U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB/A
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934. For the fiscal year ended December 31, 1999
OR
[_] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from __________ to __________.
Commission File Number: 0-9201
LIBERTY GROUP HOLDINGS, INC.
(Name of Small Business Issuer in Its Charter)
Delaware 59-3453151
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
11 52nd Street
Brooklyn, New York 11232
(Address of Principal Executive (Zip Code)
Offices)
Registrant's telephone number, including area code: (718) 492-1200
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Name of Each Exchange
Title of Each Class: on which Registered:
------------------- -------------------
Common Stock, $0.004 par value None
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [_]
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is 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. [_]
The issuer's revenues for its most recent fiscal year were $1,660,000
which reflects five weeks of operations of the issuer's primary subsidiary.
The aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant as of May 15, 2000, was $2,404,063.
As of May 15, 2000, 6,500,000 shares of the registrant's Common Stock were
outstanding.
Transitional Small Business Disclosure Format. Yes [_] No [X]
<PAGE>
PART I
This Form 10-KSB/A amends Part I, Item 2 and Item 3 of the Form 10-KSB
(Commission File Number 0-9201) filed by the Registrant on April 14, 2000 (the
"Form 10-KSB") by deleting said Items in their entirety and replacing said Items
with the following:
Item 2. Description of Property
The Company leases approximately 41,000 square feet of space in Brooklyn,
New York, from a partnership, the partners of whom are related to certain of the
shareholders of Ferro. The warehouse/distribution and executive offices are
leased from said partnership pursuant to a 10-year lease which expires in
January, 2010, for which the Company has paid a base monthly rental of $15,000.
Pursuant to the terms of the lease, the Company may terminate the lease upon 60
days notice without penalty after October 1, 2000. The Company believes that
these premises are sufficient for its current needs, however, in connection with
the Company's expansion goals, the Company may purchase or lease additional
warehouse space if warranted.
Item 3. Legal Proceedings
On February 22, 2000, F&A Dairy Products, Inc. ("F&A") commenced a lawsuit
against Ferro and Liberty in the United States District Court, Western District
of Wisconsin, seeking a temporary restraining order ordering Ferro and Liberty
to escrow $1,707,310, or in the alternative, to enjoin Ferro and Liberty from
removing the Ferro Shares from escrow. F&A is Liberty's largest supplier of
cheeses and other dairy products. The parties have agreed to settle the lawsuit,
and on May 12, 2000 executed and delivered the definitive documentation
evidencing the settlement agreement (collectively, the "Definitive Documents").
The terms of the settlement include the execution of a 14-month note by Ferro
for the amount of $1,063,000 that is payable in varying installments through May
1, 2001, with interest at 0.75% above a bank's "base" rate, a personal guarantee
from the shareholders of Ferro, a guarantee by Liberty of said note thirty days
and a pledge by Ferro of 500,000 shares of Common Stock.
<PAGE>
PART II
This Form 10-KSB/A amends Part II, Item 6 and Item 7 of the Form 10-KSB by
deleting said Items in their entirety and replacing said Items with the
following:
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis of the Company's results of
operations and financial condition should be read in conjunction with the
Company's audited consolidated financial statements and notes thereto. The
following discussion and analysis of the results of operations and financial
condition reflects results of operations as though the acquisition of Ferro
Foods had been consummated on January 1, 1998. For the years ended December 31,
1999 and 1998, the results are based on unaudited pro-forma information.
Results of Operations
From July 1997 until November 23, 1999, Bio Response was actively
seeking an acquisition. Prior to November 23, 1999, Bio Response had no
assets, liabilities or obligations and did not engage in any operations or
generate any revenues. On November 23, 1999 Bio Response was renamed Liberty
Group Holdings, Inc. and simultaneously acquired Liberty Food Group, Ltd. and
certain assets of Ferro Foods Corp. See Item 1, "Description of Business"
above.
Sales for the year ended December 31, 1999 decreased by $1,875,521 or 9.8%
to $17,221,648 compared to $19,097,169 of sales of Ferro for the year ended
December 31, 1998. The primary reason for the decrease in sales is due to the
reorganization of the operational focus of Ferro and the attention of management
necessary in order to incorporate the business of Ferro into the Company.
Cost of sales for the year ended December 31, 1999 decreased by $1,490,992
or 9% to $15,081,847 from $16,572,839 for the year ended December 31, 1998. The
decrease is primarily related to the decrease in sales.
Gross profit percentage for the year ended December 31, 1999 decreased by
less than one percent to 12.4% from 13.2% for the year ended December 31, 1998.
The primary reason for the decrease is the change in price sensitivity of the
inventory of the Company.
Selling expenses for the year ended December 31, 1999 decreased by $59,736
or 6% to $883,756 from $943,492 for the year ended December 31, 1998. The
decrease is attributable to (1) a change in salesman's compensation structure
and (2) a decrease in sales.
General and Administrative expenses for the year ended December 31, 1999
increased by $924,311 or 45.9% to $2,936,007 from $2,011,696 for the year ended
December 31, 1998. The increase is mainly due to the following: (1) a non-cash
charge of $550,000 relating to performance stock options granted to officers of
the Company upon achieving performance milestones. (2) professional fees of
approximately $220,000, as a result of the Company being a public reporting
company and (3) an increase in bad debt expense of $51,000.
Liquidity/Capital Resources
The Company has losses from operations and negative cash flow, and this is
expected to continue for the foreseeable future. If revenues and current
spending levels are not adjusted accordingly, the Company may not generate
sufficient revenues to achieve profitability. Even if profitability is achieved,
the Company may not generate sufficient revenues to achieve profitability. Even
if profitability is achieved, the Company may not sustain or increase such
profitability on a quarterly or annual basis in the future. The Company is
reviewing its options for additional sources of capital and is offering
securities of the Company to provide for working capital, internal growth and
future acquisitions. There is no guarantee that the required additional
financing will be available to the Company on acceptable terms. If additional
funds are raised by the issuance of our equity securities, such as through the
exercise of the redeemable warrants, then existing stockholders may experience
dilution of their ownership interest and such securities may have rights senior
to those of the then existing holders of common stock. If additional funds are
raised by the issuance of debt instruments, the Company may be subject to
certain limitations on our operations. If adequate funds are not available or
not available on acceptable terms, the Company may be unable to fund expansion,
take advantage of acquisition opportunities, develop or enhance services or
respond to competitive pressures.
In March 2000, the Company received $100,000 from an accredited investor
through the issuance of a short term, 9% promissory note in the same principal
amount. On April 25, 2000, the note was converted into 50,000 shares of common
stock and warrants to purchase 10,000 shares of common stock. The warrants are
exercisable at $8 per share through April 25, 2003.
Commitments
Pursuant to the Company's acquisition of a 51% interest in
AskTheRobot, the Company, through a wholly-owned subsidiary, must provide
additional funding to AskTheRobot on a quarterly basis commencing June 14,
2000. The terms of the acquisition agreement require the Company to make five
quarterly payments to AskTheRobot that are contingent upon the number of
subscribers to the services of AskTheRobot. If the number of subscribers
reaches the specified level for the quarter: (i) the Company is required to
pay AskTheRobot $200,000 and (ii) the Company will be required to issue the
number of common shares to AskTheRobot equal to $760,000 divided by the
greater of $3.00 per share or the market value per share at the end of the
quarter.
Item 7. Financial Statements
The following financial statements have been prepared in accordance
with the requirements of Regulation S-B. Such information appears on page F-1
through F-22 inclusive of this Form 10-KSB, which pages follow this page.
<PAGE>
PART III
This Form 10-KSB/A amends Part III, Item 11 of the Form 10-KSB by deleting
said Item in its entirety and replacing said Items with the following:
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the beneficial ownership of the Company's
Common Stock on May 12, 2000 by persons who either (i) are beneficial owners of
5% of the Company's Common Stock, or (ii) are directors or officers of the
Company. The information contained in the table is based on the Company's
current information concerning the ownership of its securities.
As of May 12, 2000, there were 6,500,000 shares of Common Stock
outstanding.
<TABLE>
<CAPTION>
Beneficial Percent
Name and Address of Beneficial Owner(1) Ownership of Class
of Common Stock
<S> <C> <C>
Ferro Foods Corporation ................. 1,933,000(2) 29.74%
28 53rd Street
Brooklyn, NY 11232
Haines City Trust ....................... 1,088,250(3) 16.74%
11 52nd Street
Brooklyn, NY 11232
Willow Road Trust ....................... 900,000(4) 13.85%
11 52nd Street
Brooklyn, NY 11232
Steel II Trust .......................... 498,250(4) 7.67%
11 52nd Street
Brooklyn, NY 11232
Dennis E. Lane .......................... 1,705,750 26.24%
11 52nd Street
Brooklyn, NY 11232
Barry L. Hawk ........................... 3,420,500(2)(4)(5)(6) 52.62%
11 52nd Street
Brooklyn, NY 11232
All officers and directors of the Company 5,126,250(7) 78.87%
as a group (two persons)
<FN>
(1) Except as noted in these footnotes or as otherwise stated above,
each person has sole voting and investment power.
(2) 2,000,000 shares were issued to Ferro in consideration for the
transfer and sale of all of the assets of Ferro to the Company. See
Item 1 "Description of Business-Overview." Such shares are subject
to a Voting Trust and Proxy Agreement by and among Liberty, Ferro,
Frank Ferro, Sr. and Frank Gambino (the "Voting Agreement"),
pursuant to which Mr. Hawk has full voting power over such shares
until November 23, 2001. Moreover, in connection with the
acquisition of the assets from Ferro, these shares were placed in
escrow pursuant to an Escrow Agreement dated as of November 23, 1999
(the "Escrow Agreement"). Pursuant to Amendment No. 1 to the Escrow
Agreement dated as of February 1, 2000, 67,000 shares of Common
Stock were forfeited by Ferro and released from escrow to various
third parties. An additional 500,000 shares will be released from
escrow in connection with the settlement of the lawsuit initiated by
F&A (see "Legal Proceedings" above). Since the financial
accommodation to satisfy debts of Ferro was not established, these
shares are to remain in escrow and will not be released until
Liberty determines, in its sole and absolute discretion, that Ferro
has entered into a financial accommodation sufficient to satisfy the
outstanding debts and liabilities connected with the business of
Ferro.
(3) Each of the trusts was a stockholder of Liberty, and received the
number of shares of Common Stock set forth opposite its respective
name as a result of the Merger. Dennis Lane and his wife, Diane, are
the trustees of both the Haines City Trust and Potomac River Trust
(which holds 280,000 shares of Common Stock, or 4.3% of the issued
and outstanding share capital). Diane Lane and David Lubin, Esq.,
are the trustees of the Great Falls Trust (which holds 280,000
shares of Common Stock, or 4.3% of the issued and outstanding share
capital). Each trust agreed with the Company that it will not sell
the shares of Common Stock until November 24, 2001. Although each of
the trustees has joint and several discretion on the voting and
investment power of each of the respective trusts, each of the
trustees expressly disclaims beneficial ownership of the shares of
Common Stock held by each such trust.
(4) Each of the trusts was a stockholder of Liberty, and received the
number of shares of Common Stock set forth opposite its respective
name as a result of the Merger. Barry Hawk and his wife, Lisa, are
the trustees of both the Willow Road Trust and Crafton Trust (which
holds 250,000 shares of Common Stock, or 3.85% of the issued and
outstanding share capital). Lisa Hawk and David Lubin, Esq., are the
trustees of the Steel II Trust. Each trust agreed with the Company
that it will not sell the shares of Common Stock until November 24,
2001. Although each of the trustees has joint and several discretion
on the voting and investment power of each of the respective trusts,
each of the trustees expressly disclaims beneficial ownership of the
shares of Common Stock held by each such trust.
(5) Each of Messrs. Hawk and Lane are entitled to purchase 275,000
shares of Common Stock at an exercise price of $.004 per share
pursuant to option agreements which were assumed by the Company in
the Merger. Said options were exercisable if between July 1, 1999
through June 30, 2000 Liberty either achieved a 20% growth in
revenues or acquired a company with at least $5,000,000 in revenues.
(6) The Company issued 62,500 shares of common stock to each of Messrs.
Hawk and Lane for a total cash consideration of $202,000 and the
cancellation of notes in the aggregate amount of $48,000.
(7) These shares are attributed to Messrs. Hawk and Lane.
</FN>
</TABLE>
This Form 10-KSB/A amends Part III, Item 12 of the Form 10-KSB by deleting
the last three paragraphs of said Item in their entirety and replacing said
paragraphs with the following:
Item 12. Certain Relationships and Related Transactions.
Upon the consummation of the Asset Purchase on November 23, 1999, the
Ferro Shares were placed in escrow, in accordance with the terms of an Escrow
Agreement dated as of November 23, 1995, as amended February 1, 2000, by and
among Ferro, the Buyer, Frank Ferro, Sr. ("FF") and Frank Gambino ("FG") and
Herrick, Feinstein LLP, as escrow agent (the "Escrow Agreement"), and shall be
released, at such times and in such amounts, upon written instructions from the
Buyer, when it, in its sole and absolute discretion, is satisfied that all
liabilities or obligations of Ferro, FF and FG in connection with Ferro's
business and assets have been satisfied. Pursuant to Amendment No. 1 to the
Escrow Agreement dated as of February 1, 2000 ("Amendment No. 1 to Escrow
Agreement"), 67,000 shares of Common Stock were forfeited by Ferro and released
from escrow to various third parties. Since a financial accommodation to satisfy
the debts of the business was not established, the balance of the shares are to
remain in escrow and are to be released only upon the written instructions of
the Buyer. It is the intention of Ferro, FF and FG that the escrow shares be
used, to the extent possible, to satisfy outstanding debts and liabilities in
connection with the business of Ferro. Accordingly, additional shares may be
forfeited by Ferro in the event that such liabilities and obligations are not
satisfied. An additional 500,000 shares are being pledged in connection with the
settlement of the F&A lawsuit. See "Legal Proceedings" above.
Subsequent to the consummation of the Merger on November 23, 1999, the
Company advanced funds to Ferro in the aggregate amount of approximately
$[1,400,000] to satisfy certain obligations and liabilities of Ferro. The loan
is secured by a revolving credit line mortgage, personal guarantees from FF and
FG and the shares of the Company held in escrow.
The Company leases from a partnership approximately 41,000 square feet of
warehouse and office space for which it pays $15,000 per month, in a building in
Brooklyn, New York, for a ten-year term. The partners of the partnership are
related to the stockholders of Ferro. For the year ended December 31, 1999, the
Company paid $10,000 to the partnership. See Item 2, "Description of Property"
above.
This Form 10-KSB/A amends Part III, Item 13 of the Form 10-KSB by adding
the following:
Item 13. Exhibits, List and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number Description
4.2 Stock Option Plan
10.14 Secured Revolving Promissory Note dated December 16, 1999 by Ferro
Foods Corporation in favor of Liberty Group Holdings, Inc.
10.15 Secured Revolving Promissory Note dated May 1, 2000 by Ferro Foods
Corporation in favor of Liberty Group Holdings, Inc.
10.16 Settlement Agreement dated as of May 12, 2000, by and among F&A Dairy
Products, Inc., Ferro Foods Corporation, Frank Gambino, Frank Ferro,
Sr. and Liberty Food Group, LLC
10.17 Guaranty dated as of May 12, 2000, by Liberty Food Group, LLC for the
benefit of F&A Dairy Products, Inc.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
LIBERTY HOLDINGS GROUP, INC.
By: /s/ Dennis E. Lane
--------------------
Dennis E. Lane, Chairman, Chief
Executive Officer, Treasurer
By: /s/ Barry L. Hawk
-------------------
Barry L. Hawk, President, Chief
Operations Officer, Secretary
In accordance with the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
By: /s/ Dennis E. Lane May 16, 2000
--------------------------------
Dennis E. Lane, Director,
Chairman, Chief Executive
Officer, Treasurer
By: /s/ Barry L. Hawk May 16, 2000
--------------------------------
Barry L. Hawk, Director,
President, Chief Operations
Officer, Secretary
<PAGE>
LIBERTY GROUP HOLDINGS, INC. AND SUBSIDIARIES
AND PREDECESSOR COMPANY
I N D E X
PAGE
REPORTS OF INDEPENDENT PUBLIC ACCOUNTANTS F-2/4
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999 F-5
CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD FROM NOVEMBER 23, 1999 THROUGH DECEMBER 31, 1999
AND PREDECESSOR PERIOD FROM JANUARY 1, 1999 THROUGH
NOVEMBER 22, 1999 AND YEAR ENDED DECEMBER 31, 1998 F-6
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FROM NOVEMBER 23, 1999 THROUGH DECEMBER 31, 1999
AND PREDECESSOR PERIOD FROM JANUARY 1, 1999 THROUGH
NOVEMBER 22, 1999 AND YEAR ENDED DECEMBER 31, 1998 F-7
CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM NOVEMBER 23, 1999 THROUGH DECEMBER 31, 1999
AND PREDECESSOR PERIOD FROM JANUARY 1, 1999 THROUGH
NOVEMBER 22, 1999 AND YEAR ENDED DECEMBER 31, 1998 F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-9/22
* * *
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Liberty Group Holdings, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of LIBERTY GROUP
HOLDINGS, INC. AND SUBSIDIARIES as of December 31, 1999, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the period from November 23, 1999 through December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Liberty Group
Holdings, Inc. and Subsidiaries as of December 31, 1999, and their results of
operations and cash flows for the period from November 23, 1999 through December
31, 1999, in conformity with generally accepted accounting principles.
As further explained in Note 1, Liberty Group Holdings, Inc. commenced
operations on November 23, 1999 when it acquired certain assets and the business
of Ferro Foods Corporation (the "Predecessor") through a series of transactions
accounted for as a purchase business combination. As a result of those
transactions, including, among other things, the amortization of goodwill
arising from purchase accounting adjustments, the accompanying post-acquisition
financial statements of Liberty Group Holdings, Inc. and its subsidiaries are
not comparable to the accompanying pre-acquisition financial statements of the
Predecessor.
J.H. Cohn LLP
Roseland, New Jersey
May 1, 2000, except for Note 12
as to which the date is May 12, 2000
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders
Ferro Foods Corporation
We have audited the accompanying statements of operations, stockholders' equity
and cash flows of FERRO FOODS CORPORATION (the "Predecessor") for the period
from January 1, 1999 through November 22, 1999. These financial statements are
the responsibility of the Predecessor's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of the
Predecessor for the period from January 1, 1999 through November 22, 1999, in
conformity with generally accepted accounting principles.
As further explained in Note 1, Liberty Group Holdings, Inc. commenced
operations on November 23, 1999 when it acquired certain assets and the business
of the Predecessor through a series of transactions accounted for as a purchase
business combination. As a result of those transactions, including, among other
things, the amortization of goodwill arising from purchase accounting
adjustments, the accompanying pre-acquisition financial statements of the
Predecessor are not comparable to the accompanying post-acquisition financial
statements of Liberty Group Holdings, Inc. and its subsidiaries.
J.H. Cohn LLP
Roseland, New Jersey
May 1, 2000
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders
Ferro Foods Corporation
We have audited the accompanying statements of operations, stockholders' equity
and cash flows of FERRO FOODS CORPORATION (the "Predecessor") for the year ended
December 31, 1998. These financial statements are the responsibility of the
Predecessor's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of the
Predecessor for the year ended December 31, 1998, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Predecessor will continue as a going concern. As discussed in Note 2 to the
financial statements, certain conditions raise substantial doubt about its
ability to continue as a going concern. Management's plans and actions taken are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Friedman Alpren & Green LLP
New York, New York
March 18, 1999
<PAGE>
<TABLE>
<CAPTION>
LIBERTY GROUP HOLDINGS, INC. AND SUBSIDIARIES
AND PREDECESSOR COMPANY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
ASSETS
<S> <C>
Cash ................................................................. $ 15,013
Accounts receivable, net of allowance for doubtful accounts of $22,000 842,443
Inventories
771,564
Other current assets ................................................. 44,085
-----------
Total current assets ......................................... 1,673,105
Equipment and improvements, net of accumulated depreciation
and amortization of $4,965 ........................................ 202,405
Notes and other receivables from stockholders of Predecessor ......... 1,494,188
Goodwill, net of accumulated amortization of $1,620 .................. 233,843
Other assets ......................................................... 9,122
-----------
Total ........................................................ $ 3,612,663
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations ...................... $ 10,270
Accounts payable .................................................. 1,000,674
Accrued salaries and related expenses ............................. 60,023
Other accrued expenses ............................................ 202,256
-----------
Total current liabilities .................................... 1,273,223
Long-term capital lease obligations, net of current portion .......... 26,759
-----------
Total liabilities ............................................ 1,299,982
-----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.004 per share; 5,000,000 shares
authorized; none issued ........................................ --
Common stock, par value $.004 per share; 25,000,000 shares
authorized; 6,500,000 shares issued and outstanding ............ 26,000
Additional paid-in capital ........................................ 2,999,000
Accumulated deficit ............................................... (712,319)
-----------
Total stockholders' equity ................................... 2,312,681
-----------
Total ........................................................ $ 3,612,663
===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
LIBERTY GROUP HOLDINGS, INC. AND SUBSIDIARIES
AND PREDECESSOR COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD FROM NOVEMBER 23, 1999 THROUGH DECEMBER 31, 1999
AND PREDECESSOR PERIOD FROM JANUARY 1, 1999 THROUGH
NOVEMBER 22, 1999 AND YEAR ENDED DECEMBER 31, 1998
Period From Period From
November January
23, 1999 1, 1999
through through
Year Ended
December November December
31, 1999 22, 1999 31, 1998
(Predecessor) (Predecessor)
<S> <C> <C> <C>
Sales .............................. $ 1,663,016 $ 15,558,632 $ 19,097,169
Cost of sales ...................... 1,361,281 13,720,206 16,572,839
------------ ------------ ------------
Gross profit ....................... 301,735 1,838,426 2,524,330
------------ ------------ ------------
Operating expenses:
Selling ......................... 55,667 843,959 1,019,440
General and administrative ...... 958,387 2,053,542 1,826,637
------------ ------------ ------------
Totals ....................... 1,014,054 2,897,501 2,846,077
------------ ------------ ------------
Loss from operations ............... (712,319) (1,059,075) (321,747)
Interest expense ................... 103,487 177,925
------------ ------------ ------------
Net loss ........................... $ (712,319) $ (1,162,562) $ (499,672)
============ ============ ============
Basic net loss per common share .... $ (.11)
============
Basic weighted average common shares
outstanding ..................... 6,375,000
============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
LIBERTY GROUP HOLDINGS, INC. AND SUBSIDIARIES
AND PREDECESSOR COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FROM NOVEMBER 23, 1999 THROUGH DECEMBER 31, 1999
AND PREDECESSOR PERIOD FROM JANUARY 1, 1999 THROUGH
NOVEMBER 22, 1999 AND YEAR ENDED DECEMBER 31, 1998
Additional
Common Stock Paid-in Accumulated
------------------------
Shares Amount Capital Deficit Total
Predecessor:
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1998 .................. 30 $ 30 $ 126,970 $(1,249,303) $(1,122,303)
Net loss .................................. (499,672) (499,672)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 ................ 30 30 126,970 (1,748,975) (1,621,975)
Net loss .................................. (1,162,562) (1,162,562)
----------- ----------- ----------- ----------- -----------
Balance, November 22, 1999 ................ 30 $ 30 $ 126,970 $(2,911,537) $(2,784,537)
=========== =========== =========== =========== ===========
Liberty Group Holdings, Inc. and Subsidiaries:
Effects of reverse acquisitions on November
23, 1999:
Shares issued in connection with
purchase of Bio-Response, Inc. ..... 4,150,000 $ 16,600 $ (16,600)
Shares issued in connection with
purchase of Predecessor's business . 2,225,000 8,900 2,216,100 $ 2,225,000
Effect of compensatory stock options
issued to officers ..................... 550,000 550,000
Sale of common stock to officers .......... 101,000 500 201,500 202,000
Exchange of common stock for notes
receivable from stockholders of
Predecessor ............................ 24,000 48,000 48,000
Net loss .................................. $ (712,319) (712,319)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 ................ 6,500,000 $ 26,000 $ 2,999,000 $ (712,319) $ 2,312,681
=========== =========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
LIBERTY GROUP HOLDINGS, INC. AND SUBSIDIARIES
AND PREDECESSOR COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM NOVEMBER 23, 1999 THROUGH DECEMBER 31, 1999
AND PREDECESSOR PERIOD FROM JANUARY 1, 1999 THROUGH
NOVEMBER 22, 1999 AND YEAR ENDED DECEMBER 31, 1998
Period From Period From
November January
23, 1999 1, 1999
through through Year Ended
December November December
31, 1999 22, 1999 31, 1998
-------------- ------------- -----------
(Predecessor) (Predecessor)
<S> <C> <C> <C>
Operating activities:
Net loss ..................................................... $ (712,319) $(1,162,562) $ (499,672)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization ............................. 6,585 77,446 120,918
Compensation paid through the issuance of stock options
to officers ............................................ 550,000
Provision for bad debts ................................... 22,000 51,300
Changes in operating assets and liabilities:
Accounts receivable .................................... 12,616 522,725 (180,440)
Inventories ............................................ (52,831) 178,607 250,827
Other current assets ................................... 9,585 16,755 10,827
Accounts payable ....................................... 1,000,674 (293,063) 298,821
Accrued salaries and other related expenses ............ 60,023
Other accrued expenses ................................. 80,282 496,622 29,012
----------- ----------- -----------
Net cash provided by (used in) operating activities 976,615 (112,170) 30,293
----------- ----------- -----------
Investing activities:
Purchases of equipment and improvements ...................... (105,432) (22,250)
Loans to stockholders of Predecessor and other related parties (1,163,602) (133,148)
Increase in other assets ..................................... (139,022) (650)
----------- ----------- -----------
Net cash used in investing activities .............. (1,163,602) (377,602) (22,900)
----------- ----------- -----------
Financing activities:
Proceeds from issuance of notes payable to bank, net ......... 257,000 87,000
Repayments of long-term borrowings ........................... (56,300) (90,356)
Advances from stockholders of Predecessor .................... 279,732
Proceeds from the sale of common stock ....................... 202,000
-----------
Net cash provided by (used in) financing activities 202,000 480,432 (3,356)
----------- ----------- -----------
Net increase (decrease) in cash ................................... 15,013 (9,340) 4,037
Cash, beginning of period ......................................... -- 9,340 5,303
----------- ----------- -----------
Cash, end of period ............................................... $ 15,013 $ -- $ 9,340
=========== =========== ===========
Supplemental disclosures of cash flow data:
Interest paid ................................................ $ 99,660 $ 148,523
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
LIBERTY GROUP HOLDINGS, INC. AND SUBSIDIARIES
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization and business:
Bio-Response, Inc. ("Bio-Response") was incorporated in February 1972
in Delaware to conduct various research activities, primarily in the
area of immunology. In September 1989, Bio-Response filed a voluntary
petition under Chapter 11 of the Bankruptcy Act. In July 1997,
Bio-Response was restructured as an inactive public shell company for
the purpose of effecting a business combination with a privately-held
operating company. As of November 23, 1999, the date of the
consummation of the business combinations described below,
Bio-Response was inactive.
Ferro Foods Corporation ("Ferro") was incorporated in 1970 in New York
to market and distribute restaurant pizzeria food, food related items
and supplies. As of November 23, 1999, it was conducting such
marketing and distribution operations.
Liberty Food Group, Ltd. ("Liberty Food") was originally incorporated
in June 1999 in Delaware to acquire control of a food marketing and
distribution business and become a public company. As of November 23,
1999, all of Liberty Food's outstanding common shares were owned by
trusts for the benefit of its two key executive officers and/or
members of their respective families. It did not conduct any
commercial operations during the period from its incorporation through
November 23, 1999.
As of November 23, 1999, Bio-Response had 650,000 shares of common
stock outstanding with a par value of $.004 per share. On November 23,
1999, the following transactions were consummated: (i) Bio-Response
issued, effectively, 3,500,000 shares of common stock in exchange for
all of the then outstanding shares of common stock, and it became the
legal acquirer, of Liberty Food; (ii) Liberty Food was merged into a
wholly-owned subsidiary of Bio-Response; (iii) Bio-Response issued,
effectively, 2,000,000 shares of common stock in exchange for certain
assets and the business of Ferro and, accordingly, it became the legal
acquirer of Ferro; (iv) Bio-Response issued 225,000 shares of common
stock to an adviser for professional fees in connection with the
acquisitions; (v) the assets acquired from Ferro were contributed to
Liberty Food Group LLC ("Liberty Food LLC"), a Delaware limited
liability company that is a wholly-owned subsidiary of Bio-Response;
(vi) the shares of common stock issued to acquire Ferro's assets and
business were placed in escrow and will not be released until Ferro
and/or its stockholders have paid or otherwise satisfied all of the
liabilities of Ferro outstanding on that date (see Note 12); and (vii)
Bio-Response's name was changed to Liberty Group Holdings, Inc.
("Liberty Holdings").
Upon consummation of the transactions described above, Liberty
Holdings had 6,375,000 shares of common stock outstanding of which
3,500,000 shares, or 54.9%, were owned by the former stockholders of
Liberty Food, 2,000,000 shares, or 31.4%, were owned, effectively, by
the stockholders of Ferro, 650,000 shares, or 10.2%, were owned by the
stockholders of Bio-Response prior to the transactions and 225,000
shares, or 3.5%, were owned by the adviser. In addition, the two
former key executive officers of Liberty Food became the key executive
officers responsible for the management of Liberty Holdings and its
subsidiaries subsequent to the consummation of the transactions.
<PAGE>
LIBERTY GROUP HOLDINGS, INC. AND SUBSIDIARIES
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization and business (concluded):
As used herein, the "Company" refers to Liberty Holdings and its
subsidiaries subsequent to the acquisitions and the other transactions
described above that were consummated on November 23, 1999, and the
"Predecessor" refers to Ferro prior to its acquisition by the Company.
Since the former stockholders of Liberty Food became the owners of a
majority of the outstanding shares of common stock and the principal
executive officers of the Company as of November 23, 1999 and
Bio-Response had no significant operating activities or assets and
liabilities prior to that date, the acquisitions of the outstanding
shares of Liberty Food and the assets and business of the Predecessor
by Bio-Response have been accounted for by the Company as purchase
business combinations and "reverse acquisitions" effective as of
November 23, 1999 in which Bio-Response was the legal acquirer and
Liberty Food was the accounting acquirer. Generally accepted
accounting principles require the accounting acquirer in a purchase
business combination to record the assets and liabilities of an
acquired business on the basis of their fair values as of the date of
acquisition and record the results of operations of the acquired
business commencing from the date of acquisition.
The Company did not record any of the assets or liabilities of
Bio-Response as of the date of its acquisition since they were
insignificant; however, it did record the 650,000 shares of common
stock owned by the stockholders of Bio-Response and the 3,500,000
shares of common stock issued by Bio-Response to the former
stockholders of Liberty Food as of that date at their aggregate par
value of $16,600 and it decreased additional paid-in capital by an
equivalent amount. The Company recorded the assets and certain accrued
expenses and capital lease obligations of the Predecessor that it
acquired or assumed at their fair values as of the date of acquisition
as further explained in Note 3. Since Liberty Food, the accounting
acquirer, had no significant operating activities prior to November
23, 1999, the accompanying consolidated financial statements do not
contain any historical statements of operations or cash flows for the
Company prior to that date; instead, the statements of operations and
cash flows of the Predecessor for the period from January 1, 1999 to
November 22, 1999 and for the year ended December 31, 1998 have been
included herein in accordance with the rules and regulations of the
Securities and Exchange Commission. However, as a result, among other
things, of the transactions that were consummated on November 23, 1999
and the related accounting adjustments described in Note 3, the
accompanying pre-acquisition financial statements of the Predecessor
are not comparable to the accompanying post-acquisition consolidated
financial statements of the Company.
<PAGE>
LIBERTY GROUP HOLDINGS, INC. AND SUBSIDIARIES
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies:
Principles of consolidation:
The accompanying consolidated financial statements of the Company as
of December 31, 1999 and for the period from November 23, 1999
through December 31, 1999 include the accounts of Liberty Holdings
and its subsidiaries, all of which are wholly-owned. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those
estimates.
Inventories:
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out ("FIFO") method.
Equipment and improvements:
Equipment and improvements are stated at cost, net of accumulated
depreciation and amortization. Depreciation and amortization are
computed by the Company using the straight-line method over the
estimated useful lives of the related assets which range from two to
ten years (depreciation and amortization were computed by the
Predecessor using accelerated methods).
Goodwill:
Goodwill, which represents the excess of the costs of acquiring the
Predecessor's business over the fair value of its net assets as of
the date of acquisition, is being amortized using the straight-line
method over a period of ten years.
Impairment of long-lived assets:
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS 121"). Under SFAS 121, impairment losses on long-lived
assets, such as equipment and improvements and goodwill, are
recognized when events or changes in circumstances indicate that the
undis-counted cash flows estimated to be generated by such assets
are less than their carrying value and, accordingly, all or a
portion of such carrying value may not be recoverable. Impairment
losses are then measured by comparing the fair value of assets to
their carrying amounts.
Revenue recognition:
Sales are recorded at the time products are shipped.
<PAGE>
LIBERTY GROUP HOLDINGS, INC. AND SUBSIDIARIES
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (continued):
Advertising:
The Company expenses the cost of advertising and promotions as
incurred. Advertising costs charged to operations amounted to
$1,998, $13,238 and $15,475 for the period from November 23, 1999
through December 31, 1999 and the Predecessor period from January 1,
1999 through November 22, 1999 and year ended December 31, 1998.
Income taxes:
The Company and the Predecessor have accounted for income taxes
pursuant to the asset and liability method which requires deferred
income tax assets and liabilities to be computed annually for
temporary differences between the financial statement and tax bases
of assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates applicable
to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary
to reduce deferred tax assets to the amount expected to be realized.
The income tax provision or credit is the tax payable or refundable
for the period plus or minus the change during the period in
deferred tax assets and liabilities.
The Predecessor, with the consent of its stockholders, had elected
to be treated as an "S" Corporation under the Internal Revenue Code.
Accordingly, the Predecessor's income or loss prior to that date was
allocated to the Predecessor's stockholders for inclusion in their
personal Federal income tax returns. Therefore, the Predecessor was
not required to record any historical provision or credit for
Federal income taxes. The Predecessor had also elected to be treated
as an "S" Corporation for New York state income tax purposes.
However, New York imposes a tax on "S" Corporation income at a
reduced rate and New York City does not recognize "S" Corporations.
Therefore, the Company was required to record appropriate historical
provisions and credits for state and local income taxes.
The Company, which is not eligible to be treated as an "S"
Corporation, will file a consolidated Federal income tax return with
its subsidiaries.
Net earnings (loss) per share:
The Company presents "basic" earnings (loss) per share and, if
applicable, "diluted" earnings per share pursuant to the provisions
of Statement of Financial Accounting Standards No. 128, "Earnings
per Share" ("SFAS 128"). Basic earnings (loss) per share is
calculated by dividing net income or loss by the weighted average
number of shares outstanding during each period. The calculation of
diluted earnings per share is similar to that of basic earnings per
share, except that the denominator is increased to include the
number of additional common shares that would have been outstanding
if all potentially dilutive common shares, such as those issuable
upon the exercise of stock options, were issued during the period.
<PAGE>
LIBERTY GROUP HOLDINGS, INC. AND SUBSIDIARIES
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (concluded):
Net earnings (loss) per share (concluded):
Since the Company had a loss for the period from November 23, 1999
through December 31, 1999, the assumed effect of the exercise of
options outstanding at December 31, 1999 would have been
anti-dilutive and, therefore, a diluted per share amount has not
been presented in the accompanying consolidated statement of
operations for that period.
Stock options:
In accordance with the provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB
25"), the Company will recognize compensation costs as a result of
the issuance of stock options to employees based on the excess, if
any, of the fair value of the underlying stock at the date of grant
or award (or at an appropriate subsequent measurement date), over
the amount the employee must pay to acquire the stock. Therefore,
the Company will not be required to recognize compensation expense
as a result of any grants of stock options to employees at an
exercise price that is equivalent to or greater than fair value. The
Company will also make pro forma disclosures, as required by
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), of net income or loss as if
a fair value based method of accounting for stock options had been
applied instead if such amounts differ materially from the
historical amounts.
Recent accounting pronouncements:
The Financial Accounting Standards Board and the Accounting
Standards Executive Committee of the American Institute of Certified
Public Accountants had issued certain accounting pronouncements as
of December 31, 1999 that will become effective in subsequent
periods; however, management of the Company does not believe that
any of those pronouncements would have significantly affected the
Company's financial accounting measurements or disclosures had they
been in effect during the period from November 23, 1999 through
December 31, 1999.
Basis of Predecessor financial statements:
The accompanying financial statements of the Predecessor have been
prepared assuming the Predecessor would continue as a going concern.
The Predecessor incurred a net loss of $499,672 for the year ended
December 31, 1998 and it had working capital and stockholders'
deficiencies at December 31, 1998 of $1,683,244 and $1,621,975,
respectively. These matters raised substantial doubt at December 31,
1998 as to the ability of the Predecessor to continue to operate as
a going concern. The Predecessor financial statements for the year
ended December 31, 1998 do not include any adjustments that might
have resulted from the outcome of this uncertainty. Subsequently,
the Predecessor continued its commercial operations until its
business was acquired by the Company on November 23, 1999.
Certain accounts in the Predecessor financial statements for the
year ended December 31, 1998 have been reclassified to conform to
the presentations used for the period from January 1, 1999 through
November 22, 1999.
<PAGE>
LIBERTY GROUP HOLDINGS, INC. AND SUBSIDIARIES
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Purchase of the Predecessor:
As explained in Note 1, on November 23, 1999, the Company acquired the
business and certain assets of the Predecessor and assumed certain of
its liabilities, as shown below, by issuing 2,000,000 shares of common
stock to, effectively, the Predecessor's stockholders. The Company was
required to account for the acquisition pursuant to the purchase
method of accounting and, accordingly, the accompanying consolidated
financial statements include the results of operations of the
Predecessor from the date of acquisition.
The total cost of the acquisition of the Predecessor was $2,295,000,
of which $2,000,000 was attributable to the estimated fair value of
the 2,000,000 shares of common stock issued to the stockholders of the
Predecessor, $225,000 was attributable to the estimated fair value of
225,000 shares of common stock issued for professional services
related to the purchase and the balance of $70,000 was attributable to
cash payments for legal and accounting services related to the
purchase.
Pursuant to the purchase method of accounting, the initial cost of
acquiring the Predecessor, which exceeded the fair value of the net
assets acquired by $235,462, was allocated as follows:
<TABLE>
<S> <C>
Accounts receivable .................................. $ 877,070
Inventories .......................................... 718,733
Other current and noncurrent assets .................. 62,781
Goodwill ............................................. 235,462
Receivables from stockholders of Predecessor ......... 282,586
Property and equipment ............................... 207,371
Accrued expenses and capital lease obligations assumed (89,003)
-----------
Total .............................................. $ 2,295,000
===========
</TABLE>
In connection with the acquisition, the 2,000,000 shares issued to the
stockholders of the Predecessor were placed in escrow and will not be
released to the Predecessor's stockholders until the Predecessor
and/or its stockholders have paid or otherwise satisfied all of the
liabilities of the Predecessor outstanding on the date of acquisition.
Accordingly, shares may be forfeited by the Predecessor's stockholders
and used for the payment of creditors in the event that other
financial arrangements are not consummated (see Notes 5 and 12). A key
executive officer of the Company holds the voting rights of the shares
of common stock that are subject to escrow.
<PAGE>
LIBERTY GROUP HOLDINGS, INC. AND SUBSIDIARIES
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Purchase of the Predecessor (concluded):
The following unaudited pro forma information shows the results of
operations of the Company for the years ended December 31, 1999 and
1998 as though the acquisition of the Predecessor had been consummated
on January 1, 1998:
<TABLE>
1999 1998
------------ ------------
<S> <C> <C>
Sales .......................................... $ 17,221,648 $ 19,097,169
Costs of sales ................................. 15,081,487 16,572,839
------------ ------------
Gross profit ................................... 2,140,161 2,524,330
------------ ------------
Operating expenses:
Selling ..................................... 883,756 943,492
General and administrative .................. 2,936,007 2,011,696
------------ ------------
Totals .................................. 3,819,763 2,955,188
------------ ------------
Net loss ....................................... $ (1,679,602) $ (430,858)
============ ============
Basic net loss per common share ................ $ .(26) $ (.07)
============ ============
Basic weighted average common shares outstanding 6,375,000 6,375,000
============ ============
</TABLE>
In addition to combining the historical results of operations of the
Company and the Predecessor for all of 1999, the unaudited pro forma
results of operations include adjustments to reflect for the entire
period (i) the amortization of the goodwill recorded in connection
with the acquisition of the Predecessor based on an estimated useful
life of ten years, (ii) executive officers' compensation based on the
terms of employment contracts that became effective on November 23,
1999 (see Note 11); (iii) depreciation and amortization expense
computed based on the straight-line method (instead of accelerated
depreciation methods used by the Predecessor); and (iv) elimination of
interest expense on notes payable not assumed in the acquisition.
The unaudited pro forma results of operations set forth above do not
purport to represent what the combined results of operations actually
would have been if the acquisition of the Predecessor had been
consummated on January 1, 1998 instead of November 23, 1999 or what
the results of operations would be for any future periods.
Note 4 - Equipment and improvements:
At December 31, 1999, equipment and improvements consisted of the
following:
<TABLE>
<S> <C>
Delivery equipment (including $15,865 for equipment
under capital leases) ............................. $ 66,131
Office and warehouse equipment ...................... 73,782
Leasehold improvements .............................. 67,457
--------
Total .......................................... 207,370
Less accumulated depreciation and amortization
(including $661 for equipment under capital leases) 4,965
--------
Total .......................................... $202,405
========
</TABLE>
<PAGE>
LIBERTY GROUP HOLDINGS, INC. AND SUBSIDIARIES
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Equipment and improvements (concluded):
Depreciation expense for the period from November 23, 1999 through
December 31, 1999 and the Predecessor period from January 1, 1999
through November 22, 1999 and year ended December 31, 1998 was $4,965,
$77,446 and $120,918, respectively.
Note 5 - Notes and other receivables from stockholders of Predecessor: At
December 31, 1999, the Company had notes and other receivables from
related parties aggregating $1,494,188, including receivables of
$282,586 acquired from the Predecessor on November 23, 1999 (see Note
3) that arose from loans to the stockholders of the Predecessor who
are also stockholders of the Company. The receivable balance also
included $1,211,602 that arose, primarily, from payments to vendors
made subsequent to November 23, 1999 by the Company and certain
stockholders of the Company (see Note 8) on behalf of the stockholders
of the Predecessor for amounts owed by the Predecessor for purchases
prior to its acquisition by the Company.
On December 16, 1999, a portion of the loans receivable from the
stockholders of the Predecessor was converted to a note receivable
through the issuance of a promissory note (the "First Note") to the
Company with a principal balance of $1,000,000. The First Note matures
on November 23, 2000 and bears interest at 10%. As of December 31,
1999, the principal balance of the First Note and the remainder of the
receivable from the stockholders of the Predecessor were secured by
the personal assets of the stockholders of the Predecessor, including
a first lien on real estate owned by the stockholders of the
Predecessor with a fair value of approximately $1,050,000 based on an
appraisal received by the Company in January 2000. They were also
secured by an interest in the 2,000,000 shares of the Company's common
stock issued to the stockholders of the Predecessor in connection with
the acquisition of the Predecessor that were held in escrow as of
December 31, 1999 (see Notes 1, 3 and 12). However, due to the
uncertainties related to collectibility, the Company has not accrued
any interest on the First Note. As a result of the relationship of the
Company and its related parties, there is no practical method that can
be used to determine the fair values of these notes and other
receivables at December 31, 1999.
Note 6 - Capital lease obligations:
The Company uses delivery equipment under lease agreements classified
as capital leases. The Company's obligations under capital leases as
of December 31, 1999 are set forth below:
<PAGE>
LIBERTY GROUP HOLDINGS, INC. AND SUBSIDIARIES
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - Capital lease obligations (concluded):
<TABLE>
<S> <C>
Capital lease obligations payable in monthly
installments of $1,230, including interest
at 49%, through June 2002; collateralized
by delivery equipment ................................. $66,030
Less amounts representing interest ...................... 29,001
-------
Total ......................................... 37,029
Less current portion .................................... 10,270
-------
Long-term portion ....................................... $26,759
=======
Principal payment requirements under capital leases in years
subsequent to December 31, 1999 are as follows:
Year Ending
December 31, ............................................ Amount
2000 $10,270
2001 15,628
2002 11,131
-------
Total .......................................... $37,029
=======
</TABLE>
Note 7 - Income taxes:
As of December 31, 1999, the Company had net operating loss
carryforwards of approximately $140,000 available to reduce future
Federal taxable income which will expire in 2019.
The Company's deferred tax assets as of December 31, 1999 consisted of
the effects of temporary differences attributable to the following:
Compensation paid through the issuance of
stock options ........................ $ 220,000
Allowance for doubtful accounts ......... 9,000
Net operating loss carryforwards ........ 56,000
---------
285,000
Less valuation allowance ................ (285,000)
---------
Total ........................ $ --
=========
<PAGE>
LIBERTY GROUP HOLDINGS, INC. AND SUBSIDIARIES
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Income taxes (concluded):
Due to the uncertainties related to, among other things, the extent
and timing of its future taxable income, the Company offset the
deferred tax assets by an equivalent valuation allowance as of
December 31, 1999. As a result of the establishment of the valuation
allowance as of December 31, 1999, there is no credit for income taxes
reflected in the accompanying consolidated statement of operations for
the period from November 23, 1999 through December 31, 1999 to offset
the Company's pre-tax loss.
Due to the uncertainties related to, among other things, the extent
and timing of its future taxable income, the Predecessor also offset
its deferred state and local tax assets by equivalent valuation
allowances. As a result of such offset and the Predecessor's "S"
Corporation status, there are no credits for income taxes reflected in
the accompanying statements of operations for the Predecessor period
from January 1, 1999 through November 22, 1999 and year ended December
31, 1998 to offset the Predecessor's pre-tax losses.
Note 8 - Stockholders' equity:
Preferred stock authorized:
The Company's Articles of Incorporation authorize the issuance of up
to 5,000,000 shares of preferred stock with a par value of $.004 per
share. The preferred stock may be issued in one or more series, with
terms and preferences to be determined by the Company's board of
directors. No shares of preferred stock had been issued as of
December 31, 1999.
Issuances of common stock:
As explained in Note 1, as of November 23, 1999, the date on which
it consummated the business combinations and, effectively, commenced
operations, the Company had 6,375,000 shares of common stock
outstanding of which 3,500,000 shares were owned by the former
stockholders of Liberty Food, 2,000,000 shares were owned by the
stockholders of the Predecessor, 650,000 shares were owned by the
stockholders of Bio-Response and 225,000 shares were owned by an
adviser. During the period from November 23, 1999 through December
31, 1999, the Company sold 101,000 shares to its key executive
officers for total cash consideration of $202,000. It also issued
24,000 shares to the its two key executive officers in exchange for
notes receivable from stockholders of the Predecessor with a
principal balance of $48,000 (see Note 5). The issuances of shares
in connection with the business combinations and the acquisition of
the notes receivable were noncash transactions that are not
reflected in the accompanying consolidated statement of cash flows
for the period from November 23, 1999 through December 31, 1999.
<PAGE>
LIBERTY GROUP HOLDINGS, INC. AND SUBSIDIARIES
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Stock options:
The Company has granted options to two of its key executives whereby
they may purchase, in the aggregate, up to 4,350,000 shares of common
stock at specified prices if the Company achieves specified increases
in revenues or it acquires businesses with specified levels of
revenues. Options to purchase 550,000 shares at an exercise price of
$.004 per share vested on November 23, 1999 upon the acquisition of
the Predecessor. The remaining options will vest as follows:
o Options to purchase 800,000 shares will become exercisable at $1.00
per share (i) on July 1, 2001 if for the 12 month period ending
June 30, 2001 the Company's revenues increase by 20% compared to
revenues for the 12 month period ending June 30, 2000 or (ii)
during the 12 month period ending June 30, 2001 the Company
acquires a business with annual revenues during its most recent
fiscal year of at least $5,000,000.
o Options to purchase 900,000 shares will become exercisable at $1.50
per share (i) on July 1, 2002 if for the 12 month period ending
June 30, 2002 the Company's revenues increase by 20% compared to
revenues for the 12 month period ending June 30, 2001 or (ii)
during the 12 month period ending June 30, 2002 the Company
acquires a business with annual revenues during its most recent
fiscal year of at least $5,000,000.
o Options to purchase 1,000,000 shares will become exercisable at
$2.00 per share (i) on July 1, 2003 if for the 12 month period
ending June 30, 2003 the Company's revenues increase by 20%
compared to revenues for the 12 month period ending June 30, 2002
or (ii) during the 12 month period ending June 30, 2003 the Company
acquires a business with annual revenues during its most recent
fiscal year of at least $5,000,000.
o Options to purchase 1,100,000 shares will become exercisable at
$2.50 per share (i) on July 1, 2004 if for the 12 month period
ending June 30, 2004 the Company's revenues increase by 20%
compared to revenues for the 12 month period ending June 30, 2003
or (ii) during the 12 month period ending June 30, 2004 the Company
acquires a business with annual revenues during its most recent
fiscal year of at least $5,000,000.
The options for each tranche set forth above will also vest if either
the revenue growth or the acquisition benchmark occurs within the
following 12 month period.
Options will be exercisable for a period of seven years from the date
they vest. Since the Company has elected to continue to use the
provisions of APB 25 in accounting stock options granted to employees,
the Company will recognize compensation expense based on the excess,
if any, of the market price over the exercise price for the shares
subject to option on the date on which the options vest. Since the
market price of the Company's shares was approximately $1.00 per share
on November 23, 1999 and the exercise price of the 550,000 shares that
became exercisable on that date was nominal, the Company recorded a
charge to compensation expense of $550,000 on that date.
<PAGE>
LIBERTY GROUP HOLDINGS, INC. AND SUBSIDIARIES
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Stock options (concluded):
In the opinion of management, if compensation cost for the stock
options granted by the Company during 1999 had been determined based
on the fair value of the options at the grant date under the
provisions of SFAS 123 using the Black-Scholes option-pricing model
and assuming a risk-free interest rate of 6%, expected dividends of
0%, expected option lives of five years and expected volatility of
144%, the Company's pro forma net loss and pro forma basic net loss
per share arising from such computation would not have differed
materially from the corresponding historical amounts presented in the
accompanying consolidated statement of operations for the period from
November 23, 1999 through December 31, 1999.
Note 10- Employee benefit plan:
The Company maintains a 401(k) and profit sharing plan for the benefit
of all eligible employees. The Company makes contributions to the plan
on a discretionary basis. The Company made no contributions to the
plan for the period from November 23, 1999 through December 31, 1999.
Note 11- Other commitments and contingencies:
Concentrations of credit risk and major suppliers:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and trade
receivables. The Company maintains its cash balances with major
financial institutions that have high credit ratings. At times, such
balances may exceed Federal insurance limits. Concentrations of
credit risk with respect to trade receivables are limited due to the
large number of customers comprising the Company's customer base.
Employment agreements:
The Company has entered into employment agreements with two of its
key executives which became effective on November 23, 1999 and
obligate the Company to make aggregate payments of approximately
$336,000 in 2000; $370,000 in 2001; $407,000 in 2002; $447,000 in
2003; and $234,000 in 2004. The key executives will also receive
bonuses to be determined by the board of directors of the Company;
however, such bonuses may not be paid unless the Company's revenues
and income reach certain specified levels; if these levels are
reached, such bonuses may not be less than 10% of annual base
compensation.
<PAGE>
LIBERTY GROUP HOLDINGS, INC. AND SUBSIDIARIES
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11- Other commitments and contingencies (concluded):
Lease for office facilities:
The Predecessor leased office facilities from a partnership on a
month-to-month basis through November 22, 1999, and the Company
continued to lease those facilities on the same basis through
December 31, 1999. The partners of the partnership are related to
the stockholders of the Predecessor. The Company has entered into a
operating lease for the office facilities with a term of ten years
that becomes effective on January 1, 2000 pursuant to which it will
be required to pay aggregate annual rentals of $180,000. Such lease
is cancelable at the option of the Company at any time subsequent to
October 1, 2000 upon sixty days notice to the lessor.
Rent expense under the month-to-month operating lease was
approximately $12,500, $82,600 and $94,500 for the period from
November 23, 1999 through December 31, 1999 and the Predecessor
period from January 1, 1999 through November 22, 1999 and year ended
December 31, 1998, respectively.
Litigation:
The Company is involved in various claims and lawsuits incidental to
its business (see Note 12). Management believes that the probable
resolution of such contingencies will not materially affect the
consolidated financial position or results of operations of the
Company.
Note 12- Subsequent events:
Stock option plan:
The board of directors approved the adoption, effective as of
January 1, 2000, of a stock option plan (the "Option Plan") whereby
it may grant options for the purchase of up to 300,000 shares of
common stock to employees, consultants and other agents of the
Company. Under the Option Plan, the maximum term of an option may
not exceed five years. The actual term of each option, the exercise
price, the vesting period and the manner of exercise for each option
will be determined by the board of directors.
During the period from January 1, 2000 through May 12, 2000, the
board of directors granted options to employees pursuant to the
Option Plan for the purchase of 93,900 shares of common stock that
are exercisable at $3.00 per share during the five year period
subsequent to the date of grant.
Issuance of shares and warrants:
On March 10, 2000, the Company received $100,000 from an "accredited
investor" through the issuance of a short-term, 9% promissory note
in the same principal amount. On April 25, 2000, the note was
converted into 50,000 shares of common stock and warrants to
purchase 10,000 shares of common stock through a private placement
intended to be exempt from registration pursuant to the provisions
of Regulation D of the Securities Act of 1933. The warrants will be
exercisable at $8.00 per share through April 25, 2003.
<PAGE>
LIBERTY GROUP HOLDINGS, INC. AND SUBSIDIARIES
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12- Subsequent events (concluded):
Acquisition:
On March 14, 2000, Liberty Group Services, Inc., a newly formed
subsidiary of the Company, acquired a 51% equity interest in
AskTheRobot, LLC ("TheRobot"), a subscription-based, on-line
personnel recruiting and placement services company that targets
Internet and e-commerce companies through its website,
"AskTheRobot.com." The total consideration initially paid by the
Company for its 51% interest in TheRobot was $200,000, of which
$175,000 was paid in cash and $25,000 was paid through the
cancellation of a receivable that arose from loans made by the
Company to TheRobot subsequent to December 31, 1999. The terms of
the acquisition agreement require the Company to make four quarterly
payments to the sellers through June 13, 2001 that are contingent
upon the growth of the revenues of TheRobot to specified levels
during each quarter. If the revenues of TheRobot reach the specified
level for the quarter: (i) the Company will have the option of
paying $200,000 to the sellers in cash or issuing the number of
common shares to the sellers equal to $200,000 divided by the
greater of $3.00 per share or the market value per share at the end
of the quarter, and (ii) the Company will be required to issue the
number of common shares to the sellers equal to $760,000 divided by
the greater of $3.00 per share or the market value per share at the
end of the quarter.
Settlement of litigation:
On February 22, 2000, one of the Company's major vendors (the
"Vendor") commenced litigation against the Predecessor and Liberty
Food LLC, a subsidiary of the Company, in connection with the
collection of approximately $1,063,000 owed by the Predecessor to
the Vendor. On May 12, 2000, the Vendor, the Predecessor, certain
stockholders of the Predecessor and Liberty Food LLC entered into a
settlement agreement whereby, among other things: (i) the
Predecessor agreed to issue a term note to the Vendor in the
principal amount of $1,063,000 that is payable in varying
installments through May 1, 2001 with interest at .75% above a
specified bank's "base" rate; (ii) certain stockholders of the
Predecessor personally guaranteed the payment of the term note and
the interest thereon and pledged a total of 500,000 shares of the
Company's common stock owned by them, but held in escrow (see Notes
1 and 3), as additional collateral for the term note; and (iii)
Liberty Food LLC guaranteed the payment of the term note and the
interest thereon.
Loans to stockholders of the Predecessor:
During the period from January 1, 2000 through May 1, 2000, the
Company made additional payments on behalf of the stockholders of
the Predecessor that increased the total balance receivable from
related parties to approximately $2,000,000. In addition, a total of
67,000 shares of the Company's common stock were transferred from
escrow during that period to satisfy obligations to creditors of the
Predecessor (see Notes 1 and 3). On May 1, 2000, an additional
portion of the loans receivable from the stockholders of the
Predecessor was converted to a note receivable through the issuance
of a promissory note (the "Second Note") to the Company with a
principal balance of $1,000,000. The Second Note matures on May 31,
2001, bears interest at 10% and is secured by the same assets and
interests as the First Note (see Note 5).
LIBERTY GROUP HOLDINGS, INC.
OPTION PLAN
Section 1. Establishment and Purpose.
-------------------------
The name of the plan is the Liberty Group Holdings, Inc. Option Plan
(the "Plan") which became effective as of January 1, 2000.
The purpose of the Plan is to offer selected individuals an opportunity
to acquire a proprietary interest in the success of Liberty Group Holdings,
Inc., a Delaware corporation (the "Company"). The judgment, initiative and
efforts of valued employees and other individuals upon whom the financial
success and growth of the Company largely depend will be entitled to purchase
proprietary interests in the Company.
Section 2. Stock Subject to the Plan.
-------------------------
The total number of shares of stock reserved and available for
distribution under the Plan shall be 300,000 shares of common stock of the
Company. The number of shares reserved hereunder may consist in whole or in part
of authorized and unissued shares or treasury shares.
Upon exercise of the option in accordance with the terms of this Plan
and the Option Agreement (described in Section 5 below), the grantee shall
receive such shares of stock of the Company set forth in the Notice of Option
Grant delivered to the grantee. A grantee to whom shares have been issued upon
proper exercise of an option granted hereunder shall be entitled all rights of a
stockholder, including, without limitation, dividends, voting and liquidation
rights.
Section 3. Administration of the Plan.
--------------------------
The Plan shall be administered by a Committee (the "Committee"). The
decision of the Committee as to all questions of interpretation and application
of the Plan shall be final, binding and conclusive on all persons. The Committee
may, in its sole discretion, grant options for shares of the Company's stock to
such eligible individuals as it deems appropriate and issue stock upon exercise
of such options. The Committee shall have authority, subject to the express
provisions of the Plan, to construe the Option Agreements and the Plan, to
prescribe, amend and rescind rules and regulations relating to the Plan, to
determine the terms and provisions of the Option Agreements, which may, but need
not be identical, and to make all other determinations in the judgment of the
Committee necessary or desirable for the administration of the Plan. The
Committee may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any Option Agreement in the manner and to the
extent it shall deem expedient to carry the Plan into effect and shall be the
sole and final judge of such expediency. All decisions, interpretations and
other actions of the Committee shall be final and binding. The Committee shall
not be liable for any action or determination made in good faith. The functions
of the Committee shall be exercised by the Board of Directors of the Company, if
and to the extent that no Committee exists which has the authority to so
administer the Plan.
Section 4. Eligibility.
-----------
Options may be granted to officers and employees of the Company, as
well as agents and consultants to the Company, whether or not otherwise
employees of the Company. In determining the eligibility of an individual to be
granted an option under the Plan, as well as in determining the number of shares
to be optioned to any individual, the Committee shall take into account the
position and responsibilities of the individual being considered, the nature and
value to the Company of his or her services and accomplishments, his or her
present and potential contribution to the success of the Company, and such other
factors as the Committee may deem relevant.
Section 5. Option Agreement.
----------------
Each option shall be governed by Notice of Option Grant and an option
agreement (the "Option Agreement") duly executed on behalf of the Company and by
the grantee to whom such option is granted. The Option Agreement shall be
subject to the terms and conditions of the Plan and may be subject to any other
terms and conditions which are not inconsistent with the Plan and which the
Committee deems appropriate for inclusion in the Option Agreement. The
provisions of the various Option Agreements entered into under the Plan need not
be identical.
Section 6. Option Price and Exercise of Option.
-----------------------------------
The exercise price shall be determined by the Committee, except that
the exercise price of any outstanding options granted under the Prior Plan shall
remain unchanged. Each option shall be exercisable at such time or times and
during such period as shall be set forth in the Notice of Option Grant and/or
Option Agreement. To the extent that an option is not exercised when it becomes
initially exercisable, it shall be carried forward and shall be exercisable, on
a cumulative basis, until the expiration of the exercise period.
Section 7. Term of Option; Exercisability.
------------------------------
(a) Term.
----
(i) Each option shall expire five (5) years from the date of
the granting thereof, except as (y) otherwise provided pursuant to the provision
of Section 7(b) hereof and (z) earlier termination as herein provided.
(ii) Except as otherwise provided in this Section 7, an option
granted to any grantee who ceases to perform services for the Company shall
terminate three (3) months after the date such grantee ceases to perform
services for the Company.
(iii) If the grantee ceases to perform services for the
Company because of dismissal for cause or because the grantee is in breach of
any agreement with the Company, such option shall terminate on the date the
grantee ceases to perform services for the Company.
(iv) If the grantee ceases to perform services for the Company
because the grantee has become disabled (as determined in the sole discretion of
Committee), such option shall terminate on the next immediate anniversary date
of the option grant date following the date such grantee ceases to perform
services for the Company, or on the date on which the option expires by its
terms, whichever occurs first. For example, if the option was granted on January
1st and the grantee became disabled on July 1st, the option would terminate on
the following January 1st.
(v) In the event of the death of a grantee, any option granted
to such grantee shall terminate on the next immediate anniversary date of the
option grant date after the date of death, or on the date on which the option
expires by its terms, whichever occurs first.
(b) Exercisability.
--------------
(i) Each Option Agreement shall specify the date when all or
any installment of the option is first exercisable. The exercisability
provisions contained in any Option Agreement shall be determined by the
Committee in its sole discretion.
(ii) Except as otherwise provided below, an option granted to
any grantee who ceases to perform services for the Company shall be exercisable
only to the extent that such option has vested and is in effect on the date such
grantee ceases to perform services for the Company.
(iii) An option granted to a grantee who ceases to perform
services for the Company because he or she has become disabled (as defined
above) may be exercised by the grantee or his or her legal representative, but
only to the extent that such option has become exercisable on or prior to the
termination date of the option (as determined in accordance with Section
7(a)(iv)).
(iv) In the event of the death of any grantee, the option
granted to such grantee may be exercised by the estate of such grantee or by any
person or persons who acquired the right to exercise such option by bequest or
inheritance, but only to the extent that such option has become exercisable on
or prior to the termination date of the option (as determined in accordance with
Section 7(a)(v)).
Section 8. Options and Shares Not Transferable.
-----------------------------------
The option, the right of any grantee to exercise any option and the
shares issuable upon exercise of the option shall not be, directly or
indirectly, disposed, assigned or transferred by such grantee other than by will
or the laws of descent and distribution, and any such option shall be
exercisable during the lifetime of such grantee only by the grantee (unless
disabled). Any attempted disposition or other transfer of the option and/or
shares of stock granted pursuant to the exercise of an option under the Plan,
including without limitation, any gift, purported assignment, whether voluntary
or by operation of law, pledge, hypothecation or other disposition, attachment,
trustee process or similar process, whether legal or equitable, shall be null
and void and without effect.
Section 9. Right of Repurchase and Right of First Refusal.
----------------------------------------------
(a) Shares of stock issued upon exercise of an option shall be subject
to a right of repurchase by the Company. Such restriction shall be set forth in
the applicable Notice of Option Grant and Option Agreement. Any such repurchase
right may be exercised only within 90 days after the termination of the
grantee's employment with the Company. The purchase price for repurchased shares
shall be determined by the Committee based upon the average bid price from the
immediate prior twenty trading days.
(b) Shares of stock issued upon exercise of an option shall be subject
to a right of first refusal by the Company. Such restriction shall be set forth
in the applicable Option Agreement.
Section 10. Recapitalization, Reorganization and Change of Control.
------------------------------------------------------
In the event that the outstanding shares in the Company are changed
into or exchanged for a different number or kind of shares or securities of the
Company or another company by reason of any reorganization, merger,
consolidation, recapitalization, reclassification, combination or dividends
payable in capital stock, appropriate adjustment shall be made in the number and
kind of securities as to which options may be granted under the Plan and as to
which outstanding options or portions thereof then unexercised shall be
exercised, to the end that the proportionate interest of grantees shall be
maintained as before the occurrence of such event.
In addition, unless otherwise determined by the Committee in its sole
discretion, in the case of any (i) sale, transfer or other disposition to
another entity of all or substantially all of the property and assets of the
Company or (ii) Change of Control (as defined below) of the Company, the
purchaser(s) of the Company's assets or stock may, in its (their) discretion,
deliver to the grantee the same kind of consideration that is delivered to other
stockholders of the Company as a result of such sale, conveyance or Change of
Control. Alternatively, the Committee may cancel all outstanding options in
exchange for consideration in cash or in kind which consideration in both cases
shall be equal in value to the value the grantee would have received had the
option been exercised (to the extent so exercisable) and no disposition of the
shares acquired upon such exercise been made prior to such sale, conveyance or
Change of Control, less the exercise price therefor. Upon receipt of such
consideration, the options shall terminate and be of no further force and
effect. The value of the stock or other securities the grantee would have
received if the option had been exercised shall be determined in good faith by
the Committee.
The Committee shall also have the power and right to accelerate the
exercisability of any options, notwithstanding any limitations in this Plan or
in the Option Agreement upon such a sale, conveyance or Change of Control.
A "Change of Control" shall be deemed to have occurred upon the
consummation of a merger, consolidation or other transaction with or into
another entity or any other reorganization if more than 50% of the combined
voting power of the continuing or surviving entity's securities outstanding
immediately after such merger, consolidation, reorganization or other
transaction is owned by persons who did not possess such voting power
immediately prior to such merger, consolidation, reorganization or other
transaction.
Section 11. No Special Employment Rights.
----------------------------
Nothing contained in the Plan, the Notice of Option Grant or the Option
Agreement or in any option granted thereunder shall confer upon any grantee any
right with respect to the continuation of his or her employment by the Company
or interfere in any way with the right of the Company, subject to the terms of
any separate employment agreement to the contrary, at any time to terminate such
employment or to increase or decrease the compensation of the grantee from the
rate in existence at the time of the grant of an option.
Section 12. Withholding.
-----------
The Company's obligation to deliver shares upon the exercise of an
option granted under the Plan shall be subject to the satisfaction by the
grantee, as determined in the sole discretion of the Company, of all applicable
Federal, state and local income and employment tax withholding requirements.
Section 13. Purchase for Investment.
-----------------------
Unless the shares to be issued upon exercise of an option granted under
the Plan have been effectively registered under the Securities Act of 1933, as
amended (the "Securities Act"), the Company shall be under no obligation to
issue any shares of stock covered by any option unless the person who exercises
such option, in whole or in part, shall give a written representation and
undertaking to the Company which is satisfactory in form and scope to counsel to
the Company and upon which, in the opinion of such counsel, the Company may
reasonably rely, that he or she is acquiring the shares issued pursuant to such
exercise of the option for his or her own account as an investment and not with
a view to, or for sale in connection with, the distribution of any such
interests, and that he or she will make no transfer of the same except in
compliance with any rules and regulations in force at the time of such transfer
under the Securities Act, or any other applicable law.
Section 14. Modification of Outstanding Options.
-----------------------------------
Subject to the limitations contained herein, the Committee may
authorize the amendment of any outstanding option with the consent of the
grantee when and subject to such conditions as are deemed to be in the best
interests of the Company and in accordance with the purposes of the Plan.
Section 15. Termination and Amendment of the Plan.
-------------------------------------
The Plan shall terminate on December 31, 2007. The Committee may at any
time terminate the Plan or make such modification or amendment thereof as it
deems appropriate. Termination or any modification or amendment of the Plan
shall not, without the consent of a grantee, affect his or her rights under an
option granted to him or her prior to the date of such amendment.
Section 16. Notices.
-------
Any communication or notice required or permitted to be given under the
Plan shall be in writing and mailed by registered or certified mail or delivered
to the Company, to its principal place of business, attention: Committee, and,
if to the holder of an option, to the address appearing on the records of the
Company.
SECURED REVOLVING CREDIT GRID
PROMISSORY NOTE
$1,000,000.00 Brooklyn, New York
December 16, 1999
FOR VALUE RECEIVED, FERRO FOODS CORPORATION, a New York
corporation (the "Maker"), having its principal office c/o Liberty Food Group,
LLC, 25 53rd Street, Brooklyn, New York 11232 promises to pay to the order of
LIBERTY GROUP HOLDINGS, INC. (the "Payee"), having its principal office at 11
52nd Street, Brooklyn, New York 11232, the principal sum of ONE MILLION and
00/100 DOLLARS ($1,000,000.00) or so much thereof as shall have been advanced by
the Payee to the Maker as a result of the Maker not satisfying its debts and
obligations in accordance with the terms and provisions of the Asset Purchase
Agreement dated as of November 23, 1999, by and among the Maker, the Payee,
Frank Ferro, Sr. and Frank Gambino, together with interest thereon, calculated
from the date hereof, at a rate of 10% per annum (the "Interest Rate") on the
unpaid principal balance hereof as follows:
1. Commencing on January 15, 2000 and on the first day of each month thereafter
through and until November 23, 2001 (the "Maturity Date"), the Maker shall pay
to the Payee interest only in arrears at the Interest Rate on the outstanding
principal balance of this Note for the preceding period. Interest shall be
computed on the basis of a 360-day year consisting of twelve 30-day months. All
amounts due hereunder, including without limitation, all outstanding principal
and all accrued and unpaid interest, shall be due and payable on the Maturity
Date.
2. All payments due in respect of this Note shall be made by the Maker to the
Payee in lawful currency of the United States of America and shall be paid to
the Payee by bank wire transfer, certified check or bank cashier's check. All
payments hereon on account of principal, late payment charges and interest shall
be made to the Payee, at the office of the Payee first above set forth or at
such other office as may be specified by the Payee, for the account of the
holder hereof, unless otherwise specified in this Note, all payments made
hereunder shall first be applied to interest and the balance to the unpaid
principal amount. If any payment of principal or interest falls due on a
Saturday, Sunday or public holiday at the place of payment, then such due date
shall be extended to the next succeeding full business day at the place of
payment and interest shall be payable during such extension.
3. Payments under this Note may be prepaid at any time or times in whole or in
part without premium or penalty. Any such prepayment(s) under this Note shall
not be in an amount of less than TEN THOUSAND DOLLARS ($10,000.00).
4. Maker shall pay all expenses, including reasonable attorney's fees and legal
expenses, incurred by the Payee in connection with this transaction and be paid
in full on the Maturity Date and such expenses shall be added to the unpaid
principal hereof
5. As collateral security for the repayment of the principal balance hereof
together with accrued and unpaid interest thereon and any other amounts due
hereunder, the Maker hereby pledges and grants to the Payee a continuing
security interest (a) in Two Million (2,000,000) shares common stock issued by
the Payee (f/k/a Bio-Response, Inc.) held in the name of the Maker (the "Pledged
Shares") and all options and other rights, contractual or otherwise, in respect
thereof and all dividends, cash, instruments, investment property and other
property (including but not limited to, any stock dividend and any distribution
in connection with a stock split) from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the Pledged
Shares pursuant to the Pledge Agreement and (b) the real estate (the "Real
Estate") described in the Mortgage and Security Agreement dated the date hereof
(the "Mortgage") by and between the Payee and FDG, a real estate partnership,
the Maker, and Guarantors.
6. Notwithstanding anything contained herein for the contrary, on the date of
sale of the Pledged Shares and the Real Estate, Maker shall pay to the Payee a
prepayment in an amount equal to 100% of any and all proceeds received as a
result of such sale, subject only to the payment due to Asia Bank in connection
with the Real Estate (each, a "Mandatory Prepayment"). Each Mandatory Prepayment
shall be applied by Payee against the amounts due hereunder in such manner as
Payee shall, in its sole discretion, elect.
7. If the entire principal sum hereunder is not paid when due, whether on the
Maturity Date or earlier by reason of acceleration of the payment hereof, then
from and after such due date, interest shall accrue on the unpaid principal sum
at the rate of 5% in excess of the Interest Rate then in effect but in no event
shall such rate be in excess of the highest legal rate permitted by applicable
law.
8. This Note evidences revolving credit loans made by the Payee to Maker. The
date and amount of each such revolving credit loan and each payment on account
of principal thereon may be endorsed by the Payee (and the Payee is hereby
authorized to endorse) on the grid attached to and made a part of this Note, and
when so endorsed shall represent evidence thereof binding upon the Maker in the
absence of manifest error. Any failure by the Payee to so endorse shall in no
way mitigate or discharge the obligation of the Maker to repay any revolving
credit loan actually made. Revolving credit loans shall be made as the Maker may
request (in the manner hereinafter set forth) up to an aggregate principal
amount outstanding at any one time of One Million Dollars ($1,000,000).
9. Should the indebtedness evidenced hereby or any part thereof be collected at
law or in equity, or in bankruptcy, receivership or any other court proceeding
(whether at the trial or appellate level), or should this Note be placed in the
hands of attorneys for collection upon default, the Maker agrees to pay, in
addition to the principal, any late payment charge and interest due and payable
hereunder, and all costs of collecting or attempting to collect such
indebtedness, including reasonable attorneys' fees and expenses.
10. All parties hereto, whether Maker, principal, surety, guarantor or indorser,
hereby waive demand, notice of demand, presentment, notice of presentment,
notice of dishonor, protest and notice of protest.
11. If any payment hereunder shall not be made by Maker on the date when due,
including any mandatory payment other than the payment of the principal balance
outstanding and due on the Maturity Date, the Payee may impose a late charge of
five cents ($0.05) cents for each dollar ($1.00) paid late to cover the Payee's
additional costs to administer the loan represented hereby due to such late
payment.
12. At the option of the Payee, this Note and the entire unpaid indebtedness
represented hereby shall become immediately due and payable upon the occurrence
of any one of the following events of default (each an "Event of Default"):
(i) The Maker fails to make any payment due hereunder when the same is due
and owing pursuant to the terms and conditions of this Note;
(ii) If the Maker or either of the guarantors hereof makes an assignment for the
benefit of its or his, as the case may be, creditors, or commences a case under
the federal bankruptcy laws, or any state insolvency laws, or files any petition
or answer seeking for itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation, or files an answer admitting or not
contesting the material allegations of a petition against , or his as the case
may be, in any such proceeding, or seeks or acquiesces in the appointment of any
trustee, custodian, receiver or liquidator over its or his, as the case may be,
assets; if, within sixty (60) days after the commencement of an action against
the Maker or any guarantor seeking any bankruptcy, reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
present or future statute, such action is not dismissed or all orders entered
therein or proceedings thereunder affecting its or his, as the case may be,
assets have not been vacated; (iii) A trustee, receiver, custodian or similar
official or agent is appointed for the Maker or either of the guarantors for any
substantial part of the Maker's or either of the guarantor's property, or all or
any substantial part of the property of the Maker or either of the guarantors is
condemned, seized or otherwise appropriated by any governmental authority; or
(iv) The Maker or either of the guarantors has failed to perform any of the
Maker's obligations set forth in the Note or shall have breached any of the
Maker's representations, warranties or covenants set forth in this Note.
13. THE MAKER AND THE GUARANTORS AGREE THAT ANY ACTION, SUIT OR PROCEEDING IN
RESPECT OF OR ARISING OUT OF THIS NOTE MAY BE INITIATED AND PROSECUTED IN THE
STATE OR FEDERAL COURTS, AS THE CASE MAY BE, LOCATED IN NEW YORK COUNTY, NEW
YORK. THE MAKER AND THE GUARANTORS CONSENT AND SUBMIT TO THE EXERCISE OF
JURISDICTION OVER ITS PERSON BY ANY SUCH COURT HAVING JURISDICTION OVER THE
SUBJECT MATTER, WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND
CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO
THE MAKER AT ITS ADDRESS SET FORTH ABOVE OR TO ANY OTHER ADDRESS AS MAY APPEAR
IN THE PAYEE'S RECORDS AS THE ADDRESS OF THE MAKER.
14. IN ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS NOTE,
THE PAYEE, THE GUARANTORS, AND THE MAKER WAIVE TRIAL BY JURY, AND THE MAKER AND
THE GUARANTORS ALSO WAIVE (I) THE RIGHT TO INTERPOSE ANY SET-OFF OR COUNTERCLAIM
OF ANY NATURE OR DESCRIPTION, (II) ANY OBJECTION BASED ON FORUM NON CONVENIENS
OR VENUE, AND (III) ANY CLAIM FOR CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES.
15. After the occurrence of a default hereunder, the Payee may accept any
payments from the Maker without prejudice to the rights and remedies of the
Payee provided herein or in the Pledge or Mortgage; and further, the designation
or allocation by the Maker of the disposition or allocation of any payments made
will not be binding upon the Payee which may allocate any and all such payments
to interest, principal and other fees and charges due hereunder or to any one or
more of them, in such amounts, priorities and proportions as the Payee may
determine in its sole discretion.
16. Notwithstanding anything heretofore set forth to the contrary, in no event
shall any interest payable under this Note exceed the maximum interest rate
permitted under law and any interest collected hereunder which may be in excess
of such rate shall be applied to the reduction of principal.
17. The liability of any Maker or guarantor hereunder shall be unconditional and
shall not be in any manner affected by any indulgence whatsoever granted or
consented to by the holder hereof, including, but not limited to, any extension
of time, renewal, waiver or other modification. Any failure of the holder to
exercise any right hereunder shall not be construed as a waiver of the right to
exercise the same or any other right at any time and from time to time
thereafter. The Payee or any holder may accept late payments, or partial
payments, even though marked "payment in full" or containing words of similar
import or other conditions, without waiving any of its rights. No amendment,
modification or waiver of any provision of this Note nor consent to any
departure by the Maker therefrom shall be effective, irrespective of any course
of dealing, unless the same shall be in writing and signed by the Payee, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given. This Note cannot be changed or
terminated orally or by estoppel or waiver or by any alleged oral modification
regardless of any claimed partial performance referable thereto.
18. This Note shall be governed by and guarantor in accordance with the laws of
the State of New York without regard to conflicts of laws principles.
IN WITNESS WHEREOF, the undersigned has executed the foregoing
instrument as of the day and year first above written.
WITNESS/ATTEST FERRO FOODS CORPORATION
______________________________ By: /s/
Print Name: __________________ Name: Frank Ferro, Sr.
Title:
By: /s/
Name: Frank Gambino
Title:
Each of the undersigned hereby jointly and severally agrees to unconditionally
guarantee the payment of all the obligations of the Maker pursuant to the
Secured Revolving Credit Grid Promissory Note and all amendments, extensions and
modifications hereof.
/s/___________________________
Frank Ferro, Sr.
/s/___________________________
Frank Gambino
<PAGE>
ACKNOWLEDGMENT
STATE OF NEW YORK)
)SS.:
COUNTY OF NEW YORK )
On the ___ day of October in the year 1999 before me, the
undersigned, personally appeared Frank Ferro, Sr., personally known to me or
proved to me on the basis of satisfactory evidence to be the individual whose
name is subscribed to the within instrument and acknowledged to me that he
executed the same in his capacity, and that by his signature on the instrument,
the individual or the person upon behalf of which the individual acted, executed
the instrument.
--------------------------
Notary Public
STATE OF NEW YORK)
)SS.:
COUNTY OF NEW YORK )
On the ___ day of October in the year 1999 before me, the
undersigned, personally appeared Frank Gambino, personally known to me or proved
to me on the basis of satisfactory evidence to be the individual whose name is
subscribed to the within instrument and acknowledged to me that he executed the
same in his capacity, and that by his signature on the instrument, the
individual or the person upon behalf of which the individual acted, executed the
instrument.
--------------------------
Notary Public
<PAGE>
Schedule A
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
Amount Unpaid Amount of
Loan of Principal Principal Notation
Date No. Loan Paid Balance Made By
---- ---- - ----- -- ----- - -------- -------
<S> <C> <C> <C> <C> <C>
- - --------------- ------------------- ----------------- ------------------- ------------------- -----------------
- - --------------- ------------------- ----------------- ------------------- ------------------- -----------------
- - --------------- ------------------- ----------------- ------------------- ------------------- -----------------
- - --------------- ------------------- ----------------- ------------------- ------------------- -----------------
- - --------------- ------------------- ----------------- ------------------- ------------------- -----------------
- - --------------- ------------------- ----------------- ------------------- ------------------- -----------------
- - --------------- ------------------- ----------------- ------------------- ------------------- -----------------
- - --------------- ------------------- ----------------- ------------------- ------------------- -----------------
- - --------------- ------------------- ----------------- ------------------- ------------------- -----------------
- - --------------- ------------------- ----------------- ------------------- ------------------- -----------------
- - --------------- ------------------- ----------------- ------------------- ------------------- -----------------
- - --------------- ------------------- ----------------- ------------------- ------------------- -----------------
- - --------------- ------------------- ----------------- ------------------- ------------------- -----------------
- - --------------- ------------------- ----------------- ------------------- ------------------- -----------------
- - --------------- ------------------- ----------------- ------------------- ------------------- -----------------
- - --------------- ------------------- ----------------- ------------------- ------------------- -----------------
- - --------------- ------------------- ----------------- ------------------- ------------------- -----------------
- - --------------- ------------------- ----------------- ------------------- ------------------- -----------------
- - --------------- ------------------- ----------------- ------------------- ------------------- -----------------
</TABLE>
SECURED REVOLVING CREDIT GRID
PROMISSORY NOTE
$1,000,000.00 Brooklyn, New York
May 1, 2000
FOR VALUE RECEIVED, FERRO FOODS CORPORATION, a New York
corporation (the "Maker"), having its principal office c/o Liberty Food Group,
LLC, 25 53rd Street, Brooklyn, New York 11232 promises to pay to the order of
LIBERTY GROUP HOLDINGS, INC. (the "Payee"), having its principal office at 11
52nd Street, Brooklyn, New York 11232, the principal sum of ONE MILLION and
00/100 DOLLARS ($1,000,000.00) or so much thereof as shall have been advanced by
the Payee to the Maker as a result of the Maker not satisfying its debts and
obligations in accordance with the terms and provisions of the Asset Purchase
Agreement dated as of November 23, 1999, by and among the Maker, the Payee,
Frank Ferro, Sr. and Frank Gambino, together with interest thereon, calculated
from the date hereof, at a rate of 10% per annum (the "Interest Rate") on the
unpaid principal balance hereof as follows:
1. Commencing on June 1, 2000 and on the first day of each month thereafter
through and until May 31, 2001 (the "Maturity Date"), the Maker shall pay to the
Payee interest only in arrears at the Interest Rate on the outstanding principal
balance of this Note for the preceding period. Interest shall be computed on the
basis of a 360-day year consisting of twelve 30-day months. All amounts due
hereunder, including without limitation, all outstanding principal and all
accrued and unpaid interest, shall be due and payable on the Maturity Date.
2. All payments due in respect of this Note shall be made by the Maker to the
Payee in lawful currency of the United States of America and shall be paid to
the Payee by bank wire transfer, certified check or bank cashier's check. All
payments hereon on account of principal, late payment charges and interest shall
be made to the Payee, at the office of the Payee first above set forth or at
such other office as may be specified by the Payee, for the account of the
holder hereof, unless otherwise specified in this Note, all payments made
hereunder shall first be applied to interest and the balance to the unpaid
principal amount. If any payment of principal or interest falls due on a
Saturday, Sunday or public holiday at the place of payment, then such due date
shall be extended to the next succeeding full business day at the place of
payment and interest shall be payable during such extension.
3. Payments under this Note may be prepaid at any time or times in whole or in
part without premium or penalty. Any such prepayment(s) under this Note shall
not be in an amount of less than TEN THOUSAND DOLLARS ($10,000.00).
4. Maker shall pay all expenses, including reasonable attorney's fees and legal
expenses, incurred by the Payee in connection with this transaction and be paid
in full on the Maturity Date and such expenses shall be added to the unpaid
principal hereof.
5. As collateral security for the repayment of the principal balance hereof
together with accrued and unpaid interest thereon and any other amounts due
hereunder, the Maker hereby pledges and grants to the Payee a continuing
security interest the real estate (the "Real Estate") described in the Mortgage
and Security Agreement dated December 16, 1999 (the "Mortgage") by and between
the Payee and Maker.
6. Notwithstanding anything contained herein for the contrary, on the date of
sale of the Real Estate, Maker shall pay to the Payee a prepayment in an amount
equal to 100% of any and all proceeds received as a result of such sale, subject
only to the payment due to Asia Bank in connection with the Real Estate (each, a
"Mandatory Prepayment"). Each Mandatory Prepayment shall be applied by Payee
against the amounts due hereunder in such manner as Payee shall, in its sole
discretion, elect.
7. If the entire principal sum hereunder is not paid when due, whether on the
Maturity Date or earlier by reason of acceleration of the payment hereof, then
from and after such due date, interest shall accrue on the unpaid principal sum
at the rate of 5% in excess of the Interest Rate then in effect but in no event
shall such rate be in excess of the highest legal rate permitted by applicable
law.
8. This Note evidences revolving credit loans made by the Payee to Maker. The
date and amount of each such revolving credit loan and each payment on account
of principal thereon may be endorsed by the Payee (and the Payee is hereby
authorized to endorse) on the grid attached to and made a part of this Note, and
when so endorsed shall represent evidence thereof binding upon the Maker in the
absence of manifest error. Any failure by the Payee to so endorse shall in no
way mitigate or discharge the obligation of the Maker to repay any revolving
credit loan actually made. Revolving credit loans shall be made as the Maker may
request (in the manner hereinafter set forth) up to an aggregate principal
amount outstanding at any one time of One Million Dollars ($1,000,000).
9. Should the indebtedness evidenced hereby or any part thereof be collected at
law or in equity, or in bankruptcy, receivership or any other court proceeding
(whether at the trial or appellate level), or should this Note be placed in the
hands of attorneys for collection upon default, the Maker agrees to pay, in
addition to the principal, any late payment charge and interest due and payable
hereunder, and all costs of collecting or attempting to collect such
indebtedness, including reasonable attorneys' fees and expenses.
10. All parties hereto, whether Maker, principal, surety, guarantor or indorser,
hereby waive demand, notice of demand, presentment, notice of presentment,
notice of dishonor, protest and notice of protest.
11. If any payment hereunder shall not be made by Maker on the date when due,
including any mandatory payment other than the payment of the principal balance
outstanding and due on the Maturity Date, the Payee may impose a late charge of
five cents ($0.05) cents for each dollar ($1.00) paid late to cover the Payee's
additional costs to administer the loan represented hereby due to such late
payment.
12. At the option of the Payee, this Note and the entire unpaid indebtedness
represented hereby shall become immediately due and payable upon the occurrence
of any one of the following events of default (each an "Event of Default"):
(i) The Maker fails to make any payment due hereunder when the same is due
and owing pursuant to the terms and conditions of this Note;
(ii) If the Maker or either of the guarantors hereof makes an assignment for the
benefit of its or his, as the case may be, creditors, or commences a case under
the federal bankruptcy laws, or any state insolvency laws, or files any petition
or answer seeking for itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation, or files an answer admitting or not
contesting the material allegations of a petition against , or his as the case
may be, in any such proceeding, or seeks or acquiesces in the appointment of any
trustee, custodian, receiver or liquidator over its or his, as the case may be,
assets; if, within sixty (60) days after the commencement of an action against
the Maker or any guarantor seeking any bankruptcy, reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
present or future statute, such action is not dismissed or all orders entered
therein or proceedings thereunder affecting its or his, as the case may be,
assets have not been vacated; (iii) A trustee, receiver, custodian or similar
official or agent is appointed for the Maker or either of the guarantors for any
substantial part of the Maker's or either of the guarantor's property, or all or
any substantial part of the property of the Maker or either of the guarantors is
condemned, seized or otherwise appropriated by any governmental authority; or
(iv) The Maker or either of the guarantors has failed to perform any of the
Maker's obligations set forth in the Note or shall have breached any of the
Maker's representations, warranties or covenants set forth in this Note.
13. THE MAKER AND THE GUARANTORS AGREE THAT ANY ACTION, SUIT OR PROCEEDING IN
RESPECT OF OR ARISING OUT OF THIS NOTE MAY BE INITIATED AND PROSECUTED IN THE
STATE OR FEDERAL COURTS, AS THE CASE MAY BE, LOCATED IN NEW YORK COUNTY, NEW
YORK. THE MAKER AND THE GUARANTORS CONSENT AND SUBMIT TO THE EXERCISE OF
JURISDICTION OVER ITS PERSON BY ANY SUCH COURT HAVING JURISDICTION OVER THE
SUBJECT MATTER, WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND
CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO
THE MAKER AT ITS ADDRESS SET FORTH ABOVE OR TO ANY OTHER ADDRESS AS MAY APPEAR
IN THE PAYEE'S RECORDS AS THE ADDRESS OF THE MAKER.
14. IN ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS NOTE,
THE PAYEE, THE GUARANTORS, AND THE MAKER WAIVE TRIAL BY JURY, AND THE MAKER AND
THE GUARANTORS ALSO WAIVE (I) THE RIGHT TO INTERPOSE ANY SET-OFF OR COUNTERCLAIM
OF ANY NATURE OR DESCRIPTION, (II) ANY OBJECTION BASED ON FORUM NON CONVENIENS
OR VENUE, AND (III) ANY CLAIM FOR CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES.
15. After the occurrence of a default hereunder, the Payee may accept any
payments from the Maker without prejudice to the rights and remedies of the
Payee provided herein or in the Pledge or Mortgage; and further, the designation
or allocation by the Maker of the disposition or allocation of any payments made
will not be binding upon the Payee which may allocate any and all such payments
to interest, principal and other fees and charges due hereunder or to any one or
more of them, in such amounts, priorities and proportions as the Payee may
determine in its sole discretion.
16. Notwithstanding anything heretofore set forth to the contrary, in no event
shall any interest payable under this Note exceed the maximum interest rate
permitted under law and any interest collected hereunder which may be in excess
of such rate shall be applied to the reduction of principal.
17. The liability of any Maker or guarantor hereunder shall be unconditional and
shall not be in any manner affected by any indulgence whatsoever granted or
consented to by the holder hereof, including, but not limited to, any extension
of time, renewal, waiver or other modification. Any failure of the holder to
exercise any right hereunder shall not be construed as a waiver of the right to
exercise the same or any other right at any time and from time to time
thereafter. The Payee or any holder may accept late payments, or partial
payments, even though marked "payment in full" or containing words of similar
import or other conditions, without waiving any of its rights. No amendment,
modification or waiver of any provision of this Note nor consent to any
departure by the Maker therefrom shall be effective, irrespective of any course
of dealing, unless the same shall be in writing and signed by the Payee, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given. This Note cannot be changed or
terminated orally or by estoppel or waiver or by any alleged oral modification
regardless of any claimed partial performance referable thereto.
18. This Note shall be governed by and guarantor in accordance with the laws of
the State of New York without regard to conflicts of laws principles.
IN WITNESS WHEREOF, the undersigned has executed the foregoing
instrument as of the day and year first above written.
WITNESS/ATTEST FERRO FOODS CORPORATION
______________________________ By: /s/
Print Name: __________________ Name: Frank Ferro, Sr.
Title:
By:/s/
Name: Frank Gambino
Title:
Each of the undersigned hereby jointly and severally agrees to unconditionally
guarantee the payment of all the obligations of the Maker pursuant to the
Secured Revolving Credit Grid Promissory Note and all amendments, extensions and
modifications hereof.
/s/___________________________
Frank Ferro, Sr.
/s/___________________________
Frank Gambino
<PAGE>
ACKNOWLEDGMENT
STATE OF NEW YORK)
)SS.:
COUNTY OF NEW YORK )
On the ___ day of October in the year 1999 before me, the
undersigned, personally appeared Frank Ferro, Sr., personally known to me or
proved to me on the basis of satisfactory evidence to be the individual whose
name is subscribed to the within instrument and acknowledged to me that he
executed the same in his capacity, and that by his signature on the instrument,
the individual or the person upon behalf of which the individual acted, executed
the instrument.
--------------------------
Notary Public
STATE OF NEW YORK)
)SS.:
COUNTY OF NEW YORK )
On the ___ day of October in the year 1999 before me, the
undersigned, personally appeared Frank Gambino, personally known to me or proved
to me on the basis of satisfactory evidence to be the individual whose name is
subscribed to the within instrument and acknowledged to me that he executed the
same in his capacity, and that by his signature on the instrument, the
individual or the person upon behalf of which the individual acted, executed the
instrument.
--------------------------
Notary Public
<PAGE>
Schedule A
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
Amount Unpaid Amount of
Loan of Principal Principal Notation
Date No. Loan Paid Balance Made By
---- ---- - ----- -- ----- - -------- -------
<S> <C> <C> <C> <C> <C>
- - --------------- ------------------- ----------------- ------------------- ------------------- -----------------
- - --------------- ------------------- ----------------- ------------------- ------------------- -----------------
- - --------------- ------------------- ----------------- ------------------- ------------------- -----------------
- - --------------- ------------------- ----------------- ------------------- ------------------- -----------------
- - --------------- ------------------- ----------------- ------------------- ------------------- -----------------
- - --------------- ------------------- ----------------- ------------------- ------------------- -----------------
- - --------------- ------------------- ----------------- ------------------- ------------------- -----------------
- - --------------- ------------------- ----------------- ------------------- ------------------- -----------------
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- - --------------- ------------------- ----------------- ------------------- ------------------- -----------------
- - --------------- ------------------- ----------------- ------------------- ------------------- -----------------
</TABLE>
SETTLEMENT AGREEMENT
AGREEMENT dated as of May 12, 2000 by and among F&A Dairy Products,
Inc., a Wisconsin corporation ("F&A"), Ferro Foods Corporation, a New York
corporation ("Ferro"), Frank Gambino ("FG"), Frank Ferro, Sr. ("FF") and Liberty
Food Group, LLC, a Delaware limited liability company ("Liberty").
W I T N E S S E T H :
WHEREAS, a motion for a temporary restraining order was filed by F&A
against Ferro and Liberty in the United States District Court, Western District
of Wisconsin on February 22, 2000 (the "Action"), a copy of which is attached
thereto as Exhibit A;
WHEREAS, the parties hereto agreed to settle the Action pursuant to the
terms and provisions of a letter agreement dated February 25, 2000 from Herrick,
Feinstein LLP, counsel to Liberty, to Winthrop & Weinstine, P.A., counsel to F&A
(the "Letter Agreement"), a copy of which is attached hereto as Exhibit B, and
to incorporate the terms and provisions of the Letter Agreement into definitive
settlement documentation;
WHEREAS, the parties acknowledge that prior to the date hereof, the sum
of $100,000 has been paid to F&A to be credited towards payment of the
outstanding balance owed by Ferro to F&A (the "Prior Payment");
WHEREAS, Liberty, Ferro, FG, FF and F&A desire to settle, and resolve
the pending Action and any outstanding claims and disputes and other matters
related to the dealings among them, and to confirm the terms and provisions of
the Letter Agreement in this Agreement and the agreements attached hereto,
subject to the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and other good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. Settlement.
Simultaneously upon the execution of this Agreement (the "Closing"):
1. Ferro shall execute and deliver a promissory note in the
principal amount of $1,063,123.09 (taking into account the
Prior Payment and the payment being made simultaneously
herewith under Section A.1. above) in favor of F&A (the
"Note"), in the form attached hereto as Exhibit C;
2. Liberty shall execute and deliver to F&A a Limited Guaranty,
in the form attached hereto as Exhibit D;
<PAGE>
3. FG and FF, as principals of Ferro, shall each execute and
deliver to F&A, a Personal Guaranty of all payments due
under the Note, in the form attached hereto as Exhibit E.
Additionally, FG and FF shall pay to F&A upon the earlier to
occur of (i) the expiration of the term of the Note or, (ii)
the closing of the Real Estate Transactions (as defined in
Section C.1. below), the amount of $__________, representing
interest on the $1,717,310 at the rate of 9% per annum from
January 1, 2000 until the date hereof;
4. Ferro shall execute and deliver a Stock Pledge Agreement in
favor of F&A, securing the Note by a pledge of stock of
Liberty Group Holdings, Inc. ("Holdings"), in the form
attached hereto as Exhibit F;
5. F&A and Liberty shall execute and deliver a Label Repurchase
Agreement, in the form attached hereto as Exhibit G;
6. F&A will cause their counsel to execute and immediately file
a stipulation dismissing and withdrawing the Action with
prejudice, in the form attached hereto as Exhibit H.
2. Business Dealings.
1. During the four (4) week period commencing on the date
hereof, F&A shall be entitled to receive from Liberty, on a
weekly basis, a payment to be credited against the Note in
the amount of the greater of (i) $100,000 or (ii) the amount
owed for the actual order delivered and shipped by F&A
during each such week.
2. From and after the date hereof until May 1, 2000, F&A shall
supply Liberty for all orders placed by Liberty to F&A on a
30-day credit basis. From and after May 1, 2000, such credit
terms shall be reduced to a 21-day payment term.
3. Commencing on May 1, 2000 and continuing for all orders
placed until May 31, 2000, Liberty shall be entitled to
receive from F&A a $.02 per pound discount on all orders
placed with F&A other than with respect to orders for the
Dan Palo label; provided, however, that if at the time of
placing the order, Liberty is not current in its payment
obligations to F&A, no discount will be available to
Liberty.
3. Available Proceeds; Collateral
1. Upon the financing of any Real Estate Transactions (as such
term is defined below), the available proceeds from any such
Transaction shall be used first to pay the creditors of
Ferro, including Liberty and F&A, pro ratably in proportion
to their respective debts, which shall not be less than 50%
of the proceeds to F&A. "Real Estate Transactions" shall
mean the re-financing of real properties owned by the
principals of Ferro and their affiliates and/or family
members ("Ferro Principals") in Brooklyn, New York and New
Jersey, after the second Medallion financing transaction.
2. Upon the financing and/or hypothecation of any transactions
with respect to the stock of Holdings which was paid to
Ferro as consideration for its assets, the available
proceeds shall be used to pay creditors of Ferro, including
Liberty and F&A, pro ratably in proportion to their
respective debts. 1.
<PAGE>
3. F&A shall become a mortgagee on the real estate owned by the
Ferro Principals, including without limitation the Queens
and Brooklyn parcels, as set forth on Schedule 1 hereto. F&A
acknowledges that Liberty has a $1,000,000 unfiled credit
line mortgage which may be filed at anytime against said
real estate.
4. Confidentiality.
The parties acknowledge and agree that the terms of this
settlement and all documents relating thereto are confidential and
hereby covenant and agree that they, or any entity which they control,
shall not disclose, directly or indirectly, to any third party the
terms of this Agreement or any matter or information relating to or
concerning this Agreement and all discussions and information provided
in connection herewith and said matters and information shall be kept
strictly confidential, except as required by applicable law, rule or
regulation.
5. Representations and Warranties.
1. Each party hereto represents and warrants that (i) it has
the full power and authority to enter into this Agreement
and to execute and deliver all other documents in connection
herewith, and the execution, delivery and performance of
this Agreement and such other documents by such party will
not violate the certificate of incorporation, by-laws,
limited liability agreement or certificate of formation of
any such party or any other agreement affecting any such
party or any law, rule, order, ordinance or statute of any
governmental authority having jurisdiction over such party;
and (ii) the person signing below on behalf of such party
represents that he is an officer of such entity and that he
has been authorized to enter into this Agreement, and to
execute all documents in connection herewith, and to do such
other acts and things as may be necessary or appropriate for
and consistent with carrying out the intent and purposes of
this Agreement.
2. Liberty represents and warrants that during the term of the
Note, it will not sell, assign, transfer or otherwise
dispose of all or substantially all of its assets, other
than in the ordinary course of its business.
6. Further Assurances
Each of the parties hereto agree to do such other and
further acts and things, and to execute and deliver such instruments
and documents at any time after the date hereof as any party hereto
may reasonably request to effect the purposes and provisions of this
Agreement.
7. General
1. This Agreement may be executed in two or more counterparts,
each of which shall constitute on original, but all of which
when taken together shall constitute one and the same
instrument.
<PAGE>
2. This Agreement shall be construed in accordance with and
governed by the laws of the State of New York without regard
to conflict of law principles.
3. This Agreement shall be binding upon and inure to the
benefit of the parties, and their respective heirs,
successors, personal representatives, and assigns.
4. This Agreement and the Letter Agreement contains the entire
agreement between the parties hereto with respect to the
matters contemplated herein and supercedes all prior
agreements or understandings among the parties related to
the subject matter herein.
5. No change or modification of this Agreement shall be valid,
binding or enforceable as a party hereto unless the same
shall be in writing and signed by the parties hereto.
6. If any provision of this Agreement or the application
thereof to any party or circumstance shall be held invalid
or unenforceable to any extent, the remainder of this
Agreement and the application of such provisions to the
other parties or circumstances shall not be effected thereby
and shall be enforced to the greatest extent permitted by
applicable law.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
FERRO FOODS CORPORATION
By: /s/______________________
Name: Frank Ferro, Sr.,
Title: President
LIBERTY FOOD GROUP, LLC
By: LIBERTY GROUP HOLDINGS, INC.,
Managing Member
By: /s/______________________
Name: Barry L. Hawk,
Title: President
F&A DAIRY PRODUCTS, INC.
By: /s/______________________
Name:
Title:
/s/
-----------------------------
Frank Ferro, Sr., Individually
/s/
-----------------------------
Frank Gambino, Individually
<PAGE>
INDIVIDUAL ACKNOWLEDGMENT
STATE OF )
) ss.:
COUNTY OF )
On this day of March, 2000, before me, a Notary Public in and for the
jurisdiction aforesaid, personally appeared Frank Ferro, Sr., personally known
to me or proved to me on the basis of satisfactory evidence to be the individual
whose name is subscribed to the within agreement and acknowledged to me that by
his signature on the agreement, the individual executed the instrument.
- - ------------------------------
Signature and Office of individual
taking acknowledgment
[SEAL]
INDIVIDUAL ACKNOWLEDGMENT
STATE OF )
) ss.:
COUNTY OF )
On this day of March, 2000, before me, a Notary Public in and for the
jurisdiction aforesaid, personally appeared Frank Gambino, personally known to
me or proved to me on the basis of satisfactory evidence to be the individual
whose name is subscribed to the within agreement and acknowledged to me that by
his signature on the agreement, the individual executed the agreement.
- - ------------------------------
Signature and Office of individual
taking acknowledgment
[SEAL]
<PAGE>
ACKNOWLEDGMENT
STATE OF )
: ss.:
COUNTY OF )
On this day of March, 2000, before me, a Notary Public in and for the
jurisdiction aforesaid, personally appeared Frank Ferro, Sr., personally known
to me or proved to me on the basis of satisfactory evidence to be the individual
whose name is subscribed to the within agreement and acknowledged to me that he
executed the same in his capacity, on behalf of Ferro Foods Corporation, a New
York corporation as the President thereof, and that by his signature on the
agreement, the person or entity upon behalf of which the individual acted,
executed the agreement.
- - ------------------------------
Signature and Office of individual
taking acknowledgment
[SEAL]
<PAGE>
ACKNOWLEDGMENT
STATE OF )
: ss.:
COUNTY OF )
On this day of March, 2000, before me, a Notary Public in and for the
jurisdiction aforesaid, personally appeared Barry L. Hawk, personally known to
me or proved to me on the basis of satisfactory evidence to be the individual
whose name is subscribed to the within agreement and acknowledged to me that he
executed the same in his capacity, on behalf of Liberty Group Holdings, Inc., a
Delaware corporation, and the managing member of Liberty Food Group, LLC, a
Delaware limited liability company, as the President thereof, and that by his
signature on the agreement, the person or entity upon behalf of which the
individual acted, executed the agreement.
- - ------------------------------
Signature and Office of individual
taking acknowledgment
[SEAL]
<PAGE>
ACKNOWLEDGMENT
STATE OF )
: ss.:
COUNTY OF )
On this day of March, 2000, before me, a Notary Public in and for the
jurisdiction aforesaid, personally appeared , personally known to me or proved
to me on the basis of satisfactory evidence to be the individual whose name is
subscribed to the within agreement and acknowledged to me that he executed the
same in his capacity, on behalf of F&A Dairy Products, Inc. as the
____________________ [fill in capacity in which signing] thereof, and that by
his signature on the agreement, the person or entity upon behalf of which the
individual acted, executed the agreement.
- - ------------------------------
Signature and Office of individual
taking acknowledgment
[SEAL]
GUARANTY BY LIMITED LIABILITY COMPANY
Brooklyn, New York
May 12, 2000
This Guaranty, dated effective as of May 12, 2000, is made by Liberty Food
Group, LLC, a Delaware limited liability company (the "Guarantor"), for the
benefit of F&A Dairy Products, Inc., a Wisconsin corporation (with its
successors and assigns, the "Lender").
Ferro Foods Corporation, a New York corporation (the "Borrower"), has executed
and delivered a certain Term Note effective as of April 1, 2000 in the original
principal amount of $1,063,123.09 and payable to the order of the Lender (the
"Note").
As a condition to accepting the Note, the Lender has required the execution and
delivery of this Guaranty.
ACCORDINGLY, the Guarantor, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, hereby agrees as follows:
1. Indebtedness Guaranteed. The Guarantor hereby absolutely and unconditionally
guarantees to the Lender the full and prompt payment when due, whether at
maturity or earlier by reason of acceleration or otherwise, of the obligations
of the Borrower under and pursuant to the Note (all of said obligations being
hereinafter called the "Indebtedness").
2. Guarantor's Representations and Warranties. The Guarantor represents and
warrants to the Lender that (i) the Guarantor is a limited liability company,
duly organized and existing in good standing and has full power and authority to
make and deliver this Guaranty; (ii) the execution, delivery and performance of
this Guaranty by the Guarantor have been duly authorized by all necessary action
of its governors and members and do not and will not violate the provisions of,
or constitute a default under, any presently applicable law or its articles of
organization or operating agreement or any member control or other agreement
presently binding on it; (iii) this Guaranty has been duly executed and
delivered by the authorized managers or officers of the Guarantor and
constitutes its lawful, binding and legally enforceable obligation; and (iv) the
authorization, execution, delivery and performance of this Guaranty do not
require notification to, registration with, or consent or approval by, any
federal, state or local regulatory body or administrative agency. The Guarantor
represents and warrants to the Lender that the Guarantor has a direct and
substantial economic interest in the Borrower's affairs and that this Guaranty
is given for a company purpose. The Lender may rely conclusively on a continuing
warranty, hereby made, that the Guarantor continues to be benefited by this
Guaranty and the Lender shall have no duty to inquire into or confirm the
receipt of any such benefits, and this Guaranty shall be effective and
enforceable by the Lender without regard to the receipt, nature or value of any
such benefits.
3. Unconditional Nature. No act or thing need occur to establish the Guarantor's
liability hereunder, and no act or thing, except full payment and discharge of
all of the Indebtedness, shall in any way exonerate the Guarantor hereunder or
modify, reduce, limit or release the Guarantor's liability hereunder. This is an
absolute, unconditional and continuing guaranty of payment of the Indebtedness
and shall continue to be in force and be binding upon the Guarantor, whether or
not all of the Indebtedness is paid in full, until this Guaranty is revoked
prospectively as to future transactions, by written notice actually received by
the Lender, and such revocation shall not be effective as to the amount of
Indebtedness existing or committed for at the time of actual receipt of such
notice by the Lender, or as to any renewals, extensions, refinancings or
refundings thereof.
4. Dissolution or Insolvency of Guarantor. The dissolution or adjudication of
bankruptcy of the Guarantor shall not revoke this Guaranty, except upon actual
receipt of written notice thereof by the Lender and only prospectively, as to
future transactions, as herein set forth. If the Guarantor shall be dissolved or
shall be or become insolvent (however defined), then the Lender shall have the
right to declare immediately due and payable, and the Guarantor will forthwith
pay to the Lender, the full amount of all of the Indebtedness whether due and
payable or unmatured. If the Guarantor voluntarily commences or there is
commenced involuntarily against the Guarantor a case under the United States
Bankruptcy Code, the full amount of all Indebtedness, whether due and payable or
unmatured, shall be immediately due and payable without demand or notice
thereof.
5. Limited Guaranty. Notwithstanding the aggregate amount of the Indebtedness
which may from time to time be outstanding, the Guarantor's liability hereunder
shall be limited to a principal amount equal to the principal amount of the
Note, as reduced by the payments described in the last sentence of Section 3 of
the Note, plus accrued interest thereon and all attorneys' fees, collection
costs and enforcement expenses referable thereto. The Indebtedness may
thereafter be created and continued in any amount, whether or not in excess of
such principal amount, without affecting or impairing the Guarantor's liability
hereunder, and the Lender may pay (or allow for the payment of) the excess out
of any sums received by or available to the Lender on account of the
Indebtedness from the Borrower or any other person (except the Guarantor), from
their properties, out of any collateral security or from any other source, and
such payment (or allowance) shall not reduce, affect or impair the Guarantor's
liability hereunder.
6. Subrogation. The Guarantor will not exercise or enforce any right of
contribution, reimbursement, recourse or subrogation available to the Guarantor
as to any of the Indebtedness, or against any person liable therefor, or as to
any collateral security therefor, unless and until all of the Indebtedness shall
have been fully paid and discharged.
7. Enforcement Expenses. The Guarantor will pay or reimburse the Lender for all
costs, expenses and reasonable attorneys' fees paid or incurred by the Lender in
endeavoring to collect and enforce the Indebtedness and in enforcing this
Guaranty.
8. Lender's Rights. The Lender shall not be obligated by reason of its
acceptance of this Guaranty to engage in any transactions with or for the
Borrower. Whether or not any existing relationship between the Guarantor and the
Borrower has been changed or ended and whether or not this Guaranty has been
revoked, the Lender may enter into transactions resulting in the creation or
continuance of the Indebtedness and may otherwise agree, consent to or suffer
the creation or continuance of any of the Indebtedness, without any consent or
approval by the Guarantor and without any prior or subsequent notice to the
Guarantor. The Guarantor's liability shall not be affected or impaired by any of
the following acts or things (which the Lender is expressly authorized to do,
omit or suffer from time to time, both before and after revocation of this
Guaranty, without consent or approval by or notice to the Guarantor): (i) any
acceptance of collateral security, guarantors, accommodation parties or sureties
for any or all of the Indebtedness; (ii) one or more extensions or renewals of
the Indebtedness (whether or not for longer than the original period) or any
modification of the maturities, if any, or other contractual terms applicable to
any of the Indebtedness or any amendment or modification of any of the terms or
provisions of any loan agreement or other agreement under which the Indebtedness
or any part thereof arose; (iii) any waiver or indulgence granted to the
Borrower, any delay or lack of diligence in the enforcement of the Indebtedness
or any failure to institute proceedings, file a claim, give any required notices
or otherwise protect any of the Indebtedness; (iv) any full or partial release
of, compromise or settlement with, or agreement not to sue, the Borrower or any
guarantor or other person liable in respect of any of the Indebtedness; (v) any
release, surrender, cancellation or other discharge of any evidence of the
Indebtedness or the acceptance of any instrument in renewal or substitution
therefor; (vi) any failure to obtain collateral security (including rights of
setoff) for the Indebtedness, or to see to the proper or sufficient creation and
perfection thereof, or to establish the priority thereof, or to preserve,
protect, insure, care for, exercise or enforce any collateral security; or any
modification, alteration, substitution, exchange, surrender, cancellation,
termination, release or other change, impairment, limitation, loss or discharge
of any collateral security; (vii) any collection, sale, lease or disposition of,
or any other foreclosure or enforcement of or realization on, any collateral
security; (viii) any assignment, pledge or other transfer of any of the
Indebtedness or any evidence thereof; (ix) any manner, order or method of
application of any payments or credits upon the Indebtedness; and (x) any
election by the Lender under Section 1111(b) of the United States Bankruptcy
Code. The Guarantor waives any and all defenses and discharges available to a
surety, guarantor or accommodation co-obligor.
9. Waivers by Guarantor. The Guarantor waives any and all defenses, claims,
setoffs and discharges of the Borrower, or any other obligor, pertaining to the
Indebtedness, except the defense of discharge by payment in full. Without
limiting the generality of the foregoing, the Guarantor will not assert, plead
or enforce against the Lender any defense of waiver, release, discharge or
disallowance in bankruptcy, statute of limitations, res judicata, statute of
frauds, anti-deficiency statute, fraud, incapacity, minority, usury, illegality
or unenforceability which may be available to the Borrower or any other person
liable in respect of any of the Indebtedness, or any setoff available against
the Lender to the Borrower or any other such person, whether or not on account
of a related transaction. The Guarantor expressly agrees that the Guarantor
shall be and remain liable for any deficiency remaining after foreclosure of any
mortgage or security interest securing the Indebtedness, whether or not the
liability of the Borrower or any other obligor for such deficiency is discharged
pursuant to statute or judicial decision. The liability of the Guarantor shall
not be affected or impaired by any voluntary or involuntary liquidation,
dissolution, sale or other disposition of all or substantially all of the
assets, marshalling of assets and liabilities, receivership, insolvency,
bankruptcy, assignment for the benefit of creditors, reorganization,
arrangement, composition or readjustment of, or other similar event or
proceeding affecting, the Borrower or any of its assets. The Guarantor will not
assert, plead or enforce against the Lender any claim, defense or setoff
available to the Guarantor against the Borrower. The Guarantor waives
presentment, demand for payment, notice of dishonor or nonpayment and protest of
any instrument evidencing the Indebtedness. The Lender shall not be required
first to resort for payment of the Indebtedness to the Borrower or other
persons, or their properties, or first to enforce, realize upon or exhaust any
collateral security for the Indebtedness, before enforcing this Guaranty.
Nothing herein shall constitute a waiver of any defense or claim available to
the Guarantor against the Lender pursuant to that certain Settlement Agreement
of even date herewith by and among the Lender, the Borrower, the Guarantor,
Frank Gambino and Frank Ferro, Sr. (the "Settlement Agreement") or that certain
Label Repurchase Agreement of even date herewith by and between the Lender and
the Borrower (the "Repurchase Agreement").
10. If Payments Set Aside, etc. If any payment applied by the Lender to the
Indebtedness is thereafter set aside, recovered, rescinded or required to be
returned for any reason (including, without limitation, the bankruptcy,
insolvency or reorganization of the Borrower or any other obligor), the
Indebtedness to which such payment was applied shall for the purpose of this
Guaranty be deemed to have continued in existence, notwithstanding such
application, and this Guaranty shall be enforceable as to such Indebtedness as
fully as if such application had never been made.
11. Additional Obligation of Guarantor. The Guarantor's liability under this
Guaranty is in addition to and shall be cumulative with all other liabilities of
the Guarantor to the Lender as guarantor, surety, endorser, accommodation
co-obligor or otherwise of any of the Indebtedness or obligation of the
Borrower, without any limitation as to amount, unless the instrument or
agreement evidencing or creating such other liability specifically provides to
the contrary.
12. No Duties Owed by Lender. The Guarantor acknowledges and agrees that the
Lender (i) has not made any representations or warranties with respect to, (ii)
does not assume any responsibility to the Guarantor for, and (iii) has no duty
to provide information to the Guarantor regarding, the enforceability of any of
the Indebtedness or the financial condition of the Borrower or any guarantor.
The Guarantor has independently determined the creditworthiness of the Borrower
and the enforceability of the Indebtedness and until the Indebtedness is paid in
full will independently and without reliance on the Lender continue to make such
determinations.
13. Miscellaneous. This Guaranty shall be effective upon delivery to the Lender,
without further act, condition or acceptance by the Lender, shall be binding
upon the Guarantor and the successors and assigns of the Guarantor and shall
inure to the benefit of the Lender and its successors and assigns. Any
invalidity or unenforceability of any provision or application of this Guaranty
shall not affect other lawful provisions and application thereof, and to this
end the provisions of this Guaranty are declared to be severable. This Guaranty
may not be waived, modified, amended, terminated, released or otherwise changed
except by a writing signed by the Guarantor and the Lender. This Guaranty shall
be governed by and construed in accordance with the substantive laws (other than
conflict laws) of the State of Minnesota. The Guarantor hereby (i) consents to
the personal jurisdiction of the state and federal courts located in the State
of Minnesota in connection with any controversy related to this Guaranty; (ii)
waives any argument that venue in any such forum is not convenient, (iii) agrees
that any litigation initiated by the Lender or the Guarantor in connection with
this Guaranty shall be venued in either the District Court of Hennepin County,
Minnesota, or the United States District Court, District of Minnesota, Fourth
Division; and (iv) agrees that a final judgment in any such suit, action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.
14. Waiver of Jury Trial. THE GUARANTOR HEREBY IRREVOCABLY WAIVES ALL RIGHTS TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF, BASED ON
OR PERTAINING TO THIS GUARANTY.
IN WITNESS WHEREOF, this Guaranty has been duly executed by the Guarantor the
date first written above.
LIBERTY FOOD GROUP, LLC
By /s/
----------------------------------
Its
-----------------------------
Address:
-------------------------------
-------------------------------
-------------------------------
-------------------------------
STATE OF __________ )
)
COUNTY OF _________ )
The foregoing instrument was acknowledged before me this ____ day of April, 2000
by _____________ _____________________, the _______________________ of Liberty
Food Group, LLC, a ______________ limited liability company, on behalf of the
limited liability company.
__________________________
Notary Public
MPL1: 333776-4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 000311927
<NAME> LIBERTY GROUP HOLDINGS, INC
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Nov-23-1999
<PERIOD-END> Dec-31-1999
<PERIOD-TYPE> YEAR
<EXCHANGE-RATE> 1
<CASH> 15,013
<SECURITIES> 0
<RECEIVABLES> 864,443
<ALLOWANCES> 22,000
<INVENTORY> 771,564
<CURRENT-ASSETS> 1,673,105
<PP&E> 207,370
<DEPRECIATION> 4,965
<TOTAL-ASSETS> 3,612,663
<CURRENT-LIABILITIES> 1,273,223
<BONDS> 0
0
0
<COMMON> 26,000
<OTHER-SE> 2,286,681
<TOTAL-LIABILITY-AND-EQUITY> 3,612,663
<SALES> 1,663,016
<TOTAL-REVENUES> 1,633,016
<CGS> 1,361,281
<TOTAL-COSTS> 1,361,281
<OTHER-EXPENSES> 1,014,054
<LOSS-PROVISION> 22,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (712,319)
<INCOME-TAX> 0
<INCOME-CONTINUING> (712,319)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (712,319)
<EPS-BASIC> (.11)
<EPS-DILUTED> (.11)
</TABLE>