wholesaler's basic permit. Brewery and
wholesale operations require various federal, state and local licenses, permits
and approvals. In addition, some states prohibit wholesalers and/or retailers
from holding an interest in any supplier such as the Company. Violation of such
regulations can result in the loss or revocation of existing licenses by the
wholesale, retailer and/or suppliers. The loss or revocation of any existing
licenses, permits or approvals, failure to obtain any additional or new
licenses, permits or approvals or the failure to obtain approval for the
transfer of any existing permits or licenses, including those required as a
result of the recapitalization, could have a material adverse effect on the
ability of the Company to conduct its business. On the federal level, brewers
are required to file with the Bureau of Alcohol, Tobacco and Firearms ("ATF") an
amended Brewer's Notice every time there is a material change in the brewing
process or brewing equipment, change in the brewery's location, change in the
brewery's management or a material change in the brewery's ownership. Brewers
must seek ATF approval of an amended Brewer's Notice prior to the change taking
place. Wholesalers must notify ATF within 30 days of any change in the
wholesaler's operations, change in the wholesalers's location, change in the
wholesaler's management or a material change in the wholesaler's ownership. The
Company's operations are subject to audit and inspection by ATF at any time. The
Company has never been audited or inspected by ATF.
On the state and local level, some jurisdictions merely require notice of
any material change in the operations, management or ownership of a permittee or
licensee. Some jurisdictions require advance approvals and require that new
licenses, permits or approvals must be applied for and obtained in the event of
a change in the management or ownership of the permittee or licensees. State and
local laws and regulations governing the sale of beer within a particular state
by an out-of-state brewer or wholesaler vary from locale to locale.
ATF permits and brewer's registrations can be suspended, revoked or
otherwise adversely affected for failure to pay tax, to keep proper accounts, to
pay fees, to bond premises, to abide by federal alcohol beverage production and
distribution regulations and to notify ATF of any change (as described above),
or if holders of 10% or more of the Company's equity securities are found to be
of questionable character. Permits, licenses and approvals from state regulatory
agencies can be revoked for many of the same reasons.
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The Company is required to have its Quigley's products analyzed by a
laboratory approved by the FDA for certification of its ingredients. The
information is then listed on its nutritional fact panel that appears on all of
the Quigley's products.
Because of the many and various state and federal licensing and permitting
requirements, there is a risk that one or more regulatory authorities could
determine that the Company has not complied with applicable licensing or
permitting regulations or does not maintain the approvals necessary for it to
conduct business within their jurisdictions. There can be no assurance that any
such regulatory action would not have a material adverse effect upon the Company
or its operating results.
Taxation
The federal government and each of the states levy excise taxes on
alcoholic beverages, including beer. The federal excise tax is $18.00 per
barrel. For brewers producing no more than 2,000,000 barrels of beer per
calendar year the federal excise tax is $7.00 per barrel on the first 60,000
barrels of beer removed for consumption or sale during a calendar year. As the
brewer of record of its beers, the Company has been able to take advantage of
this reduced tax on the first 60,000 barrels of its beer produced. Individual
states also impose excise taxes on alcoholic beverages in varying amounts, which
have also been subject to change. The state excise taxes are usually paid by the
Company's distributors.
Congress and state legislatures routinely consider various proposals to
impose additional excise taxes on the production and distribution of alcoholic
beverages, including beer, in connection with various governmental budget
balancing or funding proposals. Further increases in excise taxes on beer, if
enacted, could result in a general reduction of malt beverage sales.
Trademarks
The Company has received a U.S. Trademark for Quigley's Orchard and has
obtained US. Trademark Registration for Perry's Majestic. The Company regards
its trademarks as having substantial value and as being an important factor in
the marketing of its products. The Company is not aware of any infringing uses
that could materially affect its current business or any prior claim to the
trademarks that would prevent the Company from using such trademarks in its
business. The Company's policy is to pursue registration of its marks whenever
possible and to oppose vigorously any infringements on its marks.
Management and Employees
As of June 19, 1997, the Company employed a total of 3 employees on a full
time basis.
The Company has experienced no work stoppages and considers its employee
relations to be satisfactory. The Company's employees are not represented by a
labor union.
Product Liability Insurance
The Company, like other manufacturers of products that are ingested, faces
inherent risk of exposure to product liability claims if, among other things,
the use of its products results in an injury. The Company currently has product
liability insurance. There can be no assurance that the Company will be able to
maintain product liability. Moreover, the amount and scope of any coverage may
be inadequate to protect the Company in the event that a product liability claim
is successfully asserted against the Company.
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Note Regarding Forward Looking Information
Certain statements contained in this Annual Report constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Sections 21E of the Exchange Act. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, levels of activity, performance or achievements of the
Company, or industry results, to be materially different from any future
results, levels of activity, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: general economic and business conditions; the ability of the Company
to implement its business strategy; the ability of the Company to obtain
financing for general corporate purposes; competition; availability of key
personnel; and changes in, or the failure to com-ply with governmental
regulations. As a result of the foregoing and other factors, no assurance can be
given as to the future results, levels of activity and achievements and neither
the Company nor an person assumes responsibility for the accuracy and
completeness of these statements.
Item 2. PROPERTIES.
The Company operates its executive offices at 38 West 32nd Street, Suite
801, New York, New York 10001 pursuant to a three (3) year lease dated as of May
1, 1997 which provides for a monthly rent of $1,200 and five percent (5%)
increases on each of June 1, 1998 and June 1, 1999.
Item 3. LEGAL PROCEEDINGS.
Except as set forth below, management is not aware of any material legal
proceedings pending against the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the holders of the Company's Common
Stock during the last quarter of its fiscal year ended March 31, 1997 except for
the holding of the annual shareholders meeting whereby Robert J Sipper, Mark
Butler and Matt Harriton were elected to the Company's Board of Directors and
the ratification of Moore Stephens as the Company's independent certified public
accountants.
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PART II
Item 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock commenced trading on the OTC Bulletin Board on
the effectiveness of the Company's Initial Public Offering on July 31, 1996
under the symbol "PYMB". The Common Stock is regularly quoted and traded on the
OTC Bulletin Board.
The following table indicates the high and low bid prices for the Company's
Common Stock for the period from July 31, 1996 to March 31, 1998 based upon
information supplied by the NASDAQ system. Prices represent quotations between
dealers without adjustments for retail markups, markdowns or commissions, and
may not represent actual transactions. The Company's stock commenced trading on
July 1, 1996.
Common Stock
Year ended 3/31/97 High Low
Second Quarter $11.250 $6.000
Third Quarter $9.188 $4.00
Fourth Quarter $7.0000 $5.000
Year ended 3/31/98
First Quarter $5.375 $.75
Second Quarter $1.876 $.50
Third Quarter $.8125 $.09
Fourth Quarter $.49 $.16
On June 17, 1998, the closing price of the Common Stock as reported on the OTC
Bulletin Board was $.125. As of June 17, 1998, the Company had approximately 72
holders of record of its shares of Common Stock.
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Item 6:
PERRY'S MAJESTIC BEER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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The following discussion should be read in conjunction with the historical
financial statements of Perry's Majestic Beer, Inc. [the "Company"] and notes
thereto included elsewhere in this Form 10-KSB.
OVERVIEW
Perry's Majestic Beer, Inc. [the "Company" or "Perry's"] was formed in December
of 1995. There were no operations prior to the formation of Perry's for the
period December 1995 to March 1996 nor any revenue or expense activities for
Perry's through March 31, 1996. The primary activities for Perry's prior to the
proposed acquisition of Riverosa Company, Inc. ["Riverosa"] were investing and
financing activities through March 31, 1996 [See "Liquidity and Capital
Resources"]. In March of 1996, the Company entered into an agreement to acquire
Riverosa, which was formed in November of 1993. Riverosa was engaged in the
manufacture and distribution of microbrewed beers and ales.
The Company operates in two business segments, the sale of natural applesauce
and applesauce blends, and the sale of microbrewed beer. The Company's products
are Quigley's Orchard [natural applesauce and applesauce blends] and Perry's
Majestic Beer [beer brewed with organic barley and hops]. Quigley's Orchard is
manufactured by a co-packer and the microbrew beer is contract brewed.
The Riverosa division currently has one style of beer available, Perry's
Majestic organic beer, Ploughman's Pale Ale. All beer styles of Perry's are made
with organic hops and barley. The Company has no plans to add any additional
beer styles.
In September 1996, the Company acquired the Post Road Beer brand and other
assets from the Old Marlborough Brewing Company, Inc. On May 18, 1998, the
Company sold the Post Road brand to the Brooklyn Brewery Corporation for
consideration of $330,000.
In March 1997, the Company acquired all the outstanding stock of Orchard Annie,
Inc., a manufacturer of natural applesauces. The Company introduced its first
four flavors of applesauce under the brand name Quigleys. Quigleys is produced
by an independent unaffiliated manufacturer. The Company has entered into
arrangements with twenty-five brokers to sell Quigley's. Additionally, there are
currently eleven distributors of Quigley's. The Company expects to add more
distributors and brokers over the next 6-12 months.
On May 14, 1998, the Company entered into a letter of intent with Village
Cannery of Vermont, Inc. The Company was granted an option to acquire all of the
assets for $2,000,000 in cash. This option is valid through September 1, 1998.
Village Cannery of Vermont, Inc. is a producer of organic and all natural
applesauce under the tradename of Vermont Village and Village Company as well as
a producer of sauces, salsas, jams and other such products. The Company does not
presently have funds available to pay the $2,000,000 and has not identified any
potential source for such funds.
On May 18, 1998, the Company sold the assets, all rights to licenses, permits
and contracts, and all trademarks, tradenames and processes of the Post Road
beer brand with a net book value of approximately $131,500 to the Brooklyn
Brewery Corporation ["BBC"] for consideration of $330,000 of which $10,000 is in
cash. The Company executed a secured promissory note for the balance of
$320,000. In addition, the purchaser put $35,000 into escrow to satisfy the
outstanding tax liability for an executive of Old Marlborough.
On July 2, 1998, the Company acquired the rights, title and interest, customer
lists, distribution rights and related recipes for applesauce and applesauce
blends of Leroux Creek applesauce brand for the sum of $650,000 from the Leroux
Creek Food Corporation. The Company paid $62,500 and executed a note with the
seller in the amount of $587,500 with 9% interest payable on or before January
2,1999. The parties agreed that the $62,500 would be liquidated damages in the
event the Company is not able to locate adequate financing. In the event the
Company can not make the payment when due the ownership of the Leroux Creek
brand will revert to the seller. The Company does not presently have funds
available to pay the note in full and has not identified any potential source
for such funds. The Company's ability to pay the note and retain ownership of
the Leroux Creek brand will be dependent upon its success in identifying sources
for such financing, on a timely basis, and on terms acceptable to the Company.
The Company also issued options to purchase 250,000 shares of common stock at
fair market value at the date of the grant.
10
<PAGE>
PERRY'S MAJESTIC BEER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
RESULTS OF OPERATIONS
The Company had a loss from operations of $2,372,642 and a net loss of
$2,341,181 for the year ended March 31, 1998, and had a loss from operations of
$708,315 and net loss of $698,291 for the year ended March 31, 1997. The loss
from operations in the year ended March 31, 1998 was primarily due to an
insufficient gross profit to support the selling, general and administrative
expenses of $1,072,756 and the writedown of intangible assets and amortization
of intangibles totaling $1,279,719.
The net sales for the Company for the year ended March 31, 1998 was $676,716
compared to $891,225 for the year ended March 31, 1997. This decrease resulted
from the Company's decision to discontinue sales of brands of beer not produced
by the Company while it was an affiliate of Bev-Tyme, Inc.
The Company had a gross profit of $129,575 or 19.1% as compared to a gross
profit of $13,609 or 1.5% for the years ended March 31, 1998 and 1997,
respectively. The increase in the gross profit percentage is attributable to
start up costs incurred during the year ended March 31, 1997 related to the Post
Road and Perry's beer brands. The Company intends to focus on the sale of
Quigley's Orchard Natural Applesauce and applesauce blends.
The Company's operating expenses for the years ended March 31, 1998 and 1997
were $2,352,475 and $721,924, respectively. The increase in total operating
expenses was primarily due to a write down of goodwill and intangibles in the
amount of $545,716 and the amortization of deferred compensation and
distribution rights in the amount of $585,000 and $148,955, respectively, for
the year ended March 31, 1998 as compared to amortization of $137,500 and
$84,276, respectively, for the year ended March 31, 1997. Selling, advertisement
and promotion expenses increased from $69,355 for the year ended March 31,1997
to $382,496 for the year ended March 31, 1998 due to increased advertising and
promotional programs related to the continued introduction of Post Road and the
introduction of Quigley's Orchard natural applesauce and applesauce blends. The
write down of goodwill and intangibles was due to insufficient projected future
undiscounted cash flows from the Riverosa and Old Marlborough Brewery
acquisitions to justify the carrying value of the goodwill and intangibles.
The Company earned interest income of $37,710 in the fiscal year ended March 31,
1998 as compared to $17,022 earned during the prior year. Interest charges
totaling $1,223 were incurred on the note payable related to the purchase of
transportation equipment as compared to $6,998 in the year ended March 31, 1997
incurred on the bridge note.
LIQUIDITY AND CAPITAL RESOURCES
Perry's had working capital at March 31, 1998 of $401,392. For the year ended
March 31, 1998, the Company utilized $1,085,323 in cash for operating
activities. The use of cash for operations is primarily due to the Company's net
loss of $2,341,181 adjusted by non-cash items of approximately $1,256,000. The
Company utilized $181,392 in cash for investing activities. Approximately
$91,000 was for the purchase of kegs, furniture and equipment and $100,000 was
utilized for a loan to Bev-Tyme on April 13, 1997 and the subsequent
reacquisition of the Company's 7,000,000 non-convertible Class B Preferred
Stock, as settlement in full of the promissory note, on June 13, 1997. The
Company generated $21,607 in cash from financing activities for the year ended
March 31,1998 from proceeds on an auto loan. The cash and cash equivalents
balance at March 31, 1998 was $276,095.
11
<PAGE>
PERRY'S MAJESTIC BEER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, Perry's had working capital of $1,571,790. For the year ended
March 31, 1997, the Company utilized approximately $560,000 in cash for
operating activities. The Company utilized approximately $266,000 in investing
activities for the acquisition of Riverosa and the Old Marlborough Brewing
Company, Inc.'s Post Road brand, as well as for the acquisition of Orchard
Annie, Inc. as of March 31, 1997. The Company generated $2,364,886 in cash from
financing activities for the year ended March 31, 1997, primarily resulting from
the Company's initial public offering which resulted in net proceeds of
$2,475,086 in July 1996. The $150,000 bridge loans from the seven unaffiliated
lenders were repaid at the close of the initial public offering on August 4,
1996. In addition, the Company repaid the $100,000 note payable as part of its
acquisition of Riverosa. The cash and cash equivalents balance at March 31, 1997
was $1,521,203.
As of March 31, 1998, the Company has 3 employment agreements with executives of
the Company that expire between the years 2000 through 2001. The annual
commitments for compensation aggregate between $293,000 and $250,000,
respectively. In addition, the Company has agreed to grant to an executive
20,000 common stock options each year as a bonus for the next three years,
exercisable at $6.00 per share for a period of four years. The 20,000 common
stock options, exercisable at $6.00 were not issued. On January 16, 1998, the
Company issued 100,000 common stock options exercisable at $0.875 to this same
executive. The Company also agreed to grant to another executive 100,000 common
stock options on each of March 31, 1998 and March 31, 1999, exercisable at fair
market value at date of grant. The options relating to this agreement were
issued on January 16, 1998 at fair market value.
During February 1997, Perry's issued a total of 400,000 shares of Perry's common
stock to two officers as consideration for extending their employment agreements
through 2001. As a result of this agreement, deferred compensation of $2,000,000
was recorded and related amortization of $475,000 and $100,000 was expensed for
the years ended March 31, 1998 and 1997, respectively.
In February 1997, Perry's issued 200,000 shares of Perry's common stock to a
consultant for services to be performed over the next three years. On June
4,1997, this agreement was amended extending the period of service one
additional year. This agreement was valued at $450,000 and recorded as deferred
compensation. Amortization of $110,000 and $37,500 was recorded as amortization
expense for the year ended March 31, 1998 and 1997, respectively.
In March 1997, Perry's entered into an agreement to acquire all of the stock of
Orchard Annie, Inc., an all natural apple sauce company from an officer of the
Company for approximately $67,000 in cash and recorded goodwill for the full
valued. Additionally, in September of 1997, Perry's issued 50,000 shares of
common stock to the same officer in connection with the sale and the fair value
of these shares of $25,000 is allocated to goodwill. The combination is
accounted for by the purchase method. In addition, the Company agreed to pay an
officer of the Company, who was also the sole shareholder of Orchard Annie,
Inc., a royalty payment of $.25 for a case of 12 units for the first 500,000
cases $.125 for a case of 12 units thereafter for a period of fifteen years. For
the year ended March 31, 1998, royalty expense was $3,894.
12
<PAGE>
PERRY'S MAJESTIC BEER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES [CONTINUED]
On May 23, 1997, the Company entered into a consulting agreement whereby the
Consultant agrees to provide the Company with consulting services in connection
with financial management and other general consulting as required by the
Company. In consideration, the Company issued in June of 1997 an option to
purchase 100,000 shares of the Company's common stock at an exercise price of
$0.875 per share valued at $16,000. In addition, the agreement also calls for a
per diem payment of $300, whenever the consultant's services are requested by
the Company.
In November 1997, the Company issued 25,000 shares of common stock to an officer
of the Company for past services rendered. An expense of $14,060 was recorded as
a result of this transaction, which represents the fair market value of the
stock at time of issuance.
During the year ended March 31, 1998, the Company issued a total of 1,425,000
options to purchase common stock with an exercise price equal to fair market
value at time of issuance to certain officers, directors and employees. The
Company recorded compensation expense of $46,000 for 200,000 common stock
options issued to consultants for services rendered during the year.
The Company incurred a net loss of $2,341,181 and utilized cash of approximately
$1,085,000 for operations for the year ended March 31, 1998. The inability of
the Company to generate projected cash needed for operations, considering
currently available funds, creates an uncertainty about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern. The Company is considering the sale of the beer business and
various financing options to raise capital to pursue expansion into the natural
applesauce business. In addition, the Company is exploring new marketing
strategies to improve revenues and also plans to implement a program to cut
administrative costs through the reduction of payroll and reduced promotional
expenditures. The continuation of the Company as a going concern is dependent
upon the success of these plans. There can be no assurances that management's
plans to reduce operating losses and to obtain additional financing to fund
operations will be successful.
Based on a preliminary evaluation of the year 2000 issue, the Company does not
expect the amounts required to be expensed over the next two years to have a
material effect on its financial position or results of operations.
NEW AUTHORITATIVE PRONOUNCEMENTS
The FASB has issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130
is effective for fiscal years beginning after December 15, 1997. Earlier
application is permitted. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. SFAS No. 130 is not
expected to have a material impact on the Company.
The FASB has issued SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information." SFAS No. 131 changes how operating segments are
reported in annual financial statements and requires the reporting of selected
information about operating segments in interim financial reports issued to
shareholders. SFAS No. 131 is effective for periods beginning after December 15,
1997, and comparative information for earlier years is to be restated. SFAS No.
131 need not be applied to interim financial statements in the initial year of
its application.
SFAS No. 131 is not expected to have a material impact on the Company.
13
<PAGE>
PERRY'S MAJESTIC BEER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
IMPACT OF INFLATION
The Company does not believe that inflation has had a material adverse effect on
sales or income during the past periods. Increases in supplies or other
operating costs could adversely affect the Company's operations; however, the
Company believes it could increase prices to offset increases in costs of goods
sold or other operating costs.
14
<PAGE>
PERRY'S MAJESTIC BEER, INC.
- ------------------------------------------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
Page to Page
Item 7: Financial Statements
Independent Auditor's Report................................. F-1......
Balance Sheet as of March 31, 1997........................... F-2......
Statements of Operations for the years ended
March 31, 1997 and 1996..................................... F-3......
Statements of Stockholders' Equity for the years ended
March 31, 1997 and 1996..................................... F-4......F-5
Statements of Cash Flows for the years ended
March 31, 1997 and 1996 .................................... F-6......F-7
Notes to Financial Statements................................ F-8......F-18
. . . . . . . . . . . . . . .
15
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders of
Perry's Majestic Beer, Inc.
New York, New York
We have audited the accompanying consolidated balance sheet of
Perry's Majestic Beer, Inc. and subsidiary as of March 31, 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the two years in the period ended March 31, 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Perry's Majestic Beer, Inc. and subsidiary as of March 31, 1998, and
the consolidated results of their operations and their cash flows for each of
the two years in the period ended March 31, 1998, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that Perry's Majestic Beer, Inc. and subsidiary will continue
as a going concern. As discussed in Note 3 to the consolidated financial
statements, the Company has incurred a net loss from operations of approximately
$2,300,000 and has utilized approximately $1,085,000 in cash for operations for
the year ended March 31, 1998. The inability of the Company to generate cash
needed for operations, considering currently available funds, creates an
uncertainty about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 3. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
MOORE STEPHENS, P.C.
Certified Public Accountants.
Cranford, New Jersey
May 18, 1998
F-1
<PAGE>
Item 7:
PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
- ------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1998.
- ------------------------------------------------------------------------------
Assets:
Current Assets:
Cash and Cash Equivalents $ 276,095
Accounts Receivable - Net 37,213
Inventory 241,028
Prepaid Insurance 10,461
-----------
Total Current Assets 564,797
Furniture, Fixtures and Equipment - Net 94,530
-----------
Other Assets:
Goodwill - [Net of Accumulated Amortization of $15,969] 76,378
Other Assets 2,600
-----------
Total Other Assets 78,978
Total Assets $ 738,305
===========
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable $ 124,100
Accrued Expenses 30,792
Payroll and Payroll Taxes Payable 2,094
Related Party Payable 2,477
Note Payable 3,942
-----------
Total Current Liabilities 163,405
Note Payable 17,665
Commitments and Contingencies [15] --
Stockholders' Equity:
Preferred Stock, $.001 Par Value Per Share, 15,000,000
Blank Check Shares Authorized, Convertible Class A -
Issued and Outstanding, 500,000 Shares; Non-Convertible
Class B - No Shares Issued [Aggregate Liquidation Preferences
$100,000] 500
Common Stock - $.0001 Par Value, Authorized 25,000,000 Shares,
Issued and Outstanding, 3,783,335 Shares 378
Additional Paid-in Capital 5,323,329
Retained Earnings [Deficit] (3,039,472)
Total 2,284,735
Less: Deferred Compensation 1,727,500
Total Stockholders' Equity 557,235
Total Liabilities and Stockholders' Equity $ 738,305
===========
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
F-2
<PAGE>
PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
- ------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------
Years ended
March 31,
1 9 9 8 1 9 9 7
------- -------
Sales - Net $ 676,716 $ 891,225
Cost of Goods Sold 547,141 877,616
---------- -----------
Gross Profit 129,575 13,609
---------- -----------
Operating Expenses:
Selling, Advertisement and Promotion 382,496 69,355
General and Administrative Expenses 690,260 430,793
Amortization of Deferred Compensation 585,000 137,500
Writedown of Goodwill and Intangibles [17] 545,764 --
Amortization of Goodwill and Distribution Rights 148,955 84,276
---------- -----------
Total Operating Expenses 2,352,475 721,924
---------- -----------
Loss on Related Party Receivable [7] 149,742 --
---------- -----------
[Loss] from Operations (2,372,642) (708,315)
---------- -----------
Other [Income] Expense:
Interest Expense 1,223 6,998
Interest Income (37,710) (17,022)
Other Expense 5,026 --
---------- -----------
Other [Income] - Net (31,461) (10,024)
---------- -----------
Net [Loss] $(2,341,181) $ (698,291)
=========== ===========
Net [Loss] Per Common Share [Basic and Diluted] $ (0.63) $ (0.24)
========== ===========
Weighted Average Number of Shares 3,738,452 2,965,869
========== ===========
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
F-3
<PAGE>
PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
- ------------------------------------------------------------------------------
STATEMENTS OF STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------
<TABLE>
Unrealized
Holding
[Loss] on
Additional Retained Available Total
Preferred Stock Common Stock Paid-in Earnings Deferred For Sale Stockholders'
Shares Amount Shares Amount Capital [Deficit]Compensation Investment Equity
Common Stock Issued for Cash -
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
January 1996 -- $ -- 2,500,000 $ 250 $ 49,750 $ -- $ -- $ -- $ 50,000
500,000 Convertible Shares of
Series A and 7,000,000 Shares
of Series B Preferred Stock
Issued for Cash and
Investment in Bev-Tyme, Inc. 7,500,000 7,500 -- -- 2,142,500 -- -- -- 2,150,000
--------- -------- --------- -------- ---------- -------- ----------- --------- -----------
Balance - March 31, 1996 7,500,000 7,500 2,500,000 250 2,192,250 -- -- -- 2,200,000
Net Proceeds from Public
Offering of Common Stock -- -- 583,335 58 2,475,028 -- -- -- 2,475,086
Unrealized Holding [Loss] on
Available for Sale Investment
as of March 31, 1997 [7] -- -- -- -- -- -- -- (568,560) (568,560)
Employment Agreements -
February 11, 1997 -- -- 400,000 40 1,999,960 -- (2,000,000) -- --
Consulting Agreement -
February 11, 1997 -- -- 200,000 20 449,980 -- (450,000) -- --
Purchase of Old Marlborough -- -- 25,000 2 214,059 -- -- -- 214,061
Amortization of Deferred
Compensation -- -- -- -- -- -- 137,500 -- 137,500
Net [Loss] for the year ended
March 31, 1997 -- -- -- -- -- (698,291) -- -- (698,291)
--------- ------- --------- -------- ---------- --------- ----------- --------- ----------
Balance - March 31, 1997
Forward 7,500,000 $ 7,500 3,708,335 $ 370 $7,331,277 $(698,291) $(2,312,500) $(568,560) $3,759,796
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
</TABLE>
F-4
<PAGE>
PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
- ------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------
<TABLE>
Unrealized
Holding
[Loss] on
Additional Retained Available Total
Preferred Stock Common Stock Paid-in Earnings Deferred For Sale Treasury Stockholders'
Shares Amount Shares Amount Capital [Deficit] Compensation Investment Stock Equity
Balance - March 31, 1997 -
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Forwarded 7,500,000 $ 7,500 3,708,335 $ 370 $7,331,277 $ (698,291)$(2,312,500)$(568,560)$ -- $3,759,796
Exchange of Promissory Note
Receivable for 7,000,000
Shares of Series B
Preferred of the
Company [7] -- -- -- -- (100,000) -- -- 568,560 (2,000,000)(1,531,440)
Amortization of Deferred
Compensation Costs -- -- -- -- -- -- 585,000 -- -- 585,000
Issuance of Common Stock
Options to Consultant [9C] -- -- -- -- 46,000 -- -- -- -- 46,000
Issuance of Shares of Common
Stock[10D] -- -- 25,000 3 14,057 -- -- -- -- 14,060
Issuance of Shares of Common
Stock [10C] -- -- 50,000 5 24,995 -- -- -- -- 25,000
Cancellation of Treasury
Stock (7,000,000) (7,000) -- -- (1,993,000) -- -- -- 2,000,000 --
Net [Loss] for the year
ended March 31, 1998 -- -- -- -- -- (2,341,181) -- -- -- (2,341,181)
---------- ------- --------- ------- ---------- ---------- ----------- -------- --------- ----------
Balance - March 31, 1998 500,000 $ 500 3,783,335 $ 378 $5,323,329 $(3,039,472)$(1,727,500) $ -- $ -- $ 557,235
========== ======= ========= ======= ========== =========== =========== ======== ========== ==========
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
</TABLE>
F-5
<PAGE>
PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
- ------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
Years ended
March 31,
1 9 9 8 1 9 9 7
------- -------
Operating Activities:
Net [Loss] $(2,341,181) $ (698,291)
----------- -----------
Adjustments to Reconcile Net [Loss] to Net Cash
[Used for] Operating Activities:
Depreciation and Amortization 172,388 86,802
Deferred Compensation Expense 585,000 137,500
Compensation Expense for Issuance of Stock
and Options 60,060 --
Writedown of Goodwill 332,444 --
Writedown of Distribution Rights 60,690
Writedown of Intangibles 54,538 --
Bad Debt Expense 6,812 --
Loss on Sale of Asset 5,027 --
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable 93,510 (138,607)
Related Party Receivable 81,372 (76,298)
Accrued Interest -- (4,814)
Inventory (136,532) (77,335)
Prepaid Expenses (10,461) --
Other Current Assets 2,213 --
Increase [Decrease] in:
Accounts Payable (70,442) 194,542
Payroll Taxes Payable (14,030) 16,124
Accrued Expenses 30,792 --
Related Party Payable 2,477 --
---------- -----------
Total Adjustments 1,255,858 137,914
---------- -----------
Net Cash - Operating Activities - Forward (1,085,323) (560,377)
---------- -----------
Investing Activities:
Purchase of Equipment (90,729) (26,436)
Acquisition of Old Marlborough Brewery, Inc's Post
Road Brand -- (85,513)
Payments for Distribution Rights -- (86,700)
Payments for Label and Packaging Design -- (68,173)
Acquisition of Orchard Annie, Inc. -- (67,348)
Due from Officer 9,337 (9,336)
Advances to Related Party (100,000) --
---------- -----------
Net Cash - Investing Activities - Forward $ (181,392) $ (343,506)
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
F-6
<PAGE>
PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
- ------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
Years ended
March 31,
1 9 9 8 1 9 9 7
------- -------
Net Cash - Operating Activities - Forwarded $(1,085,323) $ (560,377)
----------- -----------
Net Cash - Investing Activities - Forwarded (181,392) (343,506)
---------- -----------
Financing Activities:
Proceeds from Bridge Loan -- 60,000
Proceeds from Issuance of Preferred Stock to
Bev-Tyme, Inc. -- 75,000
Payment of Bridge Loan Obligation -- (150,000)
Repayment to Note -- (100,000)
Proceeds of Public Offering - Net of Offering Costs -- 2,475,086
Proceeds form Sale of Common Stock -- 4,800
Proceeds on Auto Loan 23,425 --
Payments on Auto Loan (1,818) --
---------- -----------
Net Cash - Financing Activities 21,607 2,364,886
---------- -----------
Net [Decrease] Increase in Cash and Cash Equivalents (1,245,108) 1,461,003
Cash and Cash Equivalents - Beginning of Years 1,521,203 60,200
---------- -----------
Cash and Cash Equivalents - End of Years $ 276,095 $ 1,521,203
========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid for the years for:
Interest $ 1,223 $ --
Income Taxes $ -- $ --
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
On June 13, 1997, the Company converted a promissory note receivable from
Bev-Tyme, Inc. ["Bev-Tyme"] for $100,000, in consideration for 7,000,000 shares
of the Company's Series B Preferred Stock held by Bev-Tyme. Treasury stock of
$2,000,000 was recorded and the unrealized loss and investment in Bev-Tyme
eliminated. Bev-Tyme filed for bankruptcy on April 9, 1998. The Series B
Preferred Treasury Stock was canceled March 31, 1998.
In September 1997, the Company issued 50,000 shares of common stock to an
officer of the Company in connection with the acquisition of Orchard Annie [See
Note 10C]. Goodwill of $25,000 was recorded as a result of these transactions,
which represents the fair market value of the stock at time of issuance. Related
amortization of $2,500 was recorded for the year ended March 31, 1998.
In November 1997, the Company issued 25,000 shares of common stock to an
employee of the Company for past services rendered. An expense of $14,060 was
recorded as a result of this transaction, which represents the fair market value
of the stock at time of issuance [See Note 10D].
In June of 1997, the Company issued options for 200,000 shares of common
stock to consultants and recorded compensation expense of $46,000 for services
rendered [See Note 9C].
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
F-7
<PAGE>
PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
[1] Organization and Nature of Business
Perry's Majestic Beer, Inc. a Delaware corporation [the "Company" or "Perry's"],
was formed in December 1995. The Company's main office is in New York, New York.
There were no revenue or expense activities through March 31, 1996. The Company
became a subsidiary of Bev-Tyme, Inc. ["Bev-Tyme"] as of March 29, 1996. Perry's
is no longer a subsidiary of Bev-Tyme, although the two companies continued to
have some common management through July 17, 1997. However, for accounting
purposes Perry's was treated as a subsidiary of Bev-Tyme through June 30, 1997.
As a corporation, it was a separate legal entity even when it was a subsidiary.
Bev-Tyme filed for bankruptcy on April 9, 1998.
The Company operates in two business segments, the sale of natural applesauce
and applesauce blends, and the sale of microbrewed beer. The Company's products
are Quigley's Orchard [natural applesauce and applesauce blends] and Perry's
Majestic Beer [beer brewed with organic barley and hops]. Quigley's Orchard is
manufactured by a co-packer and the microbrew beer is contract brewed [See Note
18].
Perry's Majestic Beer is distributed in five states: New York, Ohio, North and
South Carolina and Florida. Quigley's Orchard is available through eleven
distributors that distribute in the following states: New England states,
upstate New York, New Jersey, Pennsylvania, Ohio, Wisconsin, Michigan, Delaware,
Maryland, Virginia, West Virginia, North Carolina and South Carolina.
[2] Summary of Significant Accounting Policies
[A] Principles of Consolidation - The consolidated financial statements include
the accounts of Perry's and its wholly-owned subsidiary. Material intercompany
transactions and balances have been eliminated in consolidation.
[B] Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period.
Actual results could differ from those estimates.
[C] Cash and Cash Equivalents - The Company's policy is to classify all highly
liquid investments with a maturity of three months or less when purchased as
cash equivalents. The Company had no cash equivalents at March 31, 1998.
[D] Goodwill - Amounts paid in excess of the estimated value of net assets
acquired of Riverosa, Old Marlborough and Orchard Annie, Inc. were charged to
goodwill. Goodwill relates to revenues the Company anticipates realizing in
future years. The Company decided to amortize its goodwill over a period of up
to five years under the straight-line method. The Company's policy is to
evaluate the periods of goodwill amortization to determine whether later events
and circumstances warrant revised estimates of useful lives. The Company will
also evaluate whether the carrying value of goodwill has become impaired by
comparing the carrying value of goodwill to the value of projected undiscounted
cash flows from acquired assets or businesses. Impairment is recognized if the
carrying value of goodwill is less than the projected undiscounted cash flow
from the acquired assets or business [See Note 17].
[E] Inventories - Inventories are stated at the lower of cost or market. Cost,
which includes purchases, freight and packaging, raw materials, brew fees, and
finished products is determined on the first-in, first-out basis.
[F] Furniture, Fixtures and Equipment - Furniture, fixtures and equipment are
stated at cost and are depreciated over its estimated useful life of 3 to 5
years. Leasehold improvements are amortized over the lessor of the useful life
of the improvements or the lease term. Depreciation and amortization are
calculated using the straight-line method.
F-8
<PAGE>
PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
- ------------------------------------------------------------------------------
[2] Summary of Significant Accounting Policies [Continued]
[G] Advertising Expense - Advertising costs are expensed as incurred. For the
years ended March 31, 1998 and 1997, advertising costs were approximately
$124,800 and $22,700, respectively.
[H] Risk Concentrations - Financial instruments that potentially subject the
Company to concentrations of credit risk include cash and cash equivalents and
accounts receivable arising from its normal business activities. The Company
places its cash and cash equivalents with high credit quality financial
institutions located in the New York metropolitan area.
The Company maintains cash and cash equivalent balances at a financial
institution in New York. Accounts at this institution are insured by the Federal
Deposit Insurance Corporation up to $100,000. At March 31, 1998, the Company's
uninsured cash balance totaled approximately $179,600.
The Company performs certain credit evaluation procedures and does not require
collateral. The Company believes that credit risk is limited because the Company
routinely assesses the financial strength of its customers, and based upon
factors surrounding the credit risk of its customers, establishes an allowance
for uncollectible accounts and, as a consequence, believes that its accounts
receivable credit risk exposure beyond such allowances is limited. The Company
established an allowance for doubtful accounts at March 31, 1998 of $10,812. The
Company believes any credit risk beyond this amount would be negligible.
With respect to purchases of inventory for the year ended March 31, 1998, the
Company purchased inventory for beer production from two suppliers, which
comprised approximately 88% of the Company's total cost of sales. As of March
31, 1998, the Company distributes its beer products primarily through fourteen
wholesale distributors for resale to retailers. One distributor accounts for
approximately 61% of the Company's sales. Accordingly, the Company is dependent
upon this distributor to sell the Company's beer products and to assist the
Company in promoting market acceptance of, and creating demand for the Company's
products in its territory.
The Company sells its Quigley's Orchard applesauce through a system of
independent unaffiliated brokers and distributors. Food brokers act as agents
for the Company within designated territories or specific channels of trade. The
Company has 25 brokers and 11 distributors and is continuing to attempt to
expand the brokerage and distribution systems.
[I] Stock Issued to Employees - The Company adopted Statement of Financial
Accounting Standards ["SFAS"] No. 123, "Accounting for Stock-Based Compensation"
on April 1, 1996 for financial note disclosure purposes and will continue to
apply the intrinsic value method of Accounting Principles Board ["APB"] Opinion
No. 25, "Accounting for Stock Issued to Employees" for financial reporting
purposes.
[J] Revenue Recognition - Revenue is recognized at the time products are shipped
and title passes.
[K] Net [Loss] Per Share -The FASB issued SFAS No. 128, "Earnings Per Share," in
February 1997. SFAS No. 128 simplifies the earnings per share ["EPS"]
calculations required by Accounting Principles Board ["APB"] Opinion No. 15, and
related interpretations, by replacing the presentation of primary EPS with a
presentation of basic EPS. SFAS No. 128 requires dual presentation of basic and
diluted EPS by entities with complex capital structures. Basic EPS includes no
dilution and is computed by dividing income available to common stockholders by
the weighted-average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution of securities that could share in the
earnings of an entity, similar to the fully diluted EPS of APB Opinion No. 15.
SFAS No. 128 is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods; earlier application is not
permitted. The Company has adopted SFAS No. 128, prior period EPS data have been
restated. Basic EPS is based on average common shares outstanding and diluted
EPS include the effects of potential common stock, such as, options and
warrants, if dilutive. Adoption of SFAS No. 128 is not material to the Company.
F-9
<PAGE>
PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
- ------------------------------------------------------------------------------
[2] Summary of Significant Accounting Policies [Continued]
[L] Impairment - Certain long-term assets of the Company are reviewed at least
annually as to whether their carrying value has become impaired, pursuant to
guidance established in Statement of Financial Standards ["SFAS"] No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." Management considers assets to be impaired if the carrying
value exceeds the future projected cash flows from related operations
[undiscounted and without interest charges]. If impairment is deemed to exist,
the assets will be written down to fair value or projected discounted cash flows
from related operations. Management also re-evaluates the periods of
amortization to determine whether subsequent events and circumstances warrant
revised estimates of useful lives. During the year ending March 31, 1998, the
Company determined an impairment of goodwill and intangibles existed [See Note
17].
[M] Income Taxes - The Company accounts for income tax expense and liabilities
under the asset and liability method. Deferred income taxes are provided for
temporary differences between financial and income tax reporting, relating
principally to depreciation, deferred compensation and amortization.
[3] Going Concern
The accompany financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern and realization of assets and settlement of
liabilities and commitments in the normal course of business.
As shown in the accompanying financial statements, the Company incurred a net
loss of $2,341,181 and utilized cash of approximately $1,085,000 for operations
for the year ended March 31, 1998. The inability of the Company to generate
projected cash needed for operations, considering currently available funds,
creates an uncertainty about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern. The Company
is considering the sale of the beer business and various financing options to
raise capital to pursue expansion into the natural applesauce business. In
addition, the Company is exploring new marketing strategies to improve revenues
and also plans to implement a program to cut administrative costs through the
reduction of payroll and reduced promotional expenditures. The continuation of
the Company as a going concern is dependent upon the success of these plans.
There can be no assurances that management's plans to reduce operating losses
and to obtain additional financing to fund operations will be successful. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence.
[4] Inventories
The Company's inventory consists of raw materials, packaging and finished
products of $241,028.
F-10
<PAGE>
PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
- ------------------------------------------------------------------------------
[5] Furniture, Fixtures and Equipment and Depreciation
Furniture, fixtures and equipment and accumulated depreciation are as follows:
Furniture and Fixtures $ 18,566
Transportation Equipment 23,425
Kegs 49,864
Storage Equipment 22,810
Leasehold Improvements 3,500
----------
Total - At Cost 118,165
Less: Accumulated Depreciation 23,635
Net $ 94,530
--- ==========
Depreciation expense for the years ended March 31, 1998 and 1997 was $23,432 and
$2,526, respectively.
[6] Acquisitions
[A] Riverosa - On March 29, 1996, the Company entered into an agreement to
acquire all of the stock of Riverosa Company, Inc. for $250,000 of which
$150,000 in cash was put into escrow as of March 31, 1996 and a note payable was
issued for $100,000. The note was payable with interest of 8% and was paid in
August of 1996 with proceeds from the Company's initial public offering. The
combination was accounted for by the purchase method. Goodwill of $246,000 was
recorded and was to be amortized over five years under the straight-line method.
Amortization of goodwill of $49,200 was recorded for both years ended March 31,
1998 and 1997. As of March 31, 1998, the unamortized balance of $147,600 was
written off [See Note 17].
[B] Old Marlborough Brewing Co., Inc. ["Old Marlborough"] - In September of
1996, the Company acquired Old Marlborough Brewing Co., Inc.'s Post Road
microbeer brand and other assets. The Company paid $172,213, of which $35,513
was for inventory and equipment and $86,700 was to repurchase distribution
rights. In February 1997, the Company issued 25,000 shares of common stock
valued at approximately $214,000 as additional consideration for the acquisition
of Old Marlborough. Goodwill of $264,062 was recorded and was amortized over
five years under the straight-line method. For the year ended March 31, 1998,
amortization of goodwill was approximately $52,800. As of March 31, 1998, the
unamortized balance of goodwill of $184,844 and the unamortized balance of
distribution rights of $60,690 were written-off [See Note 17].
[C] Orchard Annie, Inc. - In March 1997, Perry's entered into an agreement to
acquire all of the stock of Orchard Annie, Inc., an all natural apple sauce
company from an officer of the Company for approximately $67,000 in cash and
recorded goodwill for the full value. Additionally, in September of 1997,
Perry's issued 50,000 shares of common stock to the same officer in connection
with the sale. The fair value of these shares of $25,000 is allocated to
goodwill. The combination is accounted for by the purchase method. In addition,
the Company agreed to pay an officer of the Company, who was also the sole
shareholder of Orchard Annie, Inc., a royalty payment of $.25 for a case of 12
units for the first 500,000 cases and $.125 for a case of 12 units thereafter
for a period of fifteen years. For the year ended March 31, 1998, royalty
expense was $3,894.
F-11
<PAGE>
PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
- ------------------------------------------------------------------------------
[7] Related Party Transactions
[A] Investment - On March 29, 1996, the Company issued to Bev-Tyme, Inc. [a
public corporation] 500,000 shares of convertible Class A Preferred Stock and
7,000,000 shares of non-convertible Class B Preferred Stock for 400,000 shares
of Series C Preferred Stock of Bev-Tyme, Inc. [valued at $2,000,000 at March 31,
1996] and $150,000. Each share of Series C Preferred Stock paid an annual
dividend of $0.50 per share and was convertible at the option of the holder into
1.8 shares of Bev-Tyme, Inc. common stock. On April 9, 1998, Bev-Tyme filed for
bankruptcy and no dividends were received for the year ended March 31, 1998. As
of March 31, 1996, $75,000 of cash was collected and the balance of $75,000 was
received on April 4, 1996. Each share of Class A Preferred Stock may be
convertible by the holder into one [1] share of Common Stock. Each share of
Class A Preferred Stock has attached to it the right to vote on all matters
submitted to the Company.
In October of 1996, Bev-Tyme, Inc. sold the 500,000 shares of Convertible Class
A Preferred Stock.
In January 1997, Perry's received a dividend of 524,000 shares of Bev-Tyme
common stock on the investment of 400,000 shares of Bev-Tyme Series C Preferred
Stock.
On April 17, 1997, the Company loaned to Bev-Tyme $100,000 in the form of a
promissory note. Bev-Tyme was required to repay the entire principal plus
interest on or before April 16, 1998. The Company retained the right to convert
the promissory note into the 7,000,000 shares of the Company's Series B
Preferred Stock held by Bev-Tyme. On June 13, 1997, the Company converted the
promissory note receivable from Bev-Tyme, Inc. ["Bev-Tyme"] for $100,000, into
the 7,000,000 shares of the Company's Series B Preferred Stock held by Bev-Tyme.
Treasury stock of $2,000,000 was recorded and the unrealized loss and investment
in Bev-Tyme has been eliminated. The Series B Preferred Treasury Stock was
canceled March 31, 1998. The 400,000 shares of Series C Preferred of Bev-Tyme
and the 524,000 shares of Bev-Tyme common stock received as a dividend on the
investment in Bev-Tyme are still held by Perry's and are accounted for with no
value on the financial statements. As a result of the June 13, 1997 transaction,
Perry's was no longer a subsidiary of Bev-Tyme, although the two companies
continued to have some common management through July 7, 1997. However, for
accounting purposes Perry's was treated as a subsidiary of Bev-Tyme through June
30, 1997.
[B] Loss on Related Party Receivable - In 1997, the Company had a receivable for
$149,742 from it's former parent for beer sales distributed by Mootch and Muck,
Inc. Due to the financial condition of Bev-Tyme this receivable was written off.
[8] Income Taxes
Income tax at the federal statutory rate reconciled to the Company's effective
rate is as follows:
March 31,
1 9 9 8
Federal Statutory Rate (34.0)%
Non-Deductible Expenses (10.4)
Net Operating Loss For Which No Tax Benefit was Received 44.4
Effective Rate -- %
The Company has net operating loss carryforwards of approximately $1,600,000 all
of which will expire in 2012 through 2013.
F-12
<PAGE>
PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
- ------------------------------------------------------------------------------
[8] Income Taxes [Continued]
The major components of deferred income tax assets and liabilities are as
follows:
March 31,
1 9 9 8
Deferred Tax Liabilities
Accelerated Depreciation $ (2,250)
==========
Deferred Tax Assets:
Net Operating Loss $ 720,311
Excess Book Amortization Over Tax 27,910
Reserves 6,750
Book Writedown of Goodwill 201,452
Deferred Compensation 324,900
----------
Total $1,281,323
Net Deferred Tax Asset:
Before Valuation Allowance $1,279,073
Valuation Allowance 1,279,073
----------
Net Deferred Income Tax Asset $ --
----------------------------- ==========
The Company recorded a valuation allowance of $1,279,073, an increase of
$732,059 over the preceding year, due to the uncertainty that the Company will
generate income in the future sufficient to fully or partially utilize these
carryforwards.
[9] Stock Options
[A] In March 1996, the Board of Directors of the Company adopted, and the
stockholders of the Company approved the adoption of the 1996 Stock Option Plan.
The maximum number of shares of common stock with respect to which awards may be
granted pursuant to the 1996 Plan is initially 2,000,000 shares. No options are
outstanding under this plan.
[B] In connection with the initial public offering, the Company issued to its
underwriter in July 1996 an option to purchase 58,333 shares of common stock at
a purchase price of $7.20 per share exercisable commencing July 1997 and
expiring July 2001.
[C] During the year ended March 31, 1998, the Company issued a total of
1,425,000 options to purchase common stock with an exercise price equal to fair
market value at time of issuance to certain officers, directors and employees.
The Company recorded compensation expense of $46,000 for 200,000 common stock
options issued to consultants for services rendered during the year.
There was no stock option activity during the year ended March 31, 1997.
A summary of stock option activity under the plan as of March 31, 1998:
Weighted Average
Common Exercise Price
Stock Common Stock
Outstanding on April 1 -- --
Granted 1,625,000 $ 0.48
Exercised -- --
Forfeited/Expired -- --
--------- ---------
Outstanding and Exercisable on March 31 1,625,000 $ 0.48
--------------------------------------- ========= =========
F-13
<PAGE>
PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7
- ------------------------------------------------------------------------------
[9] Stock Options [Continued]
The following table summarizes information about stock options outstanding and
exercisable at March 31, 1998. The common stock options issued to officers,
directors and employees do not expire and may be exercised at anytime. The
200,000 common stock options issued to consultants at an exercise price of
$0.875 have a weighted average remaining contractual life of 3.5 years. All
other options expire in 10 years.
Common Stock
Exercise Price Shares
$ 0.16 750,000
$ 0.50 300,000
$ 0.875 575,000
---------
Total 1,625,000
Had compensation cost for the stock option plans been determined based on the
fair value at the grant dates for awards under the plans, consistent with the
alternative method set forth under SFAS No. 123, the Company's net loss and net
loss per share would have been increased. The pro forma amounts for the year
ended March 31, 1998 are indicated below. No options were issued during the year
ended March 31, 1997.
Year Ended March 31,: 1 9 9 8
- --------------------- -------
Net Loss:
As Reported $(2,341,181)
Pro Forma $(2,930,318)
Net Loss Per Share:
As Reported $ (0.63)
Pro Forma $ (0.78)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants during the year ended March 31, 1998, a dividend
yield of $-0-, an expected volatility of 223.56%, risk-free interest rate of
6.5%; and expected life of five years. The weighted-average fair value of
options granted was $0.42 for the year ended March 31, 1998.
[10] Common Stock
[A] In January 1996, the Company issued 2,500,000 shares of common stock to
seven [7] parties for a total consideration of $50,000. At March 31, 1996,
$45,200 was collected and the balance of $4,800 was received April 4, 1996.
[B] The Company's registration statement for 583,335 shares of common stock at
$6.00 per share was declared effective in July of 1996 and net proceeds of
approximately $2,475,000 were received in August of 1996.
[C] In September 1997, the Company issued 50,000 shares of common stock to an
officer of the Company in connection with the acquisition of Orchard Annie, Inc.
Goodwill of $25,000 was recorded [See Note 6C].
[D] In November 1997, the Company issued 25,000 shares of common stock to an
employee of the Company for past services rendered. An expense of $14,060 was
recorded as a result of this transaction, which represents the fair market value
of the stock at time of issuance.
F-14
<PAGE>
PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8
- ------------------------------------------------------------------------------
[11] Bridge Loan
On March 31, 1996, the Company borrowed an aggregate of $150,000 from seven [7]
unaffiliated lenders [the "Bridge Lenders"]. In exchange for making loans to the
Company, each Bridge Lender received a promissory note [the "Bridge Note"]. Each
of the Bridge Notes bear interest at the rate of eight percent [8%] per annum.
As of March 31, 1996, $90,000 was received in cash from the bridge loan and
$60,000 was received April 4, 1996. The principal balance of $150,000 and
interest for $4,208 was paid August 5, 1996.
[12] Note Payable
A note payable as of March 31, 1998 of $21,607 is due in October of 2002 with
interest at 10.79% per annum. The note is collateralized by transportation
equipment.
Maturities of the notes payable as of March 31, 1998 are as follows:
March 31,
1999 $ 3,942
2000 4,389
1001 4,887
2002 5,441
2003 2,948
Thereafter --
---------
Total $ 21,607
----- =========
[13] New Authoritative Pronouncements
The FASB has issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130
is effective for fiscal years beginning after December 15, 1997. Earlier
application is permitted. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. SFAS No. 130 is not
expected to have a material impact on the Company.
The FASB has issued SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information." SFAS No. 131 changes how operating segments are
reported in annual financial statements and requires the reporting of selected
information about operating segments in interim financial reports issued to
shareholders. SFAS No. 131 is effective for periods beginning after December 15,
1997, and comparative information for earlier years is to be restated. SFAS No.
131 need not be applied to interim financial statements in the initial year of
its application. SFAS No. 131 is not expected to have a material impact on the
Company.
F-15
<PAGE>
PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #9
- ------------------------------------------------------------------------------
[14] Financial Instruments
Generally accepted accounting principles require disclosing the fair value of
financial instruments to the extent practicable for financial instruments which
are recognized or unrecognized in the balance sheet. The fair value of the
financial instruments disclosed herein is not necessarily representative of the
amount that could be realized or settled, nor does the fair value amount
consider the tax consequences of realization or settlement.
For certain instruments, including cash and cash equivalents, accounts
receivable and accounts payable, it was assumed that the carrying amount
approximated fair value because of the short maturities of these instruments.
The fair value of long-term debt is estimated based on rates at which the
Company could borrow funds with similar remaining maturities. The fair value of
the Company's debt approximates its carrying value.
[15] Commitments and Contingencies
[A] Employment Agreements - As of March 31, 1998, the Company has 3 employment
agreements with executives of the Company that expire between the years 2000
through 2001. The annual commitments for compensation aggregate between $293,000
and $250,000, respectively. In addition, the Company has agreed to grant to an
executive 20,000 common stock options each year as a bonus for the next three
years, exercisable at $6.00 per share for a period of four years. The 20,000
common stock options, exercisable at $6.00 were not issued. On January 16, 1998,
the Company issued 100,000 common stock options exercisable at $0.875 to this
same executive. The Company also agreed to grant to another executive 100,000
common stock options on each of March 31, 1998 and March 31, 1999, exercisable
at fair market value at date of grant. The options relating to this agreement
were issued on January 16, 1998 at fair market value [See Note 9].
During February 1997, Perry's issued a total of 400,000 shares of Perry's common
stock to two officers as consideration for extending their employment agreements
through 2001. As a result of this agreement, deferred compensation of $2,000,000
was recorded and related amortization of $475,000 and $100,000 was expensed for
the years ended March 31, 1998 and 1997, respectively.
[B] Consulting Agreements - In February 1997, Perry's issued 200,000 shares of
Perry's common stock to a consultant for services to be performed over the next
three years. On June 4,1997, this agreement was amended extending the period of
service one additional year. This agreement was valued at $450,000 and recorded
as deferred compensation. Amortization of $110,000 and $37,500 was recorded as
amortization expense for the year ended March 31, 1998 and 1997, respectively.
[C] Consulting Agreement - On May 23, 1997, the Company entered into a
consulting agreement whereby the Consultant agrees to provide the Company with
consulting services in connection with financial management and other general
consulting as required by the Company. In consideration for these services, the
Company issued in June of 1997 an option to purchase 100,000 shares of the
Company's common stock at an exercise price of $0.875 per share valued at
$16,000. In addition, the agreement also calls for a per diem payment of $300,
whenever the consultant's services are requested by the Company.
[D] Royalty Agreements - In connection with the acquisition of Orchard Annie,
Inc., the Company has agreed to pay a royalty payment of $0.25 for a 12 pack
case for each of the first 500,000 cases sold and $0.125 per case thereafter for
a period of fifteen years. Royalty expense of $3,894 was recorded for the year
ended March 31, 1998.
In addition, the Company has agreed to pay to a graphic design firm a royalty of
$0.0125 for a 12 pack case sold for design services rendered. Royalty expense of
$207 was recorded for the year ended March 31, 1998 under this agreement.
F-16
<PAGE>
PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #10
- ------------------------------------------------------------------------------
[15] Commitments and Contingencies [Continued]
[E] Loan Guarantee - During the year, the Company recognized a preexisting lien
on the assets of Old Marlborough to guarantee a loan of the previous owner of
Old Marlborough, a current employee of the Company. On May 14, 1998, a lien on
Perry's assets was issued. All the assets of Perry's guarantees the debt of
approximately $76,000 at March 31, 1998. The debt is being paid by the previous
owner of Old Marlborough.
[F] Pledged Inventory - In October of 1996, the Company's former Parent entered
into a loan and pledged all assets, including Perry's finished goods inventory,
as collateral.
[16] Leases
[A] Future minimum payments under non-cancelable operating leases for
transportation equipment, kegs and office space are as follows at March 31,
1998:
1999 $ 28,507
2000 22,200
2001 2,634
2002 --
2003 --
Thereafter --
---------
Total Minimum Lease Payments $ 53,341
[B] Rent expense for the year ended March 31, 1998 and 1997 was $12,480 and
$4,880, respectively. During the year ended March 31, 1997, rent of $750 was
paid on a monthly basis to an officer of the Company for use of office space.
This arrangement was terminated in June of 1997, when the Company moved its
office to its current address.
[C] Rental Agreement - In May of 1997, the Company entered into a three year
lease for office space with monthly rent of $1,200 for the first year, $1,248
and $1,297 for each of the two years thereafter.
[17] Impairment of Long-Lived Assets
During the fiscal year ending March 31, 1998, the Company recorded an impairment
loss of $545,764 from the write down of goodwill and other intangibles. As a
result of the current year's loss and the necessary revisions to the projected
future undiscounted cash flows, there is no longer justification for the
carrying value of the goodwill and intangibles allocated to Riverosa and Old
Marlborough Brewing Co., Inc., including unamortized distribution rights and the
unamortized balance of intangible assets related to design work done for Perry's
and Post Road beer brands. Fair value of goodwill and intangibles was based on
the present value of estimated expected future cash flows from the related
assets. As of March 31, 1998, goodwill of $92,348 and related accumulated
amortization of $15,970 relates to the purchase of Orchard Annie, Inc. and is
expected to be fully recoverable.
The following table presents the write down of good will and other intangible
assets at March 31, 1998:
Accumulated
Cost Amortization Writedown
Goodwill Riverosa $ 246,000 $ 98,400 $ 147,600
Goodwill Old Marlborough $ 264,062 $ 79,218 184,844
Other Intangible Assets $ 166,264 $ 13,634 152,630
Distribution Rights $ 86,700 $ 26,010 60,690
----------
Total $ 545,764
----- ==========
F-17
<PAGE>
PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #11
- ------------------------------------------------------------------------------
[18] Subsequent Events
[A] Letter of Intent - On May 14, 1998, the Company entered into a letter of
intent with Village Cannery of Vermont, Inc. The Company was granted an option
to acquire all of the assets for $2,000,000 in cash. This option is valid
through September 1, 1998. Village Cannery of Vermont, Inc. is a producer of
organic and all natural applesauce under the tradename of Vermont Village and
Village Company as well as a producer of sauces, salsas, jams and other such
products. The Company does not presently have funds available to pay the
$2,000,000 and has not identified any potential source for such funds.
[B] Post Road Sale - On May 18, 1998, the Company sold the assets, all rights to
licenses, permits and contracts, and all trademarks, tradenames and processes of
the Post Road beer brand with a net book value of approximately $131,500 to the
Brooklyn Brewery Corporation ["BBC"] for consideration of $330,000 of which
$10,000 is in cash. The Company executed a secured promissory note for the
balance of $320,000. In addition, the purchaser put $35,000 into escrow to
satisfy the outstanding tax liability for an executive of Old Marlborough.
[19] Subsequent Event [Unaudited]
Acquisition of Leroux Creek Food Corporation - On July 2, 1998, the Company
acquired the rights, title and interest, customer lists, distribution rights and
related recipes for applesauce and applesauce blends of Leroux Creek applesauce
brand for the sum of $650,000 from the Leroux Creek Food Corporation. The
Company paid $62,500 and executed a note with the seller in the amount of
$587,500 with 9% interest payable on or before January 2,1999. The parties
agreed that the $62,500 would be liquidated damages in the event the Company is
not able to locate adequate financing. In the event the Company can not make the
payment when due the ownership of the Leroux Creek brand will revert to the
seller. The Company does not presently have funds available to pay the note in
full and has not identified any potential source for such funds. The Company's
ability to pay the note and retain ownership of the Leroux Creek brand will be
dependent upon its success in identifying sources for such financing, on a
timely basis, and on terms acceptable to the Company. The Company also issued
options to purchase 250,000 shares of common stock at fair market value at the
date of the grant.
. . . . . . . . . . . . .
F-18
<PAGE>
Item 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
16
<PAGE>
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Directors and Executive Officers
The names and ages of the directors, executive officers and significant
employees, and promoters of the Company are set forth below.
Name Age Position Held
Robert Sipper 44 President, Chief Executive
Officer, Chief Financial
Officer, Principal ccounting
Officer and Director
Mark Butler 46 Vice President-Sales and
Secretary and Director
Background of Executive Officers and Directors
Robert Sipper has been Chief Executive Officer and Chief Financial Officer of
the Company since March 1, 1996. He has served as a director of Bev-Tyme, Inc.
since November 1993 and Chief Executive Officer and President of Bev-Tyme, Inc.
since January, 1994. He graduated with a J.D. degree from Vermont Law School in
1978 and entered private practice. He was associated with Dubbs, Leopold, Davis
& DePodwin, Attorneys at Law from 1979-1981. He became a partner in the law firm
of Leopold & Sipper, Attorneys at Law, from 1981 to March 1989. In March, 1989,
Mr. Sipper left the private practice of law and became Chief Operating
Officer/Executive Vice President of Mootch & Muck, which was the master Evian
distributor for the Metropolitan New York - New Jersey territory as well as the
distributor of many other beverages and selected specialty foods. Mr. Sipper
established a subdistributor network for Evian and other products in this
territory. In 1990, Mr. Sipper negotiated the sale of Mootch & Muck's Evian
Master Distributor Agreement to Canada Dry Bottling Company of New York.
Mark Butler has been President, Vice President - Sales and Secretary of
Riverosa since January 1990. Mr. Butler was appointed to the Company's Board of
Directors on April 1, 1996. He has been the Vice President-Sales and Chief
Operating Officer of the Company since April 4, 1996. Mr. Butler was President
of Mill Hill Associates, a company which brokers various beverages to wholesaler
and distributor networks from January 1990 to October 1996. From April 1988 to
January 1990, Mr. Butler was National Sales Manager for Snapple Beverage Co.
From February 1986 to March 1988, he was National Sales Manager for Glenville
Importers. From November 1984 to January 1986, Mr. Butler was National Sales
Manager of American Natural Beverage Corp. From September 1980 to October 1984,
he was president of Newport-Cambridge Provisions which distributed beverages,
including exclusive distribution of Soho Natural Soda in New England.
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<PAGE>
Matthew L. Harriton has served on the Company's Board of Directors since
January 3, 1996. Mr. Harriton is the Chief Financial Officer of Embryo
Development Corporation. Embryo Development Corporation is a public company
which trades on NASDAQ and which specializes in developing and distributing
medical devices. Prior to joining Embryo Development Corporation, Mr. Harriton's
professional experience included positions at CIBC Wood Gundy Securities
Corporation as an associate from June 1994 to December 1995, Coopers & Lybrand
as a senior associate from December 1990 to May 1994, and The First Boston
Corporation as a senior accountant from June 1986 to June 1988. Through private
investments Mr. Harriton has been involved with the start-up and development of
several restaurants located in Manhattan. Mr. Harriton also serves as a director
of Decor Group, Inc., a public company which trades on the OTC Bulletin Board
and is involved in the home decorating industry. Mr. Harriton also serves as a
director of Superior Supplements, Inc., a public company which trades on the OTC
Bulletin Board and which manufactures and sells dietary supplements and
specialty nutritional supplements in bulk tablet, capsule and powder form. He is
a graduate of Lehigh University and received his M.B.A. from Duke University's
Fuqua School of Business. On June 16, 1998 Mr. Harriton resigned from the Board
of Directors.
There are no family relationships among any of the directors or executive
officers of the Company. Each director of the Company is entitled to receive
reasonable out-of-pocket expenses incurred in attending meetings of the Board of
Directors of the Company. The members of the Board of Directors meet at least
quarterly during the Company's fiscal year, and at such other times duly called.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent
(10%) of a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of common stock and other equity securities of the Company.
Officers, directors and greater than ten percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
Except as provided below, to the Company's knowledge, based solely on its
review of the copies of such reports furnished to the Company during the year
ended March 31, 1998, all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten percent beneficial owners were
satisfied.
Item 10. EXECUTIVE COMPENSATION.
The following table sets forth the compensation paid to the Named Executive
Officers for the fiscal year ending March 31, 1998.
Summary Compensation Table
Annual Compensation Awards Long-Term Compensation
(a) (b) (c) (d) (e) (f)
Other Annual Restricted Stock Option
Name and Principal Position Year Salary Compensation Award Grants
Robert Sipper, President
and Chief Executive
Officer 1998 $116,296 -0- -0- -0-
Mark Butler 1998 $111,940 -0- -0- -0-
Vice President - Sales
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The following table sets forth certain information with respect to options
granted during the last fiscal year to the Company's Chief Executive Officer and
the other executive officers named in the above Summary Compensation Table.
Option/SAR Grants In Last Fiscal Year
Name Number of Securities Percent of Total Exercise or
Underlying Options/SARS Granted toBase Price Expiration
Options/SARS Employees in Fiscal Year ($/Sh) Date
Granted (#) (1)
Robert Sipper 6/97- 125,000 8.8% 0.875 2012
9/97 - 100,000 7.0% 0.50 2012
1/98 - 200,000 14.0% 0.16 2013
Mark Butler 6/97 - 125,000 8.8% 0.875 2012
9/97 - 100,000 7.0% 0.50 2012
1/98 - 200,000 14.0% 0.16 2013
- ----------------------------
(1) Options are exercisable for shares of Common Stock.
The following table sets forth certain information with respect to options
exercised during the last fiscal year by the Company's Chief Executive Officer
and the executive officers named in the Summary Compensation Table, and with
respect to unexercised options held by such persons at the end of the last
fiscal year:
Aggregate Option/SAR Exercises In Last Fiscal Year And Fiscal Year-End
Option/SAR Values
<TABLE>
Number of
Securities Value of
Unexercised Unexercised
Shares Value Underlying in the Money
Acquired on Realized Options/SARS Options/SARs
Name Exercise (#)(1) $ at FY-End(#) at FY-End($)(2)
Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
Robert Sipper -0- -0- -------- -------- $-0- $-0-
Mark Butler -0- -0- -------- -------- $-0- $-0-
</TABLE>
Each director of the Company is entitled to receive reasonable
out-of-pocket expenses incurred in attending meetings of the Board of Directors
of the Company. The members of the Board of Directors meet at least quarterly
during the Company's fiscal year, and at such other times duly called.
Employment Agreements
As of April 4, 1996, and as amended in November 1996, February 1997 and in
March 1997, the Company entered into a five (5) year employment agreement with
Mark Butler pursuant to which Mr. Butler serves as the Company's Vice President
of Sales and Chief Operating Officer and was elected to the Company's Board of
Directors. The employment agreement, as amended, provides
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<PAGE>
for Mr. Butler to receive a salary of $25,000 per annum until the closing of the
Initial Public Offering, and thereafter $50,000 per annum until November 1,
1996, and thereafter $75,000 per annum until March 10, 1997, and thereafter
$110,000 per annum. The employment agreement, as amended, also provides for
payment of an annual bonus at the sole discretion of the Company's Board of
Directors. In addition, on each of March 31, 1998, and March 31, 1999, the
Company agreed, pursuant to the employment agreement, as amended, to grant Mr.
Butler an option to purchase 100,000 shares of Common Stock exercisable at fair
market value on the date of issuance. Further, the employment agreement as
amended provides that the Company issue to Mr. Butler 200,000 shares of the
Company's Common Stock on February 11, 1997. Such shares were issued in February
1997. In March 1997, Mr. Butler's salary was increased to $110,000 per annum in
accordance with his employment agreement, as amended.
As of April 4, 1996 and as amended on February 1, 1997, the Company
entered into a five (5) year employment agreement with Robert Sipper pursuant to
which Mr. Sipper serves as the Company's President and Chief Executive Officer.
The agreement provides for Mr. Sipper to receive a salary of $50,000 per annum.
In October 1996, Mr. Sipper exercised his option pursuant to the employment
agreement to transfer his Bev-Tyme salary of $106,650 to the Company. Mr.
Sipper's salary was subsequently reduced voluntarily to $120,000, until Mr.
Sipper gives notice that his full salary should be reinstated.
Stock Option Plans and Agreements
In March 1996, the Board of Directors of the Company adopted, and the
stockholders of the Company approved the adoption of, the 1996 Stock Plan
(hereinafter called the "1996 Plan"). The purpose of the 1996 Plan is to provide
an incentive and reward for those executive officers and other key employees in
a position to contribute substantially to the progress and success of the
Company, to closely align the interests of such employees with the interests of
stockholders of the Company by linking benefits to stock performance and to
retain the services of such employees, as well as to attract new key employees.
In furtherance of that purpose, the 1996 Plan authorizes the grant to executives
and other key employees of the Company and its subsidiaries of stock options,
restricted stock, deferred stock, bonus shares, performance awards, dividend
equivalent rights, limited stock appreciation rights and other stock-based
awards, or any combination thereof. The 1996 Plan is expected to provide
flexibility to the Company's compensation methods, after giving due
consideration to competitive conditions and the impact of federal tax laws.
The maximum number of shares of Common Stock with respect to which awards
may be granted pursuant to the 1996 Plan is initially 2,000,000 shares. To date,
300,000 options have been granted under the 1996 Plan. Shares issuable under the
1996 Plan may be either treasury shares or authorized but unissued shares. The
number of shares available for issuance will be subject to adjustment to prevent
dilution in the event of stock splits, stock dividends or other changes in the
capitalization of the Company.
The 1996 Plan will be administered by a committee consisting of not less
than two (2) members of the Board of Directors who are "disinterested" within
the meaning of Rule 16b-3 promulgated under the Exchange Act and "outside
directors" within the meaning of Section 162(m) of the Code (including persons
who may be deemed outside directors by virtue of any transitional rule which may
be adopted by the Internal Revenue Service implementing such Section). The Board
will determine the persons to whom awards will be granted, the type of award
and, if applicable, the number of shares to be covered by the award. During any
calendar year, no person may be granted under the 1996 Plan awards aggregating
more than 100,000 shares (which number shall be subject to adjustment to prevent
dilution in the event of stock splits, stock dividends or other changes in
capitalization of the Company).
20
<PAGE>
Types of Awards
Stock Options. Options granted under the 1996 Plan may be "incentive stock
options" ("Incentive Options") within the meaning of Section 422 of the Code or
stock options which are not incentive stock options ("Non-Incentive Options"
and, collectively with Incentive Options, hereinafter referred to as "Options").
The persons to whom Options will be granted, the number of shares subject to
each Option granted, the prices at which Options may be exercised (which shall
not be less than the fair market value of shares of Common Stock on the date of
grant), whether an Option will be an Incentive Option or a Non-Incentive Option,
the time or times and the extent to which Options may be exercised and all other
terms and conditions of Options will be determined by the Committee.
Each Incentive Option shall terminate no later than ten (10) years from
the date of grant, except as provided below with respect to Incentive Options
granted to 10% Stockholders (as hereinafter defined). No Incentive Option may be
granted at any time after October 2006. Each Non-Incentive Option shall
terminate not later than fifteen (15) years from the date of grant. The exercise
price at which the shares may be purchased may not be less than the Fair Market
Value of shares of Common Stock at the time the Option is granted, except as
provided below with respect to Incentive Options granted to 10% Stockholders.
Options granted to executive officers may not be exercised at any time prior to
six (6) months after the date of grant.
The exercise price of an Incentive Option granted to a person possessing
more than 10% of the total combined voting power of all shares of stock of the
Company or a parent or subsidiary of the Company ("10% Stockholder") shall in no
event be less than 110% of the Fair Market Value of the shares of the Common
Stock at the time the Incentive Option is granted. The term of an Incentive
Option granted to a 10% Stockholder shall not exceed five (5) years from the
date of grant.
The exercise price of the shares to be purchased pursuant to each Option
shall be paid (i) in full in cash, (ii) by delivery (i.e., surrender) of shares
of the Company's Common Stock owned by the optionee at the time of the exercise
of the Option, (iii) in installments, payable in cash, if permitted by the
Committee or (iv) any combination of the foregoing. The stock-for-stock payment
method permits an optionee to deliver one (1) or more shares of previously owned
Common Stock of the Company in satisfaction of the exercise price of subsequent
Options. The optionee may use the shares obtained on each exercise to purchase a
larger number of shares on the next exercise. (The foregoing assumes an
appreciation in value of previously acquired shares). The result of the
stock-for-stock payment method is that the optionee can generally avoid
immediate tax liability with respect to any appreciation in the value of the
stock utilized to exercise the Option.
Shares received by an optionee upon exercise of a Non-Incentive Option may
not be sold or otherwise disposed of for a period determined by the Board upon
grant of the Option, which period shall be not less than six (6) months nor more
than three (3) years from the date of acquisition of the shares (the "Restricted
Period"), except that, during the Restricted Period (i) the optionee may offer
the shares to the Company and the Company may, in its discretion, purchase up to
all the shares offered at the exercise price and (ii) if the optionee's
employment terminates during the Restricted Period (except in limited
instances), the optionee, upon written request of the Company, must offer to
sell the shares to the Company at the exercise price within seven (7) business
days. The Restricted Period shall terminate in the event of a Change in Control
of the Company (as defined), or at the discretion of the Board. After the
Restricted Period, an optionee wishing to sell must first offer such shares to
the Company at the Fair Market Value.
Limited Stock Appreciation Rights. The Committee is authorized, in
connection with any Option granted under the 1996 Plan, to grant the holder of
such Option a limited stock appreciation right ("LSAR"), entitling the holder to
receive, within sixty (60) days following a Change in Control, an amount in cash
equal to the difference between the exercise price of the Option and the market
value of the Common Stock on the effective date of the Change in Control. The
LSAR may be
21
<PAGE>
granted in tandem with an Option or subsequent to grant of the Option. The LSAR
will only be exercisable to the extent the related Option is exercisable and
will terminate if and when the Option is exercised.
Restricted and Deferred Stock. An award of restricted stock or deferred
stock may be granted under the 1996 Plan. Restricted stock is subject to
restrictions on transferability and other restrictions as may be imposed by the
Committee at the time of grant. In the event that the holder of restricted stock
ceases to be employed by the Company during the applicable restrictive period,
restricted stock that is at the time subject to restrictions shall be forfeited
and reacquired by the Company. Except as otherwise provided by the Committee at
the time of grant, a holder of restricted stock shall have all the rights of a
stockholder including, without limitation, the right to vote restricted stock
and the right to recover dividends thereon. An award of deferred stock is an
award that provides for the issuance of stock upon expiration of a deferral
period established by the Committee. Except as otherwise determined by the
Committee, upon termination of employment of the recipient of the award during
the applicable deferral period, all stock that is at the time subject to
deferral shall be forfeited. Until such time as the stock which is the subject
of the award is issued, the recipient of the award has no rights as a
stockholder.
Dividend Equivalent Awards. A dividend equivalent gives the recipient the
right to receive cash or other property equal in value to the dividends that
would be paid if the recipient held a specified number of shares of Common
Stock. A dividend equivalent right may be granted as a component of another
award or as a free standing award.
Bonus Shares and other Share Based Awards. The 1996 Plan authorizes the
Committee to grant shares as a bonus, or to grant shares or other awards in lieu
of obligations of the Company to pay cash under other plans or compensatory
arrangements, upon such terms as shall be determined by the Committee. The 1996
Plan also authorizes the Committee to grant other forms of awards based upon,
payable in, or otherwise related in whole or in part to, Common Stock,
including, without limitation, convertible or exchangeable debentures or other
debt securities, other rights convertible or exchangeable into shares, purchase
rights for shares, awards contingent upon performance of the Company, and awards
valued by reference to the book value of shares of Common Stock or awards
determined by reference to the value of securities of, or the performance of,
specified subsidiaries.
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<PAGE>
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth as of June 17, 1998, certain information
with respect to the beneficial ownership of Common Stock and Preferred Stock by
each person or entity known by the Company to be the beneficial owner of 5% or
more of such shares, each officer and director of the Company, and all officers
and directors of the Company as a group:
Percentage (%) Percentage (%)
Name and Address of Shares of Common of Shares of of Total
Beneficial Owner (1) Stock Owned Common Stock Preferred Stock Combined Vote
Robert Sipper 625,000(2) 14.2 0.0 14.2
Hartley T. Bernstein(3) 300,000(4) 7.3 0.0 7.3
Matthew Harriton 425,000(5) 10.1 0.0 10.1
Mark Butler 675,000(6) 15.1 0.0 15.1
All officers and
directors as a group
(three (3) persons) 1,725,000 31.3 0.0 31.3
(1) The address of each Stockholder shown above except as otherwise indicated
is c/o Perry's Majestic Beer, Inc., 38 West 32nd Street, Suite 801, New
York, New York 10001.
(2) Includes 425,000 shares of Common Stock underlying options to purchase
425,000 shares of Common Stock of the Company.
(3) Mr. Bernstein is a consultant to the Company and legal counsel to
the Company.
(4) Includes 100,000 shares of Common Stock underlying an option to purchase
100,000 shares of Common Stock of the Company.
(5) Includes 425,000 shares of Common Stock underlying options to purchase
425,000 shares of Common Stock of the Company.
(6) Includes 425,000 shares of Common Stock underlying options to purchase
425,000 shares of Common Stock of the Company.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On October 26, 1995, Bev-Tyme, Inc. entered into a letter of intent to
acquire Riverosa for the sum of $250,000. As part of that understanding,
Bev-Tyme agreed that Riverosa or its successors would enter into a three (3)
year employment agreement with Mark Butler at an annual salary of $25,000 year,
subject to appropriate increase in the event Riverosa (or it successors)
successfully completed an initial public offering of its securities resulting in
net proceeds in excess of $2,000,000. The Employment Agreement would also
provide for an annual bonus as well as stock options based upon performance. In
January 1996, Bev-Tyme, Inc. assigned its rights under the letter of intent to
the Company, which entered into a definitive agreement with Riverosa on March
29, 1996, pursuant to which the Company agreed to pay the sum of $250,000 to
acquire Riverosa. As of April 4, 1996, and as amended in November 1996, February
1997 and March 1997, the Company entered into a five (5) year employment
agreement with Mark Butler pursuant to which Mr. Butler serves as the Company's
Vice President of Sales and Chief Operating Officer and was elected to the
Company's Board of Directors. The employment agreement, as amended, provides for
Mr. Butler to receive a salary of $25,000 per annum until the closing of the
Initial Public Offering, and thereafter $50,00 per annum until November 1, 1996,
and thereafter $75,000 per annum until March 10, 1997, and
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<PAGE>
thereafter $110,000 per annum. The employment agreement, as amended, also
provides for payment of an annual bonus at the sole discretion of the Company's
Board of Directors. In addition, on each of March 31, 1998, and March 31, 1999,
the Company agreed, pursuant to the employment agreement, as amended, to grant
Mr. Butler an option to purchase 100,000 shares of Common Stock exercisable at
fair market value on the date of issuance. Further, the employment agreement, as
amended provides that the Company issue to Mr. Butler 200,000 shares of the
Company's Common Stock on February 11, 1997. Such shares were issued in February
1997. In March 1997, Mr. Butler's salary was increased to $110,000 per annum in
accordance with his employment agreement, as amended. The Agreement provides
further that Mark Butler, one of the principal shareholders of Riverosa be
appointed to the Company's board of directors on April 1, 1996. A contract
deposit of $150,000 was paid into escrow upon execution of the agreement and the
balance of $100,000 was paid pursuant to a promissory note bearing interest at a
rate of 12 percent (12%) per year on the closing of the Initial Public Offering.
Prior to the acquisition of Riverosa, Bev-Tyme, through its subsidiary,
acted as a distributor of Perry's Majestic Beer. In January 1996, the Company
issued an aggregate of 2,500,000 shares of its common stock to seven (7) parties
for total consideration of $50,000. These shareholders are Robert Sipper,
Hartley Bernstein, Matthew Harriton, Marketing Specialities, Inc., Ulster
Investments and Judith Pace. Robert Sipper is a Director and President of the
Company and of Bev-Tyme. Matthew Harriton is a Director of the Company. Hartley
Bernstein is a consultant to the Company and a member of Bernstein & Wasserman,
LLP, counsel to the Company. In March 1996, the Company issued to Bev-Tyme
500,000 shares of convertible Series A Preferred Stock and 7,000,000 shares of
Series B Preferred Stock for $150,000 and 400,000 shares of Series C Preferred
Stock of Bev-Tyme. Each share of Bev-Tyme Series C Preferred Stock pays an
annual dividend of $.50 per share and is convertible at the option of the holder
into 1.8 shares of Bev-Tyme Common Stock. The Bev-Tyme Series C Preferred Stock
has the right to vote on all matters presented to Bev-Tyme shareholders at the
rate of 1.8 votes per share and is redeemable at a price of $.05 per share so
long as the closing bid price of the Bev-Tyme Common Stock has equaled or
exceeded $20.00 per share for twenty (20) consecutive days. The Company issued
these shares in January 1996 and March 1996 in order to generate funds to
acquire Riverosa, produce and market its product prior to the Initial Public
Offering, and pay the expenses of the Initial Public Offering. Each share of the
Company's Class A Preferred Stock issued to Bev-Tyme is convertible into one (1)
share of Common Stock and is entitled to one vote on all corporate matters. The
Class B Preferred Stock issued to Bev-Tyme is not convertible. Each share of
Class B Preferred Stock is entitled to one vote on all corporate matters. Each
share of the Bev-Tyme Series C Preferred Stock issued to the Company is
convertible into 18 shares of common stock and possesses one vote on all
corporate matters. On April 17, 1997 the Company loaned Bev-Tyme the sum of
$100,000 pursuant to the terms of a Promissory Note issued in connection with
that loan. Bev-Tyme was required to repay the entire principal plus interest on
or before April 16, 1998. The Company retained the right in its sole discretion
to reacquire 7,000,000 shares of the Company's Series B Preferred Stock held by
Bev-Tyme or to receive payment of the principal and accrued interest. On June
13, 1997, the Company exercised its right to reacquire the 7,000,000 shares of
the Company's Series B Preferred Stock held by Bev-Tyme in full satisfaction of
the Note payable.
In March, 1996, the Company borrowed an aggregate of $150,000 from seven
(7) unaffiliated lenders (the "Bridge Lenders"). In exchange for making loans to
the Company, each Bridge Lender received a promissory note (the "Bridge Note").
Each of the Bridge Notes bears interest at the rate of eight percent (8%) per
annum. The Bridge Notes were paid at the closing of the Company's Initial Public
Offering including all accrued interest. The Bridge Lenders were granted the
right to receive a total of 3,000,000 Class A Warrants. The Bridge Lenders
subsequently waived their right to receive the Class A Warrants. The Company
entered into the bridge financing transactions because it required additional
financing and no other sources of financing were available to the Company at
that
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time. The proceeds from the bridge financing transaction, in part, were used in
the initial $150,000 payment of the acquisition of Riverosa.
On April 19, 1996, the Company made a loan of $75,000 to Bev-Tyme at an
interest rate of 8% per annum. All principal and interest was repaid on
September 9, 1996.
On July 30, 1996, the Company completed its Initial Public Offering of
583,335 shares of Common Stock at $6.00 per share, and the concurrent offering
of securities by certain selling security holders. The net proceeds of the
offering were approximately $2,500,000.
On September 20, 1996, the Company acquired the operating assets of Old
Marlborough Brewing Company, Inc. ("Old Marlborough"), a Massachusetts producer
of microbrewed beer and ale. The acquisition included all rights to produce and
market Post Road Pale Ale, a microbrewed product distributed throughout
Massachusetts. The aggregate purchase price was $85,513 and the issuance of
25,000 shares of Common Stock of the Company. The Company also paid [$86,700]
[$75,000] to reacquire the distribution rights for Post Road. In addition, the
Company entered into a four (4) year employment agreement with Austin J. Moran,
a principal of Old Marlborough, pursuant to which Mr. Moran serves as a manager
of the Company and receives an annual salary of $50,000 for the first year,
$55,000 for the second year, $60,000 for the third year and $65,000 for the
fourth year. The Agreement provides further that, as additional consideration,
on each of August 31, 1997, August 31, 1998 and August 31, 1999, the Company
shall grant Mr. Moran options to purchase 20,000 shares of the Company's Common
Stock exercisable at $6.00 per share, for a period of four (4) years.
In October 1996, Bev-Tyme sold all of its shares of Class A Convertible
Preferred Stock in the Company to The Skyes Corp. for a total consideration of
$250,000.
On January 1, 1997, the Company entered into a consulting agreement with
Hartley T. Bernstein, a partner in the firm of Bernstein & Wasserman, LLP,
counsel to the Company, pursuant to which Mr. Bernstein agreed to provide the
Company with consulting services in connection with acquisitions, divestitures,
joint ventures and other strategic business initiatives in consideration for the
issuance to Mr. Bernstein of 200,000 shares of the Company's Common Stock. The
consulting agreement was amended on June 4, 1997 to provide for the issuance of
100,000 options to purchase 100,000 shares of Common Stock exercisable at $0.875
per share in consideration for the extension of the term of the agreement for an
additional one year period.
In January 1997, the Company was paid a dividend of 1.31 shares of common
stock for each share of the 400,000 Series C Preferred Stock of Bev-Tyme held by
the Company as of December 27, 1996 (convertible into 7,200,000 shares of Common
Stock of Bev-Tyme).
During February 1997, Perry's issued a total of 400,000 shares of Perry's
common stock to two officers as consideration for extending their employment
agreements through 2001.
In March 1997, the Company entered into an agreement to acquire all of the
issued and outstanding stock of Orchard Annie, Inc., a corporation wholly-owned
and controlled by Mark Butler, the Vice President-Sales, Chief Operating Officer
and a director of the Company. The aggregate purchase price was $67,000 and the
issuance of 50,000 shares of Common Stock of the Company in June 1997. Pursuant
to the purchase, the Company acquired all rights to produce and market Quigley's
Applesauce, a line of premium, 100% natural, single-served sized apple sauces.
The Agreement further provided for the payment to Mr. Butler of royalty payments
equal to $0.50 per case of Quigley's Applesauce for the first 500,000 cases and
$0.25 per case thereafter during the period of fifteen (15) years from the
closing date. The royalty was recalculated to $.25 for a case of 12 units for
the first 500,000 cases and $.125 for a case of 12 units thereafter
25
<PAGE>
On April 17, 1997, the Company loaned to Bev-Tyme the sum of $100,000
pursuant to the terms of a Promissory Note issued in connection with that loan.
Bev-Tyme was required to repay the entire principal plus interest on or before
April 16, 1998. The Company retained the right, in its sole discretion, to
reacquire 7,000,000 shares of the Company's Series B Preferred Stock held by
Bev-Tyme in full satisfaction of the Note or to receive payment of the principal
plus accrued interest. On June 13, 1997 the Company exercised its right to
reacquire the 7,000,000 shares of the Company's Series B Preferred Stock held by
Bev-Tyme in full satisfaction of the Note payable.
In June 1997, the Company issued 375,000 options to purchase 375,000 shares
of Common Stock exercisable at $0.875 per share for a period of 10 years. Each
of Robert Sipper, the Company's President, Mark Butler, the Company's Vice
President-Sales and Matthew Harriton, a director of the Company received 125,000
options. Hartley T. Bernstein, a consultant to the Company and a member of
Bernstein & Wasserman, LLP, counsel to the Company received 100,000 options.
On May 23, 1997, the Company entered into a consulting agreement The Falcon
Management Company, Inc. ("Falcon"), pursuant to which Falcon agreed to provide
the Company with consulting services in connection with financial management,
accounting controls, inventory management, product costing and other general
consulting as required by the Company in consideration for the issuance to
Falcon of an option to purchase 100,000 shares of the Company's Common Stock at
an exercise price of $0.875 per share and a per diem payment of $300.
On September 23, 1997, the Company issued an aggregate of 300,000 options
to purchase 300,000 shares of Common Stock exercisable at $0.50 per share for a
period of 10 years. Each of Robert Sipper, the Company's President, Mark Butler,
the Company's Vice President, Matthew Harriton, a director of the Company each
received 100,000 options.
In September 1997, the Company issued 50,000 shares of common stock to an
officer of the Company in connection with the acquisition of Orchard Annie, Inc.
On November 21, 1997, the Company issued 25,000 shares of common stock to A
J Moran, an employee of the Company.
On January 16, 1998 the Company issued an aggregate of 600,000 options to
purchase 600,000 shares of Common Stock exercisable at $0.16 per share for a
period of 10 years. Each of Robert Sipper, the Company's President, Mark Butler,
the Company's Vice President, Matthew Harriton, a director of the Company each
received 200,000 options.
On January 16, 1998 the Company issued an option to purchase 100,000 shares
of Common Stock, exercisable at $.16 per share for a period of ten years to A.
J. Moran, an employee of the Company as a bonus.
On January 21, 1998 the Company issued an option to purchase 50,000 shares
of Common Stock, exercisable at $.16 per share for a period of ten years to
Jesus Cardona, an employee of the Company, as a bonus.
General
The Company believes that material affiliated transactions between the
Company and its directors, officers, principal shareholders or any affiliates
thereof have been and will be in the future on terms no less favorable than
could be obtained from unaffiliated third parties.
26
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Item 1. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1) Financial Statements.
The following financial statements are included in Part II, Item 7:
Index to Financial Statements
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheet as of March 31, 1998 F-2
Consolidated Statements of Operations for the years ended
March 31, 1998 and 1997 F-3
Consolidated Statements of Stockholders' Equity for the years
ended March 31, 1998 and 1997 F- 4 F-5
Consolidated Statements of Cash Flows for the years ended
March 31, 1998 and 1997 F-6 F-7
Notes to consolidated financial statements F-8 - F-18
(a) (2)Exhibits
A list and description of exhibits filed as part of this Form 10-KSB is
provided in the attached Exhibit Index.
Item 27. Exhibits.
1.01* Form of Underwriting Agreement.
1.02* Form of Selected Dealers Agreement.
3.01* Certificate of Incorporation of the Company.
3.02* Amendment of Certificate of Incorporation.
3.03* By-Laws of the Company.
3.04* Form of Certificate of Designation of Series A Preferred Stock.
3.05* Form of Certificate of Designation of Series B Preferred Stock.
4.01* Specimen Certificate for shares of Common Stock.
4.02* Specimen Certificate for Class A Redeemable Common Stock Purchase
Warrant.
4.03* Form of Warrant Agreement by and among the Company and American
Stock Transfer & Trust Company.
4.04* Form of Underwriter's Unit Purchase Option.
27
<PAGE>
10.01* Bridge Loan Agreements and Related Promissory Notes.
10.02* 1996 Stock Plan.
10.03* Agreement by and between the Company and Riverosa dated March 31,
1996.
10.04* Form of Financial Consulting Agreement by and between the Company
and VTR Capital, Inc.
10.05* Agreement by and between the Company and Frankenmuth Brewery.
10.06* Agreement by and between the Company and Hoboken Brewing Company
dated July 15, 1996.
10.07* Employment Agreement by and between the Company and Robert J. Sipper
dated April 4, 1996.
10.08* Employment Agreement by and between the Company and Mark Butler
dated April 4, 1996.
10.09** Asset Purchase Agreement by and between the Company and Old
Marlborough Brewing Company, Inc. dated September 20, 1996.
10.10** Consulting Agreement by and between the Company and Hartley T.
Bernstein dated January 1, 1997.
10.11** Stock Purchase Agreement by and between the Company and Mark Butler
dated March , 1997.
10.12** Amendment No. 1 to Employment Agreement by and between the Company
and Robert J. Sipper dated February 3, 1997.
10.13** Amendment No. 1 to Employment Agreement by and between the Company
and Mark Butler dated November 1, 1997.
10.14** Amendment No. 2 to the Employment Agreement by and between the
Company and Mark Butler dated February 3, 1997.
10.15** Amendment No.3 to the Employment Agreement by and between the
Company and Mark Butler dated March 10, 1997.
10.16** Employment Agreement by and between the Company and A.J. Moran dated
September 17, 1996.
10.17** Promissory Note made by Bev-Tyme, Inc. dated April 17, 1997.
28
<PAGE>
10.18** Consulting Agreement by and between the Company and The Falcon
Management Company, Inc. dated May 23, 1997.
10.19** Amendment to Consulting Agreement by and between the Company and
Hartley T. Bernstein dated June 4, 1997.
10.20 Letter of Intent with Village Cannery of Vermont dated May 4, 1998
10.21 Asset Purchase Agreement by and between Company and The Brooklyn
Brewery Corporation dated May 18, 1998.
10.22 Agreement to Purchase and Market Brand Name and Recipes by and
between Leroux Creek Food Corporation and the Company dated June 30,
1998.
* Incorporated by reference to Registrant's Registration Statement on Form
SB-2, and amendments thereto, Registration No. 333-3458 declared effective
on July 30, 1996.
** Incorporated by reference to the Company's Annual Report on Form 10KSB
for the fiscal year ended March 31, 1997 (File No. 0-21079).
(b) Reports on Form 8-K.
(i) Form 8-K dated May 22, 1998 wherein the Company reported information
under Item 2 - Acquisition or Disposition of Assets and Item 7 -
Financial Statements and Exhibits.
(ii) Form 8-K dated July 2, 1998 wherein the Company reported information
under Item 2 - Acquisition or Disposition of Assets and Item 7 -
Financial Statements and Exhibits.
29
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
executed on this 13 day of July, 1998.
PERRY'S MAJESTIC BEER, INC.
By:/s/Robert J. Sipper
----------------------
Robert J. Sipper
President, Chief Executive Officer,
Chief Financial Officer and Chief
Principal Accounting Officer
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant in the capacities and on the dates
indicated
Signature Title Date
/s/Robert J. Sipper Chief Executive Officer, July 13, 1998
- ---------------------------
Robert J. Sipper Chief Financial Officer,
Principal Accounting Officer
and Director
/s/Mark Butler Vice President July 13, 1998
Mark Butler Secretary and Director
EXHIBIT 10.20
PERRY'S MAJESTIC
May 4, 1998
Village Cannery of Vermont, Inc.
291 Barre Montpelier Road
Barre, Vermont 05641
Att: Claire Maguire
Dear Ms. Maguire:
Perry's Majestic Beer, Inc., a Delaware corporation (the "'Buyer"), is pleased
to make this proposal whereby Buyer will acquire substantially all of the assets
and the business (collectively, the "Assets") of Village Cannery of Vermont,
Inc., a Vermont corporation ("Village Cannery"), upon terms and conditions set
forth below.
1. Purchase Price. Seller agrees to sell and convey to Buyer the Assets of
Village Cannery (the "transaction"). In consideration for the Assets, Buyer
agrees that at closing on the transaction (the "Closing"), Buyer shall pay to
Village Cannery the sum of $2,000,000 in cash.
Additionally, as and for further consideration for the Assets, Buyer will
enter into written employment agreements with Jack Maguire and Claire Maguire
(the "Employment Agreements"). Such Employment Agreements shall provide for
annual compensation to Mr. and Mrs. Maguire in the aggregate amount of (to be
allocated at their direction) of $100,000 (the "Base Salary'). Each employment
agreement shall (i) be for a term of five (5) years, with the Base Salary
adjusted annually to account for cost of living increase, if any; (ii) provide
for medical insurance coverage for Mr. and Mrs. Maguire, (iii) grant to Mr. and
Mrs. Maguire options to purchase (a) 200,000 shares of Common Stock (the "Common
Stock") of Buyer each year during the term of the Employment Agreement and (b)
200,000 shares of Common Stock of Buyer upon execution of the letter of intent,
all at an exercise price based upon fair market value of the Common Shares; and
(iv) appoint Jack Maguire and Claire Maguire to the Board of Directors of Buyer.
Mr. and Mrs. Maguire shall have the right to designate a third member of the
Board of Directors unless one of the present members of the Board of Directors
resigns prior to closing.
The Buyer and Village Cannery hereby agree that Buyer has the right to
convert this Transaction into a Stock Purchase Agreement, on terms and
conditions acceptable to all parties, at any time prior to the execution of a
definitive agreement which contains the provisions outlined above in Section 1.
2. Exclusivity. The acceptance of this letter by Village Cannery will
constitute Village Cannery's grant to the Buyer of an exclusive option for the
period commencing on the date hereof through and ending September 1, 1998 (the
"Option Period") to consummate the Transaction in accordance with the terms of
the Definitive Agreement (as hereinafter defined) and your agreement that during
the Option Period neither Village Cannery nor any of its officers, directors,
representatives or affiliates shall directly or indirectly solicit, initiate,
engage in or continue any discussions with respect to the possible sale or other
disposition of all or part of Village Cannery's business, assets or capital
stock including the Assets, whether by sale, merger or other business
combination, or enter into any other transaction which is inconsistent with the
transaction contemplated hereby. In consideration for the Option, the Buyer
shall pay to Seller, upon execution of this Agreement, the
<PAGE>
sum of One Thousand Dollars ($1,000) which sum shall be applied against the the
purchase price at Closing. The Buyer and Village Cannery agree that upon
execution of this Agreement they shall negotiate in good faith toward the
execution of the Definitive Agreement. In the event the Buyer determines that it
will not proceed with the transaction, it shall promptly notify Village Cannery
in writing whereupon Village Cannery's obligations pursuant to this paragraph 2
shall terminate with no further force and effect; provided however, that such a
determination was a result of a breach of Village Cannery of its obligations
under this paragraph 2, then, in addition to any other remedies available to the
Buyer, Village Cannery shall be obligated to reimburse the Buyer for all costs
and expenses incurred by the Buyer in connection herewith; provided, however,
that in no event will Village Cannery be required to pay in excess of $10,000 in
the event of such breach by Village Cannery.
3. Investigation. From the date hereof, Village Cannery shall (i) permit
the Buyer and its accounting, legal and other representatives to conduct an
investigation and evaluation of Village Cannery, (ii) provide such assistance to
any one of the foregoing as is reasonably requested, and (ii) give access at
mutually agreeable times during business hours to all things related to Village
Cannery. Jack Maguire shall have the right to be present at all times Buyer
conducts suet, investigation and evaluation.
4. Principal Conditions. The parties hereby agree to commence negotiations
in good faith toward the execution and delivery of a definitive agreement (the
"Definitive Agreement"), subject to the satisfaction of the following conditions
precedent:
a. Further Investigation. The Buyer and its agents and representatives
shall have completed, and shall be satisfied with the results of, its continuing
due diligence review of Village Cannery;
b. Material Adverse Changes. The absence of any material adverse change in
the financial condition, assets, liabilities, business or prospects of Village
Cannery;
c. Definitive Agreement. The Definitive Agreement shall contain customary
representations, warranties, covenants, indemnities and conditions to the
Closing of the Transaction, including inter alia: (i) traditional
representations and warranties, which will survive the Closing, as to the
condition and value of the Assets; (ii) satisfactory compliance with applicable
laws; (iii) obtaining all necessary consents in order to consummate the
Transaction including landlord and other third party consents; (iv) non-compete
provisions; (v) obtaining required Vermont and Federal licenses and permits; and
(vi) the fulfillment of other conditions as the Buyer may reasonably request.
d. Financing. The Transaction is expressly contingent upon the ability of
the Buyer to secure financing of the $2,000,000 cash portion of the Purchase
Price on terms and conditions acceptable to Buyer.
e. Required Approvals. Seller and Buyer shall have received all such
approvals of their respective directors and stockholders as may be required
pursuant to the laws of their respective states of incorporation and any
regulatory authorities.
5. Press Release. Except as otherwise required under applicable federal
securities law, Village Cannery and the Buyer shall agree on the content and
timing of all public announcements relating to the Transaction to the financial
community, governmental agencies and the public generally.
6. Confidential Business Information. Buyer agrees end acknowledges that
in connection with its review of Village Cannery's records and financial
information as called for hereunder it shall have access to confidential
business information, the use or disclosure of which could result in serious
<PAGE>
damage or harm to Village Cannery. As a consequence and as a material inducement
to Village Cannery to enter into this letter of intent, Buyer agrees that it
shall not at any time furnish, publish or disclose to any person or entity, or
make use in any way, any trade secrets or other business or financial
information, data or other expertise acquired through review of Village
Cannery's financial or business information as called for hereunder or which
relates to Village Cannery's business, products, processes, methods, recipes,
formulas, sales techniques, routes, customers, equipment or services including,
but not limited to, customer lists, route lists and pricing and profit margin
information. Buyer acknowledges and agrees that all of the information described
above is the exclusive property of and belongs absolutely to Village Cannery,
and Buyer hereby acknowledges and agrees that all right, title and interest in
and to said information is, and shall remain at all times exclusively the
property by Village Cannery. Buyer agrees to keep all such information strictly
secret and confidential at all times and not to make any use of such information
except as may be expressly authorized by Village Cannery. Upon termination of
this letter of intent without execution of a Definitive Agreement as
contemplated hereunder, Buyer shall, without further demand by Village Cannery,
immediately and unconditionally return all copies or originals of all records,
documents, information and other property of or regarding Village Cannery,
including computer records, magnetic and other electronic media, to Village
Cannery.
This paragraph 6 shall survive the termination of this letter of intent.
Upon breach of any of the covenants contained herein, Village Cannery may have
resort to all rights and remedies available to it at law or in equity,
including, but not limited to, money damages, recovery of profits derived from
unauthorized use of disclosure of trade secrets or other confidential business
information and injunctive relief restraining disclosure or use of any such
information by Buyer or any third party to whom disclosure is made, it being
expressly acknowledged by Buyer that money damages alone may not be an adequate
remedy for breach of this Covenant.
7. Legal Effect: Acquisition of the Buyer's Securities. Your acceptance of
this letter will constitute your representation to the Buyer that neither the
Buyer, its agents, employees, affiliates or controlling persons will incur any
liability in connection with the consummation of the Transaction to any third
party with whom you or your directors, employees, agents or representatives have
had discussions regarding the disposition of the assets, stock or business of
Village Cannery, including without any limitation to any broker, finder or
investment banker. Village Cannery and its affiliates and controlling persons
agree that for a period of three (3) years following the date hereof will not,
without the prior written consent of the Buyer (i) acquire, offer to acquire, or
agree to acquire, directly or indirectly, by purchase or otherwise, any voting
securities of the Buyer, or any successor thereto (ii) make or in any way
participate, directly or indirectly in any "solicitation" or "proxies" to vote
(as such terms are defined and used in the rules, regulations and releases of
the Securities and Exchange Commission), (iii) make any public announcement or
offer with respect to, or submit proposal for, any transaction involving the
Buyer or its securities or assets, or (iv) in connection with the foregoing,
seek to advise or influence any person or entity or form or join or in any way
participate in a "group" as defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended.
It is expressly understood that this Agreement is a non-binding letter of
intent and that no obligation of any nature whatsoever is intended to be
created, except as set forth in paragraphs 2,5 and 7 hereof. This letter may be
signed in counterparts. If you are in agreement with the terms of this letter,
please execute the enclosed copy of this letter in the space provided below and
return it to the undersigned by no later than May 11, 1998.
<PAGE>
The Buyer looks forward to your response to this offer and to working with
you on a mutually beneficial and successful transaction.
Very truly yours,
PERRY'S MAJESTIC BEER, INC.
By:/s/ Robert J. Sipper
- -----------------------
Robert J. Sipper, President
Agreed to and Accepted as of
the Date First Written Above:
VILLAGE CANNERY OF VERMONT, INC.
By: /s/ Claire Maguire
Claire Maguire, President
EXHIBIT 10.21
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT dated as of May 18, 1998 by and between PERRY'S
MAJESTIC BEER, INC., a Delaware corporation ("Seller"), and THE BROOKLYN BREWERY
CORPORATION, a New York corporation ("Buyer").
W I T N E S S E T H
WHEREAS, Seller is engaged in the business, among other things, of
manufacturing, marketing and distributing beer; and
WHEREAS, Seller wishes to sell, and Buyer wishes to purchase, all of the
assets of Seller directly relating to the manufacturing, marketing, distribution
and sale of the products set forth on Schedule 1.1 (a) annexed hereto (the
"Products").
NOW, THEREFORE, in consideration of the mutual terms, conditions and other
agreements set forth herein, Seller and Buyer hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE ASSETS AND THE INVENTORY
1.1 Purchase of the Assets. Subject to the terms and conditions set forth
in this Agreement, at the Closing (as defined herein) Seller shall sell,
transfer, assign, convey and deliver to Buyer, and Buyer shall purchase, acquire
and accept from Seller, (i) all of Seller's right, title and interest in and to
the assets and intellectual property directly relating to the manufacturing,
marketing, distribution and sale of the Products set forth on Schedule 1.1 (a)
(the "Assets") and (ii) all inventory set forth on Schedule 1.1 (b) (the
"Inventory"). The Assets and the Inventory shall be free and clear of all liens,
mortgages, security interests, claims or other encumbrances of any nature
whatsoever except as expressly set forth on Schedule l.l(c) (the "Assumed
Liabilities") and shall include, but shall not be limited to, the following:
(a) Physical Assets: All tangible personal property owned by Seller and
directly used in connection with sales of the Products, including all packaging
materials, promotional materials, supplies, files, customer lists,
work-in-progress and Inventory;
(b) Intangible Assets: All right, title and interest in and to the
Products, including, without limitation, the exclusive right to manufacture,
market and sell the Products and the Inventory and to sell to Seller's past and
present customers and distributors, the goodwill associated with the Products,
if any, telephone numbers, records, files and trade secrets related to sales of
the Products;
(c) Leases, Licenses, Permits, Contracts, Etc. All right, title and
interest in and to the leases, licenses, permits, authorizations, contract
rights, agreements, whether written or oral, orders and other documents used in
connection with the sale of the Products;
<PAGE>
(d) Intellectual Property Rights. All trademarks, trade names, copyrights,
patents, inventions, processes, proprietary know-how, procedures, trade secrets,
recipes, formulae and other intellectual property rights utilized in connection
with the manufacturing, distribution and/or sale of the Products, including all
written records thereof, and selling material owned, associated with, used or
employed in connection with the manufacturing, distribution and sale of the
Products, including, without limitation, all rights to the name "Post Road" and
all variations thereof and the registered trademark and trademark applications
set forth on Schedule 1. l(d) hereof and the goodwill associated with such
trademarks; and
(e) Other Assets. All other tangible and intangible assets of Seller used
in or required in connection with the manufacturing, distribution and/or sale of
the Products.
1.2 Non-Assumed liabilities. Except as expressly set forth on Schedule 1.1
(c), Buyer shall not assume nor be responsible for any liabilities or
obligations of Seller or any of its affiliates.
1.3 Purchase Price. As payment in full for the Assets and the Inventory to
be transferred to Buyer by Seller hereunder, Buyer shall pay to Seller the sum
of $240,000 in consideration for the Assets and the sum of $125,000 in
consideration for the Inventory, for an aggregate purchase price of $365,000
(the "Purchase Price"). The Purchase Price shall be paid at the Closing as
follows: (a) Buyer shall pay to Seller the sum of $10,000 by certified or bank
check; (b) on July 1, 1998, Buyer shall pay to Charles H. Cremens, Esq. the sum
of $35,000 to be held by Mr. Cremens as escrow agent pursuant to an Escrow
Agreement to be entered into among Seller, Mr. Cremens and Austin J. Moran, Jr.
in the form attached hereto as Exhibit A; and (c) Buyer shall deliver to Seller
a secured promissory note in the principal amount of $320,000 (the "Secured
Note").
1.4 Limitations on Assignment; Further Assurance. To the extent that the
assignment of any contracts to be assigned to Buyer as provided herein shall
require the consent of another party thereto, this Agreement shall not
constitute an agreement to assign the same if an attempted assignment would
constitute a breach thereof. To the extent required, Seller agrees that it will
use all reasonable efforts to obtain the written consent of all necessary
parties to the assignment to Buyer of all assigned contracts. If any such
consent is not obtained, Seller shall use all reasonable efforts to obtain the
same and will cooperate with Buyer, as appropriate, in any reasonable
arrangement designed by Buyer to provide to Buyer, as appropriate, the benefits
thereunder and Buyer shall assume all correlative obligations to effectuate such
arrangement.
1.5 Covenant Not to Compete. As a material inducement to cause Buyer to
enter into this Agreement and to consummate the transactions contemplated
hereby, and in further consideration for the payments to be made by Buyer
pursuant to Section 1.3 above, Seller, on behalf of itself and its officers,
directors and affiliates (the "Restricted Parties"), covenants and agrees as
follows:
(a) For a period of five (5) years commencing on the date hereof, the
Restricted Parties shall not at any time, directly or indirectly, engage in the
business of manufacturing, marketing,
2
<PAGE>
distributing or selling malt liquor products, directly or indirectly, in
the Commonwealth of Massachusetts.
(b) For a period of five (5) years commencing on the date hereof, the
Restricted Parties shall not: (i) either directly or indirectly, interfere or
attempt to interfere with or disturb the relationship established between Buyer
and any employee, agent, broker, representative or independent contractor,
including, without limitation, such persons who were formally associated with
Seller; (ii) persuade or attempt to persuade anyone who did business with Seller
prior to the Closing or does business with Buyer subsequent to the Closing in
connection with the Products, including, without limitation, any supplier, to
cease to do such business; or (iii) solicit, persuade or attempt to persuade any
customer set forth on Schedule 1.5(b) or any customer doing business with Buyer
subsequent to the Closing, to do business with any entity with which the
Restricted Parties are directly or indirectly associated or to cease to do
business with Buyer.
(c) Nothing contained in this Section 1.5 shall be deemed to restrict the
right of the Restricted Parties from manufacturing, marketing, distributing or
selling Perry's Majestic beer or any direct product line extension sold under
the Perry's Majestic trademark or from restricting the right of any officer,
director or employee of Seller from becoming an employee of a national brewery.
(d) If for any reason any court of competent jurisdiction shall rule that
this Section 1.5 is unenforceable or void, in whole or in part, then the
provisions hereof shall be deemed amended to the extent which, in such court's
opinion, would render it enforceable.
(e) The Restricted Parties acknowledge and agree that: (i) Buyer would not
have entered into this Agreement but for the covenants and agreements set forth
in this Section 1.5; (ii) Buyer's damages would be difficult to ascertain in the
event of a breach or threatened breach of the covenants and agreements set forth
in this Section 1.6 and that Buyer will be entitled to injunctive relief in
either such case; and (iii) the covenants and agreements set forth in this
Section 1.5 shall expressly survive the Closing.
ARTICLE II
CLOSING
2.1 The Closing.
(a) The consummation of the transactions contemplated by this Agreement
(the "Closing") shall occur simultaneously with the execution and delivery of
this Agreement and the ancillary documents contemplated herein at the offices of
Buyer's counsel, Kreinik Aaron & Gersh, LLP, 780 Third Avenue, New York, New
York l 00 l 7
(b) At the Closing, Seller shall execute and deliver or cause to be
executed and delivered to Buyer, all documents and instruments necessary to
transfer to Buyer all of the right, title and interest of Seller in and to the
Assets and the Inventory, including, without limitation:
3
<PAGE>
(i) an Assignment Agreement and trademark assignments; and
(ii) a Bill of Sale.
(c) At the Closing, Buyer shall:
(i) execute and deliver an Employment Agreement with Austin J.
Moran, Jr.; and
(ii) execute and deliver to Seller the Secured Note.
2.2 Bulk Sales Act. In the event that it is determined by a court of
competent jurisdiction that Article 6 of the Uniform Commercial Code is
applicable to the transaction contemplated by this Agreement, Seller agrees to
indemnify Buyer from any losses incurred by Buyer arising out of or resulting
from the failure of Seller to comply with Article 6 of the Uniform Commercial
Code. The agreement set forth in this Section 2.2 shall expressly survive the
Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
As a material inducement to cause Buyer to enter into this Agreement and
consummate the transactions contemplated hereby, Seller represents and warrants
to Buyer as follows:
3.1 Organization. Existence and Authority of Seller. Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and is qualified to do business and is in good standing
as a foreign corporation in each jurisdiction in which the nature of its
business or properties makes such qualification necessary. Seller has full power
and authority to execute, deliver and perform this Agreement and all other
agreements, certificates, schedules and other documents executed or to be
executed in connection with the transactions contemplated by this Agreement. The
execution and delivery of this Agreement by Seller and the consummation of the
transactions contemplated hereby will not violate any provision of Seller's
certificate of incorporation or by-laws or any provision of any lien, lease,
agreement, instrument, order, arbitration award, judgment or decree to which
Seller is a party or by which Seller or the Assets or the Inventory are bound
and Seller is not currently in violation of any of the foregoing. Seller has
taken all actions required by law, its certificate of incorporation and by-laws
to authorize its execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby. This Agreement is a legal,
valid and binding agreement of Seller enforceable against Seller in accordance
with its terms.
3.2 Title to the Assets and the Inventory. Except as set forth on Schedule
1.1(c), Seller has, and at the Closing will convey to Buyer, good and marketable
title to all of the Assets and the Inventory, free and clear of any lien,
mortgage, security interest, claim or other encumbrance of any nature
whatsoever. The Assets to be transferred, sold, conveyed, assigned and delivered
to Buyer by Seller pursuant to this Agreement include all of the assets
necessary and used in connection with the
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manufacturing, marketing, distribution and sale of the Products and will enable
Buyer to manufacture, market, distribute and sell the Products in the manner in
which such activities have heretofore been conducted by Seller. There are no
existing agreements, options, commitments or rights granted by or on behalf of
Seller to or in any third party to acquire any of the Assets or any interest
therein.
3.3 No Default. Seller is not in default (i) under its certificate of
incorporation or bylaws, or any indenture, mortgage, lease, purchase or sales
order, or any other contract, agreement or instrument to which Seller is a party
and by which the Assets or the Inventory could be bound or affected, or (ii)
with respect to any law, regulation, order, writ, injunction or decree of any
court or any Federal, state, municipal or other domestic or foreign governmental
department, commission, board, bureau, agency or instrumentality that could
adversely affect the Assets or the Inventory. To the best knowledge of Seller,
there exists no condition, event or act which constitutes, or which after
notice, lapse of time or both, would constitute, a default under or with respect
to any of the foregoing.
3.4 Sales and Customer Information. Seller has delivered to Buyer
information concerning sales of the Products, manufacturing costs, marketing and
sales expenses and other information concerning the manufacturing, marketing,
distribution and sales of the Products (the "Sales Information"). The Sales
Information is true and correct and accurately conveys the information
disclosed.
3.5 Absence of Certain Changes. Since December 31, 1997, with respect to
the manufacturing, marketing, distribution and sale of the Products Seller has
conducted such activities in the ordinary course and in substantially the same
manner as theretofore conducted and has not: (i) incurred any material
obligations or liabilities, whether absolute, accrued, contingent or otherwise
with respect to the Assets or the Inventory; (ii) mortgaged, pledged or
subjected to any lien, lease, security interest, encumbrance or other charge any
of the Assets or the Inventory; (iii) entered into any agreement or other
arrangement for any such sale, transfer or disposition, other than the sale of
the Inventory in the ordinary course of business consistent with past practice;
(iv) suffered any changes in the condition (financial or otherwise), sales,
income, assets or liabilities with respect to the Assets; (v) suffered any loss
of employees or customers that materially and adversely affects the operations
or prospects of Seller with respect to the Assets; or (vi) otherwise suffered
any material adverse change in the business, properties, assets, condition
(financial or otherwise) or prospects of Seller with respect to the Assets.
3.6 Contracts.
(a) Schedule 3.6 sets forth a complete and correct list as of the
date hereof of all agreements, contracts and commitments (the "Contracts") of
the following types, written or oral, relating to the Assets or the Inventory
and to which Seller is a party: (i) mortgages, loan agreements, security
agreements and other agreements and instruments relating to the borrowing of
money or
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extension of credit; (ii) equipment obligations and property leases; (iii)
employment and consulting agreements; (iv) brokerage or finder's agreements; (v)
non-competition or non-disclosure agreements, agreements as to geographical
limitations and agreements as to exclusive territory; (vi) agreements with
manufacturers or distributors; (vii) agreements with sales representatives,
other than employees of such Seller; (viii) license agreements; and (xi) all
other agreements, contracts, leases, purchase or sales orders and commitments,
whether written or oral, express or implied, related to the Assets. Seller has
made available to Buyer complete and correct copies of all written Contracts and
accurate descriptions of all oral Contracts.
(b) Each of the Contracts is valid and in full force and effect and
there is no material default or claim of default thereunder and there has not
occurred any event which, with the passage of time or the giving of notice (or
both), would constitute a material default thereunder, either on the part of
Seller or, to the best knowledge of Seller after diligent inquiry, on the part
of any other party thereto. There are no unresolved disputes under any of the
Contracts other than as set forth on Schedule 3.6. Except as set forth on such
Schedule 3.6, there are no material supply, sales or other arrangements between
Seller and any of its affiliates which are on terms more favorable to Seller
than could be obtained with unaffiliated third parties.
3.7 Inventory. Schedule 1.1(b) sets forth a complete list of the Inventory
as at May 15, 1998. The Inventory is of good, usable and merchantable quality
and includes no discontinued or out of date items.
3.8 Intellectual Property Rights. Schedule 3.8 sets forth a complete list
and description of all trademarks, trade names, copyrights, patents, inventions,
processes, proprietary know-how, procedures, trade secrets, recipes, formulae
and other intellectual property rights utilized in connection with the
manufacturing, marketing, distribution and/or sale of the Products (the
"Proprietary Rights"). Seller is the registered and beneficial owner of all the
Proprietary Rights and all of the Proprietary Rights are freely assignable by
Seller to Buyer. There is no notice or claim or other indication that any
Proprietary Right is not valid or enforceable by Seller or of any infringement
upon or conflict with any intellectual property right of any third party by
Seller in connection with the sale of the Products or of any claim of a third
party alleging such infringement or conflict. Seller has no knowledge of any
infringement by any third party upon any Proprietary Right and Seller has not
taken or omitted to take any action which would have the effect of waiving any
of its rights under any Proprietary Right. Seller has the right to use, free and
clear of any royalties, claims or rights of others, all of the Proprietary
Rights used in connection with the manufacturing, marketing, distribution and
sale of the Products. The Proprietary Rights constitute all of the intellectual
property rights necessary for the manufacturing, marketing, distribution and
sale of the Products and the sale and assignment of the Proprietary Rights by
Seller will not operate in any way to adversely affect any of the Proprietary
Rights.
3.9 License Agreements and Distributorship Arrangements. Seller does not
utilize licenses granted to it by others in connection with the manufacturing,
marketing, distribution and sale of the Products and has not granted any such
license to others or any license under any Proprietary Right
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owned by Seller and has no outstanding distributorship arrangements for the sale
of the Products, other than those distributorship arrangements set forth on
Schedule 3.9.
3.10 Transactions with Interested Persons. Neither Seller nor any officer,
director, employee or affiliate of Seller owns, directly or indirectly, on an
individual or joint basis, any material interest in, or serves as an officer,
director or employee of, any customer, competitor or supplier of Seller or any
person or entity which has a contract or arrangement with Seller.
3.11 Compliance with Laws: Governmental Authorizations.
(a) Seller has not received any notice that it is in violation of
any statute, rule, regulation, judgment, order, decree, permit, concession,
franchise or other governmental authorization or approval applicable to the
manufacturing, marketing, distribution or sale of the Products.
(b) Seller has all permits, concessions, franchises and other
governmental authorizations and approvals necessary for, and material to, the
manufacturing, marketing, distribution and sale of the Products, all of which
are listed on Schedule 3.1 1, and there are no proceedings pending or, to the
best knowledge of Seller, threatened, that seek the revocation, cancellation or
suspension, or any materially adverse modification, of any thereof. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not result in any such revocation,
cancellation, suspension or modification that would have a material adverse
effect on the ability of Buyer to manufacturer, market, distribute or sell the
Products.
3.12 Litigation. There are no outstanding orders, judgments, injunctions,
investigations, awards or decrees of any court, governmental or regulatory body
or arbitration tribunal by which Seller, or any of its assets, properties or
business are bound, and which would adversely affect the Assets or the
Inventory. There are no actions, suits, claims, investigations, legal,
administrative or arbitral proceedings pending or, to the best knowledge of
Seller, threatened (whether or not the defense thereof or liabilities in respect
thereof are covered by insurance) against or affecting Seller, or any of its
assets or properties, that, individually or in the aggregate, could, if
determined adversely to Seller, reasonably be expected to have a material
adverse effect on the Assets or the Inventory, nor, to the best knowledge of
Seller, are there any facts which could reasonably be expected to give rise to
any such action, suit, claim, investigation or legal, administrative or arbitral
proceeding.
3.13 Termination of Business Relationships. No manufacturer material to
the production of the Products, no distributor or sales agent material to the
distribution or sale of the Products and no material customer for the Products
has advised Seller of any intention to cancel or otherwise terminate its
business relationship with Seller. Seller has no reason to believe that any
manufacturer, distributor, sales agent or customer material to Seller's
manufacturing, marketing, distribution or sale of the Products will be affected
by the transaction contemplated by this Agreement or that there will be any
material adverse effect on the manufacturing, marketing, distribution or sale of
the Products arising from the change of ownership contemplated by this
Agreement.
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3.14 Absence of Questionable Payments. To the best knowledge of Seller,
neither Seller nor any of its officers or directors, nor any employees or, at
the direction of Seller, any agent purporting to act on behalf of Seller, has
made or agreed to make any payment or other use of any of the assets of Seller
(i) to or on behalf of an official of any government, or to a manufacturer,
distributor, supplier or customer, or for any purpose related to political
activity, except as permitted by applicable law, (ii) for any of the purposes
described in Section 162(c) of the Internal Revenue Code, or (iii) for the
establishment or maintenance of any concealed fund or concealed bank account.
3.15 Disclosure. The representations and warranties contained in this
Agreement and the information contained in the Schedules, written documents,
statements, lists, certificates and other instruments delivered by or on behalf
of Seller in connection with the transaction contemplated by this Agreement do
not contain any untrue statement of a material fact, or omit to state a material
fact necessary to make the factual statements contained therein, in light of the
circumstances under which made, not misleading. There is no fact known to Seller
after diligent inquiry that materially adversely affects, or in the future may
materially adversely affect, the condition of the Assets or the Inventory which
has not been set forth herein or in the Schedules referred to herein.
3.16 Survival. All of the representations and warranties of Seller
contained herein shall survive the Closing until the date upon which the
liability to which any claim relating to any such representation or warranty is
barred by any applicable statute of limitations.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
4.1 Organization and Qualification. Buyer is a corporation validly
existing and in good standing under the laws of the State of New York, and has
all requisite corporate power and authority to (a) own, lease and operate its
properties and assets as they are now owned, leased and operated and (b) carry
on its business as now presently conducted and is duly qualified to do business
in each jurisdiction in which the nature of its business or properties makes
such qualification necessary.
4.2 Validity and Execution of Agreement. Buyer has the full legal right,
capacity and power and all requisite corporate authority and approval required
to enter into, execute and deliver this Agreement and any other agreement or
instrument contemplated hereby, and to perform fully its obligations hereunder
and thereunder. The Board of Directors of Buyer has approved the transactions
contemplated by this Agreement and each of the other agreements required to be
entered into pursuant hereto by Buyer. This Agreement and such other agreements
and instruments have been duly executed and delivered by Buyer and each
constitutes the valid and binding obligation of Buyer enforceable against it in
accordance with its terms.
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4.3 No Conflict. Neither the execution and delivery of this Agreement nor
the performance by Buyer of the transactions contemplated herein will (a)
violate or conflict with any of the provisions of its Certificate of
Incorporation or By-Laws or other organizational documents; or (b) violate or
conflict with any provision of any law, rule, regulation, order, judgment,
decree or ruling of any court or Federal, state or local governmental or
regulatory body applicable to Buyer.
4.4 Survival. All of the representations and warranties of Buyer contained
herein shall survive the Closing until the date upon which the liability to
which any claim relating to any such representation or warranty is barred by any
applicable statutes of limitations
ARTICLE V
CONDITIONS TO CLOSING
CONDITIONS PRECEDENT TO THE CLOSING
5.1 Conditions Precedent to Parties' Obligations. The respective
obligations of Seller and Buyer to consummate the transactions contemplated
hereby shall be subject to the fulfillment, nor to or at the Closing, of each of
the following conditions, any one or portion of which may be waived in writing:
(a) Consents. Seller shall have obtained all necessary consents to
assignment of all parties to contracts relating to the Assets or the Inventory.
Additionally, Seller shall have executed and delivered to Buyer a certificate,
dated the date of the Closing and signed by its President, containing certified
resolutions of the directors of Seller authorizing Seller to enter into this
Agreement and to consummate the transactions contemplated hereby. Buyer shall
have delivered to Seller a certificate, dated the date of the Closing and signed
by its President, containing certified resolutions of the shareholders and
directors of Buyer authorizing Buyer to enter into this Agreement and to
consummate the transactions contemplated hereby.
(b) No Suits or Actions. At the Closing, no suit, action or other
proceeding shall have been threatened or instituted to restrain, enjoin or
otherwise prevent the consummation of this Agreement or the transactions
contemplated hereby. Additionally, there shall be no other action, suit, claim,
investigation or legal, administrative or arbitral proceeding, either pending or
threatened, against Seller or Buyer.
(c) Opinion of Counsel. Buyer shall have received a favorable legal
opinion from counsel for Seller.
(d) Employment Agreement. Austin J. Moran, Jr. shall have executed
and delivered an employment agreement with International Beverages, Inc., a
wholly-owned subsidiary of Buyer.
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(e) Escrow Agreement. Austin J. Moran, Jr., Charles H. Cremens,
Esq. (as escrow agent) and Seller shall have entered into an escrow agreement
with respect to the portion of the purchase price to be held in escrow pursuant
to Section 1.3.
(f) Instruments of Conveyance. Seller shall execute and deliver to
Buyer all such documents and instruments as shall be necessary to convey,
transfer and assign to Buyer all of Buyer's right, title and interest in and to
the Assets and the Inventory pursuant to Section 2.1 (b).
ARTICLE VI
INDEMNIFICATION
6.1 Indemnification.
(a) Seller agrees to indemnify, defend and hold harmless Buyer and
its directors, officers, employees, stockholders and any affiliate of any the
foregoing, and their successors and assigns (collectively, the "Buyer Group")
from and against any and all losses, liabilities, damages (including punitive or
exemplary damages and fines or penalties and any interest thereon), expenses
(including reasonable fees and disbursements of counsel and expenses of
investigation and defense), claims, liens or other obligations of any nature
whatsoever (individually, a "Loss" and collectively, "Losses") suffered or
incurred by the Buyer Group which arise out of, result from or relate to, (i)
any breach of any representation or warranty of Seller contained in Article 111,
(ii) any breach of any covenant or agreement of Seller contained in this
Agreement or in any other document contemplated by this Agreement, and (iii) any
and all actions, suits, proceedings, claims, demands, assessments, judgments,
costs, losses, liabilities and expenses incident to any of the foregoing.
(b) Buyer agrees to indemnify, defend and hold harmless Seller and
its directors, officers, employees and stockholders, and any affiliates of any
the foregoing, and their successors and assigns from and against any and all
losses suffered or incurred by them which, directly or indirectly, arise out of,
result from or relate to (i) any inaccuracy in or any breach of any
representation or warranty of Buyer contained in Article IV, (ii) any breach of
any covenant or agreement of Buyer contained in this Agreement or in any other
document contemplated by this Agreement, and (iii) any and all actions, suits,
proceedings, claims, demands, assessments, judgments, costs, losses, liabilities
and expenses incident to any of the foregoing.
6.2 Method of Asserting Claims. The party making a claim under this
Article VI is referred to as the "Indemnified Party" and the party against whom
such claim is asserted under this Article VI is referred to as the "Indemnifying
Party." All claims by any Indemnified Party under this Article VI shall be
asserted and resolved in accordance with the terms and provisions set forth in
Sections 6.2(a) - (c) below.
(a) In the event that any claim or demand for which an Indemnifying
Party would be liable to an Indemnified Party hereunder is asserted against or
sought to be collected from such Indemnified Party by a third party, said
Indemnified Party shall with reasonable promptness notify in
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writing the Indemnifying Party of such claim or demand, specifying the nature of
such claim or demand, and the amount or the estimated amount thereof to the
extent then feasible (which estimate shall not be conclusive of the final amount
of such claim and demand; any such notice, together with any notice given
pursuant to Section 6.2(b) hereof, collectively being the "Claim Notice");
provided, however, that any failure to give such Claim Notice will not be deemed
a waiver of any rights of the Indemnified Party except to the extent the rights
of the Indemnifying Party is actually prejudiced by such failure. The
Indemnifying Party, upon request of the Indemnified Party, shall retain counsel
(who shall be reasonably acceptable to the Indemnified Party) to represent the
Indemnified Party, and shall pay the fees and disbursements of such counsel with
regard thereto, provided, further, that the Indemnified Party is hereby
authorized prior to the date on which it receives written notice from the
Indemnifying Party designating such counsel, to retain counsel, whose fees and
expenses shall be at the expense of the Indemnifying Party, to file any motion,
answer or other pleading and take such other action which it reasonably shall
deem necessary to protect its interests or those of the Indemnifying Party until
the date on which the Indemnified Party receives such notice from the
Indemnifying Party. After the Indemnifying Party shall retain such counsel, the
Indemnified Party shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
unless (i) the Indemnifying Party and the Indemnified Party I shall have
mutually agreed to the retention of such counsel or (ii) the named parties of
any such proceeding (including any irnpleaded parties) include both the
Indemnifying Party and the Indemnified Party and representation of both parties
by the same counsel would be inappropriate due to actual or potential differing
interests between them. The Indemnifying Party shall not, in connection with any
proceedings or related proceedings in the same jurisdiction, be liable for the
fees and expenses of more than one such firm for the Indemnified Party (except
to the extent the Indemnified Party retained counsel to protect its (or the
Indemnifying Party's) rights prior to the selection of counsel by the
Indemnifying Party). The Indemnified Party agrees to cooperate with the
Indemnifying Party and its counsel in contesting any claim or demand that the
Indemnifying Party defends. No claim or demand may he settled by an Indemnifying
Party or, where permitted pursuant to this Agreement, by an Indemnified Party,
without the consent of the Indemnified Party in the first case or the consent of
the Indemnifying Party in the second case, which consent shall not be
unreasonably withheld, unless such settlement shall be accompanied by a complete
release of the Indemnified Party in the first case or the Indemnifying Party in
the second case, or, where permitted pursuant to this Agreement, by an
Indemnified Party without the consent of the Indemnified Party in the first case
or the consent of the Indemnifying Party in the second case.
(b) In the event any Indemnified Party shall have a claim against
any Indemnifying Party hereunder which does not involve a claim or demand being
asserted against or sought to be collected from it by a third party, the
Indemnified Party shall send a Claim Notice with respect to such claim to the
Indemnifying Party. If the Indemnifying Party does not dispute such claim, the
amount of such claim shall be paid to the Indemnified Party within twenty (20)
days of receipt of the Claim Notice. If the Indemnifying Party elects to dispute
such claim, the basis for such dispute shall be set forth in detail and in
writing and such dispute shall promptly be submitted to arbitration pursuant to
Section 8.16.
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(c) So long as any right to indemnification exists pursuant to this
Article VI, the affected parties each agree to retain all relevant books,
records, accounts, instruments and documents reasonably related to such
indemnification. In each instance, the Indemnified Party shall have the right to
be kept informed by the Indemnifying Party and its legal counsel with respect to
all significant matters relating to any legal proceedings. Any information or
documents made available to any party hereunder, which information is designated
as confidential by the party providing such information and which is not
otherwise generally available to the public, or which information is not
otherwise lawfully obtained from third parties or not already within the
knowledge of the party to whom the information is provided (unless otherwise
covered by the confidentiality provisions of any other agreement among the
parties hereto, or any of them), and except as may be required by applicable law
or requested by third party lenders to such party, shall not be disclosed to any
third person (except for the representatives of the party being provided with
the information, in which event the party being provided with the information
shall request its representatives not to disclose any such information which it
otherwise required hereunder to be kept confidential).
ARTICLE VII
POST CLOSING COVENANTS OF THE PARTIES
7.1 Confidentiality. From and after the Closing, Seller shall not disclose
or furnish to any other Person, except to the extent required by law or by order
of any court or governmental agency, any information which is not generally
known in the industry relating to the Asset transferred to Buyer pursuant hereto
or used in connection with the Assets or any trade secrets related to the
Assets. Commencing upon the date hereof, Seller shall not directly or indirectly
commercially exploit the Assets, or any product similar to the Assets, in any
manner whatsoever.
7.2 Post-Closing Further Assurances. At any time and from time to time
after the Closing at the request of either party and without further
consideration, the other party will execute and deliver, or cause the execution
and delivery of, such other instruments of sale, transfer, conveyance,
assignment and confirmation and take or cause to be taken such other action as
the party requesting the same may reasonably deem necessary or desirable in
order to transfer, convey and assign more effectively to the requesting party
all of the property and rights intended to be conveyed to such party pursuant to
the provisions of this Agreement.
7.3 Customer and Broker Lists and Information. From and after the Closing
Seller shall treat Seller's customer and distributor lists and related
information as a confidential proprietary asset of Buyer transferred to Buyer
pursuant to this Agreement and will not divulge or utilize such customer or
distributor lists or information in any manner whatsoever. Seller will not copy
or retain any such customer or distributor list or information subsequent to the
Closing in any form.
ARTICLE VIII
MISCELLANEOUS
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8.1 Sales and Transfer Taxes. All required filings under any applicable
Federal, state, foreign or local sales tax, stamp tax or similar laws or
regulations shall be made in a timely manner by Buyer and, at the Closing, Buyer
shall deliver to Seller either (a) proof of the payment of any sales tax
assessed pursuant to such filings or (b) statements of no sales tax due, as the
case may be. The parties agree that any and all transfer, sales or stamp taxes
and any similar taxes or assessments imposed on the transfer of the Assets and
the Inventory in accordance with the terms of this Agreement shall be borne
equally by Buyer and Seller.
8.2 Notices. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be in writing and shall be
given personally, telegraphed, telefaxed, sent by facsimile transmission or sent
by prepaid air courier, same day or overnight messenger or certified, registered
or express mail, postage prepaid. Any such notice shall be deemed to have been
given (a) when received, if delivered in person, telegraphed, telexed, sent by
facsimile transmission and confirmed in writing within three (3) business days
thereafter or sent by prepaid air courier, same day or overnight messenger or
(b) three (3) business days following the mailing thereof, if mailed by
certified first class mail, postage prepaid, return receipt requested, in any
such case as follows (or to such other address or addresses as a party may have
advised the other in the manner provided in this Section 8.(2):
If to Seller, to:
Perry's Majestic Beer, inc.
38 West 32nd Street, Suite 801
New York, NY 10001
Att: Robert J. Sipper
Telephone Number: (212) 564-2260
Telecopier Number: (212) 564-1862
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If to Buyer to:
The Brooklyn Brewery Corporation
79 North 11th Street
Brooklyn, NY 11211
Att: Thomas D. Potter
Telephone Number: (718) 486-7422
Telecopier Number: (718) 486-7440
with a copy to:
Kreinik Aaron & Gersh, LLP
780 Third Avenue
New York, NY 10017
Att: Steven T. Gersh, Esq.
Telephone Number: (212)752-1144
Telecopier Number: (212)752-8881
8.3 Publicity. No publicity release or announcement concerning this
Agreement or the transactions contemplated hereby shall be made without advance
approval thereof by Buyer and Seller, provided, however, that both parties shall
be entitled to make all such public disclosures regarding this Agreement and the
transaction contemplated herein as may be required pursuant to any Federal or
state laws or regulations, including Federal and state securities laws.
8.4 Entire Agreement. This Agreement (including the Exhibits and
Schedules) and the agreements, certificates and other documents delivered
pursuant to this Agreement contain the entire agreement among the parties with
respect to the transactions described herein, and supersede all prior
agreements, written or oral, with respect thereto.
8.5 Waivers and Amendments. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms hereof may he waived, only by a
written instrument signed by the parties hereto or, in the case of a waiver, by
the party waiving compliance. No delay on the part of any party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof.
8.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of law. Subject to Section 8.16, the parties hereto (i) agree that
any legal suit, action or proceeding arising out of or relating to this
Agreement may be instituted in a court of the State of New York or the Federal
court for the Southern District of New York, and (ii) waive any objection which
they may now or hereafter have to the laying of the venue of any such suit,
action or proceeding. Further, the parties hereto agree that the mailing of any
process in any suit, action or proceeding in accordance with the notice
provisions of this Agreement shall constitute personal service thereof.
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8.7 Binding Effect; No Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors, assigns
and legal representatives. This Agreement is not assignable except by operation
of law and any other purported assignment shall be null and void.
8.8 Variations in Pronouns. All pronouns and any variations thereof refer
to the masculine, feminine or neuter, singular or plural, as the context may
require.
8.9 Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
8.10 Exhibits and Scheduling. The Exhibits and Schedules are a part of
this Agreement as it fully set forth herein. All references herein to Sections,
subsections, clauses, Exhibits and Schedules shall be deemed references to such
parts of this Agreement, unless the context shall otherwise require.
8.11 Effect of Disclosure on Schedules. Any item disclosed on any
Schedule shall only be deemed to be disclosed in connection with (a) the
specific representation and warranty to which such Schedule is expressly
referenced, (b) any specific representation and warranty which expressly
cross-references such Schedule and (c) any specific representation and warranty
to which any other Schedule to this Agreement is expressly referenced if such
other Schedule expressly cross-references such Schedule.
8.12 Headings. The headings in this Agreement are for reference only, and
shall not affect the interpretation of this Agreement.
8.13 Severability of Provisions. If any provision or any portion of any
provision of this Agreement or the application of such provision or any portion
thereof to any Person or circumstance, shall be held invalid or unenforceable,
the remaining portion of such provision and the remaining provisions of this
Agreement, or the application of such provision or portion of such provision as
is held invalid or unenforceable to persons or circumstances other than those as
to which it is held invalid or unenforceable, shall not be affected thereby.
8.14 Brokers. Each party hereto represents and warrants that no broker or
finder is entitled to any brokerage or finder's fee or other commission from
such party, based on agreements, arrangements or undertakings made by such
party, in connection with the transactions contemplated hereby.
8.15 Expenses. Whether or not the transactions contemplated hereby shall
be consummated, each party shall (except as otherwise specifically provided
herein) pay its own expenses incident to the preparation and performance of this
Agreement.
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8.16 Arbitration. Any controversy, dispute or question arising out of, in
connection with, or in relation to this Agreement or its interpretation or
performance or non-performance, or for any breach, shall be determined by
arbitration in accordance with the then existing rules of the American
Arbitration Association in New York, New York. Judgment upon any award rendered
by the arbitrator(s) may be entered in any court having jurisdiction. No
provision of this Section 8.16 shall limit the right of any party to exercise
self-help remedies, if any, to obtain any provision or ancillary remedies
(including, but not limited to, injunctive relief or specific performance) from
a court of competent jurisdiction in New York State. The institution and
maintenance of any remedy permitted above shall constitute a waiver of the right
to submit any controversy or claim to arbitration. The statute of limitations,
estoppel, laches, and similar doctrines which would otherwise be applicable in
an action brought by a party shall be applicable in any arbitration.
8.17 Interest. If any party shall be required to make any payment(s) to
any other party pursuant to this Agreement including but not limited to pursuant
to any section of this Agreement which provides for indemnification and the
party required to make such payment shall fail to make such payment as and when
the same shall be due hereunder, such payment shall bear interest at the rate of
ten (10%) percent per annum from the due date and until such payment shall be
made and such party shall also be entitled to recover, upon demand all expenses
reasonably required in collecting such payment, including reasonable attorneys
fees.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
PERRY'S MAJESTIC BEER, INC.
By: /s/ Robert J. Sipper
------------------------
Robert J. Sipper,
President
THE BROOKLYN BREWERY CORPORATION
By: /s/ Stephen K. Hindy
------------------------
Stephen K Hindy
President
16
<PAGE>
SCHEDULE 1.l(a)
THE PRODUCTS
Trade Name: Post Road Pale Ale
Post Road American Lager
Post Road French Country Ale
Post Road IPA (India Pale Ale)
Post Road Snowshoe Ale
Post Road Summertime Brew
Post Road Ruby Horse Ale
<PAGE>
SCHEDULE 1.1(B)
POST ROAD INVENTORY APRIL 1998 - CATAMOUNT
ITEM (LABEL) QUANTITY TOTAL
PR IPA BODY 161544 $ 848.11
PR IPA NECK 139044 $ 729.98
PR PALE BODY 83528 $ 438.52
PALE NECK 49528 $ 260.02
PR SUM BODY 264000 $ 1,386.00
PR SUM NECK 320500 $ 1,682.63
PR SNOW BODY 75000 $ 705.00
PR SNOW NECK 105000 $ 746.55
SIX PACK:
PR IPA 132008 $ 25,081.52
PR PALE 123187 $ 23,405.53
PR SUM 66800 $ 12,654.00
PR SNOW 4800 $ 1,389.60
PR SUM 12 PACK 26040 $ 20,962.20
MOTHER CARTON:
PR IPA 1331 $ 505.78
PR PALE 1107 $ 420.66
PR SUM 3250 $ 1,235.00
PR SNOW 1500 $ 577.50
CROWNS:
PR IPA 451544 $ 3,070.50
PR PALE 449528 $ 3,056.79
PR SUM 0 $ 0.00
PR SNOW 197500 $ 1,343.00
PR BARLEY 140 $ 2,849.00
RAW MATERIAL TOTAL $ 103,347.89
KEGS-OWNED 600 $ 41,400.00
KEGS-LEASED 300 $ 9,000.00
POST ROAD TAP HANDLES 100 $ 2,800.00
KEY CHAINS 5000 $ 2,550.00
T-SHIRTS 2000 $ 8,000.00
HARDWARE TOTAL $ 63,750.00
PALE CASES $ 0.00
IPA CASES $ 0.00
SNOWSHOE CASES 1309 $ 11,074.14
SNOWSHOE KEGS $ 0.00
FINISHED PROD. TOTAL $ 11,074.14
CATAMOUNT GRAND TOTAL $ 178,172.03
<PAGE>
SCHEDULE 1.1(c)
Assumed Liabilities
Buyer agrees to assume a keg lease with Granite Financial in the amount of
approximately $14,217.61 requiring 17 monthly payments, each in the amount of
approximately $836.33. Buyer shall assume this lease.
<PAGE>
SCHEDULE 1.1(d)
Trademarks
Post Road trademarked with the U.S. Patent and Trademark office.
Post Road Snowshoe Ale trademark application pending with the U.S. Patent
and Trademark office.
<PAGE>
Trademarks REGISTERED
Word Mark POST ROAD
Serial Number 75 -252892
Date Filed 19970306
Pub for Opp 19971028
Regis. No. 2130646
Regis. Date 19980120
Status Registered
Status Date 980120
Register Principal
Type of Mark Trademark
Mark Drg Code 1: Word Only
Int'l Class 032 - Light Beverages
Goods & Srvce beer
US Class 045 - Soft Drinks and Carbonated Waters
US Class 046 - Foods and Ingredients of Foods
US Class 048 - Malt Beverages and Liquors
1st Use Date 19890200
1st Comm Date 19890200
Last Rep Ownr PERRY'S MAJESTIC BEER, INC.
134 Morgan Ave.
Brooklyn, NY 11237
<PAGE>
Word Mark POST ROAD SNOWSHOE ALE
Pseudo Mark POST ROAD SNOW SHOW ALE
Serial Number 75-377436
Date Filed 19971022
Status Pending
Status Date 980324
Register Principal
Type of Mark Trademark
Mark Drg Code 5. Illus./Word in stylized form
Int'l Class 032 - Light Beverages
Goods & Srvcs Beers
US Class 045 - Soft Drinks and Carbonated Waters
US Class 046 - Foods and Ingredients of Foods
US Class 048 - Malt Beverages and Liquors
lst Use Date 19970821
1st Comm Date 19970821
Last Rep Ownr PERRY'S MAJESTIC BEER, INC.
134 Morgan Ave.
Brooklyn, NY 11237
<PAGE>
SCHEDULE l.5(b)
Current Post Road Customers of Seller
<PAGE>
SCHEDULE 3.6
Contracts
<PAGE>
SCHEDULE 3.8
Intellectual Property Rights
"Post Road" trademarked with the U.S. Patent & Trademark Office.
<PAGE>
SCHEDULE 3.9
Distributorship Arrangements and License Agreements
The following are the existing Post Road distributors:
Connecticut: Burt's Beverage
Franklin Distributors
G & G Distributors
Maine: Briggs, Inc.
Vermont: Calmont Distributors
Rhode Island: Johnson Brothers of Rhode Island, Inc.
License Agreements:
License Agreement (Merchandising Agreement) dated May 15,1998 with Chip
Caton, Artist Representatives for Michael McCurdy for perpetuity to utilize
"Pale Ale," "IPA," "Snowshoe Ale," "Summertime Brew" and "Ruby Horse Ale,"
illustration for national usage, exclusive to the beverage industry and for all
illustrations.
<PAGE>
SCHEDULE 3.11
Permits, Concessions, Franchises
and Governmental Authorizations
Federal Basic Permit
BATF label approval through Catamount Brewing Company, Inc. for the following
labels:
Kegs
Post Road IPA
Post Road Snowshoe Ale
Post Road Summertime Brew
Post Road Ruby Horse Ale
Post Road Pale Ale
Bottle Label
Post Road Pale Ale
Post Road IPA
Post Road Snowshoe Ale
Post Road Summertime Brew*
- --------------
* White River Brewery
<PAGE>
EXHIBIT A
ESCROW AGREEMENT
<PAGE>
ESCROW AGREEMENTS
WHEREAS, International Beverages, Inc. [hereinafter "International"), a
corporation organized under the laws of the Commonwealth of Massachusetts doing
business as The Craft Brewers Guild and Perry's Majestic Beer, Inc. (hereinafter
"Perry's"), a New York corporation, have entered into certain agreements for the
purchase and sale of certain assets; and,
WHEREAS, to complete the transaction the parties have agreed to pay the
outstanding tax obligations of Austin J. Moran, Jr. which are set forth on the
annexed Exhibit A.
WHEREAS, the parties have agreed that an escrow agent is necessary to hold
funds for the payment of these tax obligations; and
WHEREAS, the parties have agreed to have Charles H. Cremens, Esq. of 19
Beacon Street, Boston, Massachusetts, to serve as escrow agent.
It is agreed as follows:
1. The parties shall deliver to Charles H. Cremens, Esq. the sum of
$35,000.00 on or before June 1, 1998 to be held in escrow by him for
the purpose of the payment of Austin J. Moran, Jr.'s tax obligations
as set forth in Exhibit A.
2. The escrow agent is hereby authorized to disperse from the escrow funds,
all or such amount as may be necessary to satisfy the tax liens referred
to in paragraph 1 above.
3. The escrow agent shall be liable as a depositary only and shall not be
responsible for the sufficiency or accuracy of the form, execution or
validity of documents deposited hereunder, or any description of
property or other thing therein nor shall it be liable in any respect on
account of the identity, authority, or rights of the persons executing
or delivering or purporting to execute or deliver any such document or
paper.
4. The escrow agent as part of the consideration for the acceptance of this
escrow, shall not be liable for any acts or omissions done in good
faith, nor for any claims, demands or losses, nor for any damages made
or Buffered by any party to this escrow, excepting such as may arise
through or be caused by his willful or gross negligence.
5. The escrow agent shall not be liable for collection of interest on any
deposit of money. He may rely upon any paper, document or other writing
believed by him to be authentic in making any delivery of money
hereunder. The escrow agent shall in no way be responsible nor shall it
be his duty to notify any party hereto or party interested in this
escrow deposit of any payment made.
6. In accepting any funds delivered hereunder it is agreed and understood
between the parties hereto that the escrow agent is authorized in hi.
sole discretion to pay the escrowed funds on account of the tax
obligations set forth in Exhibit A and any attorneys' fees incurred in
resolution of the outstanding tax obligations.
7. It is further agreed that the escrow agent at the termination of two
years from date, shall have the right to consider this escrow contract
of no further force and effect. and shall have the right to deliver the
documents, moneys or instrument. hereby deposited to the respective
parties depositing such documents, moneys or instruments, and that
redelivery of such documents, moneys or instruments shall relieve the
said escrow agent from any further liability with reference thereto.
8. It is further understood and agreed between the parties that these
instructions supercede any other contract with reference to this escrow
deposit, insofar as said escrow agent is concerned, and that the said
agent may rely absolutely hereon to the exclusion of any and all other
agreements between the parties hereto.
Accepted:
EXHIBIT 10.22
AGREEMENT TO PURCHASE AND MARKET BRAND NAME AND RECIPES
THIS AGREEMENT, dated June 30, 1998 by and between Leroux Creek Food
Corporation, a Colorado corporation (the "Seller"), and Perry's Majestic
Beer, Inc., a Delaware corporation (the "Buyer")
WITNESSETH:
WHEREAS, Seller is engaged in the business among other things, of
manufacturing, marketing and distributing applesauce, apple sauce blends and
apple butter made from associated proprietary recipes; and
WHEREAS, the Seller wishes to sell, and the Buyer wishes to purchase the
brand name, Leroux Creek Foods, and the related products and associated recipes
of Seller as well as the exclusive right to market, distribute and sell the
Products produced under the "Leroux Creek" label, including all applesauce,
applesauce blends, and apple butter.
NOW THEREFORE, in consideration of the mutual terms, conditions and other
agreements set forth herein, the Seller and the Buyer hereby agree as follows:
ARTICLE I.
PURCHASE AND SALE OF THE ASSETS
1.1 Purchase of Selected Assets. Subject to the terms and conditions set
forth in this Agreement, the Seller agrees that, on the Closing Date, the Seller
shall complete and execute the documents and escrow instructions required to
sell, transfer, assign, convey and deliver to the Buyer, Seller's right, title
and interest in and to the brand name "Leroux Creek Foods", and the related
products including all apple sauce, apple sauce blends presently marketed, and
the recipes for said related products as of the date of this Agreement (the
"Products") of Seller as well as the exclusive right to market, distribute and
sell the Products produced under the "Leroux Creek" label, and intellectual
property directly relating to the marketing, sale and distribution of the
Products, free and clear of all liens, mortgages, security interests, claims, or
other encumbrances of any nature whatsoever, which shall include, but not be
limited to the following:
(a) Physical Assets: All of Seller's customer lists, distribution
brokerage agreements, advertising plans and the like, directly used in
connection with the marketing, sale and distribution of the Products.
(b) Intangible Assets: All rights, title, and interest in and to the
Products, including, without limitation, (i) the exclusive right to market,
sell, and distribute the Products and to sell to Seller's past and present
customers and to utilize Seller's brokers; (ii) the good will associated with
the Products and the Assets; (iii) a non-exclusive license to use the
certification mark "Grown Without Pesticides" (application pending) as set forth
below in section 1.7; (iv) the right to the packaging designs and art graphics
for the Products; and (v) all information concerning past and present marketing
campaigns for the Products; (vi) all trade secrets and associated files which
are limited to the recipes for the products.
(c) Leases, Licenses, etc.: All right, title, interest in and to the
leases, licenses, permits, authorizations, contract rights, agreements, whether
written or oral, orders and other documents used in connection with the
marketing, distribution and sale of the Products;
(d) Intellectual Property Rights: All trademarks, trade names, and
other intellectual property rights utilized in connection with the marketing,
sale and distribution of the Products, (excepting the rights to use or apply the
Certification Mark "Grown Without Pesticides" or its variants [the Certification
Mark], such rights non-exclusively licensed as set forth below in section 1.7)
including written records thereof, including, without limitation, all rights to
the name "Leroux Creek" and all variations thereof and the registered trademark
"Leroux Creek" and the goodwill associated with such trademarks.
<PAGE>
1.2 Allocation of Purchase Price. Purchase price of $650,000.00 shall be
allocated in full to the brand name Leroux Creek Foods.
1.3 No Assumed Liabilities. The Buyer shall not assume nor be responsible
for any liabilities or obligations of the Seller or any of its affiliates (the
"Non-Assumed Liabilities").
1.4 Purchase of the Assets.
(a) In consideration for the Assets, Buyers shall pay the sum of six
hundred fifty thousand dollars ($650,000) (the "Purchase Price") as follows: at
Closing (as defined herein) Buyer shall (i) pay to Seller the non-refundable sum
of sixty-two thousand five hundred dollars ($62,500.00) in cash or certified
funds; (ii) deliver to Seller for conveyance to the Escrow Agent as hereinafter
defined a promissory note (the "Note") in the principal amount of five hundred
eight-seven thousand five hundred dollars ($587,500.00) bearing interest at the
rate of 9% per annum, principal payable on the six month anniversary of the
Closing and interest payable monthly beginning on the one-month anniversary of
the Closing, in the form annexed hereto as Exhibit A, which shall be delivered
by Seller to the Escrow Agent; and (iii) enter into a Consulting Agreement with
Edward Tuft as set forth in Exhibit B attached hereto; (iv) enter into a
Production Agreement with Seller as set forth in Exhibit F attached hereto; (v)
provide Seller for delivery to the Escrow Agent with options to purchase two
hundred fifty thousand (250,000) shares of common stock, par value $.0001 per
share, of Buyer at fair market value at the date of the Closing. The option to
purchase said shares shall be in effect for five years from the date of Closing
Each exercise of an option granted hereunder shall be by means of a notice of
exercise (the "Notice of Exercise") delivered to Buyer specifying the number of
Option Shares to be purchased. Within five (5) days of receiving the Notice of
Exercise, Buyer shall schedule a closing for purchase of the stock (the "Stock
Closing") which shall be no more than five (5) days later. At the Stock Closing,
the Company shall deliver the Option Shares to Edward Tuft with the appropriate
transfer documents and Edward Tuft shall pay to Buyer the full purchase price of
such exercised Option Shares whether in cash or by certified check payable to
the order of "Perry's Majestic Beer, Inc." All Option Shares issued pursuant to
such option shall be fully paid and non-assessable and shall not be subject to
any liens. Neither Edward Tuft nor any other person legally entitled to exercise
the Option shall be entitled to any of the rights or privileges of a stockholder
of the Company with respect to any common shares issuable upon any exercise of
the Option unless and until the Option is exercised; and (vi) appoint Edward
Tuft or his designated agent as a member of the Board of Directors of Perry's
Majestic Beer, Inc.
(b) As further consideration for the Assets, for a period of five (5)
years from the date hereof (the "Royalty Period") Seller shall receive from
Buyer royalty payments equal to $.25 per case on each case of the Products sold
by Buyer during the Royalty Period. Such Royalty Payments shall be made to
Seller on a quarterly basis and within sixty (60) days of the end of each fiscal
quarter of Buyer. Upon written request from the Seller, the Buyer will make
available to Seller within thirty (30) days an accounting of Royalty Payments
for such quarter after the conclusion of each such fiscal quarter.
1.5 Exclusive Right to Market. Distribute and Sell. As of the date of
Closing, subject to timely payment of the Promissory Note referred to in
paragraph 1.3, Seller shall not sell any Products bearing the names, trade names
or trademarks referred to in this Agreement to any person or entity other than
Buyer and Buyer's designees. Seller shall sell and deliver such Products to
Buyer, upon placement of purchase orders by Buyer, in good and merchantable
condition. The manufacturing, shipping and quality of said Products shall
likewise be governed by the Production Agreement..
1.6 Limitation on Assignment. Further Assurance. To the extent that the
assignment of any contracts to be assigned to the Buyer, as provided herein,
shall require the consent of another party thereto, this Agreement shall not
constitute an agreement to assign the same if an attempted assignment would
constitute a breach thereof. To the extent required, the Seller agrees that it
will use all reasonable efforts to obtain the written consent of all necessary
parties to the assignment of the Buyer of all assigned contracts. If any such
consent is not obtained, the Seller shall use all reasonable efforts to obtain
the same and will cooperate with the Buyer, as appropriate, in any reasonable
arrangement designed by the Buyer to provide to the Buyer, as appropriate, the
benefits thereunder and the Buyer shall assume all correlative obligations to
effectuate such arrangement.
1
<PAGE>
1.7 Certification Mark. The Buyer understands that the Certification Mark
"Grown Without Pesticides" is now owned by the Seller. The Certification Mark is
owned by Edward Tuft and another (collectively, the "Certification Mark Owner")
and is applied by the Seller under a nonexclusive license according to standards
which the Seller currently meets. The Buyer acknowledges Certification Mark
Owner's exclusive rights in the Certification Mark notwithstanding prior,
erroneous efforts by the Seller to register the Certification Mark under the
Seller's name. Further, the Buyer agrees to cooperate as reasonably requested by
the Certification Mark Owner to quitclaim any apparent rights, and to take such
other steps, including but not limited to adjusting the appearance of the
Certification Mark at Certification Mark Owner's expense, as the Certification
Mark Owner may reasonably request. Upon Seller's request and at Buyer's option,
Buyer may agree to execute a more formal, written license authorizing Buyer's
use and application of the Certification Mark, a more formal, written license
for the Certification Mark. It is understood and agreed that such license shall
include, among other terms, language providing: a) that the license is fully
paid-up, royalty free during its initial term; b I that its initial term shall
be for five years, for standards which are not beyond the existing standards
(which Seller currently meets), and c) that the license shall be renewable after
the initial term on the Certification Mark Owner's then-current standards and on
the Certification Mark Owner's then-current terms.
ARTICLE II
CLOSING
2.1 The Closing.
(a) The consummation of the transactions contemplated by this Agreement
(the "Closing") shall be held at a place chosen by the parties or the
transactions may take place in counterpart from separate locations.
(b) At the Closing, the Seller shall execute and deliver to Western Escrow
Service (hereafter, "Escrow Agent"), to be treated pursuant to the escrow
instructions noted in Article 2. l(e) and Exhibit C, all documents and
instruments necessary to transfer to the Buyer all of the right, title and
interest of the Seller in and to the trade names and Products, including,
without limitation:
(i) The Assignment Agreement in the form annexed hereto as
Exhibit D;
(ii) Documents reflecting assignment of all names, patents,
licenses and trademarks included among the purchased Assets;
(iii) A Bill of Sale in the form annexed as Exhibit E;
(iv) Recipes;
(v) The executed Production Agreement in the form annexed
as Exhibit F;
(c) At the Closing, Buyer shall deliver to Seller for delivery to the
Escrow Agent to be treated pursuant to the instructions noted in Article 2.
l(e):
(i) The executed Consulting Agreement, Production Agreement, and
the Royalty Agreement and
(ii) The executed Promissory Note in the amount of $587,500.00.
(d) At the Closing, Buyer shall deliver directly to Seller:
(i) The non-refundable amount of $62,500.00 in cash or certified
funds.
(e) All documents noted in Article 2. l(b) and (c) shall be delivered to
Western Escrow Services, Inc., 455 Palmer, Delta, CO 81416 by Seller's counsel,
and counsel shall have a fiduciary obligation to deliver all documents noted
herein. The Escrow Agent shall be instructed to hold the Promissory Note and
documents of transfer, and shall be further instructed that the documents of
transfer as noted in Article 2.1(b) are to be released to Buyer or any agent
Buyer may designate upon receipt by the Escrow Agent of cash or certified funds
in the principal amount of $587,500.00 plus unpaid interest. Interest on the
Promissory Note shall accrue at the rate of 9% per annum from the date the
Promissory Note was signed and shall be paid monthly beginning on the one-month
2
<PAGE>
anniversary of the Closing. Upon payment, the cash or certified funds will be
delivered by the Escrow Agent to Seller or his designated agent. Said Escrow
Instructions are attached hereto as Exhibit C, and the parties agree that the
escrow agreement between the Escrow Agent and the Buyer and Seller shall control
the escrow portion of this contract.
2.2 Right to Carry on Business and Maintain Profits. Subject to Buyer's
timely compliance with the terms of this Agreement, it is agreed that the Buyer
may conduct all marketing, sales, and distribution of the products and utilize
the name Leroux Creek and "Grown Without Pesticides" during the pendency of the
escrow agreement. All profits generated by the Buyer shall be the sole and
separate property of Buyer, it being the intention of this escrow provision to
suspend the delivery of the legal documents that transfer of rights and title
until the final payment is received so as to provide for an automatic reversion
of the transferred rights if Buyer fails to pay the Promissory Note when due.
Once escrow is closed, Buyer shall have all rights transferred by the documents
referred to in Article 2.1(b).
2.3 Earnest Money as Liquidated Damages. Regardless of whether the
Promissory Note is paid in full and the escrow closed, the $62,500.00 paid at
closing shall remain Seller's sole and separate property, and should this
contract fail due to the failure of Buyer to pay said Promissory Note in full,
Seller shall retain said $62,500.00 as liquidated damages for the breach of this
Agreement and this Agreement shall be considered null and void. Under these
circumstances, Buyer shall have no further obligation under the Promissory Note
or this contract and exhibits other than for the payment of manufacturing
charges pursuant to the Production Agreement.
2.4 Additional Actions to be Taken on the Closing Date.
(a) Liens/Consents. The Seller shall have satisfied and discharged all
liens on the Assets as well as providing all necessary consents to transfer or
assign the Assets to Buyer, in form and substance satisfactory to the Buyer.
(b) Consents. The Buyer shall have received consents to the transactions
contemplated by this Agreement signed by its Board of Directors.
(c) Bulk Sales Act. In the event that it is determined by a court of
competent jurisdiction that Article 6 of the Uniform Commercial Code is
applicable to this transaction, Seller agrees to indemnify Buyer from any losses
incurred by Buyer arising our of or resulting from the failure of the Seller to
comply with Article 6 of the Uniform Commercial Code. The agreement set forth in
this Section 2.2c shall expressly survive the Closing.
(d) Taxes. All taxes relating to or affecting the Assets and the Products
shall be paid in full, or reserved for, as of the Closing Date.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Buyer as follows:
3.1 Organization and Qualification. The Seller is a corporation validly
existing and in good standing under the laws of the State of Colorado and has
all requisite corporate power and authority to (a) own, lease and operate its
properties and assets as they are now owned, leased and operated, and (b) carry
on its business as now presently conducted an as proposed to be conducted. The
Seller is duly qualified to do business in each jurisdiction in which the nature
of its business or properties makes such qualification necessary.
3.2 Validity and Execution of Agreement. The Seller has the full legal
right, capacity and power and all requisite corporate authority and approval
required to enter into, execute and deliver this Agreement and any other
agreement or instrument contemplated hereby, and to perform fully its
obligations hereunder and thereunder. The shareholders of Seller have each
approved the transactions contemplated pursuant to this Agreement and each of
the other agreements required to be entered into pursuant hereto by Seller.
Seller has taken all actions, required by law, its certificate of incorporation
and bylaws to authorize its execution, delivery and performance of this
Agreement an
3
<PAGE>
the consummation of the transactions contemplated hereby. This Agreement and
such other agreements and instruments have been duly executed and delivered by
Seller and each constitutes the valid and binding obligation of Seller
enforceable against it in accordance with its terms.
3.3 No Conflict. Neither the execution and delivery of this Agreement nor
the performance by the Seller of the transactions contemplated hereby will (a)
violate or conflict with any of the provisions of its Certificate of
Incorporation of by-laws or other organizational documents of the Seller; (b)
result in the acceleration of, or entitle any party to accelerate the maturity
or the cancellation of the performance of any obligation under, or result in the
creation or imposition of any lien in or upon the Assets or constitute a default
(or an event which might, with the passage of time or giving of notice, or both,
constitute a default) under any contract; (c) violate or conflict with any
order, judgment, regulation or ruling of any governmental or regulatory body to
which the Seller is a party or by which any of its property or assets may be
bound or affected or with any provision of any law, rule, regulation, order,
judgment, or ruling of any governmental or regulatory body applicable to the
Seller.
3.4 Litigation. There are no outstanding orders, judgments, injunctions,
investigations, awards or decrees of any court, governmental or regulatory body
or arbitration tribunal by which the Seller, or any of its securities, assets,
properties, or business are bound, and which would adversely affect the Assets.
There are no actions, suits, claims, investigations, legal, administrative or
arbitral proceedings pending or, to the best knowledge of the Seller,
threatened, (whether or not the defense thereof or liabilities in respect
thereof are covered by insurance) against or affecting the Seller, or any of its
assets or properties, that, individually or in the aggregate, could, if
determined adversely to the Seller, reasonably be expected to have a material
adverse effect on the Assets, nor, to the best knowledge of the Seller, are
there any facts which could reasonably be expected to give rise to any such
action, suit, claim, investigation or legal, administrative or arbitral
proceeding.
3.5 The Assets. The Seller owns outright and has good and marketable title
to all of the Assets, (both tangible and intangible), free and clear of any
lien, pledge, hypothecation, mortgage, security interest, claim lease, charge,
option, right of first refusal, easement, servitude, or other encumbrance (the
"Liens"). The Assignment Agreement and such other conveyance documents as shall
have been executed and delivered to the Buyer will convey good and marketable
title to the Assets, free and clear of any liens.
3.6 Intangible Property. The documents set forth in Article 2. 1 (b)(ii)
set forth all patents, trademarks, service marks, trade names, copyrights, logos
and the like and franchises, all applications for any of the foregoing, and all
permits, grants and licenses or other rights held or owned by, or running to or
from the Seller, relating to the Assets (collectively, the "Intangible
Property"), true and complete copies of which have been delivered or made
available to the Buyer. All of the Intangible Property is included among the
Assets. It is understood that the Certification Mark is specifically not
included as part of the Assets or the Intangible Property. To the best of
Seller's knowledge, no patent, invention, trademark, service mark or trade name
of any other Person infringes upon, or is infringed upon by, any of the
Intangible Property and the Seller has not received any notice of any claim of
infringement, either within the last twelve months or which is material, of any
other Person with respect to any of the Intangible Property or any process or
confidential information relating thereto, and the Seller does not know of any
basis for any such charge or claim. All of the Intangible Property is valid and
in good standing. Seller has a right to sell all of the Intangible Property to
Buyer and the sale of the Intangible Property shall not operate in any way to
adversely affect any patent, license, trademark, trade name, invention or
service mark included among the Intangible Property. The Seller has not received
any notice or inquiry indicating, or claiming, that the manufacture, sale or use
of any of the assets conveyed herewith infringes upon the patent or other
intellectual property rights of any other Person. Seller represents that no
approval or consent of any person is needed so that the interest of the Seller
in the Intangible Property shall continue to be in full force and effect and
enforceable by the Buyer following the consummation of the transactions
contemplated hereby. Seller represents that there are no security interest
encumbering the intangible assets and in furtherance of this representation
Seller shall exercise due diligence to procure a letter from the SBA and
Colorado National Bank stating that they have no security interest in the
intangible property being transferred by this Agreement.
3.7 Undisclosed Liabilities. Seller represents that it has no direct or
indirect, indebtedness, liability, claim, loss, damage, deficiency, obligation
or responsibility, fixed or unfixed, choate or
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inchoate, liquidated or unliquidated, secured or unsecured, accrued, absolute,
contingent or otherwise which does or may affect the Assets (collectively, the
"Liabilities").
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3.9 Tax Matters.
(a) All Tax Returns required to be filed with respect to the Seller
relating to the Assets have been duly filed and were in all material respects
true, complete and correct and filed on a timely basis;
(b) the Seller has paid all Taxes that are due, or claimed or asserted by
the IRS or any other taxing authority ("Taxing Authority") to be due from the
Seller for the periods covered by such Tax Returns or Seller has duly and fully
provided reserves adequate to pay all Taxes in the Financials;
(c) The Seller has complied in all material respects with all applicable
laws relating to withholding of Taxes including withholding Taxes pursuant to
Sections 1441 and 1442 of the Internal Revenue Service ("IRS") Code of 1986, as
amended (the "Code") and similar provisions under any other applicable laws, and
the payment thereof over to the Taxing Authorities; and
(d) the Income Tax returns of the Seller have not been audited or examined
by any of the Taxing Authority (including the IRS) for any period for which the
applicable statute of limitation period has not yet expired and no statute of
limitations for any such period has been extended.
3.10 Contracts and Other Agreements. Seller represents that there are no
written agreements (and, to the best knowledge of the Seller, any oral
agreements) and arrangements to which (i) the Seller is a party and which affect
the Assets, or (ii) by or to which any of the Assets are bound or subject
(collectively, the "Contracts").
3.11 Interest with Affiliates. No Affiliate of the Seller has any interest
in any of the Assets.
3.12 Employees. The Seller is not a party to, and there does not otherwise
exist, any agreements with any labor organization, collective bargaining, or
similar agreement with respect to employees of the Seller, which would affect
the Division or the Assets. The Seller is in compliance in all material respects
with its obligations under all Federal, state and local statues and ordinances,
executive orders, regulations, and common law governing its employment practices
with respect to the Seller.
3.13 Licenses. Permits. and Government Approvals. Seller has no knowledge
of any requirement to maintain any governmental permits, licenses, registrations
and other governmental consents (federal, state and local) with respect to the
Assets.
3.14 Compliance with Laws. Seller has no knowledge of any requirement that
Seller comply with any applicable federal, state, and local laws, regulations
and ordinances or any requirement of any governmental or regulatory body, court
or arbitrator affecting the Assets, the failure to comply with which could have
a material adverse effect on the Assets. Neither the Seller nor any of its
representatives, agents, employees, or affiliates has made or agreed to make any
payment to any person which would be unlawful. Seller has obtained all required
federal and state regulatory approvals to permit the manufacture and sale of the
Products. Seller has obtained all requisite approvals from all federal ends
state regulatory authorities fort the Products and has not been not) filed by
any such authority that is in violation of any rules, regulations, or other laws
relating to such approval.
3.15 Products. Seller represents that there are no statements, citations
or decisions by any governmental or regulatory body that any product ("Product")
manufactured, marketed, distributed, sold, leased or serviced that would
otherwise be included among the Assets is defective, has been sold without
government approval, or fails to meet in any material respect any standards
promulgated by any such governmental or regulatory body. There have been no
recalls ordered by any such governmental or regulatory body with respect to any
Product. To the best of Seller's knowledge, there is no fact relating to any
Product that may impose upon the Seller (or the Buyer upon consummation of the
transactions contemplated hereby) a duty to recall any Product or a duty to warn
customers of a defect in any Product.
3.16 Disclosures. To the best of Seller's knowledge, neither this
Agreement, nor any Exhibit to this Agreement contains an untrue statement of a
material fact or omits a material fact necessary
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to make the statements contained herein or therein not misleading. All
statements, documents, certificates or other items prepared or supplied by the
Seller with respect to the transactions contemplated hereby are true, correct
and complete and contain no untrue statement of a material fat or omit a
material fact necessary to make the statements contained therein not misleading.
3.17 Sales and Customer Information. Seller has delivered to Buyer
information concerning sales of the Products, manufacturing costs, marketing and
sales expenses and other information concerning the marketing, distribution and
sales of the Products (the "Sales Information"). The Sales Information is true
and correct and accurately reflects the information disclosed.
3.18 Opinion of Counsel. Seller's counsel shall issue an opinion letter
verifying that, based upon the information given him by Seller that the Seller
is a valid corporation in good standing in the state of Colorado; that Seller
has taken all corporate action necessary to authorize and approve this
transaction; that this transaction will not violate any provision of Seller's
corporate documents; that Seller is legally capable of transferring good and
marketable title to the assets being transferred and that counsel is not aware
of any liens, claims or encumbrances to which the assets are subject.
3.19 Survival. All of the representations and warranties of the Seller
contained herein shall survive the Closing Date until the date upon which the
liability to which any claim relating to any such representation or warranty is
barred by any applicable statutes of limitations.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Seller as follows:
4.1 Organization and Qualification. The Buyer is a corporation validly
existing and in good standing under the laws of the State of Delaware, and has
all requisite corporate power and authority to (a) own, lease and operate its
properties and assets as they are now owned, leased and operated and (b) carry
on its business as now presently conducted and is duly qualified to do business
in each jurisdiction in which the nature of its business or properties makes
such qualification necessary.
4.2 Validity and Execution of Agreement. The Buyer has the full legal
right, capacity and power and all requisite corporate authority and approval
required to enter into, execute, and deliver this Agreement and any other
agreement or instrument contemplated hereby, and to perform fully its
obligations hereunder and thereunder. The board of directors of the Buyer has
approved the transaction contemplated by this Agreement and each of the other
agreements required to be entered into pursuant hereto by the Buyer. This
Agreement and such other agreement and instruments have been duly executed and
delivered by the Buyer and each constitutes the valid and binding obligation of
the Buyer enforceable against it in accordance with its terms.
4.3 No Conflict. Neither the execution and delivery of this Agreement nor
the performance by the Buyer of the transactions contemplated herein will (a)
violate or conflict with any of the provisions of its Certificate of
Incorporation or bylaws or other organizational documents; or (b) violate or
conflict with any provision of any law, rule, regulation, order, judgment,
decree or ruling of any court or federal, state or local Governmental or
Regulatory body applicable to Buyer.
4.4 Survival. All of the representations and warranties of the Buyer
contained herein shall survive the Closing Date until the date upon which the
liability to which any claim relating to any such representation or warranty is
barred by any applicable statutes of limitations.
ARTICLE V
CONDITIONS TO CLOSING
5.1 Obligations of Seller and Buyer. The respective obligations of Seller
and Buyer to consummate the transactions contemplated hereby shall be subject to
the fulfillment, prior to or at Closing, of each of the following conditions,
any one or a portion of which may be waived in writing:
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(a) Consents. Seller shall have obtained all necessary consents to
assignment of all parties to contracts relating to the Assets. Seller shall have
executed and delivered to Buyer a certificate, dated as of the Closing date and
signed by its President containing certified resolutions of Seller authorizing
Seller to enter into this Agreement and the transactions contemplated hereby.
Buyer shall have executed and delivered to Seller a certificate, dated as of the
date of the Closing and signed by its President containing certified resolutions
of Buyer authorizing Buyer to enter into this Agreement and the transactions
contemplated hereby.
(b) No Suits or Actions. At Closing no suit, action, proceeding shall have
been threatened, instituted, or commenced to restrain, enjoin or otherwise
prevent the consummation of this Agreement or the transactions contemplated
hereby.
(c) Consulting Agreement. Edward Tuft and Buyer shall have entered into
the Consulting Agreement attached as Exhibit B.
(d) Instruments of Conveyance. Seller and Buyer shall have executed and
delivered to Escrow Agent all such documents and instruments as shall be
necessary to convey, transfer and assign to Buyer all of Buyer's right, title
and interest in and to the Assets, including, but not limited to, the Assignment
Agreement attached as Exhibit D and the Bill of Sale attached as Exhibit E.
(e) Production Agreement. Buyer and Seller shall have entered into and
delivered to Escrow Agent the Production Agreement attached as Exhibit F.
(f) Buyer shall have executed and delivered to Escrow Agent the Promissory
Note attached as Exhibit A.
(g) Buyer shall have executed and delivered to Seller the non-refundable
sum of $62,500.00 in cash or certified funds.
(f) Lack of Material Changes. At Closing, there shall not have been:
(i) any change in the condition, financial or otherwise, of the Assets of
Seller, other than changes in the ordinary course of business which have not
been either in any case or in the aggregate materially adverse;
(ii) any act outside the ordinary course of business which material
adversely affects the Assets;
(iii) any damage, destruction, or loss of any of the Assets, not
adequately compensated by insurance, materially adversely affecting the business
or prospects of Seller;
(iv) any waiver by Seller of any right of substantial value, material
default under the terms of any contract, agreement or other instrument to which
it is a party or by which it is bound;
(v) any sale, lease, transfer, or other disposition or mortgage or pledge
of any Asset, nor shall there be imposed or suffered to be imposed any lien,
claim, charge, security interest or other restriction of any kind or nature
whatsoever on any Asset.
5.2 Additional Conditions.
(a) There are no actions, suits, or proceedings pending, threatened
against or affecting Seller or Buyer which might result in any material adverse
change in the licenses, business, operations, properties or assets or the
condition, financial or otherwise, of Seller or Buyer, or in any way involving
this Agreement or the transactions contemplated hereby;
(b) Neither Buyer nor Seller know of, and has no reasonable grounds to
know of, any basis for any such action or proceeding;
(c) there is no order or decree of any court or agency directed to Seller
or Buyer arising out of any judicial, or quasi judicial, proceeding before any
such court or agency with respect to Seller or Buyer being in default;
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(d) Seller and Buyer have complied in all material respects with all laws,
regulations, rules, ordinances, decrees, or orders of any court, government
(federal, state or local) department, commission, board, agency, official, or
other regulatory, administrative or governmental authority.
ARTICLE VI
INDEMNIFICATION
6.1 Indemnification.
(a) The Seller agrees to indemnify, defend and hold harmless the Buyer and
its respective directors, officers, employees, shareholders, and any Affiliates
of the foregoing, and their successors and assigns (collectively, the "Buyer
Group") from and against any and all losses, liabilities, (including punitive or
exemplary damages and fines or penalties and any interest thereon), expenses
(including reasonable fees and disbursements of counsel and expenses of
investigation and defense), claims, liens, or other obligations of any nature
whatsoever (hereinafter individually, a "Loss" and collectively, "Losses")
suffered or incurred by the Buyer Group, which arise out of, result from or
relate to (i) any breach of any representation or warranty of the Seller
contained in Article III and (ii) any breach of any covenant or agreement of the
Seller contained in this Agreement or in any other document contemplated herein.
Such indemnification shall be limited to the total proceeds received by the
Buyer under this Agreement.
(b) The Buyer agrees to indemnify, defend and hold harmless the Seller and
its directors, officers, employees, and shareholders, and any Affiliates of the
forgoing, and their successors and assigns from and against any and all Losses
suffered or incurred by them which, directly or indirectly, arise out of, result
from or relate to (i) any inaccuracy in or any breach of any representation or
warranty of the Buyer contained in Article IV and (ii) any breach of any
covenant or agreement of the Buyer contained in this Agreement or in any other
document contemplated by this Agreement.
6.2 Method of Asserting Claims. The party making a claim under this
Article VI is referred to as the "Indemnified Party" and the party against whom
such claims are asserted under this Article VI is referred to as the
"Indemnifying Party". All claims by any Indemnified Party under this Article VI
shall be asserted and resolved in accordance with the terms and provisions set
forth in Sections 6.2(a) - (c) below.
(a) In the event that any claim or demand for which an Indemnifying Party
would be liable to an Indemnified Party hereunder is asserted against or sought
to be collected from such Indemnified Party by a third party, said Indemnified
party shall, with reasonable promptness, notify in writing the Indemnifying
Party of such claim or demand, specifying the nature of the specific basis for
such claim or demand, and the amount or the estimated amount thereof to the
extent then feasible (which estimate shall not be conclusive of the final amount
of such claim and demand); any such notice, together wit any notice given
pursuant to Section 6.2(b) hereof, collectively being the "Claim Notice";
provided, however, that any failure to give such claim Notice will not be deemed
a waiver of any rights of the Indemnified party except to the extent the rights
of the Indemnifying Party are actually prejudiced. The Indemnifying Party, upon
request of the Indemnified Party, shall retain counsel (who shall be reasonably
acceptable to the Indemnified party) to represent the Indemnified Party, and
shall pay the fees and disbursements of such counsel with regard thereto,
provided, further, that any Indemnified party is hereby authorized prior to the
date on which it receives written notice from the Indemnifying Party designating
such counsel, to retain counsel, whose fees and expenses shall be at the expense
of the Indemnifying Party, to file any motion, answer or other pleading and take
such other action which it reasonably shall deem necessary to protect its
interest or those of the Indemnifying party until the date on which the
Indemnified party receives such notice from the Indemnifying Party. After the
Indemnifying Party shall retain such counsel, the Indemnified party shall have
the right to retain its own counsel, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (i) the Indemnifying
Party and the Indemnified Party shall have mutually agreed to the retention of
such counsel or (ii) the named parties of any such proceeding (including any
impeded parties) include both the Indemnifying Party and the Indemnified Party
and representation of both parties by the same counsel would be inappropriate
due to accrual or potential differing interests between them. The Indemnifying
Party shall not, in connection with any proceedings or related proceedings in
the same jurisdiction, be liable for the fees and expenses of more than one such
firm for the Indemnified Party (except to the extent the Indemnified Party
retained counsel to protect its (or the Indemnifying Party's) rights prior to
the selection of counsel
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by the Indemnifying Party. The Indemnified party agrees to cooperate with the
Indemnifying Party and its counsel in contesting any claim or demand which the
Indemnifying Party defends. No claim or demand may be settled by an Indemnifying
Party or, where permitted pursuant to this Agreement, by an Indemnified Party
without the consent of the Indemnified Party in the first case or the consent of
the Indemnifying Party in the second case, which consent shall not be
unreasonably withheld, unless such settlement shall be accompanied by a complete
release of the Indemnified Party int eh first case or the Indemnifying Party in
the second case, or, where permitted pursuant to this Agreement, by an
Indemnified party without the consent of the Indemnified Party in the first case
or the consent of the Indemnifying Party in the second case.
(b) In the event any Indemnified Party shall have a claim against any
Indemnifying Party hereunder which does not involve a claim or demand being
asserted against or sought to be collected from it by a third party, the
Indemnified Party shall send a Claim Notice with respect to such claim to the
Indemnifying Party. If the Indemnifying Party~does not dispute such claim, the
amount of such claim shall be paid to the Indemnified Party within twenty (20)
days of receipt of the Claim Notice.
(c) So long as any right to indemnification exists pursuant to this
Article VI, the affected parties each agree to retain all books, records,
accounts, instruments and documents reasonably related to the Claim Notice. In
each instance, the Indemnified Party shall have the right to be kept informed by
the Indemnifying Party and its legal counsel with respect to all significant
matters relating to any legal proceedings. Any information or documents made
available to any party hereunder, which information is designated as
confidential by the party providing such information, and which is not otherwise
generally available to the public, or which information is not otherwise
lawfully obtained from third parties or not already within the knowledge of the
party to whom the information is provided (unless otherwise covered by the
confidentiality provisions of any other agreement among the parties hereto, or
any of them), and except as may be required by applicable law or requested by
third party lenders to such party, shall not be disclosed to any third Person
(except for the representatives of the party being provided with the
information, in which event the party being provided with the information shall
request its representatives not to disclose any such information).
ARTICLE VII
POST-CLOSING COVENANTS OF THE PARTIES
7.1 Tax Matters. With respect to the Assets, the Seller shall provide to
Buyer on demand such information as shall reasonably be requested by Buyer to
enable Buyer to prepare and file timely Buyer's federal, state and local income
Tax Returns and all forms, schedules and attachments related thereto.
7.2 Non-Competition. As a material inducement to cause the Buyer to enter
into this Agreement and to consummate the transactions contemplated hereby, and
in further consideration for the payments to be made by Buyer pursuant to
Section 1.2, Seller, on behalf of itself, its officers, directors, and
affiliates (the "Restricted Parties") shall not, for a period of twelve years
following the date of Closing (i) engage in the wholesale or retail sale,
marketing, or distribution of Grown Without Pesticide applesauce within the
United States; however, nothing contained herein shall in any way limit the
right of Seller to produce and manufacture apple sauce or related products of
others on a custom basis; (ii) take any action outside the ordinary course of
business which could have a material adverse effect on the Assets of the Buyer
following the Closing Date. If any court determines that this covenant, or any
part thereof, is unenforceable because of the duration of such provision or the
area covered thereby, such court shall have the power to reduce the duration or
area of such provision and, in its reduced form, such provision shall then be
enforceable and shall be enforced.
This section 7.2 is expressly contingent upon payment in full of all
obligations herein by the Buyer under the terms of the Agreement, which is to be
construed as payment in full of the principal and interest due under the
Promissory Note.
7.3 Confidentiality. From and after the Closing Date, the Seller and its
shareholders shall not disclose or furnish to any other Person, except to the
extent required by law or by order of any court or governmental agency, (a) any
information which is not generally known in the industry relating to any
license, patent, process, technique, or procedure transferred to Buyer pursuant
hereto or used in connection with the Assets; (b) any information which is not
generally known in the industry
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relating to the operations or financial status of the Buyer which is not
specifically a matter of public record; or (c) any trade secrets in connection
with the Assets.
ARTICLE VIII
MISCELLANEOUS
8.1 Sales and Transfer Taxes. All required filings under any applicable
Federal, state, foreign or local sales tax, stamp tax or similar laws or
regulations shall be made by the Buyer and, at Closing, Buyer shall deliver to
Seller either (a) proof of the payment of any sales tax assessed pursuant to
such filings or (b) statements of no sales tax due, as the case may be. The
parties agree that any and all transfer, sales or stamp taxes and any similar
taxes or assessments imposed on the transfer of the Assets and the Assumed
Liabilities in accordance with the terms of this Agreement shall be borne
equally by the Buyer and Seller.
8.2 Post-Closing Further Assurances. At any time and from time to time
after the Closing Date at the request of either party, and without further
consideration, the other party will execute and deliver, or cause the execution
and delivery of, such other instruments of sale, transfer, conveyance,
assignment and confirmation and take or cause to be taken such other action as
the party requesting the same may reasonably deem necessary or desirable in
order to transfer, convey and assign more effectively to the requesting party
all of the property and rights intended to be conveyed to such party pursuant to
the provisions of this Agreement.
8.3 Notices. All notices, requests, demands, and other communications
required or permitted to be given hereunder shall be in writing and shall be
given personally, telegraphed, sent by facsimile transmission or sent by prepaid
air courier, same day or overnight messenger, or certified, registered or
express mail, postage prepaid. Any such notice shall be deemed to have been
given (a) when received, if delivered in person, telegraphed, sent by facsimile
transmission and confirmed in writing within three (3) business days thereafter
o sent by prepaid air courier, same day or overnight messenger, or (b) three (3)
business days following the mailing thereof, if mailed by certified first class
mail, postage prepaid, return receipt requested, in any such case as follows (or
to such other address or addresses as a party may have advised the other in the
manner provided in this Section 8.3):
If to the Seller, to:
Leroux Creek Food Corporation
970-3100 Road
Hotchkiss, CO 81419
Attn: Edward Tuft
Federal Tax ID: 84-0988864
Telephone Number: (970)872-2256
Telecopier Number: (970)872-2250
If to Buyer, to:
Perry's Majestic Beer, Inc.
38 West 32nd Street
New York, NY 10001
Attn: Robert Sipper
Federal Tax ID:
Telephone Number: (212) 564-2260
Telecopier Number: (212) 564-1862
8.4 Entire Agreement. This Agreement (including the Exhibits) and the
agreements, certificates and other documents delivered pursuant to this
Agreement contain the entire agreement among the parties with respect to the
transactions described herein, and supersede all prior agreements, written or
oral, with respect thereto.
8.5 Waivers and Amendments. This Agreement may be amended, superseded,
canceled, renewed, or extended, and the terms hereof may be waived, only by a
written instrument signed by the parties hereto or, in the case of a waiver, by
the party waiving compliance. No delay on the part of any party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof.
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8.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Colorado, without regard to principles
of conflicts of law. Venue shall be in Delta County, Colorado.
8.7 Binding Effect; No Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors,
assigns, and legal representative. This
Agreement is not assignable except by written consent of the parties, and any
other purported assignment shall be null and void.
8.8 Variations in Pronouns. All pronouns and any variations thereof refer
to the masculine, feminine or neuter, singular or plural, as the context may
require.
8.9 Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
8.10 Exhibits. The Exhibits attached hereto are a part of this Agreements
as if fully set forth herein. All references herein to Exhibits shall be deemed
references to such parts of this Agreements, unless the context shall otherwise
require.
8.11 Effect of Disclosure on Exhibits. Any item disclosed on any Exhibit
shall only be deemed to be disclosed in connection with (a) the specific
representation and warranty to which such Exhibit is expressly referenced; (b)
any specific representation and warranty which expressly cross-references such
Exhibit and (c) any specific representation and warranty to which any other
Exhibit to this Agreement is expressly referenced if such other Exhibit
expressly cross-references such Exhibit.
8.12 Headings. The headings in this agreement are for reference only, and
shall not affect the interpretation of this Agreement.
8.13 Severability of Provisions. If any provision or any portion of any
provision of this Agreement or the application of such provision or any portion
of such provision to any Person or circumstance shall beheld invalid or
unenforceable, the remaining portion of such provision and the remaining
provisions of these Agreement, or the application of such provision or portion
or such provision as is held invalid or unenforceable to persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby.
8.14 Brokers. Each party hereto represents and warrants that no broker or
finder is entitled to any brokerage or finder's fee or other commission from
such party, based on agreement, arrangements or undertakings made by such party,
in connection with the transactions contemplated hereby.
8.15 Expenses. Whether or not the transactions contemplated hereby shall
be consummated, each party shall (except as otherwise specifically provided
herein) pay its own expenses incident to the preparation and performance of this
Agreement.
8.16 Termination. It is specifically understood that this Agreement is
tied into the Buyer's timely payment of all interest and principal payments due
under the Promissory Note. Buyer's failure to make payments when due under the
Promissory Note, or termination of this Agreement for any reason prior to the
payment in full of the principal and interest due on the Promissory Note, will
cause the obligation of Seller under this Agreement to cease and Seller may then
resume producing and marketing Leroux Creek products under their own name and
for their own profit.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
LEROUX CREEK FOOD CORPORATION
/s/ Edward Tuft, President
--------------------------
Edward Tuft, President
PERRY'S MAJESTIC BEER, INC.
/s/ Robert Sipper, President
----------------------------
Robert Sipper, President
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EXHIBIT A
PROMISSORY NOTE
$587,500.00 Hotchkiss, Colorado June __, 1998
On January 2, 1999, for value received, Perry's Majestic Beer, Inc.
promises to pay to the order of Leroux Creek Food Corporation the sum of Five
Hundred Eight-Seven Thousand, Five Hundred Dollars and no cents ($587,500.00) at
970-3100 Road, Hotchkiss, Colorado 81419 with interest therefor at the rate of
nine (9) per centum per annum from date until due, payable with interest only
payments of $4,406.25 per month beginning July ____, 1998 and continuing on the
____ day of each successive month plus a final payment of interest plus the
principal amount of $591,900.25 due January 2, 1999.
In the event of prepayment, maker shall pay all taxes, expenses, fees and
costs reasonably incurred by Payee as a result of such pre-payment.
Failure to pay any principal or interest when due shall cause this entire note
to become due and collectible at once, in which case accrued interest and
principal shall, from and after the date of such default, bear interest at
fifteen (15) per centum per annum.
The makers, endorsers, sureties and guarantors of this note severally waive
presentment for payment, notice of nonpayment, protest, and notice of protest;
and in the event this note be collected by an attorney, by suit or otherwise,
agree to pay a reasonable attorney's fee.
PERRY MAJESTIC BEER, INC.
By: Robert Sipper, President
<PAGE>
Exhibit B
CONSULTING AGREEMENT
THIS AGREEMENT, dated June 30, 1998 by and between Perry's Majestic Beer,
Inc., a Delaware corporation ("Perry's") and Edward Tuft (the "Consultant").
WITNESSETH:
Consultant agrees to render certain consulting services to Perry's upon
the terms and conditions set forth below:
1. Payment by Perry's. As full and total consideration for the services
provided by the Consultant to Perry's, Perry's hereby grants to Consultant the
right and option (the "Option") to purchase five hundred thousand (500,000)
shares of Perry's common stock, par value $.0001 per share, (the "Option
Shares") adjusted to reflect any stocks splits or reverse splits, at an exercise
price equal to the fair market value of the Option Shares as of the date of this
Agreement (the "Option Shares"). The Option shall be exercisable for a period of
five (5) years from the date of the execution of this Agreement. The Option
Shares granted to Consultant pursuant to this Paragraph 1 hereof shall vest as
follows: (i) two hundred thousand (200,000) upon execution of this Agreement;
(ii) one hundred thousand (100,000) on the one year anniversary of the execution
of this Agreement; (iii) one hundred thousand ( 100,000 on the two year
anniversary of the execution of this Agreement; and (iv) one hundred thousand
(100,000) on the three year anniversary of the execution of this Agreement.
2. Method of Exercise. Each exercise of an option granted hereunder shall
be by means of a notice of exercise (the "Notice of Exercise") delivered to
Perry's specifying the number of Option Shares to be purchased. Within five (5)
days of receiving the Notice of Exercise, Perry's shall schedule a closing which
shall be no more than five (5) days later. At the closing, Perry's shall deliver
the Option Shares to the Consultant with the appropriate transfer documents and
Consultant shall pay to Perry's the full purchase price of such exercised Option
Shares either in cash or by certified check payable to the order of "Perry's
Majestic Beer, Inc." All Option Shares issued pursuant to such option shall be
fully paid and nonassessable and shall not be subject to any liens.
3. Stockholder Rights. Neither the Consultant nor any other person legally
entitled to exercise the Option shall be entitled to any of the rights or
privileges of a stockholder of Perry's with respect to any common shares
issuable upon any exercise of the Option unless and until the Option is
exercised
4. Consultant's Obligations. From time to time the Consultant agrees to
provide Perry's with such consulting services as requested by Perry's in
connection with the sale, marketing, distribution and manufacturing of
applesauce and related products. Consultant shall not be obligated to provide
more than 40 hours of consulting time to Perry's per calendar year.
5. Term of Agreement. The term of this Agreement shall be for three years
from the date hereof.
6. Confidential Information. Consultant acknowledges that all information,
documents, customer lists, patents, trademarks, copyrights, materials,
specifications, business strategies or any other ideas which directly relate to
the business of Perry's (referred to herein as "Confidential Information")
whether prepared or generated by Consultant or Perry's pursuant to this
Agreement or otherwise in the possession or knowledge of Consultant prior to the
date hereof or coming into possession or knowledge of Consultant during the term
of this Agreement shall be the exclusive, confidential property of Perry's,
except to the extent expressly authorized in writing by Perry's for
<PAGE>
dissemination. From the date of this Agreement through and including the twenty
fourth month following the termination of this Agreement or any extension
thereof (the "Restricted Period"), Consultant shall not disclose any of such
(confidential Information to any third party without the prior written consent
of Perry's and shall take all reasonable steps and actions necessary to maintain
the confidentiality of such Confidential Information.
7. Status as Independent Contractor. Consultant's engagement pursuant to
this Agreement shall be as independent contractor and not as an employee,
officer or other agent of Perry's. Neither party to this Agreement shall
represent or hold itself out to be the employer or the employee of the other.
Consultant further acknowledges that the compensation provided herein is a gross
amount of compensation and that Perry's will not withhold from such compensation
any amounts respective income taxes, social security payments or any other
payroll taxes. All such income taxes and payments shall be made or provided for
by Consultant and Perry's shall have no responsibility or duties regarding such
matters.
8. Miscellaneous. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Colorado, without regard to
principles of conflicts of law, and the parties irrevocably agree to submit any
controversy or claim arising out of or relating to this Agreement to binding
arbitration conducted in the state of New York. This Agreement may be executed
simultaneously in counterparts, each of which will be deemed to be an original
but all of which together will constitute one and the same instrument. The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement,
which shall remain in full force and effect. This Agreement contains the entire
understanding of the parties hereto with respect to its subject matter. This
Agreement may be amended only by a written instrument duly executed by the
parties.
IN WITNESS WHEREOF, this Agreement is duly executed this 26th day of June
1998.
/s/ Edward Tuft
- ---------------
By: Edward Tuft
PERRY'S MAJESTIC BEER, INC.
/s/ Robert Sipper
- -----------------
By: Robert Sipper, President
<PAGE>
SCHEDULE A
DEPOSITS
This Schedule of Deposits is related to an Agreement to Purchase and
Market Brand Name and Recipes dated June 30 , 1998 (the "Purchase Agreement")
between Leroux Creek Food Corporation, a Colorado corporation (the "Seller"),
and Perry's Majestic Beer, Inc., a Delaware corporation (the "Buyer"). A copy of
said Purchase Agreement is attached hereto for reference only.
1. At the Closing, the Seller shall execute and deliver to Western Escrow
Service (hereafter "Escrow Agent"), to be treated pursuant to the escrow
instruction noted in Article 2.1 (e) of the Purchase Agreement, all documents
and instruments necessary to transfer to the Buyer all of the right, title, and
interest of the Seller in and to the trade names and Products, including,
without limitation:
(i)The Assignment Agreement in the form annexed hereto as Exhibit D;
(ii)Documents reflecting assignment of all names, patents, licenses
and trademarks included among the purchased Assets;
(iii)A Bill of Sale in the form annexed as Exhibit E;
(iv)Recipes;
(v)The executed Production Agreement in theform annexed as Exhibit F;
2. At the Closing, Buyer shall deliver to Seller for delivery to the Escrow
Agent to be treated pursuant to the instructions noted in Article 2. l(e):
(i)The executed Consulting Agreement, Production Agreement, and the
Royalty Agreement and
(ii)The executed Promissory Note in the amount of $587,500.00.
<PAGE>
SCHEDULE B
SPECIAL INSTRUCTIONS
These instructions relate to an Agreement to Purchase and Market Brand
Name and Recipes dated June 30 , 1998 (the "Purchase Agreement") between Leroux
Creek Food Corporation, a Colorado corporation (the "Seller"), and Perry's
Majestic Beer, Inc., a Delaware corporation (the "Buyer"). A copy of said
Purchase Agreement is attached hereto for reference only. The Escrow Agent has
no obligation to interpret or enforce any provision of said Agreement, but shall
hold the deposits listed on Schedule A according to these instructions. The
Escrow Agent is hereby authorized and directed to hold all of the deposits
listed on Schedule A and to dispose of same upon the following conditions:
1. At such time as the Escrow Agent receives cash or certified funds in
the principal amount of $587,500.00 plus any unpaid interest in the amount of 9%
per annum calculated on the principal amount of the Promissory Note from the
date said Promissory Note was executed, the Escrow Agent is to deliver to
Perry's Majestic Beer, Inc., 38 W. 32nd Street, New York, NY 10001 by certified
mail, the documents noted in Schedule A including a copy of the Promissory Note
marked "Paid in Full".
2. Simultaneous with the transaction noted in paragraph 1 above, the
Escrow Agent is to contact Edward Tuft of Leroux Creek Foods, Inc., 970 - 3100
Road, Hotchkiss, CO 81419, (970) 872-2256, and deliver to him the cash or
certified funds in the amount of $587,500.00 plus any interest as noted in
paragraph 1 above.
3. This escrow shall terminate on the due date of the Promissory Note, and
unless said Escrow Agreement is extended by written agreement of all parties
hereto, the Escrow Agent is instructed to send the Promissory Note to Perry's
Majestic Beer, 38 W. 32nd Street, New York, NY 10001, and to forward the balance
of the documents to Edward Tuft at 970 - 3100 Road, Hotchkiss, CO 81419. The
Escrow Agent is instructed that the escrow will terminate automatically at the
due date of the Promissory Note unless it is extended in writing. The Escrow
Agent shall be under no obligation to contact either party in the event the
Promissory Note is not paid in full and the date has not been extended by
written mutual agreement of the parties, and may treat same as completed once
the Escrow Agent complies with the instructions in this paragraph 3.
<PAGE>
EXHIBIT C
ESCROW AGREEMENT between WESTERN ESCROW SERVICES, INC. (hereinafter
Escrow Agent).
Leroux Creek Food Corporation, Inc. (hereafter Seller)
and Perry's Majestic Beer, Inc., a Delaware corporation (hereafter Buyer).
1. The instruction may be supplemented, altered, amended, modified or revoked by
writing only, signed by all of the parties hereto, and approved by the Escrow
Agent, upon payment of all fees, costs and expenses incident thereto.
2. No assignment, transfer, conveyance or Hypothecation of any right, title or
interest in and to the subject matter of this Escrow shall be binding upon the
Escrow Agent and all fees, costs and expenses incident thereto shall have been
paid and then only upon the Escrow Agents assent thereto in writing.
3. Any notice required or desired to be given by the Escrow Agent to any party
to this Escrow may be given by mailing the same addressed to such party at the
address given below the signature of such party or the most recent address of
such party shown on the records of the Escrow Agent, and notice so mailed shall
for all purposes hereof be as effectual as though served upon such party in
person at the time of depositing such notice in the mail.
4. The Escrow agent may receive any payment called for hereunder after the due
date thereof unless subsequent to the date of such payment and prior to the
receipt thereof the Escrow Agent shall have been instructed in writing to refuse
any such payment.
5. The Escrow Agent shall not be personally liable for any act it may do or omit
to do hereunder as such agent, while acting in good faith and in the exercise of
its own best judgment, and any act done or omitted by it pursuant to the advice
of its own attorneys shall be conclusive evidence of such good faith.
6. The Escrow Agent is hereby expressly authorized to disregard any and all
notices or warnings given by any of the parties hereto, or by any other person,
firm or corporation, excepting only orders or process of court and is hereby
expressly authorized to comply with and obey and all process, orders, judgments
or decrees of any court, and in case the Escrow Agent obeys or compiles with any
such process, order, judgment or decree of any court it shall not be liable to
any of the parties hereto or to any other person, firm or corporation by reason
of such compliance, notwithstanding any such process, order, judgment or decree
by subsequently reversed modified, annulled, set aside or vacated, or found to
have been issued or entered without jurisdiction.
7. In consideration of the acceptance of this escrow by the Escrow Agent, the
undersigned agree, jointly and severally, for themselves, their heirs, legal
representatives, successors and assigns, to pay the Escrow Agent its charges
hereunder and to indemnify and hold it harmless as to any liability by it
incurred to any other person, firm or corporation by reason of its having
accepted the same, or its carrying out any of the terms thereof, and to
reimburse it for all its expenses, including, among other things, counsel fees
and court costs incurred in connection herewith; and that the Escrow Agent shall
have a first and prior lien upon all deposits made hereunder to secure the
performance of said agreement of indemnity and payment of its charges and
expenses, hereby expressly authorizing the Escrow Agent, in the event payment is
not received promptly from the undersigned, to deduct such charges and expenses,
without previous notice, from any funds deposited hereunder. Escrow fees
<PAGE>
or charges, as distinguished from other expenses hereunder, shall be as written
above the Escrow Agents signatures at the time of acceptance hereof.
8. The Escrow Agent shall be under no duty or obligation to ascertain the
identity, authority or rights of the parties executing or delivering or
purporting to execute or deliver these instructions or any documents or papers
or payments deposited or called for hereunder, and assumes no responsibility or
liability for the validity or sufficiency of these instructions or any documents
or papers or payments deposited or call for hereunder.
9. The Escrow Agent shall not be liable for the outlawing of any rights under
any statute of Limitations or by reason of laches in respect to the instructions
or any documents or papers deposited.
10. In the event of any dispute between the parties hereto as to the facts of
default, the validity or meaning of these instructions or any other fact of
matter relating to the transaction between the parties. The Escrow Agent is
instructed as follows:
(a) That it shall be under no obligation to act, except under process of order
of court, or until it has been adequately indemnified to its full satisfaction,
and shall sustain no liability for its failure to act pending such process or
court order or indemnification;
(b) That it may in its sole and absolute discretion, deposit the property
described herein or so much thereof as remains in its hands with the then clerk,
or acting Clerk of the District Court, State of Colorado in whose jurisdiction
the subject property lies, and interplead the parties hereto, and upon so
depositing such property and filing its complaint in interpleader it shall be
relieved of all liability under the terms hereof as to the property so
deposited, and furthermore, the parties hereto for themselves, their heirs,
legal representatives, successors and assigns do hereby submit themselves to the
jurisdiction of said court and do hereby appoint the then clerk, or acting
clerk, of said court as their Agent for the service of all process in connection
with such proceedings. The institution of any such interpleader action shall not
impair the rights of the Escrow Agent under paragraph #7 above.
11. If the subject matter of this escrow consists in whole or in part of funds,
the same shall not be commingled by the Escrow Agent with its own funds;
provided, however, that anything contained in the Escrow Agreement of which
these General Provisions are made a part, to the contrary notwithstanding, the
Escrow Agent shall NOT BE REQUIRED TO DEPOSIT THE SAME IN ANY INTEREST BEARING
OR INCOME PRODUCING ACCOUNT AND SHALL NOT IN ANY WAY BE LIABLE TO ANY OF THE
OTHER PARTIES TO THE ESCROW AGREEMENT FOR THE PAYMENT OF INTEREST UPON SAID
FUNDS FOR THE PERIOD DURING WHICH THEY ARE HELD BY THE ESCROW AGENT. It is
intended that the provisions hereof shall supersede any other terms, conditions,
covenants or provisions contained in the Escrow Agreement which expressly or by
implication are in conflict herewith.
12. Payments made by checks returned to the Escrow Agent because of insufficient
funds or that are for any reason unpaid will be sent one time only for
collection and the drawer notified of such action. If returned a second time,
the check will be charged back to the drawer of the party for whom the payment
was made and the payment added back to the contract or escrow balance. In the
event that more than one unpaid check is tendered, the Escrow Agent may require
at its sole option that future payments be made by cash, money order or
Cashier's check. The Escrow Agent reserves the right to delay delivery of
documents or receipts to the appropriate party if payoffs or payments are made
by uncertified checks.
13. A Seller is responsible for delivering to the Escrow Agent, Tax Receipts
(notices are not acceptable) and evidence of payments of insurance premiums for
all taxes and insurance to be added
<PAGE>
to a contract balance. It is the responsibility of the parties to the escrow,
not including the Escrow Agent, to assure themselves that taxes are paid and
insurance coverage is maintained, the Escrow Agent shall have no responsibility
for insuring that taxes or insurance premiums are paid. If a fund for payment of
taxes and insurance premiums is maintained with the escrow, such payments will
be made only when tax or insurance premium notices are submitted to the Escrow
Agent and only to the extent that money is available in the escrow account. It
is the responsibility of the parties to the escrow, excluding the Escrow Agent,
to assure themselves that sufficient funds are available to the Escrow Agent to
pay taxes and maintain insurance coverage, and the Escrow Agent assumes no
responsibility therefor.
14. The Escrow Agent shall be entitled to a reasonable compensation for its
serves rendered from time to time. The fees and charges shall be as follows
unless and until modified as provided herein:
SET UP FEE $250. PERIODIC FEE $________
(Specify)
OTHER FEES $___________ $____________ $____________
All of the fees above set forth may be amended by the Escrow Agent at any time,
by advance written notification to the parties to this Escrow Agreement. The
amended fees shall be effective on or after twenty (20) days following the date
of such notice. Collection fees chargeable to the Buyer in accordance with the
terms of the documents in Escrow will be paid by the Buyer with and addition to
payment set forth in the contract or note.
15. Escrow Agent may resign by giving notice in writing to buyer and seller of
its intention to resign. The resignation shall become effective no sooner than
sixty (60) days from the date of mailing the notice. The notice shall be sent
certified mail, return receipt requested, to the addresses set forth below,
unless those addresses have been changed. Buyer and Seller shall advise Escrow
Agent in writing of the name of the new escrow agent selected. If Buyer and
Seller cannot agree as to a new escrow agent, or fail to advise Escrow Agent
within sixth (60) days, Escrow Agent may treat this as a dispute and proceed
under paragraph 10. If a new escrow agent is designated, then upon delivery of
the items described in Schedule A and B, or os much thereof as remains in Escrow
Agents hands to the new escrow agent, Escrow Agent is relieve of all liability
Witness Whereof, the undersigned have hereunto affixed their signatures
and hereby adopt as a part of this Escrow Agreement Schedules A and B.
/s/ Edward Tuft /s/ Robert Sipper
- --------------- ---------------------
Edward Tuft, President Robert Sipper, President
Leroux Creek Food Corporation Perry's Majestic Beer, Inc.
June 26, 1998 June 30, 1998
<PAGE>
EXHIBIT D
ASSIGNMENT AGREEMENT
ASSIGNMENT AGREEMENT, dated June 26, 1998 by and between Leroux Creek Food
Corporation, a Colorado corporation (the "Seller"), and Perry's Majestic Beer,
Inc., a Delaware corporation (the "Buyer").
WITNESSETH:
WHEREAS, pursuant to that certain Agreement to Purchase and Market Brand
Name and Recipes (the "Purchase Agreement") dated even date herewith by and
between the Seller and the Buyer, the Seller has agreed to sell the following
Assets to Buyer, subject to the payment of the Purchase Price:
(a) Physical Assets: All of Seller's customer lists, distribution
brokerage agreements, advertising plans and the like, directly used in
connection with the marketing, sale and distribution of the Products.
(b) Intangible Assets: All rights, title, and interest in and to the
Products, including, without limitation, (i) the exclusive right to market,
sell, and distribute the Products and to sell to Seller's past and present
customers and to utilize Seller's brokers; (ii) the good will associated with
the Products and the Assets; (iii) a non-exclusive license to use the
certification mark "Grown Without Pesticides" (application pending) as set forth
below in section 1.7; (iv) the right to the packaging designs and art graphics
for the Products; and (v) all information concerning past and present marketing
campaigns for the Products.
(c) Leases. Licenses, etc.: All right, title, interest in and to the
leases, licenses, permits, authorizations, contract rights, agreements, whether
written or oral, orders and other documents used in connection with the
marketing, distribution and sale of the Products;
(d) Intellectual Property Rights: All trademarks, trade names, and other
intellectual property rights utilized in connection with the marketing, sale and
distribution of the Products, (excepting the rights to use or apply the
Certification Mark "Grown Without Pesticides" or its variants [the Certification
Mark], such rights non-exclusively licensed as set forth below in section 1.7)
including written records thereof, including, without limitation, all rights to
the name "Leroux Creek" and all variations thereof and the registered trademark
"Leroux Creek" and the goodwill associated with such trademarks.
AND WHEREAS, the parties hereto desire to execute this Agreement to
further evidence the assignment by the Seller of the Assets.
NOW THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereto agree as follows:
1. Definitions. Terms used herein and not otherwise defined herein shall
have the meanings provided for in the Purchase Agreement.
2. Assignment of Assets. The Seller hereby sells, transfers, conveys,
assigns and sets over to the Buyer, its successors and assigns, the Assets.
3. Attorney-in-Fact. The Seller hereby appoints the Buyer, with full power
of substitution, its true and lawful Attorney-in-Fact in its name, place and
stead to take any and all action on behalf of and in the name of Seller to
affirm the rights and interests of the Buyer in, under and to the Assets.
<PAGE>
4. Further Assurances. At any time and from time to time after the date
hereof, at the request of the other party, and without further consideration,
each party shall execute and deliver such other instruments of sale, transfer,
conveyance, assignment and confirmation and take such other action as the other
party reasonably requests as necessary or desirable in order more effectively
transfer, convey and assign to the Buyer the Assets.
5. Governing Law. This agreement shall be governed by and construed in
accordance with the laws of the State of Colorado, without regard to principles
of conflicts of law.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
LEROUX CREEK FOOD CORPORATION
By:/s/ Edward Tuft
- ------------------
Edward Tuft, President
PERRY'S MAJESTIC BEER, INC.
By:/s/ Robert Sipper
Robert Sipper, President
<PAGE>
EXHIBIT E
BILL OF SALE
KNOW ALL MEN BY THESE PRESENTS, that Leroux Creek Food Company, Inc. a
Colorado corporation ("Seller"), for and in consideration of the sum of Ten
Dollars ($10.00) and other good and valuable consideration, the receipt of which
is hereby acknowledged by these presents, and pursuant to an Agreement to
Purchase and Market Brand Name and Recipes dated June 30, 1998 ("Purchase
Agreement") between Seller and Perry's Majestic Beer, Inc. a Delaware
corporation ("Buyer"), hereby sells transfers, conveys, assigns and delivers
unto Buyer all of the right, title and interest of Seller in and to the
following Assets:
(a) Physical Assets: All of Seller's customer lists, distribution
brokerage agreements, advertising plans and the like, directly used in
connection with the marketing, sale and distribution of the Products.
(b) Intangible Assets: All rights, title, and interest in and to the
Products, including, without limitation, (i) the exclusive right to
market, sell, and distribute the Products and to sell to Seller's past and
present customers and to utilize Seller's brokers; (ii) the good will
associated with the Products and the Assets; (iii) a non-exclusive license
to use the certification mark "Grown Without Pesticides" (application
pending) as set forth below in section 1.7; (iv) the right to the
packaging designs and art graphics for the Products; and (v) all
information concerning past and present marketing campaigns for the
Products.
(c) Leases. Licenses. etc.: All right, title, interest in and to the
leases, licenses, permits, authorizations, contract rights, agreements,
whether written or oral, orders and other documents used in connection
with the marketing, distribution and sale of the Products;
(d) Intellectual Property Rights: All trademarks, trade names, and
other intellectual property rights utilized in connection with the
marketing, sale and distribution of the Products, (excepting the rights to
use or apply the Certification Mark "Grown Without Pesticides" or its
variants [the Certification Mark], such rights non-exclusively licensed as
set forth below in section 1.7) including written records thereof,
including, without limitation, all rights to the name "Leroux Creek" and
all variations thereof and the registered trademark "Leroux Creek" and the
goodwill associated with such trademarks.
Except as otherwise provided herein, all capitalized terms contained and
not defined herein shall have the respective meanings ascribed to them in the
Purchase Agreement.
Seller agrees to cooperate with Buyer in obtaining any consents or waivers
of third parties necessary to transfer to Buyer all property and rights provided
to be transferred to Buyer under the Purchase Agreement.
TO HAVE AND TO HOLD the Assets unto Buyer, its successors and assigns, for
its use forever.
At any time and from time to time after the date hereof at the request of
Buyer, and without further consideration, Seller shall execute and deliver such
other instruments of sale, transfer, conveyance, assignment and confirmation and
take such other action as Buyer may reasonably request as necessary or desirable
in order to more effectively transfer, convey and assign to Buyer, and to
confirm Buyer's title to or rights in, all of the Assets, and to put Buyer in
actual possession and operating control thereof.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
LEROUX CREEK FOOD CORPORATION
By:/s/ Edward Tuft
- ------------------
Edward Tuft, President
STATE OF COLORADO,
COUNTY OF DELTA, ss.
Subscribed and affirmed before me this 26th day of June , 1998 by Edward
Tuft, known personally to me to be the President of Leroux Creek Food Company.
Witness my hand and official seal.
My commission expires: October 26, 1998 /s/ Anna George
---------------
Notary Public
ACCEPTED THIS 30th DAY OF JUNE, 1998
PERRY'S MAJESTIC BEER, INC.
By: /s/ Robert Sipper
- ---------------------
Robert Sipper, President
<PAGE>
EXHIBIT F
PRODUCTION AGREEMENT
THIS AGREEMENT, dated June 30,1998 by and between Leroux Creek Food
Corporation, a Colorado corporation (the "Seller"), and Perry's Majestic Beer,
Inc., a Delaware corporation (the "Buyer").
WITNESSETH:
WHEREAS, Seller is engaged in the business among other things, of
manufacturing, marketing and distributing applesauce, apple sauce blends and
apple butter made from associated proprietary recipes utilizing "Grown without
Pesticides" apples; and
WHEREAS, the parties have entered into an Agreement to Purchase and Market
Brand Name and Recipes dated June __, 1998 (the "Purchase Agreement"); and
WHEREAS, the Buyer wishes to continue to use the Seller's production
facility in Hotchkiss, Colorado to produce the Products from the associated
recipes and ingredients of the Seller, said Products to include all Products
currently produced under the Leroux Creek label, including all applesauce,
applesauce blends, and apple butter; and
WHEREAS the Seller is desirous of continuing to produce same;
NOW THEREFORE, in consideration of the mutual terms, conditions and other
agreements set forth herein, the Seller and the Buyer hereby agree as follows:
1. Term. Seller agrees to manufacture and the Buyer agrees to use the Seller as
the sole and exclusive manufacturer of the Products produced under the "Leroux
Creek" label, including all applesauce, applesauce blends, and apple butter for
a period of twelve (12) years from the date of closing of the "Purchase
Agreement." Seller shall have the sole and exclusive right to process and
package the Products of Buyer contemplated by this Agreement during that
twelve-year time period and encompassed in the Purchase Agreement. Buyer
reserves the right to make this a non-exclusive agreement if the Seller is
unable to meet the production needs of the Buyer. This right shall be for the
excess production needs above Seller's production capability only.
2. Production Standards/Recipes. Seller agrees to manufacture the Leroux Creek
brand of applesauce, applesauce blends, and apple butter using the same quality
of production standards as previously used by them in the production of the
Products. The Seller further agrees to manufacture all Products using the same
ingredient qualities and quantities that the Seller has previously used in the
production of the Products. The Seller agrees to continue to use "good
manufacturing practices" to produce the Leroux Creek brand of applesauce,
applesauce blends, and apple butter for the Buyer. Seller agrees to provide
production reports for each production run on a form provided by Buyer. Seller
shall notify Buyer in writing of any substantial deviations from the established
production standards and/or differences or variations in basic ingredients which
may affect the consistency of the finished product. Buyer shall then have the
option to elect to proceed with production according to the varied standards or
to withdraw the specific order.
3. Ordering and Shipping. Buyer shall place orders with the Seller by fax or by
mail. Seller agrees to manufacture and ship orders of 20 pallets or less within
15 days of the receipt of the order by the Seller. Any individual orders
exceeding 20 pallets shall automatically add an additional 10 days to
manufacture and shipping schedule as recited herein. In order to facilitate
Seller's shipping schedule, the parties agree that any orders that are shipped
in an easterly direction from the manufacturing plant in Hotchkiss, Colorado
(with the exception of the Denver area) shall be shipped on the 10th or 25th
<PAGE>
of each month following the completion of the manufacturing cycle. Whenever
possible, the Buyers shall place orders in increments of 5,000 pounds or more.
Orders of less than 5,000 pounds will be subject to a shipping surcharge at the
discretion of the Seller. Buyer agrees that upon payment of the Promissory Note
the freight minimum shall increase to 8,000 pounds.
Buyer also agrees that if any new accounts are procured outside of the
existing marketing territory, the Seller shall have the right to add freight
surcharges for freight costs above $110 per pallet.
4. Special Orders. Any orders which require extraordinary production time,
overtime labor costs, increased costs of delivery of component parts, etc.,
necessary to fill the special order, will create additional costs that will be
added to the cost of manufacture as noted herein, and shall be in addition to
the payments agreed upon in this Agreement. Seller agrees to notify Buyer in
writing prior to incurring such additional costs.
5. Extraordinary Tasks. In the event that the Buyer requests the Seller to
perform any extraordinary or special tasks outside of the realm of the normal
production of applesauce and related products, the Buyer shall be billed at the
rate of $20.00 per hour for such extraordinary or special tasks, plus the costs
of materials. This paragraph is to include all special shipments except
shipments of samples, special packaging, or other tasks that are outside of the
normal production and shipment of the Products. Shipments of samples shall be
billed at cost of production, labor, shipping and added shipping materials.
6. Payment. Until the principal and interest due on the Promissory Note is paid
in full, Buyer agrees to pay Seller for products shipped contemporaneous with or
before the shipment is actually made. After payment in full of the principal and
interest on the Promissory Note in the sum of $587,500.00 as referred to in the
"Purchase Agreement", payment terms shall change to allow the Buyer 20 days to
pay in full following receipt of any invoice of product shipped from the Seller.
7. Fee for Manufacturing and Shipping. As payment for the services performed in
the manufacturing and shipping of the finished Products, the Seller and Buyer
agree to the following fee schedule: Seller will produce twelve (12) 24-ounce
glass jars (one flavor per case) for a price of $11.87 per case. Seller will
produce cases of forty-eight (48) 4-ounce cups wrapped 4 cups per sleeve and
placed in a master carton for a price of $11.18 per case. Price decreases will
be negotiated upon an increase in the production requests of Buyer. Price
increases will only occur as ingredient costs or other costs associated with
manufacturing rise and/or as wholesale price of the product is raised and said
increases shall be at a rate proportional to the increase in costs or the
increase in wholesale price. It shall be the obligation of Seller to provide
Buyer with documentation of all cost increases.
8. Grown Without Pesticides Apple Purchases. The Buyer recognizes that the Grown
Without Pesticides apples are raised specifically for the Buyer based on
contracts made at the beginning of the year, and that these apples typically
have to paid for in full at harvest. Because of the high expense for the
purchase of apples, the Buyer agrees to notify the Seller six months in advance
of harvest (i.e., by May 1 each year) of the estimated production quotas that
will be required for the upcoming harvest year from November 1 to September 30.
The Buyer further agrees to aid the Seller in the procurement of said apples in
accordance with the projections provided by the Buyer. In order to accomplish
this, the Buyer will pay to the Seller, prior to harvest in each year, a payment
equal to 50% of the cost of the apples which are to be purchased at harvest. Any
apples that are purchased on consignment or which will be purchased after
harvest based on a separate contractual relationship will not be affected by
this Agreement. In repayment for the advance referred to in this paragraph 8,
the Seller agrees to credit the Buyer the sum of $1.20 per case beginning in the
month of January following the harvest from which the apples were produced, and
will continue giving credits until all funds advanced are repaid.
<PAGE>
Prior to the payment of the Promissory Note, the Buyer is to advance only
$25,000 to the Seller on or about October 1, 1998 for the procurement of Grown
Without Pesticides Apples. Repayment of the $25,000 shall commence immediately
for all orders placed after October 1, 1998 at the rate of $1.20 per case
credit.
9. Promissory Note. It is recognized that the Seller will continue to have
certain costs associated with debt being serviced by them and that the servicing
of this debt will result in the Seller operating at a loss during the period
until the Promissory Note is paid in full. Therefore, the interest on the
Promissory Note will be paid to Seller on a monthly basis.
10. Denver Advertising. Buyer agrees to honor the existing advertising plan for
the Denver-area market that has been previously agreed upon by Seller. The Buyer
agrees to allocate at least $20,000.00 for said marketing campaign, and said
expenditures will be expended prior to February 1, 1999. Seller agrees to
cooperate with Buyer and provide direction as to how the funds are to be spent
prior to disbursement. Buyer reserves the right to purchase and hold "Key Man"
life insurance on Edward Tuft.
12. Insurance. The Seller agrees to keep in force a $1,000,000.00 of product
liability insurance for the duration of this Production Agreement, and to name
the Buyer as an additional insured on the policy. Any extra costs associated
with adding Buyer as a covered entity shall be borne by the Seller. By so
allowing this to occur the Seller is in no way accepting liability for any
damages that may be incurred by Buyer as a result of the marketing, selling or
in any way transferring said Products to a third party.
13. Independent Contractor Status. It is agreed between the parties that this
Agreement is not intended to create, and in fact does not create a
Principal/Agent, Partnership, or Joint Venture relationship. Seller is acting in
the nature of an independent contractor for the purpose of processing,
packaging, and shipping products for Buyer. Neither party to this Agreement
shall be liable for any obligations incurred by the other in the furtherance of
this Agreement unless specifically agreed to in writing and signed by both
parties. Nothing herein shall prohibit Seller from manufacturing food products
for other customers as long as the recipes for same are provided by the customer
and they are not Leroux Creek recipes.
14. Force Majeure. Should the performance of this Agreement be prevented or
delayed by acts of God, war, civil insurrection, fire flood, storm, strikes,
lockouts, total or partial failure of transportation or delivery facilities,
interruption of power, or by any law, regulation or order of Court or by any
other cause beyond the control of such party, such party's performance to the
extent it is so prevented or delayed shall be excused.
15. Waiver. The failure of either party to this Agreement to insist on the full
performance of any of its provisions by the other party shall not constitute a
waiver of such performance, not shall it be constituted a waiver of any other
provisions of this Agreement.
16. Sole Agreement: This Agreement, in conjunction with the "Purchase Agreement"
and attachments constitutes the sole agreement between the parties on this
subject matter. All terms not otherwise defined in this document shall have the
meaning ascribed to them in said "Purchase Agreement"; Any prior agreements,
promises, negotiations or representations not expressly set forth in this
Agreement are of no force and effect. This Agreement may not be amended,
modified, or added to unless the change is in writing and signed by both of the
parties hereto. This Agreement shall be binding on the heirs, executors, assigns
and transferees of the parties. In this regard, it is expressly agreed that this
Agreement, and the rights and obligations thereunder, may be assigned by Seller
to Edward Tuft at Seller's sole discretion.
<PAGE>
17. Relationship to Purchase Agreement and Promissory Note: It is specifically
understood that this Production Agreement is tied into the Buyer's performance
under the Purchase Agreement and Buyer's timely payment of all interest and
principal payments due under the Promissory Note. Buyer's failure to comply with
the terms of the Purchase Agreement or to make payments when due under the
Promissory Note will cause the obligation of Seller under this Agreement to
cease and Seller may then resume producing and marketing Leroux Creek products
under their own name and for their own profit.
18. Choice of Laws and Venue: this Agreement shall be interpreted according to
the laws of the State of Colorado, and Delta County shall have sole and
exclusive court jurisdiction of any disputes arising as a result of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be executed
as of June 26, 1998.
LEROUX CREEK FOOD CORPORATION
By:/s/ Edward Tuft
- ------------------
Edward Tuft, President
PERRY'S MAJESTIC BEER, INC.
By:/s/ Robert Sipper
Robert Sipper, President
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENTS OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 276,095
<SECURITIES> 0
<RECEIVABLES> 37,213
<ALLOWANCES> 0
<INVENTORY> 241,028
<CURRENT-ASSETS> 564,797
<PP&E> 94,530
<DEPRECIATION> 23,432
<TOTAL-ASSETS> 738,305
<CURRENT-LIABILITIES> 163,405
<BONDS> 0
0
500
<COMMON> 378
<OTHER-SE> 556,357
<TOTAL-LIABILITY-AND-EQUITY> 738,305
<SALES> 676,716
<TOTAL-REVENUES> 676,716
<CGS> 547,141
<TOTAL-COSTS> 2,352,475
<OTHER-EXPENSES> 5,026
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,223
<INCOME-PRETAX> (2,341,181)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,341,181)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,341,181)
<EPS-PRIMARY> (0.63)
<EPS-DILUTED> (0.63)
</TABLE>
