SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 28, 1996
OR
|_| Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
0-15942
(Commission File No.)
INTEGRATED BRANDS INC.
(Exact name of registrant as specified in its charter)
New Jersey 11-2778439
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4175 Veterans Highway, Ronkonkoma, New York 11779
(Address of principal executive offices including zip code)
Registrant's Telephone Number, including area code: (516) 737-9700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, par value $0.01 per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _____
The aggregate market value of the registrant's Common Stock held by
non-affiliates as of March 27, 1997 was $6,036,424.
As of March 25, 1997, there were 10,103,288 shares of the registrant's Common
Stock outstanding.
<PAGE>
PART I
Item 1. BUSINESS.
INTEGRATED BRANDS INC., together with its subsidiaries (collectively,
"INTEGRATED" or the "Company") markets, sells and distributes a variety of
branded frozen dessert products to supermarkets, grocery stores, club stores,
gourmet shops, delicatessens and convenience stores. The Company pursuant to
long-term exclusive license agreements markets, sells and distributes
Tropicana(R) frozen desserts, Yoplait(R) and Colombo(R) ready to eat frozen
yogurt products, Betty Crocker(R) frozen desserts, individual and multipack
Trix(R) frozen novelties, individual and multipack YooHoo(R) frozen novelties
and Sweet 'N Low(R) fat free ice cream. The Company's products include
prepackaged "Chilly Things"(R), "Great American", "Tropical" and "Bullet" frozen
novelties. The Company, directly and through subsidiaries, also operates,
franchises and licenses Steve's, Swensen's and triple trademark frozen dessert
stores throughout the United States and certain foreign countries.
The Company was incorporated in New Jersey on September 27, 1985 and
commenced operations on December 23, 1985 as Steve's Homemade Ice Cream, Inc. In
July 1995, the Company changed its name to INTEGRATED BRANDS INC. to more
appropriately reflect the breadth of the Company's business. Its principal
offices are located at 4175 Veterans Highway, Ronkonkoma, New York 11779 and its
telephone number is (516) 737-9700.
In July 1992, the Company and General Mills, Inc. executed the initial
license for TRIX(R) frozen dessert novelties and a sublicense for Yoplait(R)
ready to eat frozen yogurt. A new long-term license agreement for Trix frozen
dessert products was executed in August 1995, which will terminate on December
31, 2015 and is renewable by the Company for an additional five year term if a
cash payment is made. Also in August 1995, the Company and General Mills agreed
to extend the term of the Yoplait Sublicense to December 31, 2015, with an
option to renew by the Company for an additional five year term if a cash
payment is made. In August 1995, the Company and General Mills, Inc. executed
license agreements for Colombo(R) prepackaged frozen dessert products, Betty
Crocker(R) prepackaged frozen dessert products and Count Chocula(R) and Lucky
Charms(R) prepackaged frozen dessert products. These new agreements expire
December 31, 2015, 2010 and 2015, respectively, and are renewable by the Company
for an additional five years if cash payments are made. In December 1996, the
Company and Tropicana Products, Inc. executed a license agreement for Tropicana
prepackaged novelty products. The license agreement terminates December 31,
2011.
The Company owns, operates, develops and franchises Swensen's restaurants
and ice cream stores in four formats: full
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food service, limited food service, ice cream only stores and specialty stores.
Steve's franchises are operated primarily as dessert only stores. Steve's and
Swensen's stores are also offered as "triple trademark" franchises featuring
independent sections of Steve's or Swensen's ice cream, David's cookies and
Heidi's frozen yogurt.
At December 28, 1996, there were 22 franchised Steve's stores, 263
franchised Swensen's stores, four Company-owned and operated Swensen's stores,
and one Jerry Tucci's Brick Oven Pizzeria, a new full service restaurant concept
being developed by the Company. In addition, a Schrafft's ice cream store
operating as a joint venture opened in Las Vegas, Nevada January 1997.
In February 1989, the Company, through a wholly-owned subsidiary, acquired
approximately 85% of the outstanding stock of Heidi's Frogen Yozurt Shoppes,
Inc. ("Heidi's"). At December 28, 1996, Heidi's has 18 franchised frozen yogurt
stores predominately located in California with stores also in Arizona and
Texas. On April 9, 1993, Heidi's and its subsidiary filed a voluntary petition
under Chapter 11 of the United States Bankruptcy Code to reorganize. The Company
has entered into agreements with Heidi's pursuant to which the Company has
received a license from Heidi's to (i) use the Heidi's trademark in the
manufacture of frozen dessert products, (ii) offer Heidi's products in its
Steve's and Swensen's stores and (iii) sell Heidi's franchises.
Wholesale Products and Sales
The Company's products for wholesale sale include: Betty Crocker(R)lowfat
and no fat frozen novelties,Yoplait(R)ready to eat frozen yogurt products;
Colombo(R)ready to eat frozen yogurt and sorbet products, Trix(R)frozen
novelties, and a variety of other novelties, including those sold under the
"Great American", "Tropical", "Chilly Things" and "Bullet" trademarks, American
Glace(R)no fat, no cholesterol low calorie frozen dessert and Sweet 'N Low(R)fat
free ice cream products. Betty Crocker(R), Yoplait(R), Colombo(R), YooHoo(R),
American Glace(R)and Sweet 'N Low(R)products appeal to the healthier consumer
lifestyle and eating trends toward lower and no fat and lower and no cholesterol
products. The Company is developing additional products to be marketed under the
Betty Crocker(R)trademarks. In the beginning of 1997, the Company began
introducing frozen dessert novelties under the Tropicana(R) trademark. The
Company anticipates incurring significant expenses to obtain shelf space in
connection with the introduction of its new products. The initial response by
chain-store buyers to the Tropicana products has been favorable.
The Company sells its variety of prepackaged products to distributors and
various retail establishments including supermarkets, grocery stores, club
stores, gourmet shops, delicatessens and convenience stores.
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The Company purchases packaging and ingredients for its products directly
from unaffiliated suppliers. The Company then sells the ingredients and cartons
to unaffiliated manufacturers. Certain of these manufacturers also manufacture
other ice cream and related frozen dessert products for other companies,
including companies affiliated with Richard E. Smith, who is a significant
shareholder and Chairman of the Board of the Company. The manufacturers produce
the Company's products according to the Company's specifications and formulas
under quality control supervision by the Company. The Company then purchases the
finished products from the manufacturers for distribution at a formula price
based upon the manufacturers' actual cost of ingredients and packaging plus an
agreed upon processing fee which includes a profit for the manufacturers. The
Company believes there are many alternative ice cream and novelty manufacturers
available on comparable terms.
In November 1992, the Company entered into two distribution agreements with
Edy's Grand Ice Cream ("Edy's") and Dreyer's Grand Ice Cream, Inc. ("Dreyer's")
relating to the distribution of the Company's products. Pursuant to one
agreement (the "Local Distribution Agreement"), Edy's and Dreyer's agreed to
distribute essentially all of the Company's products to the New York
metropolitan area supermarkets. Pursuant to the second agreement (the "National
Distribution Agreement"), Edy's and Dreyer's agreed to distribute the Company's
TRIX(R) and Yoplait(R) prepackaged products and other novelty items nationwide.
The National Distribution Agreement is exclusive with respect to certain areas
of the country and non-exclusive with respect to others. The term of the
National Distribution Agreement is five years with either party having the right
to terminate it upon twelve months notice during the initial five year period.
During 1995 and 1996, several areas which were previously distributed
exclusively by Dreyer's and Edy's were handled by other distributors or chain
store warehouses. The Local Distribution Agreement is for a term of five years
and automatically renews unless terminated by one party on at least six months
prior notice.
The Company's products are distributed in the New York Metropolitan region
to customers primarily other than supermarket chains by Calip Dairies, Inc.
("Calip") of which Richard E. Smith is Chairman of the Board and Mr. Smith and
his family are the sole stockholders. The distribution agreement with Calip is
terminable upon thirty (30) days notice by either party.
Markets and Customers
The Company's products are distributed nationwide. Sales to Sunstreet Foods
Corporation, a distributor of the Company's bulk and prepackaged products,
accounted for 10%, 10% and 14% of total revenues for 1996, 1995 and 1994,
respectively. Sales to Dreyer's and Edy's accounted for 10%, 11% and 20% of
total revenues for 1996, 1995 and 1994, respectively.
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Franchise and Licensing Program
As of December 28, 1996, the Company had 22 franchised Steve's stores, most
of which are located in five states; and 263 franchised Swensen's Stores in 19
states, the District of Columbia, and 12 foreign countries.
As of December 28, 1996, five additional franchisee-operated stores were
under construction.
Franchises
In late 1989, the Company began offering "triple-trademark" franchises,
featuring independent sections of Steve's or Swensen's ice cream, David's
cookies and Heidi's frozen yogurt. The Company, pursuant to an arrangement with
Specialty Foods Management, Inc. ("David's"), offers its franchisees David's
cookies as an approved product with David's retaining the right to manufacture
the cookie mix. The "triple-trademark" franchise is offered under, at the
franchisee's election, either a Steve's or Swensen's franchise agreement, with
David's cookies being deemed "approved products" which are permitted to be sold
by the franchise and Heidi's frozen yogurt being licensed to the franchisee. The
initial franchise fee for a Swensen's or Steve's "triple trademark store" is
$25,000. Beginning in April 1997, the initial franchise fee for ice cream only
stores will be reduced to $5,000 in an effort to sell and open additional
domestic franchise stores. The "triple-trademark" concept was developed in
response to the high real estate costs likely to be incurred by prospective
franchisees. The concept allows franchisees to offer a range of dessert products
while dividing the real estate costs and overhead between three synergistic
businesses.
Where conditions do not permit a triple trademark franchise operation, the
Company franchises one basic Steve's store type, an ice cream only store, and
four basic Swensen's store types in the following formats:
1. Full-Service Food Store, old fashioned ice cream family-style
restaurants with full service and food, featuring Swensen's ice cream and
fountain products.
2. Ice-Cream-Only Store, with the same decor and featuring only Swensen's
ice cream and ice cream related products.
3. Modified Full-Service Store, offering partial self-service of a limited
food menu, having approximately 1,800 to 2,000 square feet and generally 50 to
60 seats.
4. Specialty Stores, which include kiosks or other approved types of
outlets of a special nature.
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The Company also offers, where permitted, existing Steve's and Swensen's
franchises the right to sell Heidi's frozen yogurt and existing Heidi's
franchises the right to sell Steve's or Swensen's ice cream.
The current form of franchise agreement for Steve's stores is for a
ten-year term with an option to the franchisee to renew for a second ten-year
term, upon the payment of the then current franchise fee. The agreements grant
the franchisees an exclusive area and, since the commencement of the Company's
operations, require the franchisee to purchase ice cream and certain other
products exclusively from the Company. Franchisees pay an initial franchise fee,
currently $25,000 and a royalty fee equal to 6% of gross sales. Beginning in
April 1997, the initial franchise fee will be reduced to $5,000 in an effort to
sell and open additional domestic franchise stores. Earlier franchise
agreements, which are still in effect, have different terms. The current
weighted average royalty rate for Steve's franchises is approximately 4.9%. The
Company currently does not collect advertising fees from Steve's franchisees
although it has the right to do so pursuant to the existing franchise
agreements.
Swensen's standard franchise agreements provide for initial twenty and ten
year terms for food menu and ice cream-only stores, respectively, and options to
renew for up to the same periods. The agreements grant the franchisee the right
to use the Swensen's name, goodwill and trade secrets, and to develop and
operate the store in accordance with the Swensen's system. Initial franchise
fees are $25,000. Beginning in April 1997, the initial franchise fee for ice
cream only stores will be reduced to $5,000 in an effort to sell and open
additional domestic franchise stores. In addition, the current franchise
agreement requires domestic franchises to pay Swensen's a royalty of 6% of gross
sales, and foreign franchisees to pay 3% (in U.S. Dollars) of their gross sales
as royalties. Since franchise agreements entered into before 1980 called for a
lower royalty, the current weighted average royalty rate is 3.2% for domestic
franchises and 2% for foreign franchises. Swensen's current franchise agreement
provides that domestic franchisees must contribute, depending on store type,
1/2% to 1% of gross sales to a fund which is used for national advertising.
The Company markets its franchises through magazine and newspaper
advertisements, by attending new business opportunity conventions and through
franchise brokers, as well as by responding to inquiries from potential
franchisees who have seen the Company's product or one of its franchise stores.
All franchisees are required to purchase their ice cream and yogurt
products from the Company or approved affiliates or suppliers and to purchase
other proprietary products from Company-approved sources. The Steve's bulk ice
cream is offered in approximately 24 flavors, the Swensen's bulk ice cream is
offered in approximately 46 flavors, and the Heidi's yogurt mix is offered
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<PAGE>
in approximately 45 flavors (6 base mixes plus flavoring syrups). The number of
flavors actually available at any one time varies. The Company also offers a
variety of flavors of Swensen's no sugar added, low fat and no fat ice creams
and Swensen's frozen yogurt products to the Swensen's franchised stores.
American Glace frozen dessert soft serve mixes are offered to all of the
Company's franchises.
Most Swensen's franchises purchase their ice cream through local
distributors who act as consignees of Swensen's or from Sunstreet Foods
Corporation, which purchases Swensen's ice cream for distribution. Three
original franchisees that do not purchase centrally manufactured ice cream
purchase ice cream mix from vendors approved by Swensen's.
Steve's franchisees purchase their ice cream from the Company through local
distributors, some of whom purchase directly from the Company and some of whom
act as consignees of the Company.
In 1996 six Steve's double trademark franchise stores were opened. In 1995
three Steve's franchise stores were opened and in 1994 one Steve's franchise
triple trademark store was opened. In 1996 two Steve's stores were closed. In
1995 four Steve's stores were closed and in 1994 no Steve's stores closed. The
average sales for Steve's franchise stores opened at least one year were
$292,000 in 1996, $253,000 in 1995 and $309,000 in 1994. In 1996, 1995 and 1994
there were 35 (including 28 international), 60 (substantially all international)
and 21 Swensen's stores opened, respectively, and 32 (including 21
international), 38 (substantially all domestic) and 17 Swensen's stores closed,
respectively. The average sales for all Swensen's stores was $393,000, $354,000
and $308,000 in 1996, 1995 and 1994, respectively. The above sales amounts have
been supplied by the franchisees, have not been verified by the Company, are
average sales results and may not be indicative of actual or future results.
Area Development Agreements
Steve's Ice Cream, Inc. ("SIC, Inc."), the predecessor of the Company, had
entered into area development agreements which the Company assumed in the
acquisition of the assets of SIC, Inc. Similarly, Swensen's, prior to its
acquisition by the Company had entered into area development agreements. While
the Company does not generally intend to enter into additional domestic area
development agreements, it intends to enter into international area development
agreements from time to time in the future.
The area development agreements generally provide that the area developer
is required to open and operate a specified number of franchises in a designated
territory within a certain time period and that the area developer has the
exclusive right to open Steve's or Swensen's franchises, as the case may be, in
that
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territory. Generally, if the specified number of franchises are not opened
within that period, the area developer loses his exclusive territory. Area
developers generally pay a development fee based on the number of franchises to
be opened, which is credited against the initial franchise fees payable for the
opening of each store.
At December 28, 1996 there were two international Steve's area development
agreements and thirteen international Swensen's area development agreements in
effect. The Company is currently negotiating several Steve's and Swensen's
international area development agreements. There can be no assurances that these
agreements will be entered into.
International
The Company received approximately $865,000, $623,000 and $872,000 in
royalties and franchise fees from international franchisees for the years ended
December 28, 1996, December 30, 1995 and December 31, 1994, respectively.
The Company also had sales of products and supplies to international
franchisees and licensees of $668,000 in 1996, $477,000 in 1995 and $385,000 in
1994.
Company-owned Stores
As of December 28, 1996, the Company owned and operated four Swensen's
stores, of which two are located in Arizona, one in Las Vegas, Nevada and one in
California. In March 1996, the Company opened Jerry Tucci's Brick Oven Pizzeria,
a prototype Italian restaurant located in Paradise Valley, Arizona. In addition,
a Schrafft's ice cream store operating as a joint venture opened in January 1997
in Las Vegas, Nevada.
Competition
The ice cream, frozen yogurt and frozen dessert and related novelty market
is highly competitive and the Company faces substantial competition in
connection with the marketing and sales of its products. Among its competitors
are Haagen-Dazs, Inc., owned by The Pillsbury Company, Klondike, Popsicles,
Breyer's and Sealtest, owned by Unilever PLC, Eskimo Pie, Nestle's, Ben &
Jerry's Homemade Ice Cream, Inc., Dreyer's Ice Cream and other numerous regional
ice cream companies. Many of such competitors are well-established and have
substantially greater financial and other resources than the Company.
While the ice cream and frozen yogurt manufacturing and distribution
business is relatively easy to enter due to low entry cost, achieving wide
distribution may be more difficult because of the high cost of a national
marketing program and limitations on space available in retail freezer
compartments. The Company's
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products may also be considered to be competing with all ice cream and other
frozen desserts for discretionary food dollars.
Steve's and Swensen's stores compete directly with local, regional and
national retail ice cream and frozen dessert establishments and restaurants,
including nationwide chains such as Friendly's, Baskin & Robbins, TCBY and with
other businesses catering to the food and dessert market. Many of these
businesses are much larger and have substantially greater capital and resources
than does the Company. The ability of the Company and its franchisees to
maintain and increase their share of the market will be dependent upon many
factors, among which are the quality and price of their products, location and
attractiveness of facilities, advertising, quality of service, and availability
of capital for expansion and remodeling.
Trademarks and Patents
The Company currently has registered trademarks and service marks for
Steve's, Swensen's and American Glace. It has also obtained trademarks for the
names of certain ice cream flavors. In addition, the Company has filed
applications for certain other trademarks and service marks in the United States
and certain foreign countries.
The Company also has proprietary rights in numerous items, such as
tradedress (store design, decors and layout), menu formats, advertising designs,
ice cream formulas and flavors and in recipes, know-how, processes, products and
other data, techniques and information.
Employees
As of December 28, 1996 the Company had 65 full-time employees and 135
part-time employees. Of these, 18 full-time and 134 of the part-time employees
were employed in Company-owned/operated stores. None of the Company's employees
are covered by collective bargaining agreements. The Company believes that its
employee relations are good.
Seasonality
The ice cream industry generally experiences its highest volume during the
spring and summer months and its lowest volume in the winter months.
Governmental Regulations
The Company is subject to regulation by federal, state and local
governmental authorities regarding the distribution and sale of food products
and the operation of retail food establishments. Although the Company believes
that it currently has all material governmental permits, licenses,
qualifications and
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approvals for its operations, there can be no assurance that the Company will be
able to maintain its existing licenses and permits or to obtain any future
licenses, permits, qualifications or approvals which may be required for the
operation of its business.
In addition, the Company's franchise programs are subject to regulation by
the Federal Trade Commission relating to the information required to be
disclosed to investors prior to their investment in a franchise, as well as
similar rules in a number of states in which the Company does offer or may offer
franchises, some of which involve substantive review of the Company's franchise
disclosure documents. To the extent that the Company is unable to comply with
the franchise regulations of a particular state, the Company will be unable to
offer and sell franchises in such state.
Item 2. PROPERTIES.
The Company's executive offices and Swensen's corporate headquarters are
located at 4175 Veterans Highway, Ronkonkoma, New York, 11779. These offices are
provided to the Company at no additional cost by Calip pursuant to the terms of
a Management Agreement between the Company and Calip.
One Company-owned and operated store is located in a building owned by the
Company located in Paradise Valley, Arizona. The building is subject to a ground
lease which expires on December 31, 2005 and contains four five-year renewal
options. The building was remodeled and was reopened as Jerry Tucci's Brick Oven
Pizzeria, a prototype Italian restaurant concept, in March 1996. In December
1996 the carrying amount of the building's value was written down to an amount
which approximates market value. The remaining four Company-owned stores are
leased for terms ranging through 2005.
Swensen's is also the lessee or guarantor of approximately 19 stores
subleased from Swensen's or leased directly by franchisees from landlords, which
leases expire through 2002. As of December 28, 1996, these leases had an
aggregate future base rental liability, without regard to percentage rentals or
consumer price index increases, of approximately $1,608,000.
The Company's current policy is not to lease or sublease premises nor to
provide guarantees on leases in any manner with respect to its franchisees and
it has not done so except for renewals and in special circumstances.
Item 3. LEGAL PROCEEDINGS.
On April 9, 1993, Heidi's Frogen Yozurt Shoppes, Inc. ("Heidi's") and its
subsidiary, and LaSalle/Silver Sleigh Distribution, Inc., the wholly-owned
subsidiary of the Company which purchased the shares of Heidi's from Heidi
Miller and Brian
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Pallas, each filed a voluntary petition under Chapter 11 of the United States
Bankruptcy Code to reorganize. The Company believes it is unlikely that these
bankruptcy actions will have a material adverse effect on the Company's
financial position.
Swensen's is primarily liable on 19 of its franchisees' leases, which, upon
default by the franchisee, have resulted in litigation between Swensen's and the
lessors. Swensen's has been successful in defending such cases in the past and
management believes that current litigation will have no material adverse effect
on Swensen's financial position.
The Company and its subsidiaries are involved in other disputes with
certain of its and their franchisees and is a party to various other lawsuits in
the ordinary course of business, none of which it believes is material to its
business.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
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Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded in the over-the-counter
market. The following table sets forth, for the periods indicated, the closing
high and low bid prices for the Company's Common Stock as reported by the NASDAQ
Stock Market. These amounts, which have been rounded to the nearest sixteenth,
represent quotations between dealers (not actual transactions), do not include
retail markups, markdowns or commissions and may not necessarily reflect actual
transactions.
COMMON STOCK
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<TABLE>
<CAPTION>
1996 1995
---- ----
High Low High Low
<S> <C> <C> <C> <C>
First Quarter 1 7/16 15/16 1 11/16 1 1/8
Second Quarter 1 19/32 1 1 7/8 1 1/16
Third Quarter 1 1/4 7/8 1 15/16 1 1/8
Fourth Quarter 1 3/32 5/8 1 7/16 1
</TABLE>
As of December 28, 1996 there were approximately 1,500 holders of record of
the Company's Common Stock.
The payment by the Company of dividends, if any, in the future rests within
the discretion of its Board of Directors and will depend upon the Company's
earnings, its capital requirements (including working capital needs) and its
financial condition, as well as other relevant factors. The Company has not paid
any dividends on its Common Stock since its inception. The Board of Directors
does not presently intend to declare any dividends on its Common Stock in the
foreseeable future.
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Item 6. SELECTED FINANCIAL DATA.
The following information has been summarized from the Company's financial
statements and should be read in conjunction with such financial statements and
the related notes thereto:
Summary of Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the Year Ended
--------------------------------------------------------------------------------------
December 28, December 30, December 31, January 1, January 2,
1996 1995 1994 1994 1993
-------- --------- --------- --------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues $ 42,853 $ 37,969 $ 33,776 $ 36,231 $32,888
======== ========= ========= ========= =======
Net income (loss) $ (2,928) $ 713 $ 1,035 $ 437 $ 1,300
======== ========= ========= ========= =======
Earnings (loss) per
Common Share: $ (.29) $ .07 $ .09 $ .04 $ .11
======== ========= ========= ========= =======
</TABLE>
Summary of
Balance
Sheets
<TABLE>
<CAPTION>
December 28, December, 30 December 31, January 1, January 2,
1996 1995 1994 1994 1993
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
Working Capital ............................... $ 2,939 $ 3,136 $ 2,155 $ 1,757 $ 4,463
Total assets .................................. 26,798 26,377 21,220 20,764 23,306
Long-term liabilities ......................... 7,600 5,238 1,657 1,626 6,022
Stockholders'
Equity ...................................... 10,399 13,434 12,454 12,869 12,432
</TABLE>
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FOR THE YEAR ENDED DECEMBER 28, 1996 VERSUS THE YEAR ENDED DECEMBER
30, 1995
Total revenues for the year ended December 28, 1996 increased to
$42,853,000 from $37,969,000 for the year ended December 30, 1995. Prepackaged
frozen dessert sales increased to $30,081,000 for the year ended December 28,
1996 from $25,806,000 for the year ended December 30, 1995. The increase in
revenues and in prepackaged and frozen dessert sales was primarily due to the
increase in new product authorizations in retail outlets and an increase in
sales promotions. The increase in revenue from store operations was primarily
due to the reopening of the company-owned store as a Jerry Tucci's Brick Oven
Pizzeria.
The following table sets forth the sales of prepackaged frozen desserts,
the sales of bulk frozen desserts to franchised and licensed stores, and other
sales for the years ended December 28, 1996 and December 30, 1995, respectively.
Year Ended
------------------------------
December 28, December 30,
1996 1995
------------ ------------
Prepackaged Frozen Dessert Sales $30,081,000 $25,806,000
Bulk Frozen Dessert Sales 5,577,000 5,521,000
Other sales 1,210,000 1,055,000
----------- -----------
Total sales $36,868,000 $32,382,000
=========== ===========
The gross profit percentage was 37.6% and 37.4% for the years ended
December 28, 1996 and December 31, 1995, respectively.
Selling, general and administrative expenses increased to $17,904,000 for
the year ended December 28, 1996 as compared to $12,863,000 for the year ended
December 30, 1995. This increase is primarily attributable to the increase in
product support and selling expenses, including an increase of product
introductory expenses incurred in connection with new licensed and sublicensed
products introduced during 1996 in excess of such expenses for 1995, and offset
by lower legal expenses as a result of a litigation settlement in 1995. The
Company anticipates significant but materially decreased spending in 1997 for
product introductory expenses as a result of focusing its new products
introduction efforts on the recently acquired Tropicana license.
Net loss for the year ended December 28, 1996 was ($2,928,000) as compared
to net income of $713,000 for the year
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ended December 30, 1995. The decline in operating results was primarily
attributable to the increase in product support and selling expenses and losses
associated with the operation of the Company-owned Jerry Tucci's restaurant
offset in part by the increased gross profit dollars realized as a result of
increased sales volume and lower administrative expenses in 1996 as a result of
a litigation settlement in 1995.
FOR THE YEAR ENDED DECEMBER 30, 1995 VERSUS THE YEAR ENDED DECEMBER 31,
1994.
Total revenues for the year ended December 30, 1995 increased to
$37,969,000 from $33,776,000 for the year ended December 31, 1994. Prepackaged
frozen dessert sales increased to $25,806,000 for the year ended December 30,
1995 from $18,587,000 for the year ended December 31, 1994. The increase in
revenues and in prepackaged and frozen dessert sales was primarily due to the
increase in new product authorizations in retail outlets, an increase in sales
promotions and the acquisition of the Colombo hard pack rights in August 1995.
The reduction in bulk frozen dessert sales was a result of the decline in the
number of domestic franchise stores in operation, and the expiration in late
1994 of an agreement with a licensee regarding bulk products. The decrease in
revenue from store operations of $1,184,000 was primarily due to the closing of
one Company-owned store.
The following table sets forth the sales of prepackaged frozen desserts,
the sales of bulk frozen desserts to franchised and licensed stores and other
sales for the years ended December 30, 1995 and December 31, 1994, respectively.
Year Ended
-----------------
December 30, 1995 December 31, 1994
----------------- -----------------
Prepackaged Frozen
Dessert Sales $25,806,000 $18,587,000
Bulk Frozen Dessert Sales 5,521,000 7,099,000
Other sales 1,055,000 1,174,000
----------- -----------
Total sales $32,382,000 $26,860,000
=========== ===========
The gross profit percentage was 37% for the years ended December 30, 1995
and December 31, 1994.
Selling, general and administrative expenses increased to $12,863,000 for
the year ended December 30, 1995 as compared to $10,080,000 for the year ended
December 31, 1994. This increase is primarily attributable to the increase in
product
-15-
<PAGE>
support and selling expenses, including an increase of product introductory
expenses incurred in connection with new licensed and sublicensed products
introduced during 1995 in excess of such expenses for 1994, and higher
administrative expenses as a result of a litigation settlement. The Company
anticipated increased spending in 1996 for product introductory expenses in an
effort to increase revenues and market share. Such an increase in spending
adversely affected net income for the year ending December 29, 1996.
Net income for the year ended December 30, 1995 was $713,000 as compared to
$1,035,000 for the year ended December 31, 1994. The decrease was primarily
attributable to the increase in product support and selling expenses and a
litigation settlement offset in part by the increased gross profit dollars
realized as a result of increased sales volume.
Liquidity and Capital Resources
Net cash used in operating activities was $2,273,000 for the year ended
December 28, 1996, compared with net cash used in operating activities of
$1,427,000 for the year ended December 30, 1995. The increase in net cash used
in operating activities resulted primarily from the net loss offset partially by
the decline in cash flows from operating assets and liabilities in 1996 as
compared to 1995.
Working capital on December 28, 1996 was $2,939,000. The Company believes
this working capital plus internally generated funds and the funds available
from its credit line will be sufficient to meet its cash and working capital
requirements for its established operations for the current fiscal year. In
addition, the Company has a $7,500,000 revolving credit facility expiring June
30,1998. On March 8, 1996, the Loan Agreement was amended and the Company
refinanced $4,500,000 in existing revolving credit loans with a five-year term
loan with the $7,500,000 revolving credit facility remaining in place. At
December 28, 1996, $3,975,000 remains available to the Company under such credit
line. The Company intends to refinance approximately $2,000,000 in existing
revolving credit loans with a five year term loan but no assurances can be given
that the Company will be successful in obtaining such refinancing.
Payment Requirements
Pursuant to the terms of the amended term loan and revolving credit
facility, the Company is obligated to repay the outstanding principal amount of
the revolving credit facility at maturity and of the term loan in 19 quarterly
principal installments beginning April 1, 1996 of $140,000 each and the
remaining principal amount of the term loan is due on January 1, 2001. Interest
on the term loan and revolving credit facility is payable monthly.
-16-
<PAGE>
Impact of Inflation
Inflation can significantly impact ice cream and packaging costs. In 1997,
the Company believes that it will be able to pass on any price increases in the
normal course of business within a relatively short period of time. However, the
ability of the Company to pass on price increases will depend, to some extent,
on whether its competitors have also done so. The Company believes that, in the
past, its competitors have passed on price increases in a relatively short
period of time.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
The statements which are not historical facts contained in this Form 10-K
are forward looking statements that involve risks and uncertainties, including,
but not limited to, risks associated with the Company's future growth and
profitability and the effects of general economic conditions.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Exhibit I
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable
-17-
<PAGE>
PART III
--------
Item 10, 11, 12 and 13.
The information called for by Item 10 (Directors and Executive Officers),
Item 11 (Executive Compensation), Item 12 (Security Ownership of Certain
Beneficial Owners and Management), and Item 13 (Certain Relationships and
Related Transactions) is incorporated herein by reference from the Company's
definitive proxy statement for the Annual Meeting of Shareholders to be filed
with the Securities and Exchange Commission not later than 120 days after the
close of the fiscal year ended December 28, 1996.
-18-
<PAGE>
PART IV
-------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Annual Report on Form
10-K:
The following Financial Statements and Schedule are included in Item 8 of
this Form 10-K:
1. Consolidated Financial Statements
- Report of Independent Certified Public Accountants.
- Consolidated balance sheets: December 28, 1996 and December 30,
1995
- Consolidated financial statements for the years ended December
28, 1996, December 30, 1995 and December 31, 1994:
Statement of operations
Statement of Stockholders' equity
Statements of cash flows
Notes to consolidated financial statements
2. Consolidated Financial Statement Schedule
- Schedule II - Valuation and Qualifying Accounts and Reserves
3. The following documents are filed as exhibits to this Annual Report on
Form 10-K:
3.1 Amendment to Certificate of Incorporation****
3.2 Amendment to By-laws of the Company****
4.3 Form of Common Stock Certificate*
10.7 Form of Steve's Homemade Ice Cream, Inc. Franchise Agreement*
10.8 1996 Incentive Stock Option Plan
-19-
<PAGE>
10.21 Management Agreement between the Company and Calip Dairies,
Inc.++
10.22 Distribution Agreement among the Company and Calip Dairies,
Inc.*
10.24 Credit Agreement between Steve's Homemade Ice Cream, Inc. and
Chase Manhattan Bank+
10.28 Form of Swensen's Ice Cream Company Franchise Agreement***
10.30 Sublicense Agreement, dated July 29, 1992 between General Mills,
Inc. and the Company+++
10.31 License Agreement, dated August 15, 1995 between General Mills,
Inc. and the Company*****
10.32 License Agreement, dated August 15, 1995 between General Mills,
Inc. and the Company*****
10.33 License Agreement, dated August 15, 1995 between General Mills,
Inc. and the Company*****
10.34 License Agreement, dated August 15, 1995 between General Mills,
Inc. and the Company*****
10.35 Asset Purchase Agreement, dated August 15, 1995 by and between
General Mills, Inc. and the Company*****
10.36 Second Amendment, dated March 8, 1996 to Credit Agreement with
Chase Manhattan Bank*****
10.37 License Agreement, dated December 26, 1996, between Tropicana
and the Company++++
22.1 List of the Company's subsidiaries
- ----------
* Previously filed as an exhibit to the Company's Registration Statement on
Form S-18, File No. 33-4957-NY, declared effective by the Securities and
Exchange Commission on July 22, 1986, and incorporated herein by reference.
-20-
<PAGE>
+ Previously filed as an exhibit to the Company's Annual Report on Form 10K
for the year ended December 31, 1994 filed with the Securities and
Exchange Commission on April 15, 1995.
++ Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the year ended December 29, 1990, filed with the Securities and
Exchange Commission on April 13, 1991.
+++ Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the year ended January 2, 1993, filed with the Securities and Exchange
Commission on April 17, 1994.
++++ Pursuant to Rule 24b-2 promulgated under the Securities and Exchange Act
of 1934, as amended, confidential treatment has been requested for certain
portions of this agreement. Such confidential information has been (i)
omitted from this agreement, (ii) marked with asterisks (**) and (iii)
filed separately with the Securities and Exchange Commission.
** Previously filed as an exhibit to the Company's Registration Statement on
Form S-4, File No. 33-20105, declared effective by the Securities and
Exchange Commission on July 20, 1988 and incorporated herein by reference.
*** Previously filed as an exhibit to Swensen's Registration Statement on Form
S-1, File No. 2-85983, declared effective by the Securities and Exchange
Commission on November 11, 1985, and incorporated herein by reference.
**** Previously filed as an exhibit to the Company's Current Report on Form
8-K, File No. 0-15942, filed with the Securities and Exchange Commission
on March 6, 1989, and incorporated herein by reference.
***** Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the year ended December 30, 1995, filed with the Securities and
Exchange Commission on April 12, 1996.
(b) During the last quarter of the period covered by this report, the
Company did not file any reports on Form 8-K.
(c) See item 14(a)(3).
(d) See item 14(a)(2).
-21-
<PAGE>
INTEGRATED BRANDS INC.
Consolidated Financial Statements
Form 10-K
Three Years Ended December 28, 1996
<PAGE>
INTEGRATED BRANDS INC.
Contents
================================================================================
Report of independent certified public accountants F-3
Consolidated balance sheets:
December 28, 1996 and December 30, 1995 F-4 - F-5
Consolidated financial statements for the
years ended December 28, 1996, December 30, 1995
and December 31, 1994:
Statements of operations F-6
Statements of stockholders' equity F-7
Statements of cash flows F-8 - F-9
Notes to consolidated financial statements F-10 - F-25
F-2
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors and Shareholders of
INTEGRATED BRANDS INC.
Ronkonkoma, New York
We have audited the consolidated balance sheets of INTEGRATED BRANDS INC. as of
December 28, 1996 and December 30, 1995 and the related consolidated statements
of operations, stockholders' equity, and cash flows for each of the three years
in the period ended December 28, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of INTEGRATED BRANDS
INC. at December 28, 1996 and December 30, 1995 and the results of its
operations and cash flows for each of the three years in the period ended
December 28, 1996 in conformity with generally accepted accounting principles.
BDO Seidman, LLP
Mitchel Field, New York
March 27, 1997
F-3
<PAGE>
INTEGRATED BRANDS INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
====================================================================================================================================
December 28, December 30,
1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Assets
Current:
Cash and cash equivalents $ 1,054 $ 2,086
Receivables 5,612 4,416
Receivables - affiliates 1,452 1,043
Income tax refunds receivable 512 --
Inventories 1,748 2,089
Prepaid product introductory expenses 981 701
Other prepaid expenses 166 281
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 11,525 10,616
Improvements and equipment, at cost - net of accumulated
depreciation and amortization 1,668 1,103
Other assets
License agreements - at cost, net of accumulated amortization
of $1,278,000 and $878,000 6,070 6,470
Intangible assets - at cost, net of accumulated amortization
of $3,105,000 and $2,967,000 5,740 6,077
Investment in Heidi's 1,464 1,590
Other 331 521
- ------------------------------------------------------------------------------------------------------------------------------------
$26,798 $26,377
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
INTEGRATED BRANDS INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
====================================================================================================================================
December 28, December 30,
1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Liabilities and Stockholders' Equity
Liabilities
Current maturities of long-term debt $ 666 $ 576
Trade accounts payable 5,240 4,244
Income taxes payable 30 465
Payables - affiliates 783 902
Accrued marketing expenses 280 162
Other accrued liabilities 1,477 1,021
Liability for lease terminations 110 110
- ------------------------------------------------------------------------------------------------------------------------------------
Current liabilities 8,586 7,480
Long-term debt, less current maturities 7,512 4,996
Liability for lease terminations, net of current portion 88 242
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 16,186 12,718
- ------------------------------------------------------------------------------------------------------------------------------------
Minority interest 213 225
- ------------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity
Class A common stock, $.01 par value 20,000,000 shares authorized; 12,357,903
shares issued and
outstanding 124 124
Paid-in capital 8,432 8,432
Retained earnings 3,615 6,543
Treasury stock, at cost, 2,254,615 and 2,154,615
shares, respectively (1,772) (1,665)
- ------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 10,399 13,434
- ------------------------------------------------------------------------------------------------------------------------------------
$ 26,798 $ 26,377
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
INTEGRATED BRANDS INC.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
====================================================================================================================================
December 28, December 30, December 31,
For the year ended 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands, except for per share amounts)
<S> <C> <C> <C>
Revenues
Net sales $ 36,868 $ 32,382 $ 26,860
Store operations 3,802 3,493 4,677
Franchising revenues 1,934 1,863 2,046
Other 249 231 193
- ------------------------------------------------------------------------------------------------------------------------------------
42,853 37,969 33,776
- ------------------------------------------------------------------------------------------------------------------------------------
Operating costs and expenses
Cost of goods sold 22,999 20,273 16,867
Store operations 4,537 3,389 4,607
Selling, general and administrative expenses 17,904 12,863 10,080
Interest 676 252 141
- ------------------------------------------------------------------------------------------------------------------------------------
46,116 36,777 31,695
- ------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Income Tax Expense
(Benefit) (3,263) 1,192 2,081
Income Tax Expense (Benefit) (335) 479 1,046
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) (2,928) 713 1,035
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings (Loss) Per Common Share $ (.29) $ .07 $ (.09)
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted Average Number of Common and
Common Equivalent Shares Outstanding 10,120 10,243 11,506
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
INTEGRATED BRANDS INC.
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
====================================================================================================================================
Common Stock
-----------------
Class A Treasury Stock
----------------- -----------------
For the three years ended Paid-in Retained
December 28, 1996 Shares Par value capital earnings Shares Amount Total
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 12,106 $ 121 $ 8,168 $ 4,795 155 $ (215) $ 12,869
Purchase of treasury stock -- -- -- -- 2,000 (1,450) (1,450)
Net income -- -- -- 1,035 -- -- 1,035
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 12,106 121 8,168 5,830 2,155 (1,665) 12,454
Shares issued for settlement 250 3 263 266
Shares issued for exercising of options 2 1
Net income -- 713 713
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 30, 1995 12,358 124 8,432 6,543 2,155 (1,665) 13,434
Purchase of treasury stock -- -- -- -- 100 (107) (107)
Net loss -- -- -- (2,928) -- -- (2,928)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 28, 1996 12,358 $ 124 $ 8,432 $ 3,615 2,255 $ (1,772) $ 10,399
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
INTEGRATED BRANDS INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
====================================================================================================================================
December 28, December 30, December 31,
For the year ended 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(2,928) $ 713 $ 1,035
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,203 892 1,143
Write down of store assets 353
Minority interest in net income (loss) of
subsidiary (12) 27 19
Provision for allowance for doubtful accounts 49 161 540
Tax benefit of Swensen's preacquisition NOL 167 414
Increase (decrease) in cash flows from changes in operating assets and
liabilities, net of effects of acquisition of certain assets from DCA Food
Industries, Inc. in 1994:
Receivables (1,245) (1,319) 94
Receivables - affiliates (409) (528) (454)
Inventories 341 (1,102) 105
Prepaid expenses (165) (536) (7)
Income tax refunds receivable (512)
Other assets 190 (72) 35
Trade accounts payable 996 218 863
Income taxes payable (435) (62) 357
Payables - affiliates (119) 595 109
Accrued marketing expenses and other
accrued liabilities 574 (505) (375)
Liability for lease terminations (154) (76) (117)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating
activities (2,273) (1,427) 3,761
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-8
<PAGE>
INTEGRATED BRANDS INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
====================================================================================================================================
December 28, December 30, December 31,
For the year ended 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Cash flows from investing activities:
Acquisition of certain assets from General
Mills, Inc. -- (4,521)
Capital expenditures (1,234) (247) (464)
Investment in Heidi's (24) 32 154
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,258) (4,736) (310)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments on long-term debt (624) (250) (849)
Proceeds from long-term debt 3,230 4,639
Purchase of treasury stock (107) (1,450)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 2,499 4,389 (2,299)
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents (1,032) (1,774) 1,152
Cash and cash equivalents, beginning of year 2,086 3,860 2,708
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 1,054 $ 2,086 $ 3,860
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
INTEGRATED BRANDS INC.
Notes to Consolidated Financial Statements
================================================================================
1. Organization,
Business and
Summary of
Accounting Policies
Organization and business
The Company was incorporated in September 1985 and commenced operations on
December 23, 1985 as Steve's Homemade Ice Cream, Inc. In August 1988, the
Company completed the acquisition of Swensen's Inc. ("Swensen's") and it's
wholly-owned subsidiaries. In August 1990, the Company acquired a sixty percent
interest in American Glace, Inc. In July 1995, the Company changed its name to
INTEGRATED BRANDS INC. to more appropriately reflect the breadth of the
Company's business. INTEGRATED BRANDS INC. and its subsidiaries, are
collectively referred to herein as the "Company".
The Company markets, distributes and sells a variety of branded frozen dessert
products to supermarkets, grocery stores, club stores, gourmet shops,
delicatessens and convenience stores. The Company currently franchises ice cream
parlors, dip shoppes and family style restaurants throughout the United States
and certain foreign countries. Total revenues from foreign sources are not
material.
Principles of consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries except Heidi's Frogen Yozurt Shoppes, Inc.
("Heidi's"). All material intercompany balances and transactions have been
eliminated in consolidation. On April 9, 1993, Heidi's and its subsidiary filed
voluntary petitions under Chapter 11 of the Bankruptcy Code with the United
States Bankruptcy Court. The Company's investment in Heidi's is stated at
amortized cost because of the uncertainty of the future control of Heidi's.
Prior to April 9, 1993, Heidi's was not consolidated because control was
considered likely to be temporary.
Fiscal year
The Company utilizes a 52/53 week financial year which ends on the Saturday
closest to December 31.
F-10
<PAGE>
INTEGRATED BRANDS INC.
Notes to Consolidated Financial Statements
================================================================================
Single Store Franchise Income
A portion of single store franchise fees are paid upon application for a
franchise, which amount becomes nonrefundable, and the balance is payable sixty
days prior to the opening of the store. Single store franchise fees are recorded
as revenue when the franchise application is approved, cash payments are
received, and substantially all services required under the agreement are
performed.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to considerations of
credit risk consist principally of cash and accounts receivable. At times such
cash in banks are in excess of the FDIC insurance limit. The Company attempts to
minimize credit risk with respect to accounts receivable by reviewing customers'
credit history before extending credit, and by monitoring customers' credit
exposure regularly. The Company establishes an allowance for accounts receivable
based upon factors surrounding the credit risk of specific customers, historical
trends and other information. See Note 11 for concentrations of sales to major
customers.
Use of estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities. Actual results could differ from those
estimates.
Inventories
Inventories consist primarily of ice cream and frozen dessert products, food
supplies and packaging. Inventories are stated at the lower of average cost
(which approximates the first-in, first-out method) or market.
F-11
<PAGE>
INTEGRATED BRANDS INC.
Notes to Consolidated Financial Statements
================================================================================
Product Introductory Costs
The Company capitalizes certain marketing and promotional costs incurred to
develop a market for new as well as existing products throughout the United
States. These costs are amortized over a twelve-month period. Amortization
expenses of product introductory cost was $5,913,000, $2,504,000 and $1,008,000
for fiscal 1996, 1995 and 1994, respectively.
Improvements and equipment
Depreciation of equipment and amortization of leasehold improvements are
provided on a straight-line basis over estimated useful lives of the assets or
the lease term, whichever is shorter.
Intangible assets
The Company amortizes trademarks and license, franchise and territorial
agreements on a straight-line basis over periods ranging primarily from 8 to 40
years. Management evaluates the continuing realizability of the intangible
assets by assessing future value associated with these intangibles based upon
the projected undiscounted future cash flows.
Per Share Data
Earnings (loss) per share of common stock were computed by dividing net income
(loss) by the weighted average number of shares of common stock outstanding
during each of the periods presented. Common equivalent shares were
anti-dilutive for 1996 and were excluded from the loss per common share
calculations. Common equivalent shares were included in the weighted average
number of shares outstanding for 1995 and 1994. The common equivalent shares
result from issuance upon the assumed exercise of warrants and options under the
treasury stock method.
F-12
<PAGE>
INTEGRATED BRANDS INC.
Notes to Consolidated Financial Statements
================================================================================
Cash Flows
The Company considers all highly liquid instruments with a maturity of three
months or less when purchased to be cash equivalents.
Accounting for the Impairment of Long-Lived Assets
Effective December 31, 1995, the Company adopted Statement of Financial
Accounting Standards Number 121 "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of" ("SFAS Number 121"). The impact
of adopting SFAS Number 121 was not material.
Accounting for Stock Based Compensation
In 1996, the Company adopted Statement of Financial Accounting Standard Number
123 "Accounting for Stock-Based Compensation" ("SFAS Number 123"). The Company
has elected not to implement the fair value based accounting method for employee
stock options, but has elected to disclose the pro forma impact on net income
and earnings per share as if the fair value-based method had been applied.
New Accounting Standard
On March 3, 1997, the FASB issued Statement of Financial Accounting Standards
No, 128, "Earnings Per Share". This pronouncement provides for the calculation
of Basic and Diluted earnings per share which is different from the current
calculation of Primary and Fully Diluted earnings per share. The effect of
adopting this new standard is not expected to be material.
F-13
<PAGE>
INTEGRATED BRANDS INC.
Notes to Consolidated Financial Statements
================================================================================
2. Acquisitions
(a) In August 1995, the Company purchased the rights to Colombo brand
prepackaged frozen dessert product line from General Mills for $4,500,000,
plus certain inventory. The Company also entered into long-term exclusive
license agreements for the United States and Canada for the use of the
Colombo, Trix, Count Chocula and Lucky Charms trademarks which expire
December 31, 2015 and for the Betty Crocker trademark for frozen products
containing ice cream or frozen yogurt for prepackaged goods for all sizes,
prepackaged novelties such as pops, bars and sandwiches and prepackaged
frozen dessert specialties such as ice cream cakes, pies and brownie
sundaes which expire December 31, 2010. Each agreement is renewable for an
additional five years if a cash payment is made.
(b) In June 1994, the Company acquired certain assets of DCA Food Industries,
Inc. for a total consideration of up to $1,140,000. The consideration is
payable in annual installments in each of the six years ending May 31, 2000
based upon annual sales of the products in connection with the acquired
assets. The present value of this estimated payable, $361,000 and $424,000,
is included in long-term debt at December 28, 1996 and December 30, 1995,
respectively.
F-14
<PAGE>
INTEGRATED BRANDS INC.
Notes to Consolidated Financial Statements
================================================================================
3. Receivables
Receivables consist of the following:
1996 1995
- --------------------------------------------------------------------------------
(In thousands)
Trade accounts receivable $6,066 $4,681
Notes receivable, current maturities 120 260
- --------------------------------------------------------------------------------
6,186 4,941
Less: allowance for doubtful accounts 574 525
- --------------------------------------------------------------------------------
$5,612 $4,416
================================================================================
4. Improvements and
Improvements and equipment consist of the following: Equipment
Depreciable
life
1996 1995 in years
- --------------------------------------------------------------------------------
(in thousands)
Improvements $ 230 $ 230 25
Machinery and equipment 1,470 1,163 3 - 10
Leasehold improvements 1,260 684 3 - 10
Capitalized leases 145 145 20
- --------------------------------------------------------------------------------
3,105 2,222
Less: accumulated depreciation
and amortization 1,437 1,119
- --------------------------------------------------------------------------------
$1,668 $1,103
================================================================================
F-15
<PAGE>
INTEGRATED BRANDS INC.
Notes to Consolidated Financial Statements
================================================================================
5. Intangible Assets
Intangible assets consist of the following:
Estimated useful
1996 1995 lives in years
- --------------------------------------------------------------------------------
(in thousands)
Trademarks $6,800 $6,800 8 - 40
Franchise agreements 1,299 1,299 4 - 40
Territorial agreements 746 945 10 - 20
- --------------------------------------------------------------------------------
8,845 9,044
Less: Accumulated
amortization 3,105 2,967
- --------------------------------------------------------------------------------
$5,740 $ 6,077
================================================================================
6. Long-Term Debt
Long-term debt consists of the following:
1996 1995
- --------------------------------------------------------------------------------
(in thousands)
Revolving credit, unsecured $3,252 $4,825
Term loan, unsecured 4,080 --
Present value of estimated acquisition debt,
unsecured (Note 2 (b)) 361 424
Other, unsecured 212 323
- --------------------------------------------------------------------------------
8,178 5,572
Less current maturities 666 576
- --------------------------------------------------------------------------------
$7,512 $4,996
================================================================================
F-16
<PAGE>
INTEGRATED BRANDS INC.
Notes to Consolidated Financial Statements
================================================================================
Under a revolving credit facility entered into December 1994, the Company can
borrow up to $7,500,000 through June 30, 1998. As of December 28, 1996 and
December 30, 1995, the Company borrowed $3,525,000 and $4,825,000, respectively.
Interest is payable monthly on the unpaid principal balance of borrowings under
this facility at the bank's prime rate plus 1/2%. The Company has agreed to pay
a fee of 1/8% per annum on the unused portion of the commitment. As of December
28, 1996, the Company had available credit of $3,975,000 under the revolving
credit facility.
The Company also borrowed $4,500,000 under a new five year term loan. The term
loan is payable in 19 quarterly principal installments of $140,000 beginning
April 1, 1996, and the remaining principal balance is due on January 1, 2001.
Interest is payable monthly on the unpaid principal balance of this term loan at
the banks prime rate plus 1/2%. As of December 28, 1996, the term loan balance
was $4,080,000.
All borrowings under the above agreement are unsecured. The agreement contains
restrictions relating to the payment of dividends, acquisition of the Company's
capital stock, rental obligations, liens, mergers and dispositions of
properties, changes in nature of business and indebtedness. In addition, the
Company must maintain financial ratios and minimum amounts of working capital,
stockholders' equity and investments in subsidiaries. As of December 28, 1996,
the Company was not in compliance with certain financial covenants and had
obtained waivers from its lender.
Current maturities of long-term liabilities are $666,000 in 1997; $4,185,000 in
1998; $654,000 in 1999; $648,000 in 2000; $1,893,000 in 2001 and $132,000 in
later years.
F-17
<PAGE>
INTEGRATED BRANDS INC.
Notes to Consolidated Financial Statements
================================================================================
7. Commitments and
Contingencies
(a) Legal proceedings
The Company is a party to legal proceedings and disputes with franchisees,
former franchisees and others which arose in the ordinary course of business. In
the opinion of the Company, it is unlikely that the liabilities, if any, arising
from the legal proceedings and disputes will have a material adverse effect on
the Company or its operations.
(b) Contingent lease liabilities
The Company holds master leases or has guaranteed leases, expiring at varying
dates to 2002, covering franchised locations. Where the Company holds the master
lease, these premises have been subleased to franchisees under terms and rentals
rates substantially the same as those in master leases. In a majority of these
instances, franchisees make all lease payments directly to the landlords. The
Company provides an estimated liability for lease terminations in the event of a
default by a franchisee based on the expected costs of releasing or settlement
with the landlord. The liability was $198,000 and $352,000 at December 28, 1996
and December 30, 1995, respectively. Aggregate minimum future rental payments
under these leases approximated $1,379,000 at December 28, 1996.
8. Stockholders'
Equity
During the fiscal year ended December 31, 1994, the Company
repurchased 2,000,000 shares of stock for $1,450,000.
During fiscal 1995, the Company settled certain litigation and charged
operations for the cost of the settlement of approximately $753,000. The
settlement included the issuance of 250,000 shares of common stock.
During fiscal 1996, the Company repurchased 100,000 shares of stock for
$107,000.
As of December 28, 1996, the Company has a commitment to repurchase 100,000
shares of stock for $200,000 in 1997.
F-18
<PAGE>
INTEGRATED BRANDS INC.
Notes to Consolidated Financial Statements
================================================================================
9. Stock Options
In 1986, the Board of Directors of the Company approved a Stock Option Plan
under which non-transferrable options to purchase up to 1,070,000 shares of
Common Stock at a fair market value as determined by the Board of Directors may
have been granted to employees of the Company, including officers and directors,
consultants and others. As of December 28, 1996, all options granted under this
plan were forfeited.
In 1996, the stockholders of the Company approved the Company's 1996 Stock
Option Plan under which options to purchase up to 1,070,000 shares of Common
Stock maybe granted. Options granted under the 1996 Plan may be incentive stock
options, as defined in the Internal Revenue Code or nonqualified stock options.
Incentive stock options may be granted to employees of the Company.
Non-qualified stock options may be granted to any person, including, but not
limited to employees independent agents, consultants and attorneys. The exercise
price for all incentive options shall not be less than fair market value. In the
case of non-qualified options, the purchase price shall not be less than the par
value of a share of common stock.
The Company applies APB Opinion 25, "Accounting for Stock Issued to Employees"
and related Interpretations in accounting for the 1996 and 1986 Plans. Under APB
25, for options granted to employees at exercise prices equal to fair market
value of the underlying common stock at the date of grant, no compensation cost
is recognized.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123") requires the Company to provide, beginning with
1995 grants, pro forma information regarding net income and net income per
common share as if compensation costs for the Company's stock option plans had
been determined in accordance with the fair value method prescribed in SFAS No.
123. Such pro forma information has not been presented because management has
determined that the compensation cost associated with options granted in 1996
and 1995 are not material to net income (loss) or net income (loss) per share.
F-19
<PAGE>
INTEGRATED BRANDS INC.
Notes to Consolidated Financial Statements
================================================================================
A summary of status of the Company's 1986 stock option plan as of December 28,
1996, December 30, 1995 and December 31, 1994, and changes during the years
ending on those dates is presented below (shares in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding
beginning of the year 544 $.71 546 $.71 531 $ .69
Granted 15 $1.25
Exercised 2 $.69
Forfeited 544 $.71
--- --- ---
Outstanding
end of year 0 $0 544 $.71 546 $ .71
=== === ===
Options exercisable
at year end 0 535 532
=== === ===
</TABLE>
A summary of the status of the Company's 1996 stock option plan as of December
28, 1996 and changes during the year is presented below (shares in thousands):
Weighted
Average
Exercise
Shares Price
------ -----
Outstanding beginning
of the year -0- $0.00
Granted 459 $ .90
----
Outstanding
end of year 459 $ .90
====
Options exercisable
at year end 453
====
F-20
<PAGE>
INTEGRATED BRANDS INC.
Notes to Consolidated Financial Statements
================================================================================
The following table summarizes information about stock options outstanding under
the 1996 Plan at December 28, 1996 (shares in thousands):
Options Outstanding Options Exercisable
-------------------------------------- -------------------------
Weighted Weighted
Range of Outstanding Remaining Average Average
Exercise at Contractual Exercise Exercisable at Exercise
Price 12/28/96 Life Price 12/28/96 Price
-------- ----------- ----------- -------- -------------- --------
$.72 - 1.25 459 9.5 $.90 453 $.88
10. Related Party
Transactions
(a) Calip Dairies, Inc. ("Calip"), an ice cream distributor owned by the
Chairman and principal stockholder of the Company, has entered into a management
agreement with the Company which terminates on April 15, 1998. Under the
agreement, Calip provides office facilities, management, administrative and
other personnel, as required, for the operation of the Company's business for an
annual fee of 10% of $5,000,000 in gross revenues and 2% of gross revenues
thereafter. The management fees were $999,000 in 1996, $891,000 in 1995 and
$751,000 in 1994.
The Company also has a distribution agreement with Calip for the distribution of
the Company's products in the New York Metropolitan region to customers
primarily other than supermarket chains. The distribution agreement is
terminable by either party on 30 days' notice. Sales of ice cream to Calip were
$2,333,000 in 1996, $2,751,000 in 1995 and $1,695,000 in 1994. The majority of
receivables from affiliates represent receivables from Calip.
(b) The Company has acquired a substantial portion of Heidi's outstanding
liabilities and claims, including certain bank notes payable by Heidi's,
subsequent to its 85% purchase of the outstanding common stock of Heidi's in
1989. From 1989 to 1994, the Company acquired liabilities of and claims against
Heidi's of $2,452,000. These claims against Heidi's are carried at the Company's
cost of $627,000 at December 28, 1996 and December 30, 1995.
F-21
<PAGE>
INTEGRATED BRANDS INC.
Notes to Consolidated Financial Statements
================================================================================
The Company also paid or advanced funds for legal fees, other litigation
expenses and certain operating expenses on behalf of Heidi's. The amounts owed
to the Company for expenses incurred are payable under collateralized notes
receivable bearing interest at 12%. At December 28, 1996 and December 30, 1995,
the Company's net secured notes receivable from Heidi's are $741,000 and
$753,000.
The Company files consolidated tax returns with Heidi's. The tax benefit of
Heidi's loss to the consolidated group is treated as a reduction of the
investment in Heidi's.
The above net receivables and investment in Heidi's totaled $1,464,000 and
$1,590,000 as of December 28, 1996 and December 30, 1995, respectively. The
Company has a secured interest in the Heidi's trademark and all other assets. In
management's opinion, such interest and the underlying revenues anticipated to
be generated from the trademark provides sufficient collateral to justify the
carrying amount of the Company's receivables and its investment in Heidi's at
amortized cost.
F-22
<PAGE>
INTEGRATED BRANDS INC.
Notes to Consolidated Financial Statements
================================================================================
11. Concentrations of
Sales to Major
Customers
In November 1992, the Company entered into two distribution agreements with
Edy's Grand Ice Cream ("Edy's") and Dreyer's Grand Ice Cream, Inc. ("Dreyers")
relating to the distribution of the Company's products. Pursuant to one
agreement (the "Local Distribution Agreement"), Edy's and Dreyer's agreed to
distribute essentially all of the Company's products to the New York
metropolitan area supermarkets. In addition, pursuant to a national distribution
agreement (the "National Distribution Agreement"), Edy's and Dreyer's agreed to
distribute the Company's TRIX(R) and Yoplait(R) products and other novelty items
nationwide. The National Distribution Agreement is exclusive with respect to
certain areas of the country and non-exclusive to others. The term of the
National Distribution Agreement is five years with either party having the right
to terminate it upon twelve months notice during the initial five year period.
During 1995 and 1996, several areas which were previously distributed
exclusively by Dreyer's and Edy's were handled by other distributors or chain
store warehouses. The Local Distribution Agreement is also for a term of five
years and automatically renews unless terminated by one party on at least six
months prior notice. Sales to Edy's and Dreyer's amounted to approximately
$3,935,000, $4,231,000 and $6,720,000 for the years 1996, 1995 and 1994.
Accounts receivable from this customer were $326,000 and $472,000 at December
30, 1996 and 1995, respectively.
Sales to one other major customer accounted for approximately 10%, 10% and 14%
of total revenues in 1996, 1995 and 1994, respectively. Accounts receivable
balances from this customer are approximately $171,000 and $144,000 at December
30, 1996 and 1995, respectively.
F-23
<PAGE>
INTEGRATED BRANDS INC.
Notes to Consolidated Financial Statements
================================================================================
12. Income Tax Expense
(Benefit)
The components of income tax expense (benefit) were:
1996 1995 1994
- --------------------------------------------------------------------------------
(in thousands)
Current provision:
Federal $ (465) $ 339 $ 813
State and local 52 73 125
Foreign 78 67 108
- --------------------------------------------------------------------------------
$ (335) $ 479 $1,046
================================================================================
The following reconciles the income tax expenses (benefit) at federal statutory
rate with the Company's income tax provision:
1996 1995 1994
- --------------------------------------------------------------------------------
(in thousands)
Income tax expense (benefit) at
federal statutory rate $(1,109) $ 405 $ 708
Expenses not deductible for tax
purposes 154 108 168
Prior year under (over) accrual (98) (47) 65
Effective tax rate of tax benefit
differ from statutory rate 666 -- --
State and local taxes, net of
federal benefit 52 48 83
Tax benefits of foreign tax credit -- (71) (41)
Other -- 36 63
- --------------------------------------------------------------------------------
$ (335) $ 479 $ 1,046
================================================================================
F-24
<PAGE>
INTEGRATED BRANDS INC.
Notes to Consolidated Financial Statements
================================================================================
Swensen's preacquisition net operating loss carryfoward of $2,450,000 is
available to reduce Swensen's future taxable income at a rate of approximately
$490,000 per year through 2000. The carrying amount of trademarks and other
non-current intangible assets will be reduced when the benefit is realized.
The Company's net operating loss carryforwards expire in the following years:
1997 $980,000
1998 490,000
1999 490,000
2000 490,000
2011 367,000
- --------------------------------------------------------------------------------
$2,817,000
================================================================================
The components of the deferred tax assets and liabilities as of December 28,
1996 and December 30, 1995 were as follows:
1996 1995
================================================================================
Deferred tax asset: (in thousands)
Benefits of net operating loss carryforwards $ 125 $ --
Franchise deposits 273 209
Allowance for doubtful accounts 231 221
Tax credits 476 --
Depreciation 96 --
Lease termination liability 42 106
- --------------------------------------------------------------------------------
1,243 536
Valuation allowance (857) (191)
- --------------------------------------------------------------------------------
386 345
Deferred Tax Liabilities
Product development (386) (294)
Depreciation -- (51)
- --------------------------------------------------------------------------------
Net 0 0
================================================================================
The net deferred tax asset is offset fully by a valuation allowance because of
the uncertainty as to future realization mainly relating to the utilization of
certain tax credits prior to expiration.
F-25
<PAGE>
INTEGRATED BRANDS INC.
Notes to Consolidated Financial Statements
================================================================================
13. Supplemental Cash
Flow Information
(a) Supplemental disclosures of cash flow information:
1996 1995 1994
- --------------------------------------------------------------------------------
(in thousands)
(1) Interest paid $646 $223 $ 99
(2) Income taxes paid $646 267 240
(b) Supplemental disclosures of non-cash investing activities:
In 1994, the Company acquired certain assets of DCA Food Industries, Inc. for a
total consideration of up to $1,140,000. The estimated present value of this
payable is recorded as long-term liabilities (Note 2(b)).
F-26
<PAGE>
INTEGRATED BRANDS INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
==================================================
Report of Independent Certified Public Accountants
on Financial Statement Schedule S-2
Schedule II - Valuation and qualifying accounts S-3
S-1
<PAGE>
Report of Independent Certified Public Accountants
On Financial Statement Schedule
To the Board of Directors and Shareholders of
INTEGRATED BRANDS INC.
Ronkonkoma, New York
The audits referred to in our report dated March 27, 1997 relating to the
consolidated financial statements of INTEGRATED BRANDS INC., which is contained
in Item 8 of this Form 10-K, included the audit of the accompanying Schedule of
Valuation and Qualifying Accounts. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based upon our audits.
In our opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein.
BDO SEIDMAN, LLP
Mitchel Field, New York
March 27, 1997
S-2
<PAGE>
INTEGRATED BRANDS INC.
Schedule II - Valuation and Qualifying Accounts
================================================================================
<TABLE>
<CAPTION>
For the three years ended
December 28, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Additions
--------------------------
Charged to Charged to
Balance at Costs Other Balance at
Beginning of and Accounts End of
of Period Expenses (1) Deductions Period
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 28, 1996
allowance for doubtful
receivable - current $525 $532 $-- $483 $574
====================================================================================================================================
Year ended December 30, 1995
allowance for doubtful
receivable - current $364 $175 $245 $259 $525
====================================================================================================================================
Year ended December 31, 1994
Allowance for Doubtful
Receivables - current $322 $335 $ 13 $306 $364
====================================================================================================================================
</TABLE>
(1) Reclassification to allowance for doubtful accounts for current receivables
from allowance for doubtful accounts for noncurrent receivables.
S-3
<PAGE>
SIGNATURES
Pursuant to the requirements of 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.
INTEGRATED BRANDS INC.
March __, 1997 By:
----------------------------------
Richard E. Smith
Chairman of the Board,
Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the date indicated:
- --------------------------
Richard E. Smith Chairman of the Board, March __, 1997
(Principal Executive
Officer) Chief Executive
Officer and Director
- --------------------------
Gary P. Stevens President, Treasurer March __, 1997
(Principal Financial
Officer)
- --------------------------
Gerard M. Tucci Vice President, March __, 1997
Secretary and
Director
- --------------------------
Karl Eller Director March __, 1997
- --------------------------
Benjamin Raphan Director March __, 1997
- --------------------------
David M. Smith Vice President March __, 1997
Director
-22-
<PAGE>
SIGNATURES
Pursuant to the requirements of 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.
STEVE'S HOMEMADE ICE CREAM, INC.
March 28, 1997 By: /s/ Richard E. Smith
-------------------------------
Richard E. Smith
Chairman of the Board,
Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the date indicated:
/s/ Richard E. Smith
- --------------------------
Richard E. Smith Chairman of the Board, March 28, 1997
(Principal Executive
Officer) Chief Executive
Officer and Director
/s/ Gary P. Stevens
- --------------------------
Gary P. Stevens President, Treasurer March 28, 1997
(Principal Financial
Officer)
/s/ Gerard M. Tucci
- --------------------------
Gerard M. Tucci Vice President, March 28, 1997
Secretary and
Director
/s/ Karl Eller
- --------------------------
Karl Eller Director March 28, 1997
/s/ Benjamin Raphan
- --------------------------
Benjamin Raphan Director March 28, 1997
/s/ David M. Smith
- --------------------------
David M. Smith Vice President and March 28, 1997
Director
EXHIBIT 10.8
1996 STOCK OPTION PLAN
OF INTEGRATED BRANDS INC.
1. Purpose
INTEGRATED BRANDS INC. (the "Company") desires to attract and retain the
best available talent and encourage the highest level of performance in order to
continue to serve the best interests of the Company and its stockholders. By
affording key personnel the opportunity to acquire proprietary interests in the
Company and by providing them incentives to put forth maximum efforts for the
success of the business, the 1996 Stock Option Plan of INTEGRATED BRANDS INC.
(the "1996 Plan") is expected to contribute to the attainment of those
objectives.
The word "Subsidiary" or "Subsidiaries" as used herein, shall mean any
corporation, fifty percent or more of the voting stock of which is owned by the
Company.
2. Scope and Duration
Options under the 1996 Plan may be granted in the form of incentive stock
options ("Incentive Options") as provided in Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), or in the form of nonqualified stock
options ("Non-Qualified Options"). (Unless otherwise indicated, references in
the 1996 Plan to "options" include Incentive Options and Non-Qualified Options.)
The maximum aggregate number of shares as to which options may be granted from
time to time under the 1996 Plan is 1,070,000 shares of the Common Stock of the
Company ("Common Stock"), which shares may be, in whole or in part, authorized
but unissued shares or shares reacquired by the Company. If an option shall
expire, terminate or be surrendered for cancellation for any reason without
having been exercised in full, the shares represented by the option or portion
thereof not so exercised shall (unless the 1996 Plan shall have been terminated)
become available for subsequent option grants under the 1996 Plan. As provided
in paragraph 13 hereof, the 1996 Plan shall become effective on July 18, 1996,
and unless terminated sooner pursuant to paragraph 14, the 1995 Plan shall
terminate on July 17, 2006, and no option shall be granted hereunder after that
date.
3. Administration
The 1996 Plan shall be administered by the Board of Directors of the
Company, or, at the discretion a committee which is appointed by the Board of
Directors to perform such function (the "Committee"). The Committee shall
consist of not less than two members of the Board of Directors. Members of the
Committee shall not be eligible to participate in the 1996 Plan while a member
of the Committee. Vacancies occurring in the membership of the Committee shall
be filled by appointment by the Board of Directors.
<PAGE>
The Board of Directors or Committee shall have authority in its discretion,
subject to and not inconsistent with the express provisions of the 1996 Plan, to
grant options, to determine the purchase price of the Common Stock covered by
each option, the term of each option, the persons to whom, and the time or times
at which, options shall be granted and the number of shares to be covered by
each option; to designate options as Incentive Options or Non-Qualified Options;
to interpret the 1996 Plan; to prescribe, amend and rescind rules and
regulations relating to the 1996 Plan; to determine the terms and provisions of
the option agreements (which need not be identical) entered into in connection
with options under the 1996 Plan; and to make all other determinations deemed
necessary or advisable for the administration of the 1996 Plan. The Board or the
Committee may delegate to one or more of its members or to one or more agents
such administrative duties as it may deem advisable, and the Board or the
Committee or any person to whom it has delegated duties as aforesaid may employ
one or more persons to render advice with respect to any responsibility the
Board or the Committee or such person may have under the 1996 Plan.
4. Eligibility; Factors to be Considered in Granting Options
Incentive Options shall be limited to persons who are employees of the
Company or its present and future Subsidiaries and at the grant of any option
are in the employ of the Company or its present and future Subsidiaries. In
determining the employees to whom Incentive Options shall be granted and the
number of shares to be covered by each Incentive Option, the Board or the
Committee shall take into account the nature of the employees' duties, their
present and potential contributions to the success of the Company and such other
factors as it shall deem relevant in connection with accomplishing the purposes
of the 1996 Plan. An employee who has been granted an option or options under
the 1996 Plan may be granted an additional option or options, subject, in the
case of Incentive Options, to such limitations as may be imposed by the Code on
such options. Subject to paragraph 12 hereof, the maximum numbers of shares
subject to options which may be granted under the 1996 Plan to any employee of
the Company shall be 500,000 shares per taxable year and 900,000 shares during
the term of the 1996 Plan. Except as provided below, a Non-Qualified Option may
be granted to any person, including, but not limited to, employees, independent
agents, consultants and attorneys, who the Board or the Committee believes has
contributed, or will contribute, to the success of the Company.
5. Option Price
The purchase price of the Common Stock covered by each option shall be
determined by the Board or the Committee and in the case of an Incentive Option,
shall not be less than 100% of the Fair Market Value (as defined in paragraph 15
below) of a share of the Common Stock on the date on which the option is
granted. In case of Non-Qualified Options the purchase price shall be not less
than the par value of a share of Common Stock.
<PAGE>
Such prices shall be subject to adjustment as provided in paragraph 12 hereof.
The Board or the Committee shall determine the date on which an option is
granted; in the absence of such a determination, the date on which the Board or
the Committee adopts a resolution granting an option shall be considered the
date on which such option is granted.
6. Term of Options
The term of each option shall be not more than ten years from the date of
grant, as the Board or the Committee shall determine, subject to earlier
termination as provided in paragraphs 10 and 11 below and subject to
subparagraph 8 as to certain Incentive Options.
7. Exercise of Options
Subject to the provisions of the 1996 Plan and unless otherwise provided in
the option agreement, options granted under the 1996 Plan shall become
exercisable as determined by the Board or the Committee. In its discretion, the
Board or the Committee may, in any case or cases, prescribe that options granted
under the 1996 Plan become exercisable in installments or provide that an option
may be exercisable in full immediately upon the date of its grant. The Board or
the Committee may, in its sole discretion, also provide that an option granted
pursuant to the 1996 Plan shall immediately become exercisable in full upon the
happening of any of the following events: (i) the first purchase of shares of
Common Stock pursuant to a tender offer or exchange offer (other than an offer
by the Company) for all, or any part of, the Common Stock, (ii) the approval by
the stockholders of the Company of an agreement for a merger in which the
Company will not survive as an independent, publicly owned corporation, a
consolidation, or a sale, exchange or other disposition of all or substantially
all of the Company's assets, (iii) with respect to an employee, on his or her
65th birthday, or (iv) with respect to an employee, on the employee's
involuntary termination from employment. In the event of a question or
controversy as to whether or not any of the events hereinabove described has
taken place, a determination by the Board or the Committee that such event has
or has not occurred shall be conclusive and binding upon the Company and
participants in the 1996 Plan.
Any option at any time granted under the 1996 Plan may contain a provision
to the effect that the optionee (or any persons entitled to act under paragraph
11 hereof) may, at any time at which the Fair Market Value (as defined in
paragraph 15 below) is in excess of the exercise price and prior to exercising
the option, in whole or in part, request that the Company purchase all or any
portion of the option as shall then be exercisable at a price equal to the
difference between (i) an amount equal to the option price multiplied by the
number of shares subject to that portion of the option in respect of which such
request shall be made and (ii) an amount equal to such number of shares
multiplied by the Fair Market Value of the Company's Common Stock (within the
meaning of Section 422 of the Code and the regulations promulgated thereunder)
on the date of
<PAGE>
purchase. The Company shall have no obligation to make any purchase pursuant to
such request, but if it elects to do so, such portion of the option as to which
the request is made shall be surrendered to the Company. The purchase price for
the portion of the option to be so surrendered shall be paid by the Company, at
the election of the Board or the Committee either in cash or in shares of Common
Stock (valued as of the date and in the manner provided in clause (ii) above),
or in any combination of cash and Common Stock, which may consist, in whole or
in part, of shares of authorized but unissued Common Stock or shares of Common
Stock held in the Company's treasury. No fractional share of Common Stock shall
be issued or transferred and any fractional share shall be disregarded. Shares
covered by that portion of any option purchased by the Company pursuant hereto
and surrendered to the Company shall not be available for the granting of
further options under the Plan. All determinations to be made by the Company
hereunder shall be made by the Board or the Committee.
Any option at any time granted under the 1996 Plan may also contain a
provision to the effect that the payment of the exercise price may be made by
delivery to the Company by the optionee of an executed exercise form together
with irrevocable instructions to a broker-dealer to sell or margin a sufficient
portion of the shares sold or margined and deliver the sale or margin loan
proceeds directly to the Company to pay for the exercise price.
An option may be exercised, at any time or from time to time (subject, in
the case of Incentive Options, to such restrictions as may be imposed by the
Code), as to any or all full shares as to which the option has become
exercisable until the expiration of the period set forth in paragraph 6 hereof,
by the delivery to the Company, at its principal place of business of (i)
written notice of exercise in the form specified by the Board or the Committee
specifying the number of shares of Common Stock with respect to which the option
is being exercised and signed by the person exercising the option as provided
herein, (ii) payment of the purchase price; and (iii) in the case of
Non-Qualified Options, payment in cash of all withholding tax obligations
imposed on the Company by reason of the exercise of the option. Upon acceptance
of such notice, receipt of payment in full, and receipt of payment of all
withholding tax obligations, the Company shall cause to be issued a certificate
representing the number of shares of Common Stock purchased. In the event the
person exercising the option delivers the items specified in (i) and (ii) of
this subparagraph, but not the item specified in (iii) hereof, if applicable,
the option shall still be considered exercised upon acceptance by the Company
for the full number of shares of Common Stock specified in the notice of
exercise but the actual number of shares issued shall be reduced by the smallest
number of whole shares of Common Stock which, when multiplied by the Fair Market
Value of the Common Stock as of the date the option is exercised, is sufficient
to satisfy the required amount of withholding tax.
<PAGE>
The purchase price of the shares as to which an option is exercised shall
be paid in full at the time of exercise. Payment shall be made in cash, which
may be paid by check or other instrument acceptable to the Company; in addition,
subject to compliance with applicable laws and regulations and such conditions
as the Board or the Committee may impose, the Board or the Committee, in its
sole discretion, may on a case-by-case basis elect to accept payment in shares
of Common Stock of the Company which are already owned by the option holder,
valued at the Fair Market Value thereof (as defined in paragraph 15 below) on
the date of exercise; provided, however, that with respect to Incentive Options,
no such discretion may be exercised unless the option agreement permits the
payment of the purchase price in that manner.
Except as provided in paragraphs 10 and 11 below, no option granted to an
employee may be exercised at any time by such employee unless such employee is
then an employee of the Company or a Subsidiary.
8. Incentive Options
With respect to Incentive Options granted, the aggregate Fair Market Value
(determined in accordance with the provisions of paragraph 15 at the time the
Incentive Option is granted) of the Common Stock or any other stock of the
Company or its current or future Subsidiaries with respect to which incentive
stock options, as defined in Section 422 of the Code, are exercisable for the
first time by any employee during any calendar year (under all incentive stock
option plans of the Company and its parent and subsidiary corporation's, as
those terms are defined in Section 424 of the Code) shall not exceed $100,000.
No Incentive Option may be awarded to any employee who immediately prior to
the date of the granting of such Incentive Option owns more than 10% of the
combined voting power of all classes of stock of the Company or any of its
Subsidiaries unless the exercise price under the Incentive Option is at least
110% of the Fair Market Value and the option expires within five years from the
date of grant.
In the event of amendments to the Code or applicable regulations relating
to Incentive Options subsequent to the date hereof, the Company may amend the
provisions of the 1996 Plan, and the Company and the employees holding options
may agree to amend outstanding option agreements, to conform to such amendments
9. Non-Transferability of Incentive Options
Incentive Options granted under the 1996 Plan shall not be transferable
otherwise than by will or the laws of descent and distribution, and Incentive
Options may be exercised during the lifetime of the optionee only by the
optionee. No transfer of an Incentive Option by the optionee by will or by the
laws of descent and distribution shall be effective to bind the Company
<PAGE>
unless the Company shall have been furnished with written notice thereof and a
copy of the will and such other evidence as the Company may deem necessary to
establish the validity of the transfer and the acceptance by the transferor or
transferees of the terms and conditions of such option.
10. Termination of Employment
In the event that the employment of an employee to whom an option has been
granted under the 1996 Plan shall be terminated (except as set forth in
paragraph 11 below), such option may be, subject to the provisions of the 1996
Plan, exercised (to the extent that the employee was entitled to do so at the
termination of his employment) at any time within thirty (30) days after such
termination, but not later than the date on which the option terminates;
provided, however, that any option which is held by an employee whose employment
is terminated for cause or voluntarily without the consent of the Company shall,
to the extent not theretofore exercised, automatically terminate as of the date
of termination of employment. As used herein, "cause" shall mean conduct
amounting to fraud, dishonesty, negligence, insubordination, failure to perform,
or engaging in competition or solicitations in competition with the Company and
breaches of any applicable employment agreement between the Company and the
optionee. Options granted to employees under the 1996 Plan shall not be affected
by any change of duties or position so long as the holder continues to be a
regular employee of the Company or any of its current or future Subsidiaries.
Any option agreement or any rules and regulations relating to the 1996 Plan may
contain such provisions as the Board or the Committee shall approve with
reference to the determination of the date employment terminates and the effect
of leaves of absence. Nothing in the 1996 Plan or in any option granted pursuant
to the 1996 Plan shall confer upon any employee any right to continue in the
employ of the Company or any of its Subsidiaries or parent or affiliated
companies or interfere in any way with the right of the Company or any such
Subsidiary or parent or affiliated companies to terminate such employment at any
time.
11. Death of Employee
If an employee to whom an option has been granted under the 1996 Plan shall
die while employed by the Company or a Subsidiary or within thirty (30) days
after the termination of such employment (other than termination for cause or
voluntary termination without the consent of the Company), such option may be
exercised, to the extent exercisable by the employee on the date of death, by a
legatee or legatees of the employee under the employee's last will, or by the
employee's personal representative or distributees, at any time within one year
after the date of the employee's death, but not later than the date on which the
option terminates.
12. Adjustments Upon Changes in Capitalization, Etc.
<PAGE>
Notwithstanding any other provision of the 1996 Plan, the Board or the
Committee may, at any time, make or provide for such adjustments to the 1996
Plan, to the number and class of shares issuable thereunder, in the aggregate or
to any executive officer, or to any outstanding options as it shall deem
appropriate to prevent dilution or enlargement of rights, including adjustments
in the event of changes in the outstanding Common Stock by reason of stock
dividends, split-ups, recapitalizations, mergers, consolidations, combinations
or exchanges of shares, separations, reorganizations, liquidations and the like.
In the event of any offer to holders of Common Stock generally relating to the
acquisition of their shares, the Board or the Committee may make such adjustment
as it deems equitable in respect of outstanding options and rights, including in
its discretion revision of outstanding options and rights so that they may be
exercisable for the consideration payable in the acquisition transaction. Any
such determination by the Board or the Committee shall be conclusive. Any
fractional shares resulting from such adjustments shall be eliminated.
13. Effective Date
The 1996 Plan shall become effective on July 18, 1996, the date of adoption
of the Board of Directors, provided it is approved by the stockholders of the
Company on or prior to July 17, 1997.
14. Termination and Amendment
The Board of Directors of the Company may suspend, terminate, modify or
amend the 1996 Plan, provided that any amendment that would increase the
aggregate number of shares which may be issued under the 1996 Plan or to any
executive officer, materially increase the benefits accruing to participants
under the 1996 Plan, or materially modify the requirements as to eligibility for
participation in the 1996 Plan, shall be subject to the approval of the
Company's stockholders, except that any such increase or modification that may
result from adjustments authorized by paragraph 12 hereof does not require such
approval. No suspension, termination, modification or amendment of the 1996 Plan
may, without the consent of the employee to whom an option shall theretofore
have been granted, adversely affect the rights of such employee under such
option.
15. Miscellaneous
As said term is used in the 1996 Plan, the "Fair Market Value" of a share
of Common Stock on any day means: (a) if the principal market for the Common
Stock is a national securities exchange or the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") the closing sales price
of the Common Stock on such day as reported by such exchange or NASDAQ, or on a
consolidated tape reflecting transactions on such exchange or system, or (b) if
the principal market for the Common Stock is not a national securities exchange
or NASDAQ the mean
<PAGE>
between the highest bid and lowest asked prices for the Common Stock on such day
as reported by NASDAQ or the National Quotation Bureau, Inc.; provided that if
clauses (a) and (b) of this paragraph are inapplicable, or if no trades have
been made or no quotes are available for such day, the Fair Market Value of the
Common Stock shall be determined by the Board or the Committee whose
determination shall be conclusive as to the Fair Market Value of the Common
Stock.
The Board or the Committee may require, as a condition to the exercise of
any options granted under the 1996 Plan, that to the extent required at the time
of exercise, (i) the shares of Common Stock reserved for purposes of the 1996
Plan shall be duly listed, upon official notice of issuance, upon stock
exchange(s) on which the Common Stock is listed, (ii) a Registration Statement
under the Securities Act of 1933, as amended, with respect to such shares shall
be effective, and/or (iii) the person exercising such option deliver to the
Company such documents, agreements and investment and other representations as
the Board or the Committee shall determine to be in the best interests of the
Company.
During the term of the 1996 Plan, the Board or the Committee, in its
discretion, may offer one or more optionholders the opportunity to surrender any
or all unexpired options for cancellation or replacement. If any options are so
surrendered, the Board or the Committee may then grant new Non-Qualified or
Incentive Options to such holders for the same or different numbers of shares at
higher or lower exercise prices than the surrendered options. Such new options
may have a different term and shall be subject to the provisions of the 1996
Plan the same as any other option.
Anything herein to the contrary notwithstanding, the Board or the Committee
may, in their sole discretion, impose more restrictive conditions on the
exercise of an option granted pursuant to the 1996 Plan; however, any and all
such conditions shall be specified in the option agreement limiting and defining
such option.
EXHIBIT 10.37
PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE SECURITIES AND EXCHANGE ACT OF
1934, AS AMENDED, CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN
PROVISIONS OF THIS AGREEMENT. SUCH CONFIDENTIAL INFORMATION HAS BEEN (I) OMITTED
FROM THIS VERSION OF THE AGREEMENT, (II) MARKED WITH ASTERISKS (**) TO INDICATE
SUCH DELETIONS AND (III) FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.
TRADEMARK LICENSE AGREEMENT
THIS TRADEMARK LICENSE AGREEMENT ("Agreement") is made as of the 26th day
of December, 1996 ("Effective Date"), by and between Tropicana Products, Inc., a
Delaware corporation, having a place of business at 1001 13th Avenue East,
Bradenton, Florida 34208 ("Tropicana"), and Integrated Brands, Inc., a New
Jersey corporation, having a place of business at 4175 Veterans Highway,
Ronkonkoma, New York 11779 ("Licensee").
WHEREAS, Tropicana is the owner of the Trademarks (as defined below); and
WHEREAS, Licensee desires a license from Tropicana to use the Trademarks
solely in connection with the development, manufacture, contract manufacture,
marketing, distribution, promotion, advertising and sale of certain frozen
confection products.
NOW, THEREFORE, in consideration of the premises and mutual covenants in
this Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows.
1. Definitions.
a. Fruit Based Mixture: The term "Fruit Based Mixture" shall mean a fruit
based mixture, such as fruit juice ice, fruit ice, sorbet and sherbet, which
contains at least **__**percent (**__**) by volume fruit and/or single
strength or reconstituted fruit juice.
b. Gross Revenues: The term "Gross Revenues" shall mean the gross sales
price invoiced by Licensee to purchasers of the Licensed Products minus any
credits or allowances given as a result of destruction of such Licensed
Products, any off-invoice allowances (but not promotional billback allowances),
and any applicable sales or use taxes.
<PAGE>
c. Licensed Products: The term "Licensed Products" shall mean the following
prepackaged frozen confection novelty products which consist solely of a Fruit
Based Mixture, or, if made from a Fruit Based Mixture in combination with other
ingredients (including ice cream or frozen yogurt), shall contain at least
thirty percent (30%) by volume of a Fruit Based Mixture: pops, bars, cups,
cones, parfaits, sorbet filled fruit shells, push-ups, squeeze-ups, sandwiches
and nuggets. In addition, "Licensed Products" shall include retail package goods
which are packaged in quart size containers or smaller containers and consist
solely of (i) a Fruit Based Mixture, or (ii) a Fruit Based Mixture in
combination with other ingredients, so long as such retail package goods
contains at least thirty percent (30%) by volume of a Fruit Based Mixture and
the other ingredients consist solely of any type, flavoring or variety of ice
cream or frozen yogurt. "Licensed Products" also shall include machine dispensed
soft serve products. Licensed Products shall expressly exclude frozen
concentrated juice products, juice beverages and non-novelty items, including,
without limitation, ice cream, frozen yogurt, water ice, or any other frozen
items which would be considered substitutes for any of the foregoing, except as
expressly provided in the definition of "Licensed Products" above. For example,
"Licensed Products" shall include frozen juice bars.
d. Territory: The term "Territory" shall mean the United States, its
territories and possessions (including Puerto Rico) and Canada.
e. Trademarks: The term "Trademarks" shall mean (i) the trademarks and
logos owned by Tropicana set forth on Exhibit A, attached hereto; (ii) any
designs, trade dress, copyrights and unregistered trademarks provided by
Tropicana to Licensee for use in connection with labels or packaging for
Licensed Products; (iii) any and all variations or modifications thereto which
have been approved by Tropicana for use hereunder; and (iv) any new trademarks
owned by Tropicana added to Exhibit A, in Tropicana's sole discretion.
2. Grant of License.
a. Licensed Products:
i. Upon the terms and conditions hereinafter set forth, Tropicana
hereby grants to Licensee, and Licensee hereby accepts, the exclusive
royalty-bearing right and license to use the Trademarks solely in
connection with the development, manufacture, marketing, distribution,
promotion, advertising and sale of Licensed Products (expressly excluding
machine dispensed soft serve products) within the Territory.
ii. Upon the terms and conditions hereinafter set forth, Tropicana
hereby grants to Licensee, and Licensee hereby accepts, a non-exclusive
royalty-bearing right and license to use the Trademarks solely in
connection with the development, manufacture, marketing, distribution,
promotion, advertising and sale of machine dispensed soft serve products
within the Territory.
<PAGE>
b. Sublicense/Contract Manufacture: Licensee shall have the right to grant
sublicenses and to have third parties manufacture Licensed Products solely
pursuant to Section 8 hereof.
c. Restrictions: Licensee shall not use the Trademarks in connection with
any Licensed Products distributed as premiums or giveaways or otherwise to be
used as aids in the advertisement or promotion of any products or business of
Licensee or any third party (other than the sale of Licensed Products).
d. Exclusivity: During the term of this Agreement, Tropicana agrees that it
will not use or license to anyone else the right to use the Trademarks in the
Territory, in connection with the Licensed Products.
e. Reservation of Rights: No other rights or licenses, express or implied,
other than those granted in Section 2(a) and 2(b) above, are granted to Licensee
in and to any intellectual property of Tropicana. It is understood that
Tropicana reserves to itself the right to use and license to others the right to
use the Trademarks outside the Territory in connection with any products and/or
services, and inside the Territory in connection with any products and/or
services not included within the definition of Licensed Products, including, but
not limited to, any refrigerated products, including refrigerated products of
similar or same description as the Licensed Products (but not frozen).
3. Royalty.
a. Fees:
i. Concurrent with signing this Agreement, Licensee shall pay to
Tropicana a one time non-refundable up-front license fee of $**____**.
ii. In addition to the up-front fee set forth above, Licensee agrees
to pay to Tropicana a royalty of **_______** percent (**_**%) of Licensee's
Gross Revenues of Licensed Products sold by Licensee using the Trademarks;
provided, however, no royalty shall be due on Licensed Products sold to
Tropicana using the Trademarks so long as said Licensed Products are sold
to Tropicana at Licensee's lowest wholesale price. In addition, Licensee,
in its sole discretion, from time to time may voluntarily elect to make
additional royalty payments to Tropicana based upon assistance Tropicana,
in Tropicana's sole discretion, may provide to Licensee with respect to the
sale of Licensed Products. In connection with any Licensed Products sold
and/or distributed by Licensee to a related company of Licensee at a price
lower than the price otherwise charged in the normal equivalent channels of
trade, the royalty payable herein shall be equal to the
**_________________________________________________________________________
<PAGE>
_______________________________________________________________________**.
b. Date of Sale of Licensed Products: For purposes of this Agreement, the
royalty shall accrue on the sale of the Licensed Products and the Licensed
Products shall be considered sold when shipped or billed out, whichever occurs
earlier.
c. Royalty Payments and Records: Licensee agrees to keep full, accurate and
complete books of account, and other records in sufficient detail so that the
royalty payable hereunder may be ascertained properly. Within thirty (30) days
after the end of each of Tropicana's fiscal quarters which commence July 1,
October 1, January 1 and April 1, Licensee shall furnish to Tropicana complete
and accurate statements of sales of Licensed Products using the Trademarks
during such previous fiscal quarter certified to be accurate by the chief
financial or accounting officer of Licensee showing the number, description,
Gross Revenues of such Licensed Products and permitted deductions therefrom.
Such statements shall be furnished to Tropicana whether or not any of the
Licensed Products utilizing the Trademarks have been sold during the preceding
quarter and whether or not a royalty is due. Each such report shall be
accompanied by a check for the amount of royalty payments due with respect to
the period covered by such report. The receipt or acceptance by Tropicana of any
of the statements furnished pursuant to this Agreement or of any royalties paid
hereunder (or the cashing of any royalty checks paid hereunder) shall not
preclude Tropicana from questioning the correctness thereof at any time.
d. Deficiency of Royalty Due: In the event that inconsistencies or mistakes
are discovered in such statements or payments, they shall be rectified and the
appropriate payments made by Licensee upon demand by Tropicana. Any royalty
payments, including accrued royalties, and audit findings, not paid when due
shall be paid immediately upon demand and shall bear interest at an annual rate
of two percent (2%) over the rate of interest publicly announced by Citibank,
N.A. in New York as its base rate in effect as of the date on which such overdue
royalty amount should have been paid to Tropicana.
e. Audit Rights: Licensee agrees, upon request by Tropicana, to permit
Tropicana or its authorized representative to have access to such books or
records as may be necessary to determine the royalty in respect to any
accounting period covered by this Agreement and obtain any information as to the
amount payable in case of failure to report. Such audits shall be at the expense
of Tropicana unless they show that Licensee has understated the royalties by
five percent (5%) or more or Five Thousand Dollars ($5,000) or more for any
quarter, in which case Licensee shall reimburse Tropicana for its out-of-pocket
expenses incurred in connection with the audit as well as pay to Tropicana the
required amount of additional royalties with the accrued interest as stated
above.
<PAGE>
f. Records Retention: All books of account and records shall be kept
available by Licensee for at least two (2) years after submission of the
relevant statement.
4. Tropicana's Authorized Representative/Approval Rights.
a. Authorized Representative: Wherever Licensee is directed to furnish or
supply to or otherwise take some action or perform some obligation in respect of
Tropicana in this Agreement, the term "Tropicana" shall be deemed to include "or
Tropicana's authorized representative" unless written advice to the contrary is
received from Tropicana.
b. Approval Rights: Tropicana shall approve or reject (along with a basis
for rejection) all materials, information and other requests submitted by
Licensee to Tropicana for approval pursuant to Sections 6, 7, and 8 within
fifteen (15) business days of receipt of same by Tropicana.
5. Trademark Acknowledgement/Protection.
a. Acknowledgement of Rights:
i. Licensee acknowledges that the Trademarks have acquired a valuable
secondary meaning, goodwill with the public, prestige and public acceptance
and that goods and services bearing the Trademarks have acquired a
reputation of the highest quality within the respective categories that
such goods and services bearing the Trademarks are competing. Accordingly,
Licensee undertakes and agrees not to use the Trademarks in any manner
whatsoever which, directly or indirectly, would dilute, or demean, ridicule
or otherwise tarnish the image of the Trademarks or Tropicana.
ii. Licensee recognizes the great value of the goodwill associated
with the Trademarks and acknowledges that the Trademarks and all rights
therein and the goodwill pertaining thereto belong exclusively to
Tropicana. During the term of this Agreement and thereafter, Licensee shall
not contest the validity or enforceability of the Trademarks and shall not
challenge, contest or dispute Tropicana's rights in the Trademarks or
perform any material act or omission adverse to said rights.
iii. Licensee hereby agrees that its every use of the Trademarks shall
inure to the benefit of Tropicana, and that Licensee shall not at any time
acquire any rights in the Trademarks by virtue of any use it may make of
the Trademarks, other than the licensed rights granted herein.
iv. Licensee agrees that it will use the Trademarks only on the
Licensed Products, and that during the term of this Agreement and
thereafter, it will not adopt or use as its own a trademark the same or
similar to the Trademarks.
b. Trademark Protection:
<PAGE>
i. Tropicana shall have the right, but not the obligation, to apply
for, register and maintain protection for the Trademarks, and shall pay all
costs and expenses associated therewith.
ii. Tropicana shall have the right, but not the obligation, in its
sole discretion, to use the Trademarks and/or the name of Licensee so as to
give the Trademarks, Licensee, Tropicana and/or Tropicana's products full
and favorable prominence and publicity. Tropicana shall not be under any
obligation whatsoever to continue using the Trademarks in connection with
its products or services.
iii. Subject to being reimbursed for its out-of-pocket expenses,
Licensee agrees to cooperate fully and in good faith with Tropicana for the
purpose of securing, preserving and protecting Tropicana's rights or any
grantor of Tropicana's rights in and to the Trademarks.
c. Trademark Enforcement:
i. Licensee shall report to Tropicana in writing any infringement or
imitation of the Trademarks it becomes aware of on or in connection with
Licensed Products or products similar to Licensed Products.
ii. Tropicana shall have the sole right to determine whether to
institute litigation with respect to any such infringements as well as the
sole right to select counsel. If Tropicana decides to institute such
litigation, Tropicana, in its sole discretion, may offer Licensee an
opportunity to voluntarily join in any such action. If Licensee voluntarily
joins in any such action, any damages awarded as the result of a lawsuit or
settlement of such action shall be split fifty/fifty (50/50) by the parties
after the out-of-pocket expenses have been reimbursed. If Licensee chooses
not to voluntarily join in any such action, Tropicana shall be free to join
Licensee as a party thereto. If Tropicana elects not to allow Licensee to
join any such action, or if Licensee does not join the suit voluntarily,
Licensee agrees to cooperate with Tropicana in any such suit subject to
being reimbursed for its out-of-pocket expenses, but all recoveries and
awards shall be fully retained by Tropicana.
iii. If Tropicana decides not to institute such litigation, Tropicana,
in its sole discretion, may authorize Licensee to institute such litigation
in which event Licensee shall be solely responsible for the costs of such
litigation and shall be entitled to keep any recoveries therefrom.
iv. Except as set forth in Section 9 hereof, each party shall be
responsible for the defense and settlement of, and shall pay all expenses
(including attorneys' fees) related to, any and all claims by third parties
that the Trademarks licensed hereunder infringe any intellectual property
rights of such third parties. Each party agrees to cooperate fully with the
other, at
<PAGE>
the defending party's reasonable request and expense, in connection with
the defense of any such claim.
6. Quality Control.
a. Trademark Use:
i. Licensee acknowledges that the Trademarks have become associated
generally with products that possess a high quality, positive and wholesome
image within the respective categories such products are competing, and
Licensee agrees not to use the Trademarks in any manner, or in connection
with the production, manufacture, marketing, distribution and/or sale of
any Licensed Products, inconsistent with such image within the respective
categories that such Licensed Products are, or will be, competing.
ii. Licensee shall use the Trademarks in such form and manner as
currently used by Tropicana as of the date hereof and shall faithfully and
accurately reproduce the Trademarks as shown in Exhibit A and the
attachments thereto. No partial version or variations of the Trademarks may
be used by Licensee at any time for any purpose without the prior written
approval of Tropicana in each instance. Licensee shall not have the right
to use the Trademarks as, or as part of, any trade name. Licensee shall not
use the Trademarks in combination, juxtaposition or conjunction with, or as
part of, any other service marks or trademarks without the express prior
written approval of Tropicana. Tropicana shall own any approved composite
mark (excluding any element thereof owned by a third party or any purely
descriptive or generic term) but Licensee shall have the exclusive right to
the use thereof solely on or in connection with the Licensed Products in
the Territory during the term hereof and subject to and in accordance with
the terms and conditions of this Agreement.
b. Quality Control Standards:
i. Licensee agrees to maintain the high quality control standards that
are substantially equivalent to those standards approved by Tropicana or
used by Tropicana as of the Effective Date or thereafter in connection with
its products and/or the Licensed Products, including, but not limited to,
quality control procedures, product sampling procedures and inspection
procedures, labeling requirements and Licensed Product formulas and
specifications.
ii. Licensee shall be solely responsible for and shall comply with all
laws, rules and regulations, if any, of governmental authorities in
connection with the production, manufacture, distribution, sale, labeling,
packaging, advertising and promotion of the Licensed Products. In addition,
the policy of sale, distribution, and/or exploitation by Licensee shall be
of advantageous and high standard and that the same shall in no
<PAGE>
manner reflect adversely upon the good name of Tropicana or any of its
activities or the Trademarks.
iii. Licensee shall not use the Trademarks in connection with any
Licensed Products that do not meet the quality control standards set forth
above.
c. Licensed Product Formulas and Specifications: Licensee shall submit to
Tropicana all proposed formulas and specifications for the Licensed Products and
all adjustments thereto for Tropicana's approval, such approval to be consistent
with (and based on equivalent standards to) products previously approved by, or
sold by, Tropicana, and subject to the Licensed Products passing Tropicana's
taste tests. Licensee shall not develop and market new Licensed Products using
the Trademarks without the prior written approval of Tropicana. Licensee's
formulas and specifications for the Licensed Products shall at all times remain
the property of Licensee, whether during the term of this Agreement or
thereafter.
d. Inspection Procedures:
i. In order to determine whether Licensee is maintaining the quality
standards set forth above, Licensee, before selling or distributing any
Licensed Products, shall furnish to Tropicana, at Licensee's cost, a
reasonable number of each of the Licensed Products. The quality of such
Licensed Products shall be subject to the prior written approval of
Tropicana, such approval to be consistent with (and based on equivalent
standards to) products previously approved by, or sold by, Tropicana, and
subject to the Licensed Products passing Tropicana's taste tests. At the
request of Tropicana, Licensee shall supply to Tropicana any manufacturing
information requested by Tropicana to help Tropicana in evaluating the
quality and style of such Licensed Products.
ii. In addition, upon two days prior advance notice and during normal
business hours, Tropicana shall have access to Licensee's facilities and
the facilities of Licensee's sublicensees and/or contract manufacturers
where the Licensed Products are manufactured and/or stored, for the purpose
of inspecting the Licensed Products to the extent necessary to determine
whether Tropicana's quality standards are being met. Notwithstanding the
foregoing, Tropicana shall have access at any time and upon immediate
notice to such plants and/or facilities to determine whether any health or
safety issues may exist.
iii. Licensee represents and warrants that the Licensed Products
manufactured, distributed and sold by Licensee, and, if applicable, its
sublicensees and contract manufacturers, and the manufacturing and
sanitation practices used by Licensee, and, if applicable, its sublicensees
and contract manufacturers, to produce the Licensed Products will comply
with all applicable federal, state and local laws, including, but not
limited to, good manufacturing practices.
<PAGE>
iv. Licensee shall not manufacture the Licensed Products from
inherently dangerous materials or substances and will not design the
Licensed Products so as to constitute any inherent danger.
v. After samples of the Licensed Products have been approved pursuant
to this Section 6, Licensee shall not depart therefrom in any material
respect without Tropicana's prior written approval, and Tropicana shall not
withdraw its approval of the approved Licensed Products or of any approved
plant except for good cause when Tropicana may in good faith have reason to
believe that the approved Licensed Products or the manufacture of Licensed
Products by the approved plant may be detrimental to the health or safety
of the public or otherwise fails to satisfy the specifications therefor
which have been previously approved by Tropicana.
e. Plant Approval: The following proposed plants to be used by Licensee
shall be subject to Tropicana's prior written approval, such approval to be
consistent with Tropicana's standards for approving plants which are used by
Tropicana in the Territory:
**_____________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_____________**. Any and all additional proposed plants to be used by Licensee
shall be subject to Tropicana's prior written approval, such approval to be
consistent with Tropicana's standards for approving the plants listed above.
7. Labeling, Promotion, Advertising and Use
a. Labeling: Licensee shall submit to Tropicana for its prior written
approval, all proposed tags, labels, containers, packaging, advertising,
promotional or display materials or the like for the Licensed Products
containing or referring to the Trademarks.
b. Notices: Licensee shall apply such trademark, copyright and/or
proprietary rights notices, as may be deemed necessary or desirable by Tropicana
under applicable laws or regulations. Licensee shall also include on all labels
and packaging any consumer inquiry or complaint information (such as an address
or telephone number) which customarily appears on other products of Licensee. In
addition, Licensee shall include on any Licensed Product label or packaging on
which any Trademark appears a statement in substantially the following form
(subject to such modifications as may be required by any applicable laws, rules
or regulations): "Manufactured by, or under the authority of, Integrated Brands,
Inc. and under license from Tropicana Products, Inc."
c. Prominence. Licensee agrees that no other name or trademark shall appear
more prominently than the "TROPICANA"
<PAGE>
brand name on any Licensed Product label, packaging or advertising.
d. Compliance: Licensee warrants that all tags, labels, containers,
packaging, advertising, promotional or display materials or the like bearing the
Trademarks shall comply with all applicable federal, state, and local laws.
8. Sublicense/Contract Manufacture.
a. Right to Sublicense:
i. Licensee shall be entitled to utilize one or more contract
manufacturers in connection with the production, manufacture, and/or
packing of the Licensed Products for and on behalf of Licensee and under
Licensee's direction and control, subject to Tropicana's prior written
approval, such approval not to be unreasonably withheld. Licensee shall
have the right to sublicense the right to use the Trademarks hereunder to
any such contract manufacturer to the limited extent necessary to enable
such third party to perform the particular functions for which such third
party is engaged, subject to Tropicana's prior written approval, such
approval not to be unreasonably withheld.
ii. In the event of any sublicense, Licensee shall remain primarily
obligated under all of the provisions of this Agreement. Licensee shall
cause each sublicensee and contract manufacturer to enter into a written
agreement which shall include provisions, stated in such agreement to be
for the express benefit of Tropicana, consistent with the provisions of
this Agreement including, but not limited to, Sections 6, 7, 12 and 14. No
sublicense agreement shall contain any terms or conditions, and Licensee
shall not take or authorize any actions in connection with any sublicense
agreement, inconsistent with the terms and conditions hereof. Licensee
shall, upon reasonable request by Tropicana, provide Tropicana with
reasonable evidence that each sublicense agreement entered into pursuant
hereto complies with the requirements hereof. While Licensee shall be
responsible for insuring that its sublicensees and contract manufacturers
comply with the terms of this Agreement, Tropicana shall have the
independent right to exercise quality control, in accordance with the terms
of this Agreement, directly over all sublicensees and contract
manufacturers.
iii. Tropicana shall have the right, pursuant to terms substantively
similar to Section 11 hereof, to require Licensee to terminate any
agreement entered into with a sublicensee and contract manufacturer in
violation of the terms hereof. In addition, Tropicana shall have the right
to pursue all other rights or remedies available to it in connection
therewith. Licensee will take all steps reasonably necessary or desirable
to enforce the terms of this Agreement against its sublicensees and/or
contract manufacturers.
<PAGE>
iv. Tropicana acknowledges that Licensee may elect to have Licensed
Products manufactured by third parties who are also retailers of the
Licensed Products, and that the Licensed Products may be manufactured by
and sold to such third parties without Licensee taking actual physical
possession of such Licensed Products.
9. Indemnification and Product Liability Insurance.
a. Indemnification:
i. Licensee shall indemnify and hold harmless Tropicana, its
affiliates and their officers, directors, agents, employees, successors and
assigns from and against any and all claims, suits, demands, actions,
proceedings, costs, damages, expenses (including, but not limited to, legal
fees and out-of-pocket expenses) and losses arising out of or relating to:
(x) the activities of Licensee under this Agreement and Licensee's
sublicensees, third-party distributors and/or contract manufacturers
utilized or appointed by Licensee (other than the use of the Trademarks as
authorized herein) including, but not limited to, the unauthorized use of
the Trademarks or any other trademark, copyright, trade secret, patent,
process, idea, method or device by Licensee in connection with the Licensed
Products covered by this Agreement; or (y) Licensee's breach of, or
noncompliance with, its obligations under this Agreement. Licensee, upon
written request by Tropicana, promptly shall defend or settle such claim,
suit, demand, action or proceeding at Licensee's expense. Nothing herein
shall prevent Tropicana from defending or settling, if it so desires in its
own discretion, any such claim, suit, demand, action or proceeding at its
own expense through its own counsel.
ii. Tropicana shall indemnify and hold harmless Licensee, its
affiliates, Licensee's sublicensees, third-party distributors and contract
manufacturers, and their officers, directors, agents, employees, successors
and assigns from and against any and all claims, suits, demands, actions,
proceedings, costs, damages, expenses (including, but not limited to, legal
fees and out-of-pocket expenses) and losses solely arising out of or
relating to (x) the authorized use of the Trademarks pursuant to this
Agreement; or (y) Tropicana's breach of, or noncompliance with, its
obligations under this Agreement. Tropicana, upon written request by
Licensee, promptly shall defend or settle such claim, suit, demand, action
or proceeding at Tropicana's expense. Nothing herein shall prevent Licensee
from defending or settling, if it so desires in its own discretion, any
such claim, suit, demand, action or proceeding at its own expense through
its own counsel.
b. Insurance: Licensee agrees that it will obtain and maintain throughout
the term of this Agreement and for a period of three years thereafter, at its
own expense, liability insurance including product liability with a broad form
vendors endorsement from an insurance company reasonably acceptable to
<PAGE>
Tropicana providing adequate protection (at least in the amount of Ten Million
Dollars ($10,000,000)) against any claims, suits, demands, actions, proceedings,
costs, damages, expenses (including, but not limited to, legal fees and
out-of-pocket expenses) and losses arising out of or relating to Licensee's
operations pursuant to this Agreement. Such insurance shall include coverage of
Tropicana and its officers, directors, agents, employees, successors and
assigns. As proof of such insurance, a certificate of insurance naming Tropicana
as an additional insured party will be submitted to Tropicana by Licensee for
prior approval before any Licensed Products using the Trademarks are distributed
or sold, and at the latest within thirty (30) days after the Effective Date.
Tropicana shall be entitled to a copy of the prevailing certificate(s) of
insurance which shall be furnished to Tropicana by Licensee. Licensee and its
insurer shall provide Tropicana with thirty (30) days advance notice in the
event of the cancellation of, or any modification to, said insurance.
10. Additional Covenants.
a. Reasonable Efforts: Each party agrees to exercise good faith reasonable
efforts in the performances of this Agreement.
b. Licensee: Licensee agrees to keep Tropicana informed on a regular basis
of Licensee's activities in manufacturing and marketing the Licensed Products
covered by this Agreement.
c. Tropicana: Tropicana shall supply to Licensee, solely
for use in connection with the manufacture of Licensed Products,
single strength orange juice and orange juice concentrate (and
subject to Tropicana's discretion and availability, other juice
concentrates) on a purchase order basis and at the following
price:
**_____________________________________________________________________________
_______________________________________________________________________________
_____________________________________________________________________________**
. Licensee shall not sell or otherwise distribute any orange juice or any juice
concentrate purchased pursuant to this Section 10(c) to any third party (except
to its sublicensees and/or contract manufacturers in accordance with this
Agreement). For purposes of this Agreement,
**_____________________________________________________________________________
__________________________**.
11. Term and Termination.
a. Term: The term of this Agreement shall commence on the Effective Date
and shall end on December 31, 2011, unless sooner terminated in accordance
herewith.
b. Termination for Breach:
i. Tropicana shall have the right to terminate this Agreement if
Licensee shall be in material default of any
<PAGE>
obligation, excluding payment obligations, by giving Licensee not less than
thirty (30) days' written notice to Licensee specifying such breach and
stating that the Agreement will terminate at the expiration of thirty (30)
days from receipt of such notice by Licensee, unless such breach is cured
within the thirty (30) day time period or if the breach cannot be cured
within the thirty (30) days, Licensee has in good faith initiated steps to
cure such breach within the thirty (30) day notice period. Failure of
Tropicana to terminate this Agreement for any such default or breach shall
not be determined a waiver of the right subsequently to do so under the
same or any other such default or breach, either of the same or different
character.
ii. Tropicana shall have the right to terminate this Agreement if
Licensee shall be in material default of any payment obligation by giving
Licensee not less than fifteen (15) days' written notice to Licensee
specifying such breach and stating that the Agreement will terminate at the
expiration of fifteen (15) days from receipt of such notice by Licensee,
unless such breach is cured within the fifteen (15) day time period.
Failure of Tropicana to terminate this Agreement for any such default or
breach shall not be determined a waiver of the right subsequently to do so
under the same or any other such default or breach, either of the same or
different character.
c. Termination for Failure to Meet Minimum Royalties: Tropicana shall have
the right to terminate this Agreement immediately if Licensee fails to make
royalty payments of **____________** or more during the 1998 calendar year or
during any calendar year thereafter. Notwithstanding the foregoing, if Licensee
fails to generate sales of Licensed Products to achieve the minimum royalty
payment in any given calendar year, Licensee shall have the right to pay
Tropicana the amount of any resulting shortfall in order to satisfy its minimum
royalty obligation. Any such shortfall royalty payments shall be made in
accordance with Section 3(c) hereof and shall be due and payable within thirty
(30) days after the end of the calendar year in which such shortfall occurred.
d. Termination by Licensee: Licensee may terminate this Agreement for any
reason upon six (6) months' prior written notice.
e. Termination for Bankruptcy:
i. The license hereby granted shall automatically terminate forthwith
without any notice whatsoever being necessary if Licensee discontinues its
business or Licensee voluntarily submits to, or is ordered by the
bankruptcy court to undergo, liquidation pursuant to Chapter 7 of the
bankruptcy code. In the event this license is so terminated, Licensee, its
receivers, representatives, trustees, agents, administrators, successors
and/or assigns shall have no right to sell, exploit or in any way deal with
or in any Licensed Products covered by this Agreement, or any carton,
container, packaging or wrapping material,
<PAGE>
advertising, promotional or display materials pertaining thereto, except
with and under the special consent and instruction of Tropicana in writing,
which they shall be obligated to follow.
ii. Should Licensee file a petition in bankruptcy or is otherwise
adjudicated a bankrupt or if a petition in bankruptcy is filed against
Licensee and the Licensed Products are attached and such petition is not
discharged or dismissed within ninety (90) days thereafter, or if an
involuntary receiver is appointed for it or its business and is not
discharged or dismissed within ninety (90) days thereafter, this Agreement
shall automatically terminate.
f. Effect of Termination:
i. Termination of this Agreement shall not release either party from
any obligation accrued prior to the date of such termination or from any
obligations continuing beyond the termination of this Agreement. The
minimum royalty obligation set forth in Section 11(c) hereof owed by
Licensee shall be pro rated to the effective date of termination.
ii. Termination of this Agreement for any reason shall be without
prejudice to any rights which either party may otherwise have against the
other.
iii. Licensee shall have no further right and license to use the
Trademarks. Notwithstanding the foregoing, so long as this Agreement was
not terminated by Tropicana pursuant to Section 11(e) hereof, Licensee
shall have a period of three hundred sixty-five (365) days after the date
of termination in which to phase out its use of the Trademarks provided all
Licensed Products to be sold, and all uses of the Trademark, by Licensee
during such three hundred sixty-five (365) day period shall comply with the
terms hereof. This limited license shall not apply to any of the Licensed
Products which fails to comply with Sections 6, 7 and 14 hereof and/or
which may be the subject of any health or safety issues.
iv. Licensee shall report to Tropicana with respect to sales made
pursuant to Section 11(f)(iii) above and make the requisite royalty payment
within thirty (30) days after the end of each month during the aforesaid
three hundred sixty-five (365) day period.
v. All duties and obligations of Licensee under this Agreement shall
remain in force during the sell-off period as set forth in Section
11(f)(iii) above.
12. Confidentiality.
a. Obligation: Both parties shall keep confidential and shall not cause or
permit the disclosure to any third party, other than those whose duties require
possession of such information and who agree to be bound by the confidentiality
<PAGE>
obligations set forth in this Section 12(a), such as sublicensees, third-party
distributors and contract manufacturers, of any confidential information
disclosed by either party to the other pursuant to this Agreement. Confidential
information may include, but is not limited to formulas, production processes,
research, marketing, and sales information. Said confidentiality requirement
shall not apply to any information which (i) has entered into the public domain
through no wrongful act or breach of any obligation of confidentiality on the
receiving party's or any third party's part; (ii) was in the lawful knowledge
and possession of, or was independently developed by, the receiving party prior
to the time it was disclosed to, or learned by, the receiving party as evidenced
by written records kept in the ordinary course of business by the receiving
party; (iii) was rightfully received from a third party not in violation of any
contractual, legal or fiduciary obligation of such third party; or (iv) was
approved for release by written authorization by the party having rights in such
information.
b. Compelled Disclosure. In the event that a party is required by law or
court order to disclose any confidential information of the other party, that
party shall: (i) notify the other party in writing as soon as possible, but in
no event less than ten (10) calendar days prior to any such disclosure; (ii)
cooperate with the other party to preserve the confidentiality of such
confidential information consistent with applicable law; and (iii) use its best
efforts to limit any such disclosure to the minimum disclosure necessary to
comply with such law or court order.
13. Remedies.
Licensee acknowledges that a breach or failure to comply with any of the
provisions of this Agreement (other than payment obligations) will irreparably
harm Tropicana and that Tropicana will not have an adequate remedy at law in the
event of such breach or non-compliance. Therefore, Licensee acknowledges that
Tropicana shall be entitled to injunctive relief and/or specific performance
without the posting of bond or other security, in addition to whatever other
remedies it may have, at law or in equity, in any court of competent
jurisdiction against any acts of such breach or non-compliance.
14. Warranty and Consumer Response.
a. Governmental Inquiries. Licensee shall immediately notify Tropicana in
writing of any investigation, inquiry, claim or sanction by any governmental
authority regarding any quality, labeling, advertising or other regulatory
matter relating to the Licensed Products and shall keep Tropicana advised of the
progress and findings of such investigation or inquiry.
b. Deficiency Procedures.
<PAGE>
i. If Tropicana reasonably determines that any particular Licensed
Product does not meet the required standards of quality set forth in
Section 6 hereof, Tropicana shall notify Licensee in writing of such defect
(a "Deficiency Notice"), providing Licensee with reasonable detail
regarding the deficiency therein. If Licensee disputes Tropicana's
determination of deficiency and the parties are not able to resolve the
dispute between themselves,they shall refer the dispute to a mutually
agreed upon third party for resolution; provided, however, that the
foregoing shall not apply with respect to any notice from Tropicana of a
deficiency involving a risk to public health or safety. Upon receipt of
such Deficiency Notice, if Licensee or, if applicable, the mutually agreed
upon third party, concurs in the determination of deficiency, Licensee
shall cure such deficiency within a commercially reasonable amount of time,
and shall provide Tropicana with evidence of such cure including samples of
such Licensed Product; provided, however, that in the event that any
deficiency poses a risk to public health or safety, Licensee shall take all
steps necessary to cure the deficiency or otherwise eliminate the risk to
public health or safety immediately. If any deficiency is not cured within
the applicable time period set forth herein, the Licensee shall cease all
use of the Trademarks in connection with the production, manufacture,
distribution, sale, advertising and promotion of the Licensed Products in
issue unless and until such cure is achieved.
ii. If Tropicana reasonably determines that any deficiency is such
that any such Licensed Products are subject, or may be subject, to market
withdrawal, quarantine, recall or correction based on applicable Food and
Drug Administration ("FDA") or other applicable governmental authority
guidelines, including good manufacturing practices, Licensee agrees to
immediately implement such withdrawal, recall or correction procedures at
Licensee's sole cost and expense (except as provided in Section 9(a)(ii)
hereof) and shall coordinate and cooperate with Tropicana in connection
therewith, including with respect to all press releases and other public
relations aspects thereof. If Licensee is otherwise required or determines
to withdraw from market, recall or correct any such Licensed Products,
Licensee shall give Tropicana prior notice of such withdrawal, recall or
correction as soon as practicable and the parties shall coordinate and
cooperate with each other in connection therewith, including with respect
to all press releases and other public relations aspects thereof. Tropicana
shall be granted complete and immediate access to all sites at which such
deficient Licensed Product has been produced and/or stored.
c. Compliance; Fitness for Use.
i. Licensee represents and warrants that the Licensed Products and all
materials related thereto (x) shall be in all respects non-injurious, (y)
shall not be adulterated or misbranded within the meaning of any applicable
laws, rules or
<PAGE>
regulations of any governmental authority, (z) shall not purposely be
packaged or sold in damaged containers, and (aa) shall not violate the
rights of any other person or entity.
ii. Licensee will, at no cost to Tropicana, handle all warrantee
(guarantee) satisfaction, response and compliance and all consumer response
relating to any of the Licensed Products. Tropicana shall promptly forward
to Licensee, for handling, any and all such consumer inquiries that it
receives. Licensee shall use commercially reasonable efforts to keep
Tropicana generally informed of consumer complaints relating to the
Licensed Products.
15. No Joint Venture.
Nothing herein shall be construed to create any relationship of employer
and employee, agent and principal, partnership or joint venture between the
parties. Neither party shall assume, either directly or indirectly, any
liability of or for the other party. Neither party shall have the authority to
bind or obligate the other party and neither party shall represent that it has
such authority.
16. Assignment, Sublicense or Change of Control.
a. No Assignment by Licensee:
i. This Agreement and all rights and duties hereunder are personal to
Licensee. Except as set forth in Section 16(a)(ii), this Agreement or any
portion thereof, or any right or responsibility hereunder, shall not be
assignable by Licensee without the prior written approval of Tropicana. In
no event may Licensee assign this Agreement or any portion thereunder to a
competitor of Tropicana in the juice or juice beverage category.
ii. Except as provided below, any change in direct or indirect control
over Licensee or any assignee of rights of Licensee under this Agreement
shall not be subject to the prior written approval of Tropicana. However,
the occurrence of any of the following events shall not be permitted:
(1) any competitor of Tropicana in the juice or juice beverage
category becomes the beneficial owner, directly or indirectly, of a
majority of the issued and outstanding shares of Licensee entitled to
vote for the election of directors;
(2) the stockholders of Licensee approve an agreement providing
for a transaction in which Licensee will cease to be an independent
corporation and the entity which will control it is a competitor of
Tropicana in the juice or juice beverage category, or pursuant to
which Licensee sells or otherwise disposes of all or substantially all
of the assets of Licensee to a major competitor of Tropicana in the
juice or juice beverage category.
<PAGE>
iii. Any attempted assignment by Licensee which does not comply with
the terms of this Section 16(a) shall be void and of no effect.
b. Assignment by Tropicana: Tropicana may assign this Agreement to any
third party, provided that such third party is also assigned all of Tropicana's
right, title and interest in the Trademarks in the Territory and Tropicana shall
furnish written notice of such assignment to Licensee.
17. Notices.
All notices to be made hereunder shall be in writing sent via certified,
overnight or registered mail (return receipt requested). Any Licensed Products
or materials submitted for approval under this Agreement shall not be governed
by the mailing type requirements of this Notice provision. Such notices and
statements shall be given to or made at the respective addresses of the parties
as set forth below unless notification of a change of address is given in
writing, and the date of receipt shall be deemed the date the notice or
statement is received:
To Tropicana: To Licensee:
Tropicana Products, Inc. Integrated Brands, Inc.
1001 13th Avenue East 4175 Veterans Highway
Bradenton, Florida 34208 Ronkonkoma, New York 11779
Attn: General Counsel Attn: Gary P. Stevens, President
with a copy to:
Benjamin Raphan, Esq.
Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
18. Waiver.
None of the terms of this Agreement shall be deemed to be waived or amended
by either party unless such a waiver or amendment specifically references this
Agreement and is in a writing signed by the party to be bound.
19. Survival of Provisions.
Sections 3(e), 3(f), 5(a)(ii), 5(c)(iv), 11(f) and Articles 9, 12, 19 and
22 shall survive the termination of this Agreement for any reason.
20. Entire Agreement.
This Agreement and all Exhibits attached hereto and incorporated herein by
this reference contain the entire agreement between the parties hereto with
respect to the subject matter hereof and supersedes any previous understandings
or
<PAGE>
agreements, whether written or oral, in respect of such subject matter. This
Agreement shall be binding upon and inure to the benefit of the parties, their
successors and assigns.
21. Severability.
The illegality, invalidity or unenforceability of any part of this
Agreement shall not affect the legality, validity or enforceability of the
remainder of this Agreement. If any part of this Agreement shall be found to be
illegal, invalid or unenforceable, this Agreement shall be given such meaning as
would make this Agreement legal, valid and enforceable in order to give effect
to the intent of the parties.
22. Choice of Law.
This Agreement shall be governed by and construed in accordance with the
internal laws (and not the law of conflicts) of the State of New York.
23. Counterparts.
This Agreement may be executed in several counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument.
* * *
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed as of the date and year first above written.
TROPICANA PRODUCTS, INC. INTEGRATED BRANDS, INC.
By: By:
--------------------------- -----------------------------
Name: Name:
--------------------------- -----------------------------
Title: Title:
--------------------------- -----------------------------
<PAGE>
EXHIBIT A
---------
TRADEMARKS
TROPICANA
PURE PREMIUM
GROVESTAND
PURE TROPICS
EXHIBIT 22.1
List of the Company's Subsidiaries
Swensen's Inc.
Swensen's Ice Cream Company
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> DEC-28-1996
<CASH> 1,054,000
<SECURITIES> 0
<RECEIVABLES> 2,576,000
<ALLOWANCES> 0
<INVENTORY> 1,748,000
<CURRENT-ASSETS> 11,525,000
<PP&E> 3,105,000
<DEPRECIATION> 1,437,000
<TOTAL-ASSETS> 26,798,000
<CURRENT-LIABILITIES> 8,586,000
<BONDS> 0
0
0
<COMMON> 124,000
<OTHER-SE> 10,275,000
<TOTAL-LIABILITY-AND-EQUITY> 26,798,000
<SALES> 36,868,000
<TOTAL-REVENUES> 42,853,000
<CGS> 22,999,000
<TOTAL-COSTS> 46,116,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 676,000
<INCOME-PRETAX> (3,263,000)
<INCOME-TAX> (335,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,928,000)
<EPS-PRIMARY> (.29)
<EPS-DILUTED> 0
</TABLE>
