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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-KSB
X Annual report pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934
For the fiscal year ended April 30, 1997
Transition report pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934
For the transition period from ____________to_____________
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COMMISSION FILE NO. 0-21879
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STEARNS & LEHMAN, INC.
(Exact Name of Registrant as Specified in its Charter)
OHIO 34-1579817
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
30 PARAGON PARKWAY
MANSFIELD, OHIO 44903
(Address of principal executive offices) (Zip code)
(419) 522-2722
(Registrant's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act:
NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON SHARES, NO PAR VALUE
(Title of Class)
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Check mark whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No ____
---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [____]
State issuer's revenues for its most recent fiscal year: $7,381,105
State the aggregate market value of the voting common stock, no par value, held
by non-affiliates computed by reference to the price of such stock as of July 8,
1997: $9,320,443.
As of July 8, 1997, 3,226,752 shares of common stock, no par value, were
outstanding.
Documents incorporated by reference: NONE.
Transition Small Business Disclosure Format (check one): Yes No X
--- ---
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Stearns & Lehman, Inc. (the "Company"), is an Ohio corporation headquartered in
Mansfield, Ohio. The Company was organized on March 14, 1988 and is engaged in
the business of manufacturing and marketing specialty food products, including
coffee and espresso flavorings, syrups, oils and toppings, extracts, flavorings,
sauces, dressings and specialty sugars. The Company sells its products
throughout the United States and in certain foreign countries, including Canada,
Chile, Mexico, Australia, New Zealand, England, Finland, Spain, Singapore, Korea
and Japan.
Since its incorporation in 1988, the Company has grown from providing a single
product line and having two employees, to being a major manufacturer and
supplier of flavoring syrups for the specialty coffee industry with 43
employees. The Company's customer list includes a number of America's top
specialty coffee retailers and restaurants including Starbucks Coffee Company
("Starbucks"), Barnie's Coffee & Tea Company, The Coffee Beanery, Darden
Restaurants Inc.'s The Olive Garden Italian Restaurant, Flagstar Cos. Inc.'s
Denny's Restaurant, Gloria Jeans Gourmet coffee, Godiva Chocolatier, Inc., Kraft
General Foods, Krups, Sara Lee's Superior Coffee Division, and Sysco Food
Service. The Company does not have any long-term supply agreements with any of
these customers except Starbucks. The Company believes that its success in
obtaining these accounts is attributable to the Company's emphasis on quality,
dependable service and innovation.
HISTORY OF OPERATIONS
In 1988, the Company commenced production of a single consumer product line,
Grandma's Choice flavorings and extracts for baking and cooking. The Company
initially employed two persons and leased 1,200 square feet of space in
Mansfield, Ohio. In early fiscal 1993, the Company introduced its DOLCE(R)
product line of flavoring syrups, which consists of over 30 sweetened liquid
flavorings offered in three different sizes. The Company also started
manufacturing of flavoring syrups under private labels for various national
accounts, including several large North American based food companies. Flavoring
syrups are used to flavor coffee, iced tea, espressos, cappuccinos, ice cream
and specialty drinks. In April 1994, the Company acquired by merger Select
Origins, Inc., a New York corporation which was also engaged in the manufacture
and marketing of specialty food products.
On September 1, 1994, the Company entered into a written private label supply
agreement with Starbucks to develop and manufacture certain flavored coffee
syrups. This agreement is an exclusive supplier agreement with Starbucks to
supply defined flavored syrups meeting certain specifications and complying with
defined inspection and testing procedures. In order to meet the increased
production and warehousing requirements, in March, 1995 the Company leased
approximately 18,000 square foot of manufacturing and warehouse space near
Seattle, Washington.
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In light of the success of the DOLCE(R) product line and the associated private
label products, in late 1995, the Company began to expand the FLAVOR-MATE(R)
product line to include syrups, sugars and toppings. In February, 1996, the
Company introduced a line of sugar free flavored syrup products under the
DOLCE(R) brand name and under certain private label brands as well.
INDUSTRY OVERVIEW
The U.S. flavorings industry expanded rapidly after World War II. Today, over
80% of packaged foods contain flavor additions. Approximately 5% of flavor
additions are from natural sources. Ninety-five percent are "imitation" as
defined by the Food and Drug Administration (the "FDA"). The Company produces
several "natural" or "pure" products. Natural/pure classification is regulated
by the FDA. A pure extract is obtained directly from the food item (e.g. vanilla
or coffee beans, nuts, fruit) through use of a solution with a 35% alcohol
content. A natural flavor is obtained by extracting essential flavor-bearing
oils from botanical sources (e.g. peppermint leaves, orange and lemon peels).
By contrast, artificial or imitation flavors are created by blending aromatic
chemicals to which natural flavors are sometimes added. Imitation flavors
commonly contain propylene glycol and/or glycerin, which are heavier and less
volatile than alcohol and will not evaporate during cooking. Because of their
resistance to heat, imitation products can deliver more consistent flavor and
greater retention of aromatic properties than natural flavors. Conversely, the
alcohol contained in extracts or natural flavors helps prevent freezing and
spoilage. The Company produces both natural and imitation flavored products in
order to meet the various needs of consumers.
PRINCIPAL PRODUCTS AND THEIR MARKETS
Flavoring syrups are sold via six different product lines. The DOLCE(R) brand
product line consists 36 flavors, all certified Kosher by the Orthodox Union(U),
in four sizes. The DOLCE(R) brand also consists of eight sugar free flavors and
seven granita syrups. The DOLCE(R) brand is distributed to the specialty coffee
and the food service industries. The recently announced DiNATURA(R) premium
natural flavored brand consists of 14 flavors in two sizes. The Godiva
Chocolatier Cafe' Godiva(R) brand name consists of four specialty chocolate
flavors in three sizes. Both the DiNATURA(R) and the Godiva Chocolatier Cafe'
Godiva(R) brands are for distribution to the specialty coffee and the food
service industries. The FLAVOR-MATE(R) brand consists of 23 flavors in three
sizes. The FLAVOR-MATE(R) brand also consists of eight sugar free flavors and
seven granita syrups. The FLAVOR-MATE(R) brand is distributed through
supermarkets and specialty food stores along with the food service industry. The
newly announced Olive Garden Signature Syrups(R) brand consists of seven flavors
in two sizes for distribution through supermarkets and specialty food stores.
The Company also manufactures private label flavoring syrups for distribution
direct to the private label customer. The primary use of flavoring syrups are to
flavor beverages including coffee, tea, and espresso-based drinks. Granita
flavoring syrups are used for granita machines and frozen blender drinks.
The FLAVOR-MATE(R) line of concentrate flavoring products is sold in
supermarkets throughout the United States. The product is available in 13
flavors, including amaretto, chocolate raspberry,
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dutch chocolate, french vanilla and orange cappuccino. FLAVOR-MATE(R) is
packaged in a shatter resistant bottle with a resealable snap cap which allows
users to create a variety of flavored coffee, tea or other beverages from a
single unflavored pot. FLAVOR-MATE(R) products can also be used for cooking and
baking purposes. FLAVOR-MATE(R) products are available in single flavor 12 packs
or as an assortment of flavors in 12 flavor 48-packs.
The Company's Grandma's Choice line includes extracts and flavorings for baking
and cooking, available in individual single-flavor packages. The Company
currently produces 14 different varieties of Grandma's Choice extracts and
flavors, including almond, banana, butter, coconut, lemon, pineapple and
vanilla.
The Company currently produces Cod Liver Oil, Cherry Cod Liver Oil and Wheat
Germ Oil for GNC(R) (General Nutrition Center). All three products are
distributed through the GNC(R) distribution network for sale in GNC(R) retail
stores. These products are directed to the health and natural food markets. The
Company also bottles a Rice Bran Oil for distribution to supermarkets and
specialty food stores and the food service industry. Rice Bran Oil is used as an
alternative cooking and baking oil.
The Company packages four different sugars and seven different toppings for use
primarily in the espresso and food service industries. These sugars and toppings
are also available in supermarkets and specialty food stores for consumer use in
beverages and desserts. The sugars and toppings are available in the DOLCE(R)
and FLAVOR-MATE(R) brand names
Cinnamon Sticks and Mulling Spices, packaged under the Select Origins(R) brand,
are used with wine, cider and apple juice to create a fragrant beverage. These
products are distributed through supermarkets and specialty food stores.
My Hero(TM) Submarine Dressing is an all natural dressing for use on sandwiches,
salads and pastas and for marinating. This product is distributed through
supermarkets and specialty food stores.
STATUS OF NEW PRODUCTS
The Company announced three new product lines in fiscal year 1997. These lines
are DiNATURA(R) premium natural flavored syrups, the Godiva Chocolatier Cafe'
Godiva(R) brand specialty chocolate flavored syrups and the Olive Garden
Signature Syrups(R) brand flavored syrups. The Godiva Chocolatier Cafe'
Godiva(R) brand specialty chocolate flavored syrups are in production and are
currently being shipped. The Olive Garden Signature Syrups(R) brand flavored
syrups are in the final stages of pre-production development with production
scheduled to begin in September 1997. The DiNATURA(R) premium natural flavored
syrups are scheduled for production in the fourth calendar quarter of 1997.
Development costs for new products were approximately $23,000 and $2,000 for the
fiscal years ended April 30, 1997 and 1996 respectively.
PATENTS, TRADEMARKS AND LICENSES
The Company has obtained federal trademark protection for its DiNATURA(R),
DOLCE(R) and
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FLAVOR-MATE(R) products. The Company has also obtained federal trademark
protection for SELECT ORIGINS(R), THE COOKING EXPERIENCE(R), SOPHISTICATED
NIBBLES(R), STEARNS & LEHMAN(R), LIMITED HARVEST(R), and GIFT OF BRAN(R). The
Company keeps all of its proprietary information confidential and takes steps to
insure that the results of its development activities (i) are not disclosed and
(ii) remain protected under common law, including requiring certain of the
Company's key employees to execute written agreements regarding trade secrets
and certain restrictive covenants. There can be no assurances that technology
and other information acquired by the Company pursuant to its development
activities will constitute trade secrets under applicable laws. The Company
currently has a license agreement with Godiva Chocolatier, Inc. to market and
sell flavoring syrups to the specialty coffee industry under the Godiva
Chocolatier Cafe' Godiva brand name. In addition, the Company currently has a
verbal agreement in principle with Darden Restaurants Inc., that has not been
reduced to a written agreement and has not been executed by either party, to
market and sell flavoring syrups to the consumer retail market under The Olive
Garden Signature Syrups brand name. The Company does not hold any patents.
DISTRIBUTION AND MARKETING
The Company has distribution arrangements with more than 70 distributors in the
United States, Canada, England, New Zealand, Australia, Switzerland, Denmark and
Mexico, most of which are members of the National Food Distributors Association.
All sales to foreign and domestic distributors are conducted in U.S. currency.
The majority of the distributors distribute directly to retailers, such as
supermarket chains and specialty food stores. Utilizing a distributor enables
the retailer to maximize efficient use of time and profit by shifting
responsibility for stocking shelves, pricing product, rotating stock, providing
shelf tags and maintaining inventory to the distributor. The distributor also
coordinates in-store product demonstrations and removes damaged or unsalable
products. The Company does not have any written supply agreements with its
distributors. The Company periodically issues product price lists to all current
distributors. The price list indicates the product price and payment terms of
net 30 days with approved credit and freight F.O.B. Mansfield, Ohio. Any
modification of price, payment terms or freight billing from the price list is
made verbally between the distributor and the Company.
The Company utilizes multiple distribution channels such as grocery distributors
for supermarkets, specialty food distributors for supermarkets and specialty
retailers, coffee distributors for coffee stores and retailers, and food service
distributors for restaurants, to achieve penetration into the various market
segments. The Company sells its products directly to such distributors for
distribution.
Utilization of a distribution network benefits the Company's consumer products
by providing a product marketing and servicing conduit between the Company and
retailers. The distributor introduces and sells the product to retailers,
delivers the product, provides schematics for maximizing product sales and
exposures and monitors market activity. Use of specialty food distributors lends
a "service-oriented" aspect to the primary manufacturing business of the
Company.
The Company has established a second network of distributors for its DOLCE(R)
flavored syrups
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product line. These distributors market the DOLCE(R) product line to the
specialty coffee industry and food service accounts including restaurants,
coffee houses, cart operations and specialty coffee retailers. These
distributors take delivery of product by pallet load and re-distribute case
quantities to their customers, also adding to the "service oriented" aspect of
the Company's marketing.
The Company has direct marketing and distribution arrangements with its private
label customers. The Company does not utilize any other distribution network to
service those customers.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The Company's principal products consist primarily of liquid sucrose, flavors,
packaging and water. The Company has its own water filtration system which is
connected to municipal water supplies. The Company currently acquires its liquid
sucrose from The Amalgamated Sugar Company. Liquid sucrose is readily available
from several large sugar refiners. Flavors are obtained from a large number of
specialty flavor companies. Each flavor is purchased from a sole source supplier
and a change in the availability of a flavor or supplier could result in a delay
in production and a change in the flavor profile of the end product. Packaging
consists primarily of corrugated boxes, bottles and labels. The Company owns the
tooling for boxes and labels and can obtain these materials from a large number
of vendors. The primary bottle can be obtained from two vendors, Plaxicon and
Plastipak. Most other bottles and containers used by the Company are readily
available from a number of sources.
COMPETITION
The specialty food products market is highly competitive and competition is
likely to increase over time. There are no assurances that the Company will be
able to continue to successfully compete in the industry. Several companies are
engaged in business similar to or competitive with the business of the Company,
and more may be entering the field. As a consequence, there is no assurance that
the Company will be able to successfully compete in the marketplace. Some of the
competitors such as R. Torre of San Francisco and DaVinci of Seattle are older,
more established companies whose products have been in the market for a number
of years prior to the Company's introduction of flavoring syrups to the United
States espresso industry. As all of the known competitors to the Company are
closely held private companies that do not divulge financial information to the
public, it is impossible to estimate their competitive ability.
The Company attempts to distinguish its position in the market place by
delivering high quality products in innovative packaging and at a competitive
price. The Company places a strong emphasis on establishing quality assurance
standards and procedures that meet the same high standards established by the
leaders in the entire food industry.
The Company has the industry experience to create value added product marketing
programs for its customers in addition to meeting the customers specific
packaging and product needs. By having manufacturing facilities in both the
eastern and western United States, the Company is unique in the flavoring syrup
industry and is better equipped to meet customer service requirements. The
Company also believes it is a leader in the flavoring syrup industry in using
new materials and
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methods in packaging its products. Finally, the Company believes that through
overall sales volume and production capacity, it can offer its products at
highly competitive prices.
DEPENDENCE ON MAJOR CUSTOMERS
For the fiscal years ended April 30, 1997 and 1996, Starbucks represented 27%
and 23% of the Company's total sales respectively. The Company's six major
customers represent approximately 47% and 42% of the Company's total sales
respectively for the fiscal years ended April 30, 1997 and 1996. However, other
than Starbucks, no other customer exceeded 8% of the Company's total sales in
either fiscal year. In addition, for the fiscal year ended April 30, 1997,
Starbucks represented 75% of the sales from the Company's Kent, Washington
facility.
If the Company lost the Starbucks' business, the current estimated reduction in
net income before taxes would be approximately $500,000. The loss in revenue
would be significantly offset by a reduction in overhead. The majority of the
reduction in overhead would result from the expected closure of the Washington
facility. The Company would have to reposition its West Coast marketing efforts
to compensate for this closure. However, because only approximately 6% of the
Company's non-Starbucks business is serviced from this facility, the potential
impact of this closure would be minimal.
The Company currently has a written supply agreement lasting through July 1,
1997 with Starbucks Coffee Company. This exclusive supplier agreement details
the manufacturing of flavored syrups meeting certain specifications and
complying with defined inspection and testing procedures. The price of the
syrups are defined within the agreement, along with a mechanism for price
increases associated with increased production costs. Under this agreement,
payment for products are required to be made within 30 days upon receipt of
invoice. Both the Company and Starbucks can cancel this agreement with 60
days written notice for price disagreements and Starbucks can cancel this
agreement with 90 days written notice if the Company will not match a lower
price from a competitor. The agreement will renew and continue from year to year
until canceled upon 60 days written notice by either party. Prior to July 1,
1997, neither the Company or Starbucks had issued a written notice of
termination, subsequently the agreement was automatically renewed for an
additional year. As of July 8, 1997, both parties were negotiating a revised
three year agreement. Both parties have agreed verbally on a revised agreement,
however this has not been reduced to a written agreement and has not been
executed by either party.
OPERATIONS AND MANAGEMENT/EMPLOYEES
As of July 8, 1997, the Company employed 43 people, all of which are full-time
employees. All employees are not unionized and the Company's management is
unaware of any efforts by its employees to unionize.
The Company adopted the 1994 Stock Option Plan (the "Plan") to help attract and
retain employees. at the Company's annual meeting of shareholders held on March
31, 1994. As of July 8, 1997, the Company has not issued any options under the
Plan. The Company is authorized to, and in the future may issue up to 275,000
common shares, no par value (the "Common Stock") under the plan.
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GOVERNMENTAL REGULATION
The manufacture and sale of the Company's products are subject to the
jurisdiction of a variety of regulatory authorities, including, but not limited
to, federal, state, county and city agencies administering laws and regulations
relating to health, labor, taxation and the food industry. The Company is also
subject to periodic inspections of its facilities by federal, state and local
governmental agencies.
The United States flavorings industry in general and the Company in particular
are subject to the regulations set forth in Section 403 of the Food, Drug and
Cosmetic Act which specifically establishes the FDA and gives the FDA authority
to establish regulations governing food manufacture and distribution. This
industry is governed by other federal agencies only as prescribed by the FDA and
such Act. Specifically, the Company is required to comply with regulations set
forth by the FDA in Title 21 of the Code of Federal Regulations. A few examples
of such regulations are Good Manufacturing Practices (21 CRF110) and Food
Labeling (21 CFR100).
The Company is also subject to and continues to monitor compliance with the
Federal Nutrition Labeling Act of 1990. In addition, the Company has established
a volunteer Hazard Analysis Critical Control Points (HACCP) program similar to
the FDA Seafood HACCP regulations.
The Company believes that it is in compliance with applicable government
regulations, including environmental, and these regulations are elementary to
its normal manufacturing practices. Consequently, the Company incurs minimal
additional costs to comply with these regulations.
ITEM 2. DESCRIPTION OF PROPERTY
EXECUTIVE OFFICE, MANSFIELD, OHIO MANUFACTURING AND WAREHOUSE FACILITY
As of July 1, 1997, the Company began moving into a new 50,000 square foot
facility, located at 30 Paragon Parkway in Mansfield, Ohio. This facility,
costing approximately $1,650,000, when fully completed and occupied will serve
as the Company's executive offices and the eastern United States manufacturing
and warehouse facility. It is estimated that the move will be completed by the
end of July, 1997. In addition to this facility, the Company owns a 12,600
square foot building at 64 Surrey Road in Mansfield, Ohio. This building is used
for additional warehouse and storage space. The Company also owns a 10,000
square foot building at 52 Surrey Road. This building will be either sold or
leased to a third party upon completion of the move to the new facility. The
Company owns both Surrey Road buildings clear of debt and will have a $750,000
mortgage note payable on the new facility upon its completion.
WESTERN UNITED STATES MANUFACTURING AND WAREHOUSE FACILITY
In March, 1995, the Company entered into a three year lease, with an option to
renew for an additional three year term, for a 18,000 square foot warehousing
and manufacturing facility in Kent,
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Washington outside of Seattle. This facility is comprised of 12,000 square feet
of warehouse space and 6,000 square feet of manufacturing space. The Company has
installed over $200,000 of automated manufacturing equipment in this facility.
The facility enables the Company to better serve its west coast customers and
provides increased manufacturing capacity. The base rent for this facility was
$5,667.00 per month through May 31, 1997 and $6,372.00 thereafter. In addition
to base rent, the Company is responsible for real estate taxes and operating
fees which, collectively, averaged $1,881.00 per month during the fiscal year
ended April 30, 1997. The Company is also required to maintain public liability
insurance.
NOTES PAYABLE
The Company will issue a $750,000 mortgage note payable to First Knox National
Bank, (the "Lender ") collateralized by the real estate located at 30 Paragon
Parkway Road in Mansfield, Ohio and by substantially all the assets of the
Company, upon completion of construction of the new facility. The Company
believes construction will be complete by the end of July 1997. The mortgage
note will be payable in monthly installments of $9,500.68, including variable
interest at a rate of 9.00%, beginning August 2, 1997. Final payment will be due
on July 2, 2007. The interest rate cannot change more than once every year and
will be based upon 0.75% over the Wall Street Journal Prime rate. The Wall
Street Journal Prime rate as of July 8, 1997 was 8.50%. All tangible property
must be fully insured. The financial covenants and ratios imposed by First Knox
National Bank with respect to such notes are as follows:
The Company must maintain (i) a minimum tangible net worth of not less than
$3,500,000.00, (ii) Working Capital in excess of $500,000.00, (iii) a ratio of
liquid assets to current liabilities in excess of 0.60 to 1.00 and (iv) a ratio
of current assets to current liabilities in excess of 1.45 to 1.00.
The term 'Tangible Net Worth" means the Company's total assets excluding all
intangible assets (i.e., goodwill, trademarks, patents, copyrights,
organizational expenses and similar intangible items, but including leaseholds
and leasehold improvements) less total Debt. The term "Debt" means all of the
Company's liabilities excluding Subordinated Debt. The term "Subordinated Debt"
means indebtedness and liabilities of the Company which have been subordinated
by written agreement to indebtedness owed by the Company to the Lender in form
and substance acceptable to the Lender. The term 'Working Capital" means the
Company's current assets, less the Company's current liabilities. The term
"Liquid Assets" means the Company's accounts receivable plus cash on hand plus
the Company's readily marketable securities. Except as provided above, all
computations made to determine compliance with the requirements contained in
this paragraph shall be made in accordance with accounting principles acceptable
to the Lender, applied on a consistent basis, and certified by the Company as
being true and correct.
EQUIPMENT AND ADEQUACY OF FACILITIES
The Company owns substantially all of the equipment at its executive offices and
manufacturing and warehouse facilities. This includes five automated production
lines. Four of these lines are located in Mansfield, Ohio with another located
at the Kent, Washington facility. Both the new Mansfield, Ohio and the
Washington facility have space for an additional automated production line. The
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Company believes that its facilities are adequate for its current and
anticipated needs and are adequately covered by insurance.
ITEM 3. LEGAL PROCEEDINGS
Except for litigation which may arise in connection with any of the foregoing
matters, the Company is not engaged in any material litigation other than
litigation arising in the ordinary course of business, none of which the Company
believes would have a materially adverse affect on the Company or its business
in the event of an unfavorable outcome.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Not Applicable.
[The remainder of this page intentionally left blank.]
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
On December 17, 1996, the Company's Common Stock was listed on The Nasdaq
SmallCap Market(SM) tier of the Nasdaq Stock Market(SM). The symbol is SLHN. As
of June 30, 1997, the Company had five listed market makers. The following table
set forth the high and low sales prices of the Commons Stock as reported by The
Nasdaq Stock Market(SM):
<TABLE>
<CAPTION>
<S> <C> <C>
Quarter Ended April 30, 1997 High $7.50 Low $5.75
Period of December 17, 1996 High $7.25 Low $6.00
thru January 31, 1997
</TABLE>
The following table sets forth the actual NASD inter-dealer transaction prices
for the Common Stock for the previous fiscal quarters as reported by Bloomberg
L.P.:
<TABLE>
<CAPTION>
<S> <C> <C>
Period of November 1, 1996 High $6.50 Low $5.00
thru December 16, 1996
Quarter Ended October 31, 1996 High $5.50 Low $4.75
Quarter Ended July 31, 1996 High $5.50 Low $4.75
Quarter Ended April 30, 1996 High $7.00 Low $5.00
Quarter Ended January 31, 1996 High $7.50 Low $6.00
Quarter Ended October 31, 1995 High $7.25 Low $5.00
Quarter Ended July 31, 1995 High $4.375 Low $4.00
</TABLE>
HOLDERS
At June 30, 1997, the approximate number of holders of record of shares of
Common Stock was 872.
DIVIDENDS
The Company has not paid any cash dividends during the last two fiscal years
ended April 30, 1997 and 1996 and has no present intention of paying dividends.
The Company cannot, without written prior consent of the First Knox National
Bank pay any dividends on the Company's Common Stock.
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RECENT SALES OF UNREGISTERED SECURITIES
On March 1, 1997, the Company issued 48,230 shares of Common Stock upon
conversion of $265,000 of Subordinated Convertible Redeemable Three-Year Notes,
without registration pursuant to Section 3(a)(9) of the Securities Act of 1933,
as amended.
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of results of operations and financial condition
contains forward-looking information that involves risks and uncertainties. The
Company's actual results could differ materially from those anticipated. Factors
that could cause or contribute to such differences include, but are not limited
to, development activity and construction process risks, availability of
financing for development, government regulations, competition, and issues
related to managing rapid growth and business expansion.
PLAN OF OPERATION
The Company's plans, for the fiscal year ended April 30, 1998, include
increasing market penetration of the DOLCE(R) and The Godiva Chocolatier Cafe'
Godiva brands of specialty chocolate flavored flavoring syrups. In addition, the
Company plans to start producing and developing the market for the DiNATURA(R)
premium natural flavored syrups and The Olive Garden Signature Syrups brand. In
addition, during the fiscal year ended April 30, 1998, the Company plans to move
into its new manufacturing, warehouse and executive office facility and install
a year 2000 compliant manufacturing and business computer system. The Company
also plans to enhance revenue growth through strategic acquisitions.
Specifically, the Company's plans for the DOLCE(R) brand of flavoring syrups
call for enhancing the distribution network through the addition of master
distributors. These master distributors will be large, financially sound
organizations that have the resources to readily market the Company's products
and order and receive product in larger quantities. The larger order quantities
will decrease freight costs per product unit. Because of the additional market
presence provided by the master distributor, the Company will be a stronger
competitor in the national market.
The Company's view is that the flavoring syrup market is weak in brand name
recognition. As a result, the Company initiated efforts to obtain partnering
arrangements that enhance the brand name recognition of its products in addition
to providing value services to the partnering entity. Currently, the Company
has entered into agreements with Godiva Chocolatier, Inc. for the use of the
Godiva Chocolatier Cafe' Godiva brand name and with Darden Restaurants Inc. for
use of The Olive Garden Signature Syrups brand name. The Company believes that
these brand names will encourage new consumers to use the product and
subsequently strengthen retail sales.
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<PAGE> 14
The Company's planned DiNATURA(R) premium natural flavored syrups rounds out the
Company's flavoring syrup line. This product, intended to be the "best in the
class", will enable the Company to cover all segments of the flavoring syrup
market. It is anticipated that this product line coverage will eliminate the
need for distribution channels to handle products from competitors.
The Company's move into its new manufacturing, warehouse and executive office
facility in Mansfield, Ohio should result in increased efficiencies in the
production and shipment of its products. This move will consolidate operations
from three buildings and a mobile trailer into one building. The installation of
a year 2000 compliant sophisticated manufacturing and business computer system
should enable the Company to reduce inventory carrying costs, improve production
planning and customer deliveries and allow significant improvements in product
and customer profitability analysis.
The Company's plans also include evaluating and proceeding with strategic
acquisitions to enhance revenue growth. The Company is looking for acquisitions
that will add volume to its existing product lines or that will compliment its
existing product lines. As of July 8, 1997, the Company is involved in the
search process but has not reached any agreement on a potential acquisition.
SELECTED SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FISCAL YEAR INFORMATION APRIL 30, 1997 APRIL 30, 1996 APRIL 30, 1995
<S> <C> <C> <C>
CURRENT ASSETS $ 2,956,601 $ 1,889,929 $ 2,567,618
TOTAL ASSETS $ 5,780,362 $ 3,973,037 $ 4,211,961
CURRENT LIABILITIES $ 1,050,774 $ 1,417,743 $ 924,388
TOTAL LIABILITIES $ 1,053,030 $ 1,562,243 $ 1,332,743
SHAREHOLDERS' EQUITY $ 4,727,332 $ 2,410,794 $ 2,879,218
TOTAL SALES $ 7,381,105 $ 5,514,753 $ 5,557,469
COST OF GOODS SOLD $ 5,432,588 $ 4,343,803 $ 3,935,180
SELLING, GENERAL AND $ 1,588,865 $ 1,774,118 $ 1,359,406
ADMINISTRATIVE EXPENSES
NET INCOME (LOSS) $ 402,272 $ (732,915) $ 156,718
EARNINGS (LOSS) PER SHARE $ 0.13 $ (0.26) $ 0.06
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
QUARTERLY INFORMATION FOR THE 4TH QUARTER 3RD QUARTER 2ND QUARTER 1ST QUARTER
YEAR ENDED APRIL 30, 1997
<S> <C> <C> <C> <C>
CURRENT ASSETS $ 2,956,601 $ 3,762,852 $ 2,635,424 $ 2,022,950
TOTAL ASSETS $ 5,780,362 $ 5,987,157 $ 4,630,923 $ 4,075,008
CURRENT LIABILITIES $ 1,050,774 $ 1,507,068 $ 1,674,796 $ 1,316,627
TOTAL LIABILITIES $ 1,053,030 $ 1,540,377 $ 2,039,851 $ 1,711,315
SHAREHOLDERS' EQUITY $ 4,727,332 $ 4,446,780 $ 2,591,072 $ 2,363,693
TOTAL SALES $ 1,888,778 $ 2,034,609 $ 2,117,080 $ 1,340,638
COST OF GOODS SOLD $ 1,433,659 $ 1,475,180 $ 1,512,394 $ 1,011,355
SELLING, GENERAL AND $ 412,495 $ 406,794 $ 408,321 $ 361,255
ADMINISTRATIVE EXPENSES
NET INCOME (LOSS) $ 15,578 $ 211,666 $ 227,379 $ (52,351)
EARNINGS (LOSS) PER SHARE $ 0.00 $ 0.07 $ 0.08 $ (0.02)
</TABLE>
<TABLE>
<CAPTION>
QUARTERLY INFORMATION FOR THE 4TH QUARTER 3RD QUARTER 2ND QUARTER 1ST QUARTER
YEAR ENDED APRIL 30, 1996
<S> <C> <C> <C> <C>
CURRENT ASSETS $ 1,889,929 $ 2,122,123 $ 2,339,566 $ 1,925,252
TOTAL ASSETS $ 3,973,037 $ 4,206,407 $ 4,434,344 $ 3,908,786
CURRENT LIABILITIES $ 1,417,743 $ 1,077,501 $ 1,098,327 $ 812,493
TOTAL LIABILITIES $ 1,562,243 $ 1,549,652 $ 1,586,397 $ 1,317,077
SHAREHOLDERS' EQUITY $ 2,410,794 $ 2,656,755 $ 2,847,947 $ 2,591,709
TOTAL SALES $ 1,207,141 $ 1,534,548 $ 1,797,953 $ 975,111
COST OF GOODS SOLD $ 933,061 $ 1,268,816 $ 1,352,399 $ 789,527
SELLING, GENERAL AND $ 475,138 $ 480,563 $ 395,239 $ 423,178
ADMINISTRATIVE EXPENSES
NET INCOME (LOSS) $ (248,757) $ (231,854) $ 35,205 $ (287,509)
EARNINGS (LOSS) PER SHARE $ (0.09) $ (0.08) $ 0.01 $ (0.10)
</TABLE>
13
<PAGE> 16
RESULTS OF OPERATIONS FOR THE YEARS ENDED APRIL 30, 1997 AND 1996
Net sales for the fiscal years ended April 30, 1997 and 1996 were $7,381,105 and
$5,514,753, respectively, which represents a 33.8% increase. For the fiscal year
ended April 30, 1997, private label sales increased by 63.4% and Dolce(R) brand
products increased by 20.7%, while the net sales of other Company products
decreased by 21.7% compared to the fiscal year ended April 30, 1996. Private
label, Dolce(R) brand products, and other Company products represented 68.9%,
16.3% and 14.8% of gross sales, respectively for the fiscal year ended April 30,
1997. The increase in private label sales was the result of significant sales
growth by several of the Company's private label customers, and the Company's
addition of several new private label customers. Dolce(R) brand products' sales
increased primarily as a result of increased sales from the mid-west United
States distributors. The net sales of other Company products decreased primarily
due to a loss of a Flavor-Mate(R) customer in January, 1996. The Company was
able to regain this Flavor-Mate(R) customer in January 1997. However the
business lost during the interim period represented 13.1% of the decrease in
other product sales. The remaining decrease in other product sales was related
to dropping the Liquid Spice product line and large decreases in sales of the
Gran'Mere's and Peppers and Salts product lines.
As a result of the performance of the Dolce(R) branded products in the fiscal
year ended April 30, 1997, the Company made changes in its sales staff and
distributor program in February and March of 1997 to stimulate sales of this
product line. In addition, the Company has also decided to dispose of the
Gran'Mere's and Peppers and Salts product lines to improve performance in the
other products sales category.
The increase in sales volume in the fiscal year ended April 30, 1997 permitted
the Company to better utilize its manufacturing facilities, resulting in cost of
sales, as a percentage of net sales, decreasing to 73.6% compared to 78.8% for
the fiscal years ended April 30, 1997 and 1996, respectively. Cost of sales
increased by $1,088,785 for the current year compared to the fiscal year ended
April 30, 1996. This increase primarily was a result of higher sales volume,
resulting in increased material, freight-in, labor, and plant supply costs. The
increase in cost of sales in the fiscal year ended April 30, 1997 was also the
result of increased depreciation and the decision to increase product testing by
Company personnel. In addition, tooling costs also increased as a result of new
private label customers in the fiscal year ended April 30, 1997. These increases
were partially offset by decreased costs associated with improved manufacturing
controls resulting in lower scrappage, a decrease in the cost of product testing
performed by outside services and a decrease in maintenance costs.
Selling, general and administrative expenses decreased by 10.4% or $185,253 for
the fiscal year ended April 30, 1997 compared to the fiscal year ended April 30,
1996. This decrease resulted from decreased participation in trade shows,
decreased magazine advertising, the reduction of outside professional financial
consulting services, less travel, a decrease in office supplies used, and lower
bad debt expense. These decreases were offset by increases in payroll expenses
incurred following the hiring of a Chief Financial Officer in January 1996,
promotional costs, sales commissions as a result of a revised sales staff
compensation program and higher sales volume, retail store product placement
("slotting") fees, personal property and real estate taxes, maintenance costs of
the Company's computer system, and insurance and shareholder relations costs
associated with the
14
<PAGE> 17
Company becoming a SEC reporting company.
Interest expense for the fiscal year ended April 30, 1997 decreased by $8,754
compared to the fiscal year ended April 30, 1996. The decrease primarily
reflects bank borrowings that were paid in full on November 6, 1996.
The Company recorded a deferred income tax benefit of $101,972 for the year
ended April 30, 1997. This benefit is a result of the reversal of a previously
recorded valuation allowance due to the anticipated usage of the Company's net
loss carry forwards.
As a result of the foregoing, the Company reported net income of $402,372, or
$0.13 per weighted average number of Common Stock outstanding, for the fiscal
year ended April 30, 1997 compared to a net (loss) of ($732,915), or ($0.26) per
weighted average number of common stock outstanding, for the fiscal year ended
April 30, 1996. The weighted average number of Common Stock outstanding
increased to 2,994,679 for the current year compared to 2,781,249 for the
previous last year. The increase primarily reflects increased shares outstanding
as a result of the Company's stock offering, warrants exercised, conversion of
subordinated debt into Common Stock and treasury stock sold.
Net income for the 4th quarter of the fiscal year ended April 30, 1997 was
reduced because of year end inventory and deferred income tax adjusting entries.
The amount of the year end inventory adjustment was approximately $18,000. The
amount of the year end deferred income tax adjustment was $23,000.
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
Earnings Per Share. SFAS No. 128, establishes standards for computing and
presenting earnings per share (EPS) and supersedes APB Opinion No. 15, Earnings
Per Share (Opinion 15). SFAS No. 128 replaces the presentation of primary EPS
with a presentation of basic EPS which excludes dilution and is computed by
dividing income available to common stockholders by the weighted average number
of common shares outstanding during the period. This statement also requires
dual presentation of basic EPS and diluted EPS on the face of the income
statement for all periods presented. Diluted EPS is computed similarly to fully
diluted EPS pursuant to Opinion 15, with some modifications. SFAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods. Early adoption is not permitted and the
statement requires restatement of all prior EPS data presented after the
effective date.
The Company will adopt SFAS No. 128 effective with the issuance of its third
quarter results for the fiscal year ending April 30, 1998. Per share data
calculated in accordance with this pronouncement for the years ended April 30,
1997 and 1996, are consistent with the current disclosures.
RESULTS OF OPERATIONS FOR THE YEARS ENDED APRIL 30, 1996 AND 1995
Net sales for the fiscal years ended April 30, 1996 and 1995 were $5,514,753 and
$5,557,469, respectively, which represents a 0.8% decrease. For the fiscal year
ended April 30, 1996, private label sales increased by 2.2% and Dolce(R) brand
products increased by 10.5%, while the Net Sales
15
<PAGE> 18
of other Company products decreased by 7.5% compared to the fiscal year ended
April 30, 1996. Private label, Dolce(R) brand products and other Company
products represented 56.5%, 18.1% and 25.4% of gross sales, respectively for the
fiscal year ended April 30, 1996 and 55.8%, 16.5% and 27.7% of gross sales,
respectively for the fiscal year ended April 30, 1995. Private label sales
generally increased by 13.8% for the fiscal year ended April 30, 1996, however a
large decrease in sales to one customer resulted in the overall 2.2% increase.
The decrease in private label sales to this one customer was a result of a
special production run that occurred during the year ended April 30, 1995.
Dolce(R) brand products sales increased primarily as a result of increased
exposure from advertising and trade shows. The decrease in net sales of other
Company products was the result of lower sales in most of the products within
this category except for increases in the My Hero(TM) Submarine Dressing and
FLAVOR-MATE(R) syrups product lines. The decrease in most of the other Company
products was the result of the elimination of unprofitable marketing programs
for the year ended April 30, 1996.
As a result of performance of the other Company products for the fiscal year
ended April 30, 1996, the Company decided to eliminate the Liquid Spice,
Chile/Salsa Kits and the Herbs & Spices product lines to improve sales
performance.
The small decrease in sales volume and the additional expenses related to the
opening and operations of the Washington manufacturing facility resulted in the
cost of sales, as a percentage of net sales, increasing to 78.8% compared to
70.8% for the fiscal year ended April 30, 1996 compared to the fiscal year ended
April 30, 1995. Cost of sales increased by $408,623 for the fiscal year ended
April 30, 1996 compared to the fiscal year ended April 30, 1995. The increase in
cost of sales was primarily the result of increased depreciation, additional
expenses associated with the operation of the Washington facility, the startup
and operation of the technical services staff and additional quality assurance
testing.
Selling, general and administrative expenses increased by 30.5% or $414,712 for
the fiscal year ended April 30, 1996 compared to the fiscal year ended April 30,
1995. This increase resulted from expenses associated with developing a
professional sales staff, expanded trade show costs, additional advertising
expenses, increased usage of outside professional financial consulting services,
increased travel, increased usage of office supplies, the hiring of a Chief
Financial Officer in January 1996 and higher bad debt expense.
Interest expense for the fiscal year ended April 30, 1996 increased by $6,903
compared to the fiscal year ended April 30, 1995. The increase primarily
reflects increased bank borrowings that occurred from October 1, 1995 through
April 30, 1996.
The Company recorded a deferred income tax expense of $35,913 for the fiscal
year ended April 30, 1996 compared to $49,869 in total income tax expense for
the fiscal year ended April 30, 1995.
As a result of the foregoing, the Company reported net loss of ($732,915), or
($0.26) per weighted average number of Common Stock outstanding, for the fiscal
year ended April 30, 1996 compared to a net income of 156,718, or $0.06 per
weighted average number of Common Stock outstanding, for the fiscal year ended
April 30, 1995. The weighted average number of Common Stock
16
<PAGE> 19
outstanding increased to 2,781,249 for the fiscal year ended April 30, 1996
compared to 2,472,950 for the fiscal year ended April 30, 1995. The increase
primarily reflects increased shares outstanding as a result of the private
placement of Common Stock issued during the latter part the fiscal year ended
April 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
On April 30, 1997, the Company's working capital was $1,905,827 with a working
capital ratio of 2.81 to 1. The Company's working capital ratio has improved for
four consecutive quarters. The working capital and working capital ratio for the
quarters ended January 31, 1997, October 31, 1996, July 31, 1996 and April 30,
1996 were $2,255,784 and 2.50 to 1, $960,628 and 1.57 to 1, $706,323, and 1.54
to 1, and $472,186 and 1.33 to 1, respectively. The increase in working capital
for the fiscal year ended April 30, 1997 was primarily a result of the Company's
stock offering, which generated $1,635,681 in net proceeds, the conversion of a
$350,000 bank line of credit to a note payable, conversion of $265,000 of
subordinated debentures into Common Stock, operating income for the period and
the effect of the current deferred tax asset partially offset by the payment of
long term debt totaling $536,707, payment of $35,000 of subordinated debentures,
and investment in a new manufacturing and office facility in Mansfield, Ohio.
The Company's operating activities, for the fiscal year ended April 30, 1997,
provided net cash of $453,965. The Company used $1,546,080 to acquire equipment,
start construction of a new manufacturing and office facility in Mansfield,
Ohio, invest in life insurance policies, and make principal payments on notes
payable and capital leases. The sale of stock by the Company and the conversion
of warrants provided net cash of $1,699,740. Consequently, during this period,
cash and cash equivalents increased $607,625. During this period, the Company
received net cash of $1,752,486 from non-recurring sources and made
non-recurring payments on notes payable and subordinated debentures of $571,707.
The Company expects future operating activities to continue to provide cash for
investing and financing activities. However, this cash may be insufficient to
meet the Company's possible investing and financing activities.
On December 2, 1996, the Company formalized a $750,000 bank
mortgage/construction loan agreement and a $400,000 bank line of credit.
On November 22, 1996, the Company's Board of Directors authorized the
construction of a new manufacturing and office facility. The Company is
currently constructing this facility, estimated to cost approximately
$1,650,000. In addition, the Company plans to purchase equipment estimated to
cost approximately $512,005. As of April 30, 1997, the Company's expenditures
for the authorized equipment and facility totaled $931,322.
The Company during the fiscal year ending April 30, 1997 has experienced an
inflationary increase in the cost of one of its principal raw materials. The
Company has raised the selling price of its products to cover this cost
increase.
The Company believes that the bank line of credit and cash from operating
activities will be sufficient to finance the Company's operations and planned
capital expenditures for the next 12
17
<PAGE> 20
months.
ITEM 7. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL SCHEDULES
1. Financial Statements of Stearns & Lehman, Inc. Page
<S> <C>
Report of Independent Public Accountants (dated June 20, 1997) .............................19
Balance Sheets as of April 30, 1997 and 1996 ...............................................20
Statements of Operations for the years ended April 30, 1997 and 1996 .......................22
Statements of Shareholders' Equity for the years ended April 30, 1997 and 1996 .............23
Statements of Cash Flows for the years ended April 30, 1997 and 1996 .......................24
Notes to Consolidated Financial Statements .................................................26
</TABLE>
18
<PAGE> 21
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Stearns & Lehman, Inc.
We have audited the accompanying balance sheets of Stearns & Lehman, Inc. as of
April 30, 1997 and 1996, and the related statements of operations, shareholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Stearns & Lehman, Inc. as of
April 30, 1997 and 1996, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P
------------------------------
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
June 20, 1997
19
<PAGE> 22
<TABLE>
<CAPTION>
STEARNS & LEHMAN, INC.
BALANCE SHEETS
APRIL 30, 1997 AND 1996
ASSETS 1997 1996
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 730,833 $ 123,208
Trade accounts receivable, net of allowance for doubtful accounts
of $46,000 in 1997 and $56,000 in 1996 884,459 584,665
Inventory 1,239,671 1,132,548
Prepaid expenses and other 75,639 49,508
Deferred income taxes 25,999
--------------- --------------
Total current assets 2,956,601 1,889,929
--------------- --------------
Property and equipment:
Land 80,848 74,653
Construction in progress 941,199 99,282
Machinery and equipment 1,412,061 1,309,007
Office equipment 213,140 193,977
Building improvements 91,716 91,716
Buildings 137,734 137,734
Leasehold improvements 43,003 43,003
Tooling 59,344 22,254
Vehicles 36,964 25,332
--------------- --------------
3,016,009 1,996,958
Less: accumulated depreciation (780,538) (602,297)
--------------- --------------
Net property and equipment 2,235,471 1,394,661
--------------- --------------
Goodwill 441,833 543,671
Cash surrender value of life insurance 23,611 19,646
Trademarks and patents 4,560 5,257
Deferred stock offering costs 50,474
Deferred income taxes 75,973
Other assets 42,313 69,399
--------------- --------------
Total assets $ 5,780,362 $ 3,973,037
=============== ==============
</TABLE>
CONTINUED 20
<PAGE> 23
STEARNS & LEHMAN, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
Current liabilities:
<S> <C> <C>
Lines of credit $ 350,000
Current portion of notes payable 37,578
Accounts payable $ 801,672 485,407
Accrued expenses 239,275 228,045
Subordinated convertible notes 300,000
Current portion of capital lease obligations 9,827 16,713
------------ -------------
Total current liabilities 1,050,774 1,417,743
------------ -------------
Long-term liabilities:
Notes payable, net of current portion 132,416
Capital lease obligations, net of current portion 2,256 12,084
------------ -------------
Total long-term liabilities 2,256 144,500
------------ -------------
Total liabilities 1,053,030 1,562,243
------------ -------------
Shareholders' equity:
Common stock, no par value; 4,000,000 shares authorized,
3,230,052 and 2,827,672 issued and 3,226,752 and
2,824,372 outstanding as of April 30, 1997 and 1996,
respectively 3,563 3,118
Additional paid-in capital 5,091,920 3,178,099
Accumulated deficit (354,951) (757,223)
------------ -------------
4,740,532 2,423,994
Less treasury stock, at cost 3,300 shares (13,200) (13,200)
------------ -------------
Total shareholders' equity 4,727,332 2,410,794
------------ -------------
Total liabilities and shareholders' equity $ 5,780,362 $ 3,973,037
============ =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE> 24
STEARNS & LEHMAN, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED APRIL 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Sales $ 7,381,105 $ 5,514,753
Cost of sales 5,432,588 4,343,803
------------ ------------
Gross profit 1,948,517 1,170,950
Selling, general and administrative expenses 1,588,865 1,774,118
------------ ------------
Income (loss) from operations 359,652 (603,168)
------------ ------------
Other income (expense), net:
Interest expense (53,814) (62,568)
Interest income 13,952 3,577
Other, net (14,119) (34,843)
------------ ------------
(53,981) (93,834)
------------ ------------
Net income (loss) before income tax expense 305,671 (697,002)
------------ ------------
Income tax (benefit) expense:
Current 5,371
Deferred (101,972) 35,913
------------ ------------
Total income tax (benefit) expense (96,601) 35,913
------------ ------------
Net income (loss) $ 402,272 $ (732,915)
============ ============
Earnings (loss) per share $ .13 $ (.26)
============ ============
Weighted-average shares outstanding 2,994,679 2,781,249
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE> 25
STEARNS & LEHMAN, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED APRIL 30, 1997 AND 1996
<TABLE>
<CAPTION>
ADDITIONAL TOTAL SHARE-
COMMON COMMON PAID-IN ACCUMULATED TREASURY HOLDERS'
SHARES STOCK CAPITAL DEFICIT STOCK EQUITY
<S> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1995 2,744,834 $ 3,098 $ 2,957,674 $ (24,308) $ (57,246) $ 2,879,218
Net loss (732,915) (732,915)
Sale of treasury stock, net 65,256 204,449 57,246 261,695
Repurchase of common stock (3,300) (13,200) (13,200)
Purchase of warrants (36,750) (36,750)
Purchase price adjustment 17,582 20 52,726 52,746
------------ ----------- ------------ ------------ ----------- ------------
Balance at April 30, 1996 2,824,372 3,118 3,178,099 (757,223) (13,200) 2,410,794
Net income 402,272 402,272
Repurchase and retirement of
common stock (95) (664) (664)
Conversion of debentures to
common stock 48,230 53 264,947 265,000
Issuance of common stock 354,245 392 1,649,538 1,649,930
------------ ----------- ------------ ------------ ----------- ------------
Balance at April 30, 1997 3,226,752 $ 3,563 $ 5,091,920 $ (354,951) $ (13,200) $ 4,727,332
============ =========== ============ ============ =========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE> 26
STEARNS & LEHMAN, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED APRIL 30, 1997 AND 1996
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 402,272 $ (732,915)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Bad debt expense 18,820 63,445
Depreciation and amortization 257,636 270,628
Loss on disposal of fixed assets 1,582 32,416
Deferred income taxes (101,972) 35,913
Changes in assets and liabilities:
Trade accounts receivable (318,614) 10,423
Inventory (107,123) 8,642
Prepaid expenses and other (26,131) 26,423
Accounts payable 316,265 (124,176)
Accrued expenses 11,230 108,403
------------ ------------
Net cash provided by (used in) operating activities 453,965 (300,798)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (1,026,653) (645,523)
Proceeds from sale of property and equipment 3,500 41,766
Cash surrender value of life insurance, net (3,966) (11,146)
Purchase of other assets, net (23,686)
Proceeds from purchase price adjustment 52,746
------------ ------------
Net cash used in investing activities (974,373) (638,589)
------------ ------------
Cash flows from financing activities:
Net borrowings under revolving credit agreements 351,000
Principal payments on long-term debt and capital leases (571,707) (90,349)
Payments for deferred stock offering costs (50,474)
Purchase of treasury stock (664) (13,200)
Purchase of warrants (36,750)
Net proceeds from issuance of common stock 1,700,404 261,695
------------ ------------
Net cash provided by financing activities 1,128,033 421,922
------------ ------------
Net increase (decrease) in cash and cash equivalents 607,625 (517,465)
Cash and cash equivalents, beginning of year 123,208 640,673
------------ ------------
Cash and cash equivalents, end of year $ 730,833 $ 123,208
============ ============
</TABLE>
CONTINUED
24
<PAGE> 27
STEARNS & LEHMAN, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 61,582 $ 62,568
============= ============
Supplemental schedule of noncash financing and investing activities:
Conversion of subordinated debentures to common stock $ 265,000
=============
Conversion of line of credit to note payable $ 350,000 $ 163,000
============= ============
Purchase price adjustment:
Goodwill $ (52,746)
Additional paid-in capital 52,726
Common stock 20
------------
$ 0
============
</TABLE>
In 1997, the Company allocated $50,474 of deferred stock offering costs,
incurred in 1996, against equity as a result of the common stock issuance.
The accompanying notes are an integral part of the financial statements.
25
<PAGE> 28
STEARNS & LEHMAN, INC.
NOTES TO THE FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. NATURE OF BUSINESS: Stearns & Lehman, Inc. (the Company) is engaged in
the business of manufacturing and selling specialty food products,
including extracts, flavorings, liquid spices and Italian syrups. The
principal market for the Company's products is the continental United
States.
b. INVENTORIES: Inventory is valued at the lower of most recent costs or
market which approximates cost using the first-in, first-out (FIFO)
method. Indirect costs that do not relate to production of finished
goods, including general and administrative expenses, are charged to
expense as incurred.
c. PROPERTY AND EQUIPMENT: Property and equipment are stated at cost.
Depreciation and amortization are computed using the straight-line
method over the following estimated useful lives: buildings and
building improvements, 30 to 40 years; machinery and equipment, 5 to
10 years; tooling, 2 to 10 years; and vehicles, 3 to 5 years.
Leasehold improvements are amortized over the shorter of their useful
lives or the term of the lease. Depreciation expense was $180,761 in
1997 and $193,450 in 1996. Repairs and maintenance are charged to
expense as incurred; major renewals and betterments are capitalized.
When assets are sold, retired, or otherwise disposed of, the related
cost and accumulated depreciation are removed from the applicable
accounts, and any gain or loss from disposition is included in
operations.
d. EARNINGS PER SHARE: Earnings per share are computed based on the
weighted-average number of common shares outstanding during the year.
e. CASH AND CASH EQUIVALENTS: The Company considers all highly liquid
debt instruments purchased with an initial maturity of three months or
less to be cash equivalents. At April 30, 1997, the Company had
$537,798 in cash equivalents, of which, $433,954 has been allocated
for the construction of the new manufacturing and office building (see
Note 12), pursuant to the Form SB-1 registration statement. The
Company had no cash equivalents in 1996. Cash consists primarily of
demand deposits held principally with one financial institution.
f. INCOME TAXES: The Company provides for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, Accounting
for Income Taxes, which requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of
events that have been recognized in the financial statements or tax
returns. Under this method, deferred tax assets and liabilities are
recognized based on the difference between the financial statement and
tax basis of assets and liabilities using enacted tax rates.
26
<PAGE> 29
STEARNS & LEHMAN, INC.
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
g. REVENUE RECOGNITION: Sales are recorded when products are shipped to
the customer.
h. ADVERTISING AND PROMOTION COSTS: Advertising and promotion costs are
charged to operations as incurred. Advertising and promotion expense
was $197,780 in 1997 and $215,588 in 1996.
i. GOODWILL: Goodwill represents the excess value of the Company's stock
issued over the fair value of net assets of an acquired company (see
Note 7). Goodwill is amortized on a straight-line basis over 12 years.
Amortization expense was $49,092 for the years ended April 30, 1997
and 1996, and accumulated amortization was $147,277 and $98,184 at
April 30, 1997 and 1996, respectively.
j. FOREIGN SALES: The Company transacts all foreign sales to distributors
and customers in United States currency.
k. USE OF ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
l. CONCENTRATION OF RISK: The Company purchases certain products from
sole-source suppliers of which there are currently no other suppliers
used by the Company. A change in suppliers during certain peak periods
could cause a delay in production and a possible loss of sales, which
would affect operating results adversely.
The Company has six major customers which represented approximately
47% of sales for the year ended April 30, 1997 and four major
customers which represented approximately 37% of sales for the year
ended April 30, 1996. The loss of any of these customers could have an
adverse impact on the operating results of the Company.
The Company maintains virtually all of its banking relationships with
one financial institution.
m. RECLASSIFICATIONS: Certain amounts in the 1996 financial statements
have been reclassified to conform with the current-year presentation.
27
<PAGE> 30
STEARNS & LEHMAN, INC.
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
2. INVENTORY:
The major components of inventory at April 30, 1997 and 1996 were as
follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Raw materials $ 736,281 $ 429,279
Work in process 7,278 18,012
Finished goods 496,112 685,257
---------- ----------
Total inventory $1,239,671 $1,132,548
========== ==========
</TABLE>
3. LINES OF CREDIT:
On May 5, 1996, the Company converted a $350,000 revolving line of credit
agreement to a five-year term note with monthly principal payments of
$5,833 plus interest at prime plus 1% through May 5, 2001. On November 6,
1996, the Company completely paid the balance outstanding on this five year
term note payable and the balance outstanding on another note payable to a
bank due on May 5, 2000. The total of these payments was $422,353. On
December 2, 1996, the Company signed a Line of Credit Agreement with a bank
for $400,000 with interest at a rate of prime plus 0.5% and signed a
Construction and Business Loan Agreement with a bank for $750,000 for the
financing of a manufacturing and office building, with a term of 120
monthly payments beginning August 2, 1997 with interest at a rate of prime
plus 0.75%. Both of these agreements are collateralized by substantially
all the assets of the Company and contain covenants that require the
Company to maintain a certain minimum working capital and net worth and
maintain a certain quick and current ratio. As of April 30, 1997, there
were no outstanding balances under either of these bank agreements.
28
<PAGE> 31
STEARNS & LEHMAN, INC.
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
4. NOTES PAYABLE:
The Company had no notes payable at April 30, 1997. Notes payable at April
30, 1996 consisted of the following:
<TABLE>
<S> <C>
Note payable to a bank, collateralized by real estate,
payable in monthly installments of $682 including
interest at a rate of prime plus 2% adjusted every
three years and subject to a minimum interest rate of
3.5% and a maximum interest rate of 13.5% with the
maximum decrease or increase in interest rates not to
exceed 2% at any one time, due on February 14, 2002. $ 37,877
Note payable to a bank, collateralized by accounts receivable,
inventory and equipment, payable in monthly installments
of $2,717 plus interest at a rate of prime (8.25% at April
30, 1996) plus 1.25%, due on May 5, 2000. 132,117
----------------
Total notes payable 169,994
Less current portion 37,578
----------------
$ 132,416
================
</TABLE>
5. SUBORDINATED CONVERTIBLE REDEEMABLE THREE-YEAR NOTES:
The Company had $300,000 of subordinated convertible redeemable notes which
bore interest at a rate of 9% per annum and matured on March 1, 1997. These
notes were convertible into common stock at the rate of 182 shares for
every $1,000 of principal. On the maturity date, $265,000 of notes were
converted into 48,230 shares of common stock and the Company paid $35,000
in principal.
6. LEASE COMMITMENTS:
The Company leases buildings and certain office and production equipment
under noncancelable operating lease agreements expiring through fiscal
1999. Certain leases provide for future minimum rent escalations.
29
<PAGE> 32
STEARNS & LEHMAN, INC.
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
Minimum rental commitments under noncancelable operating leases at April
30, 1997 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $105,221
1999 13,358
--------
$118,579
========
</TABLE>
Total rent expense charged to operations for all operating leases was
$133,178 in 1997 and $136,960 in 1996.
The Company has various capital lease agreements for equipment. The present
value of the minimum lease payments has been capitalized and the related
asset and obligation recorded. Future minimum lease payments under capital
leases, together with the present value of the minimum lease payments as of
April 30, 1997, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING APRIL 30,
<S> <C>
1998 $10,696
1999 2,301
-------
Total minimum lease payments 12,997
Less amounts representing
interest 914
-------
Present value of net minimum
lease payments 12,083
Less current maturities 9,827
-------
$ 2,256
=======
</TABLE>
7. BUSINESS COMBINATION:
On April 30, 1994, the Company issued 240,000 shares of its common stock in
exchange for 100% of the outstanding stock of Select Origins, Inc.
(Select). The acquisition has been accounted for as a purchase transaction
and accordingly, the fair value of the stock issued was allocated to
Select's assets and liabilities based on its estimated fair value as of the
acquisition date. The excess value of the Company's stock issued over the
fair value of the net assets acquired has been recorded as goodwill.
36,000 of the shares issued were placed in escrow to provide security to
the Company in the event the Company suffers any losses arising from
misrepresentations by Select or its former shareholders. During fiscal
1995, the Company received 18,526 of the escrow shares pursuant
30
<PAGE> 33
STEARNS & LEHMAN, INC.
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
to an agreement with former shareholders of Select. On June 29, 1995, the
Company filed a claim for the remaining 17,474 shares held in escrow.
The purchase also allowed for the issuance of 50,000 additional shares
(augmentation) if certain events did not occur subsequent to the merger.
The Company believes that only one of two objectives stated in the Purchase
Agreement needed to be achieved, and if neither was achieved, then
augmentation would occur. The Company did not achieve one of the
objectives. Based on the interpretation by certain former shareholders of
Select that both objective must be achieved, they filed a claim for the
shares to augmentation on July 21, 1995.
As of April 30, 1997, the Company has settled the escrow and augmentation
issues with certain former shareholders of Select for 15,594 shares of
which 15,499 shares were in escrow on April 30, 1996 and 95 shares were
contingently issuable upon settlement. The Company repurchased and retired
the 95 contingently issuable shares (see Note 8). The Company intends to
settle the escrow and augmentation issues with the remaining former
shareholders of Select for 1,988 shares of which 1,975 were in escrow on
April 30, 1997 and April 30, 1996 and 13 were contingently issuable upon
settlement. The settlement has been recorded in the financial statements at
April 30, 1997 and 1996 as an adjustment to the original purchase price.
8. COMMON STOCK TRANSACTIONS:
Between the dates of November 4, 1996 and December 20, 1996, the Company
issued 349,495 shares at $5.50 per share pursuant to the Company's Form
SB-1 registration statement that was declared effective by the Securities
and Exchange Commission on October 22, 1996.
During 1997, the Company repurchased 95 shares of common stock at an
average price of $6.99 per share pursuant to a Settlement Agreement between
former Select Origins, Inc. shareholders, and the Company (see Note 7).
In fiscal 1997, 4,750 shares of the Company's common stock were issued at
$3.00 per share upon exercise of warrants (see Note 9).
On March 1, 1997, the Company issued 48,230 shares of common stock upon
conversion of $265,000 in Subordinated Convertible Redeemable Three-Year
Notes (see Note 5).
9. WARRANTS TO PURCHASE COMMON STOCK:
During 1996, the Company issued warrants to two directors for each to
purchase 5,000 shares of common stock at an exercise price of $5.50 per
share expiring April 10, 2005. The warrants were fully exercisable at the
date of grant.
31
<PAGE> 34
STEARNS & LEHMAN, INC.
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
During 1996, the Company issued warrants to a broker in connection with a
1995 Private Placement Memorandum to purchase 13,561 shares of common stock
at an exercise price of $3.15 per share expiring October 14, 2000. The
warrants were fully exercisable at the date of grant.
During 1996, the Company became aware of the possibility that a former
underwriter for the Company may have effectuated trades of certain of the
Company's securities in violation of certain state and federal securities
law and regulations. The Company made offers of recision to the current
holders of these securities pursuant to which the Company offered to
purchase these securities for a price equal to the price the current
holders paid for these securities. The Company repurchased 14,000 warrants
under these offers of recision. The Company reduced additional paid-in
capital by $36,750 as a result of this transaction.
During 1997, the Company issued warrants to two directors to purchase 5,000
and 3,798 shares of common stock at an exercise price of $5.50 per share,
which expire March 14, 2001. The warrants were fully exercisable at the
date of grant.
During 1997, the Company issued warrants to Quantum Capital Corp., d.b.a.
Diversified Capital Markets to purchase 34,950 shares of common stock at an
exercise price of $5.75 per share expiring October 22, 2001 pursuant to an
Underwriting Agreement dated August 28, 1996 pertaining to the Company's
Form SB-1 registration statement. The warrants vest 100% after twelve
months, commencing October 22, 1996.
During 1997, 4,750 shares of the Company's common stock were issued at
$3.00 per share upon exercise of warrants.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its plans. Accordingly, no compensation cost has been
recognized for warrants granted. The Company did not recognize any expense
for warrants granted during the year ended April 30, 1997. Had compensation
cost for the warrants granted been determined based on the fair value at
the grant dates for awards under that plan consistent with the method of
SFAS No. 123, Accounting for Stock-Based Compensation, the Company's net
income and earnings per share would have been reduced to the pro forma
amounts indicated below. The 1997 pro forma amounts include the effect of
the reversal of prior years pro forma net operating losses under SFAS No.
123.
32
<PAGE> 35
STEARNS & LEHMAN, INC.
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C> <C>
Net income (loss) Pro forma $ 379,887 $ (802,888)
As reported 402,272 (732,915)
Earnings (loss) per share Pro forma 0.12 (0.29)
As reported 0.13 (0.26)
</TABLE>
In determining the pro forma amount of stock-based compensation on a basis
consistent with SFAS No. 123, the fair value of each warrant grant is
estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions used for grants in 1997 and
1996, respectively: no dividend yield; expected volatility 63.7% for both
years; risk-free interest rate of 6.03% and 6.12%; and expected life of 3.0
years and 5.3 years.
A summary of the status of the Company's warrants as of April 30, 1997 and
1996, respectively; and changes during the years then ended is presented
below:
<TABLE>
<CAPTION>
1997 1996
---------------------------- -------------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
WARRANTS SHARES PRICE SHARES PRICE
------------ -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 100,367 $ 3.49 90,806 $ 3.25
Granted 43,748 $ 5.70 23,561 $ 4.15
Cancelled/recissioned (14,000) $ 3.00
Exercised (4,750) $ 3.00
Outstanding at end of year 139,365 $ 4.20 100,367 $ 3.49
Warrants exercisable at year-end 104,415 100,367
Weighted-average fair value of
warrants granted during the
year utilizing Black-Scholes
option-pricing model $ 3.15 $ 2.97
</TABLE>
33
<PAGE> 36
STEARNS & LEHMAN, INC.
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
The following table summarizes information about warrants outstanding at
April 30, 1997:
<TABLE>
<CAPTION>
NUMBER WEIGHTED- NUMBER
OUTSTANDING AVERAGE EXERCISABLE
AT APRIL 30, REMAINING AT APRIL 30,
EXERCISE PRICES 1997 LIFE 1997
<S> <C> <C> <C>
$3.00 43,456 3.8 years 43,456
$3.15 13,561 3.5 years 13,561
$3.50 25,000 1.7 years 25,000
$5.50 18,798 8.4 years 18,798
$5.75 38,550 4.5 years 3,600
------- --------- -------
139,365 4.2 years 104,415
======= ========= =======
</TABLE>
10. STOCK OPTION PLAN:
Effective March 4, 1994, the Company adopted the 1994 Stock Option Plan
(the Plan). The shares that may be issued subject to options granted under
the Plan shall not exceed 275,000 shares in aggregate. The options granted
under the Plan may be designed as incentive stock options or nonqualified
stock options, at the discretion of the committee designated by the Board
of Directors to administer the Plan. The option price for nonqualified
stock options shall not be less than 100% of the fair market value of a
share on the effective date of the grant. The option price for incentive
stock options shall not be less than 110% of the fair market value of a
share on the effective date of the grant. As of April 30, 1997 and 1996, no
options have been granted.
34
<PAGE> 37
STEARNS & LEHMAN, INC.
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
11. INCOME TAXES:
The components of the net deferred tax asset at April 30, 1997 and 1996
are as follows:
<TABLE>
<CAPTION>
1997 1996
Deferred tax assets:
<S> <C> <C>
Net operating loss carryforwards $ 315,982 $ 430,117
Accrued expenses 26,782 26,600
Other 1,763
Allowance for doubtful accounts 17,480 21,280
------------ -----------
Gross deferred tax assets 362,007 477,997
Deferred tax liabilities:
Property and equipment 134,652 107,818
------------ -----------
Net deferred tax asset before
valuation allowance 227,355 370,179
Valuation allowance (125,383) (370,179)
------------ -----------
Net deferred tax asset $ 101,972 $ 0
============ ===========
</TABLE>
The Company had net operating loss carryforwards of $479,687 and $748,079
at April 30, 1997 and 1996 respectively. These net operating losses expire
November 30, 2007 through April 30, 2011. In addition, the Company had net
operating loss carryforwards available of $398,041 and $431,211 at April
30, 1997 and 1996, respectively, from the purchase of Select, of which
$33,170 is available to deduct each year through April 30, 2009.
A valuation allowance of $125,383 was recorded against the net deferred tax
assets due to the potential uncertainty of their recoverability in future
years. As of April 30, 1996, a valuation allowance had been provided
against the full amount of the net deferred tax asset due to uncertainty
regarding their recoverability at that time.
The Company utilized approximately $301,600 of net operating carryforwards
in fiscal 1997.
35
<PAGE> 38
STEARNS & LEHMAN, INC.
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
A reconciliation between the statutory federal income tax rate and the
effective income tax on pre-tax earnings follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Statutory income tax rate 34.0% (34.0)%
Local income tax, net of federal
income tax effect 1.1%
Permanent differences 6.6% 2.8%
Adjustments to prior year tax
calculations 3.6%
Reduction in valuation allowance (80.1)%
Increase in valuation allowance 36.0%
Other items, net 3.2% .4%
------------- -----------
Effective income tax rate (31.6)% 5.2%
============= ===========
</TABLE>
12. MANUFACTURING AND OFFICE BUILDING:
On November 27, 1996, the Company entered into an agreement to construct a
50,000 square foot manufacturing and office building. As of April 30, 1997,
the construction of the building was approximately 61% complete.
13. SUPPLIER AGREEMENT:
The Company has an agreement to supply a customer with a product at
specified prices. The agreement is effective July 1, 1994, with an initial
term of three years, expiring on July 1, 1997.
The agreement shall terminate at the end of the initial term if written
notice to terminate is given by either party at least 60 days prior to the
last day of the initial term. Otherwise, following the initial term, the
agreement shall renew and continue from year to year until canceled upon 60
days written notice by either party.
14. ROYALTY COMMITMENTS:
As a result of the Select purchase (see Note 7), the Company is required to
pay royalty payments for sales of the Gran'Meres' brand name. The required
payments are the greater of $35,000 or 5% of gross sales for the calendar
years ended December 31, 1995 and 1996, 3% of gross sales for the calendar
years 1997, 1998 and 1999 and 2% of gross sales for the calendar years 2000
through 2016. Accordingly, the Company has accrued $70,479 and $70,000 at
April 30, 1997 and 1996, respectively. After December 31, 1998, the Company
may terminate
36
<PAGE> 39
STEARNS & LEHMAN, INC.
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
this royalty agreement for a minimum buyout payment of $225,000. As of May
23, 1997, the Company has reached a tentative agreement to return the
rights of the Gran'Meres' brand name to the owners for a payment of
$50,000. Management of the Company believes that accrued expense as of
April 30, 1997 will cover the expense of this payment and the disposition
of existing inventory.
15. EARNINGS PER SHARE:
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings Per Share. SFAS No. 128, establishes standards for computing
and presenting earnings per share (EPS) and supersedes APB Opinion No. 15,
Earnings Per Share (Opinion 15). SFAS No. 128 replaces the presentation of
primary EPS with a presentation of basic EPS which excludes dilution and is
computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding during the period.
This statement also requires dual presentation of basic EPS and diluted EPS
on the face of the income statement for all periods presented. Diluted EPS
is computed similarly to fully diluted EPS pursuant to Opinion 15, with
some modifications. SFAS No. 128 is effective for financial statements
issued for periods ending after December 15, 1997, including interim
periods. Early adoption is not permitted and the statement requires
restatement of all prior EPS data presented after the effective date.
The Company will adopt SFAS No. 128 effective with the issuance of its
third quarter results for the fiscal year ending April 30, 1998. Per share
data calculated in accordance with this pronouncement for the years ended
April 30, 1997 and 1996, are consistent with the current disclosures.
16. CONTINGENCIES:
The Company is involved in various legal proceedings that are incidental to
the conduct of its business. Although amounts with respect to these
proceedings cannot be determined, in the opinion of management, any such
amounts will not have a material adverse effect on the Company's financial
position, liquidity or results of operations.
37
<PAGE> 40
STEARNS & LEHMAN, INC.
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
17. RELATED-PARTY TRANSACTIONS:
An entity owned by an employee/board member provided services to the
Company related to flight transportation. Expenses incurred from this
entity were approximately $53,000 in 1997 and $46,500 in 1996. No payables
were outstanding as of April 30, 1997, however, $2,870 in payables were
outstanding at April 30, 1996.
18. YEAR 2000 COMPLIANCE:
It is the Company's intention to purchase new application software in
fiscal year end 1998, which will be Year 2000 compliant, as part of its
operational strategy.
38
<PAGE> 41
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
[The remainder of this page intentionally left blank.]
39
<PAGE> 42
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
The following table contains the name, position, age and telephone number with
the Company of each director and executive officer of the Company as of July 8,
1997. Their respective backgrounds are described following the table. Each of
the executive officers devotes his or her full-time efforts to the affairs of
the Company.
<TABLE>
<CAPTION>
NAME POSITION AGE TELEPHONE NO.
- ---- -------- --- -------------
<S> <C> <C> <C>
William C. Stearns President, Treasurer and Director 44 419/522-2722
Sally A. Stearns Vice President, Secretary and Director 37 419/522-2722
John A. Chuprinko Chief Financial Officer 42 419/522-2722
Frank E. Duval Director 53 419/882-2314
Carter F. Randolph Director 41 513/891-4227
</TABLE>
WILLIAM C. STEARNS - PRESIDENT, TREASURER AND DIRECTOR
William C. Stearns is President, Treasurer and a Director of the Company. Mr.
Stearns founded the Company in March of 1988 and has been its President and a
Director since that time. Mr. Stearns attended both Cleveland State University
and Baldwin-Wallace University and is a member of the Manufacturers' Board of
Directors of the National Food Distributors Association and the National
Association of Specialty Food Trade. Mr. Stearns is the husband of Sally A.
Stearns.
SALLY A. STEARNS - VICE PRESIDENT, SECRETARY AND DIRECTOR
Sally A. Stearns graduated from Bowling Green State University in June of 1982
with a Bachelor of Science Degree in Business Administration, with a major
concentration in Human Resource Management. From October 1987 to February 8,
1989, she was a senior accountant for Autocall, Inc., a division of Federal
Signal located in Shelby, Ohio. From February 18, 1989 to the present Ms.
Stearns has served as Vice President, Secretary and a Director of the Company.
JOHN A. CHUPRINKO - CHIEF FINANCIAL OFFICER
John A. Chuprinko is a graduate of The Ohio State University, where he obtained
a Bachelor of Science Degree in accounting, and the United States Navy Supply
School in Athens, Georgia. Mr. Chuprinko was hired as the Chief Financial
Officer of the Company on January 10, 1996 and is a Certified Public Accountant.
Mr. Chuprinko is the President of the Knox County, Ohio Airport Advisory Board
and is a member and past Chairman of the Marion Technical College Accounting
Advisory Committee. From October 1994 to January 1996, Mr. Chuprinko served as
the Chief Financial Officer and Treasurer of Na-Churs Plant Food Company, a
national manufacturing company with $18,000,000 in sales, located in Marion,
Ohio. Prior to that position, Mr. Chuprinko
40
<PAGE> 43
was the Controller at The J.E. Grote Company, Incorporated in Blacklick, Ohio.
FRANK E. DUVAL - DIRECTOR
Mr. Duval has served as a Director of the Company since January 3, 1995. Mr.
Duval has been the President of J&S Capital, Inc. since 1990 where he oversees a
portfolio of real estate, limited partnership and stock and bond investments.
Mr. Duval has a Bachelor of Science Degree in Education from the University of
Buffalo. From 1979 to 1990, Mr. Duval served as President and Chief Executive
Officer of International Automated Machines, Inc., a manufacturer of single
service and portion control condiments. From 1973 to 1979, he served as
President and Chief Executive Officer of United Wild Rice, Inc. Prior to 1973,
Mr. Duval held various sales and marketing management positions with Ralston
Purina, Wm. Underwood Company and Scott Paper Company. Mr. Duval is a member of
the Board of Directors' Audit Committee.
CARTER F. RANDOLPH, PH.D. - DIRECTOR
Dr. Randolph, age 41, was appointed as a Director of the Company on March 29,
1996. Since 1987, Dr. Randolph has been the President of The Randolph Company,
Inc. where he is responsible for the management of pension plans, foundations
and trusts. From 1989 to the present, Dr. Randolph has been Executive Vice
President and Trustee of the Green Acres Foundation where he is responsible for
management, including all aspects of organization and operation of the private
nonprofit foundation. Dr. Randolph has experience in the areas of estate
planning, tax planning, IRS audit management, investment management, real estate
management, farm management and property management. Dr. Randolph currently
serves on the Board of Directors of Cintech Tele-Management Systems, Inc. Dr.
Randolph is a member of the Board of Directors' Audit Committee.
SIGNIFICANT EMPLOYEES
PHYLLIS J. THOMAS
Ms. Thomas, age 43, has been employed by the Company since November 1993 and
currently is the national sales manager responsible for managing the Company's
sales department, including the coordination of the regional sales personnel and
managing the Company's marketing efforts. Ms. Thomas is a graduate of Ashland
University with a Bachelor of Science Degree in Business Administration. Prior
to working for the Company, Ms. Thomas was a promotion specialist for R.J.R.
Nabisco from 1990 to 1993.
F. MICHAEL DEMETER
Mr. Demeter, age 46, a 1974 graduate of Wayne State University in Detroit,
Michigan, with a Bachelor of Arts Degree. in Business Administration, was hired
by the Company as the Director of Operations on February 27, 1997. From August
1988 to February, 1997, Mr. Demeter was the Vice President of Operations for
Megas Beauty Care, Inc. (Division of American Safety Razor Company), a
$100,000,000 manufacturer of private label health and beauty aids located in
Cleveland, Ohio. In
41
<PAGE> 44
this capacity, Mr. Demeter directed a team of over 500 salaried and hourly
employees. Mr. Demeter is APICS Certified Integrated Resource Management
qualified.
FAMILY RELATIONSHIPS
Except for Mr. and Mrs Stearns, there are no family relationships among the
directors and executive officers of the Company.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
Not Applicable.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
William C. Stearns, Sally A. Stearns, Frank E. Duval and Carter F. Randolph,
Ph.D. failed to file their Forms 3 in a timely manner following the Company's
initial public offering
Section 16(a) of the Securities Exchange Act of 1934 requires executive officers
and directors, and person who beneficially own more than ten percent (10%) of
the Company's stock, to file initial reports of ownership and reports of changes
in ownership with the Securities and Exchange Commission. Executive officers,
directors and greater than ten percent (10%) beneficial owners are required by
Securities and Exchange Commission regulations to furnish the Company with
copies of all Section 16(a) forms they file.
ITEM 10. EXECUTIVE COMPENSATION
SALARY COMPENSATION TABLE
The following table and notes set forth information regarding remuneration of
the only officer of the Company whose total annual salary and bonus during the
fiscal year ended April 30, 1997 exceeded $100,000:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
NAME OF INDIVIDUAL FISCAL ALL OTHER
POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
William C. Stearns, 1997 $ 104,000.00 $ 0.00 $ 123.00(1)
President 1996 $ 127,500.00 (1) $ 0.00 $ 115.00(1)
1995 $ 66,500.00 $ 65,000.00 $ 115.00(1)
- ----------------------------------------------------------------------------------------------------------
<FN>
(1) The Company carries and pays the premium on a "key man" life insurance
policy on Sally A. Stearns in the amount of $500,000 and is entitled to eighty
percent (80%) of the benefits of such a policy. Mr. Stearns is the other named
beneficiary of this policy and is entitled to receive the remaining twenty
percent (20%) of the benefits of such insurance policy. For the fiscal years
ended April 30, 1997, 1996 and 1995, the premium value of this benefit to Mr.
Stearns was $123.00, $115.00 and $115.00, respectively.
</TABLE>
42
<PAGE> 45
DIRECTORS COMPENSATION
Through April 30, 1997, the Directors of the Company received no cash
compensation for serving on the Board of Directors, but were reimbursed
reasonable expenses incurred in attending meetings. The Board of Directors voted
and approved a resolution to compensate outside directors $1,000.00 per meeting
of the Board of Directors effective June 13, 1997. The Company has agreed to
grant warrants to each of the outside Directors for services rendered during a
calendar year, on a pro rata basis for the actual time served as a Director
during such calendar year, to purchase up to 5000 shares of Common Stock. The
exercise price for such warrants shall be equal to the fair market value of such
shares at the beginning of such calendar year, as determined by the Board of
Directors. Frank E. Duval and Carter F. Randolph, Ph.D. received warrants to
purchase 5,000 and 3,798 shares of Common Stock, respectively at an exercise
price of $5.50 per share, on April 28, 1997 for services rendered in calendar
year 1996.
STOCK OPTION PLAN
At the Company's Annual Meeting of Shareholders held on March 31, 1994, the
Company adopted the 1994 Stock Option Plan (the "Plan"). The shares of Common
Stock that may be issued upon the exercise of options granted under the Plan
shall not exceed 275,000 shares in the aggregate. The options granted under the
Plan may be designed as "incentive stock options" or "nonqualified stock
options", at the discretion of the committee designated by the Board of
Directors of the Company to administer the Plan. The exercise price of
"nonqualified stock options" shall not be less than 100% of the fair market
value of a share of Common Stock on the effective date of the grant. The option
price for "incentive stock options" shall not be less than 110% of the fair
market value of a share of Common Stock on the effective date of the grant. To
date, the Company has not issued options to any of its officers, directors or
employees under the Plan.
[The remainder of this page intentionally left blank.]
43
<PAGE> 46
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information, so far as is known to
management of the Company, regarding beneficial ownership of Common Stock held
of record, as of July 8, 1997, by (i) each shareholder who owns beneficially
more than five percent (5%) of the outstanding Common Stock; (ii) each officer
and director of the Company; and (iii) all officers and directors as a group.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
TITLE OF CLASS NAME AND ADDRESS OF AMOUNT AND PERCENTAGE OF
BENEFICIAL OWNER(1) NATURE OF CLASS
BENEFICIAL
OWNERSHIP(2)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock, no par William C. Stearns 682,016 21.0%
value Director, President and
Treasurer
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock, no par Sally A. Stearns 681,916 21.0%
value Director, Vice President
and Secretary
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock, no par Frank E. Duval 120,000 (3) 3.7%
value Director
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock, no par Carter F. Randolph, Ph.D. 71,352 (4) 2.2%
value Director
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock, no par John A. Chuprinko 640 .02%
value Chief Financial Officer
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock, no par All Directors and Officers 1,555,924 (5) 47.9%
value as a group (5 persons)
<FN>
(1) The address for all persons listed is 30 Paragon Parkway, Mansfield, Ohio 44903.
(2) Unless otherwise indicated, the named shareholder has sole voting and investment power.
(3) Includes 20,000 shares purchasable on exercise of currently exercisable warrants.
(4) Of such shares, 64,554 are beneficially owned by the Randolph Company, Inc.,
an Ohio corporation, of which Dr. Randolph owns 100% of its common shares. The
Randolph Company, Inc. and, therefore, Dr. Randolph have full discretionary
investment authority over such shares, including the right to vote and sell such
shares. Includes 6,798 shares for which Dr. Randolph and his wife, Kathy, have
shared voting and investment power. Includes 3,798 shares purchasable on
exercise of currently exercisable warrants.
(5) Includes 23,798 shares purchasable on exercise of currently exercisable warrants.
</TABLE>
44
<PAGE> 47
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
William C. Stearns, the President, Treasurer and a Director of the Company, owns
a twin engine airplane which he regularly uses for Company business. The Company
pays Corporate Flight Services, a sole proprietorship of Mr. Stearns, $500.00
per month and $210.00 per hour for the use of the airplane. During the fiscal
years ended April 30, 1997 and 1996, Corporate Flight Services was paid
$49,892.60 and $38,846.00, respectively, pursuant to this arrangement.
The Company carries and pays the premium for a "key man" life insurance policy
on Mr. Stearns in the amount of $1,000,000, and as one of the named
beneficiaries, the Company is entitled to ninety (90%) of the benefits of such
policy. Sally A. Stearns is the other named beneficiary of Mr. Stearns'
insurance policy and is entitled to ten percent (10%) of the benefits of such
insurance policy. The Company also carries and pays the premium for a "key man"
life insurance policy on Ms. Stearns, the Vice President, Secretary and a
Director of the Company, in the amount of $500,000 and is entitled to eighty
percent (80%) of the benefits of such policy. William C. Stearns is the other
named beneficiary of Ms. Stearns' policy and is entitled to receive the
remaining twenty percent (20%) of the benefits of such insurance policy.
Any future transactions between the Company and its officers, directors or
shareholders owning five percent (5%) or more of the Common Stock will be on
terms no less favorable to the Company than could be obtained from independent
third parties.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
ARTICLES OF INCORPORATION AND BY-LAWS
Exhibit #3(a) - Articles of Incorporation of Sal-Wan Corp. (filed 3/14/88)
(Note 1)
Exhibit #3(b) - Certificate of Amendment (filed 1/17/90) (Note 1)
Exhibit #3(c) - Certificate of Amendment (filed 9/4/90) (Note 1)
Exhibit #3(d) - Certificate of Amendment (filed 3/12/92) (Note 1)
Exhibit #3(e) - Certificate of Amendment (filed 4/30/92) (Note 1)
Exhibit #3(f) - Certificate of Amendment (filed 5/2/94) (Note 1)
Exhibit #3(g) - Amended Code of Regulations of Stearns & Lehman, Inc. (Note 1)
45
<PAGE> 48
MATERIAL CONTRACTS
Exhibit #10(a) - Industrial Lease, dated March 10, 1995 (Note 1)
Exhibit #10(b) - Supplier Agreement, dated September 1, 1994 (Note 1)
Exhibit #10(c) - Machinery Lease Agreement, dated August 1, 1993 (Note 1)
Exhibit #10(d) - Madison Leasing Company (Equipment Lease Agreement) (Note 1)
Exhibit #10(e) - Stearns & Lehman, Inc. 1994 Stock Option Plan (Note 1)
Exhibit #10(f) - Description of agreement on outside directors compensation
Exhibit #10(g) - Description of agreement pertaining to the Company's use of
William C. Stearns' airplane
Exhibit #10(h) - Description of agreement pertaining to a "key man" life
insurance policies
Exhibit #10(i) - Escrow Agreement, dated October 17, 1996, by and among
Stearns & Lehman, Inc., Quantum Capital Corp., dba
Diversified Capital Markets and First Knox National Bank
(Note 1)
Exhibit #10(j) - Standard Form of Agreement Between Owner and Design/Builder
dated December 20, 1996 (Note 2)
Exhibit #10(k) - Promissory Note and Business Loan Agreement (First Knox
National Bank - $400,000) dated December 2, 1996 (Note 2)
Exhibit #10(l) - Promissory Note and Business Loan Agreement (First Knox
National Bank - $750,000) dated December 2, 1996 (Note 2)
Exhibit #10(m) - Construction Loan Agreement (First Knox National Bank -
$750,000) dated December 2, 1996 (Note 2)
Exhibit #10(n) - Stock Purchase Warrant No. 5, April 28, 1997, 5,000 Shares
Exhibit #10(o) - Stock Purchase Warrant No. 6, April 28, 1997, 3,798 Shares
Exhibit #10(p) - Warrant Certificate No. WA 17, (34,950 Shares Underwriter's
Warrants), April 28, 1997
Exhibit #10(q) - Computer Software, Hardware and Consulting Services
Agreement dated June 9, 1997
46
<PAGE> 49
Exhibit #10(r) - License Agreement between Godiva Chocolatier, Inc. and
Stearns & Lehman, Inc. dated June 30, 1997
CONSENT OF EXPERTS AND COUNSEL
Exhibit #23 - Consent of Independent Accountants (Coopers & Lybrand
L.L.P.)
FINANCIAL DATA SCHEDULE
Exhibit #27 - Financial Data Schedule
ADDITIONAL EXHIBITS
Exhibit #99(a) - Escrow and Subordination Agreement, effective May 4, 1992,
by and between Stearns & Lehman, Inc., First Knox National
Bank and Williams C. Stearns, Sally A. Stearns and Richard
S. Patton (Note 1)
Exhibit #99(b) - Form of Lock-Up Agreement, dated October 22, 1996, by and
among Sally A. Stearns and William C. Stearns and Quantum
Capital Corp. d/b/a Diversified Capital Markets. (Note 1)
Exhibit #99(c) - Mutual Release Agreement by and between Bick Goss and Bruce
Saunders, Co-Trustees of the Earnie Parmentier Trust and
Stearns & Lehman dated July 9, 1997.
Note 1. Incorporated by reference to the Company's Amendment No. 1 to
the Registration Statement on the Form SB-1 filed with Commission
on September 25, 1996 (File No. 333-4244-C).
Note 2. Incorporated by reference to the Company's Form 10-QSB for the
quarterly period ended January 31, 1997 filed with the Commission
on March 14, 1997 (File No. 0-21879).
(b) REPORTS ON FORM 8-K
None
47
<PAGE> 50
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: July 29, 1997 STEARNS & LEHMAN, INC.
(Registrant)
/s/ William C. Stearns
---------------------------
William C. Stearns
President, Director
In accordance with the Exchange Act, this report been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Date: July 29, 1997 /s/ William C. Stearns
---------------------------
William C. Stearns
President, Director
Date: July 29, 1997 /s/ John A. Chuprinko
---------------------------
John A. Chuprinko
Chief Financial Officer
Date: July 29, 1997 /s/ Sally A. Stearns
---------------------------
Sally A. Stearns
Vice President, Director
Date: July 29, 1997 /s/ Frank E. Duval
---------------------------
Frank E. Duval
Director
Date: July 29, 1997 /s/ Carter F. Randolph, Ph.D.
---------------------------
Carter F. Randolph, Ph.D.
Director
48
<PAGE> 1
Exhibit #10(f)
DESCRIPTION OF AGREEMENT ON OUTSIDE DIRECTORS COMPENSATION
In consideration of services rendered to the Company, during a calendar year, by
the directors of the Company, the Company has agreed to grant warrants to each
of the outside directors on a pro rata basis for the actual time served as a
Director during such calendar year, to purchase up to 5000 shares of Common
Stock. The exercise price for such warrants shall be equal to the fair market
value of such shares at the beginning of such calendar year, as determined by
the Board of Directors. In addition, the Company agrees to compensate outside
directors $1,000.00 per meeting of the Board of Directors effective June 13,
1997.
49
<PAGE> 1
Exhibit #10(g)
DESCRIPTION OF AGREEMENT PERTAINING TO THE COMPANY'S USE OF WILLIAM C. STEARNS'
AIRPLANE
William C. Stearns, the President, Treasurer and a Director of the Company, owns
a twin engine airplane which he regularly uses for Company business. The Company
pays Corporate Flight Services, a sole proprietorship of Mr. Stearns, $500.00
per month and $210.00 per hour for the use of the airplane.
50
<PAGE> 1
Exhibit #10(h)
DESCRIPTION OF AGREEMENT PERTAINING TO A "KEY MAN" LIFE INSURANCE POLICIES
The Company carries and pays the premium for a "key man" life insurance policy
on Mr. Stearns, the President, Treasurer and a Director of the Company, in the
amount of $1,000,000, and as one of the named beneficiaries, the Company is
entitled to ninety (90%) of the benefits of such policy. Sally A. Stearns is the
other named beneficiary of Mr. Stearns' insurance policy and is entitled to ten
percent (10%) of the benefits of such insurance policy. The Company also carries
and pays the premium for a "key man" life insurance policy on Ms. Stearns, the
Vice President, Secretary and a Director of the Company, in the amount of
$500,000 and is entitled to eighty percent (80%) of the benefits of such policy.
William C. Stearns is the other named beneficiary of Ms. Stearns' policy and is
entitled to receive the remaining twenty percent (20%) of the benefits of such
insurance policy.
51
<PAGE> 1
Exhibit #10(n)
STOCK PURCHASE WARRANT
April 28, 1997
No. 5 Right to Purchase
--- 5,000 common shares
STEARNS & LEHMAN, INC.
An Ohio Corporation
This is to certify that Frank E. Duval of 4557 Crossfields Road, Toledo, Ohio
43623, or its assigns is entitled to subscribe, on the form attached hereto, at
Five Dollars and Fifty Cents ($5.50) per share, for five thousand (5,000) shares
of the capital stock of STEARNS & LEHMAN, INC. (hereinafter the "Company").
Payment for this subscription must be made in full, in cash.
Unless this warrant is surrendered at the offices of the Company at 52 Surrey
Road, Mansfield, Ohio 44902 (or at such other address as the Company shall
hereafter notify the holder hereof in writing) as above, at or before 5:00 p.m.
on March 14, 2006, with the subscription attached hereto duly signed,
accompanied by payment in full, the privilege granted hereby shall be void and
the warrant of no value.
This warrant cannot be exercised except for shares of capital stock of the
Company which, at the time of exercise, are exempt from registration, are the
subject matter of an exempt transaction or have been registered under the
Securities Act of 1933, as amended, and any applicable state securities laws.
This warrant is not transferable.
In case the Company shall declare any dividend or other distribution upon its
outstanding shares of capital stock payable in shares of capital stock or shall
subdivide its outstanding shares of capital stock into a greater number of
shares, then the number of shares of capital stock which, may hereafter be
purchased upon the exercise of the rights represented hereby, shall be increased
in proportion to the increase through such dividend or subdivision and the
purchase price per share shall be decreased in such proportion. In case the
Company shall at any time combine the outstanding shares of its capital stock
into a smaller number of shares, the number of shares of capital stock which may
thereafter be purchased upon the exercise of the rights represented hereby shall
be decreased in proportion to the decrease through such combination and the
purchase price per share shall be increased in such proportion.
1
52
<PAGE> 2
Stearns & Lehman, Inc. Stock Warrant
The warrants evidenced by this Certificate and the shares of capital stock
purchasable upon exercise thereof have not been registered under the Securities
Act of 1933 (the "Act"), or any state securities laws, and may not be sold,
offered for sale, pledged, or hypothecated except pursuant to: (1) an effective
registration statement registering the shares under the Act, (2) a transaction
permitted by Rule 144 promulgated under the Act as to which the Company has
received satisfactory evidence of compliance with the provisions of Rule 144 or
(3) an opinion of counsel satisfactory to the Company that such transfer is
lawful.
If the Company hereafter proposes to register any additional shares of capital
stock under the Act (except for registration statements on Form S-8 or Form S-4,
or any successor forms then in effect), it will so notify the holder of this
warrant, or the holder of shares of capital stock purchased upon exercise
hereof, who may include in such registration such number of shares purchased or
purchasable hereunder as such holder has a bona fide intention to sell;
provided, however, that if the registration is an underwritten registration, the
number of shares so included shall be determined by the managing underwriter.
STEARNS & LEHMAN, INC.
By: /s/ William C. Stearns
------------------------------
William C. Stearns, President
53
<PAGE> 1
Exhibit #10(o)
STOCK PURCHASE WARRANT
April 28, 1997
No. 6 Right to Purchase
--- 3,798 common shares
STEARNS & LEHMAN, INC.
An Ohio Corporation
This is to certify that Carter F. Randolph, Ph.D of 8221 Spooky Hollow Road,
Cincinnati, Ohio 45242, or its assigns is entitled to subscribe, on the form
attached hereto, at Five Dollars and Fifty Cents ($5.50) per share, for three
thousand, seven hundred and ninety-eight (3,798) shares of the capital stock of
STEARNS & LEHMAN, INC. (hereinafter the "Company"). Payment for this
subscription must be made in full, in cash.
Unless this warrant is surrendered at the offices of the Company at 52 Surrey
Road, Mansfield, Ohio 44902 (or at such other address as the Company shall
hereafter notify the holder hereof in writing) as above, at or before 5:00 p.m.
on March 14, 2006, with the subscription attached hereto duly signed,
accompanied by payment in full, the privilege granted hereby shall be void and
the warrant of no value.
This warrant cannot be exercised except for shares of capital stock of the
Company which, at the time of exercise, are exempt from registration, are the
subject matter of an exempt transaction or have been registered under the
Securities Act of 1933, as amended, and any applicable state securities laws.
This warrant is not transferable.
In case the Company shall declare any dividend or other distribution upon its
outstanding shares of capital stock payable in shares of capital stock or shall
subdivide its outstanding shares of capital stock into a greater number of
shares, then the number of shares of capital stock which, may hereafter be
purchased upon the exercise of the rights represented hereby, shall be increased
in proportion to the increase through such dividend or subdivision and the
purchase price per share shall be decreased in such proportion. In case the
Company shall at any time combine the outstanding shares of its capital stock
into a smaller number of shares, the number of shares of capital stock which may
thereafter be purchased upon the exercise of the rights represented hereby shall
be decreased in proportion to the decrease through such combination and the
purchase price per share shall be increased in such proportion.
1
54
<PAGE> 2
Stearns & Lehman, Inc. Stock Warrant
The warrants evidenced by this Certificate and the shares of capital stock
purchasable upon exercise thereof have not been registered under the Securities
Act of 1933 (the "act"), or any state securities laws, and may not be sold,
offered for sale, pledged, or hypothecated except pursuant to: (1) an effective
registration statement registering the shares under the Act, (2) a transaction
permitted by Rule 144 promulgated under the Act as to which the Company has
received satisfactory evidence of compliance with the provisions of Rule 144 or
(3) an opinion of counsel satisfactory to the Company that such transfer is
lawful.
If the Company hereafter proposes to register any additional shares of capital
stock under the Act (except for registration statements on Form S-8 or Form S-4,
or any successor forms then in effect), it will so notify the holder of this
warrant, or the holder of shares of capital stock purchased upon exercise
hereof, who may include in such registration such number of shares purchased or
purchasable hereunder as such holder has a bona fide intention to sell;
provided, however, that if the registration is an underwritten registration, the
number of shares so included shall be determined by the managing underwriter.
STEARNS & LEHMAN, INC.
By: /s/ William C. Stearns
-------------------------
William C. Stearns, President
55
<PAGE> 1
Exhibit #10(p)
WARRANT TO PURCHASE SHARES OF
COMMON STOCK OF
STEARNS & LEHMAN, INC.
CERTIFICATE # WA 17 WARRANT FOR 34,950 SHARES
VOID AFTER 5:00 P.M., OHIO TIME, ON OCTOBER 22, 2001, OR IF SUCH DAY IS NOT A
BUSINESS DAY, AS DEFINED ON THE REVERSE SIDE HEREOF, AT 5:00 P.M., OHIO TIME, ON
THE NEXT FOLLOWING BUSINESS DAY, UNLESS EXTENDED BY STEARNS & LEHMAN, INC. OR
PURSUANT TO THE PROVISIONS OF PARAGRAPH 4 ON THE REVERSE SIDE HEREOF.
THIS CERTIFIES THAT, FOR VALUE RECEIVED QUANTUM CAPITAL CORP. (The
"Warrant Holder"), is entitled to purchase from STEARNS & LEHMAN, INC. (The
"Company"), subject to the terms and conditions hereof and of the Selling
Agreement mentioned below, at any time after October 21, 1997 until 5:00 p.m.
Ohio time on October 22, 2001, or if such day is not a Business Day, as defined
on the reverse side hereof, at or before 5:00 p.m. Ohio time on the next
following Business Day (the "Expiration Date"), the number of fully paid and
nonassessable shares of Common Stock, without par value, of the Company (the
"Common Stock") stated above, at the price of $5.75 per share of Common Stock,
by surrendering this Warrant Certificate with the Subscription Form on the back
hereof duly executed, at the office of the Company in the City of Mansfield,
Ohio, or at the office of its Warrant Agent, and by paying in full and lawful
money of the United States, or by certified check, bank draft, or postal or
express money order payable in United States Dollars to the order of the
Company, the purchase price for each share of Common Stock as to which this
Warrant Certificate is being exercised and upon compliance with and subject to
the exceptions set forth herein and in said Selling Agreement.
In case the Warrant Holder shall exercise this Warrant with respect to
less than all of the shares of Common Stock that may be purchased hereunder, a
new Warrant Certificate for the balance, continuing on the same terms and
conditions as this Warrant Certificate except as to the number of shares of
Common Stock which are the subject of this Warrant, shall be signed and
delivered to or upon the order of the Warrant Holder.
The shares of Common Stock subject to purchase hereunder are the shares
of such stock or other securities of the Company or its successors as they may
exist on the date of the exercise of this Warrant Certificate, whether or not
the rights or interests represented by such shares or other securities are
equivalent to the rights or interests represented by the shares of Common Stock
of the Company authorized at the date hereof.
In the event this Warrant is not exercised on or before the Expiration
Date with respect to all of the shares of Common Stock that may be purchased
hereunder, this Warrant Certificate shall become void and of no effect.
56
<PAGE> 2
This Warrant Certificate is issued under and in accordance with that
certain Selling Agreement, dated August 28, 1996, by and between the Company and
the Warrant Holder (the "Selling Agreement"), and is subject to the terms and
provisions contained therein, to all of which terms and provisions the holder of
this Warrant Certificate consents by acceptance hereof.
THIS WARRANT SHALL BE WHOLLY VOID AND OF NO EFFECT AFTER 5:00 P.M.,
OHIO TIME, ON OCTOBER 22, 2001, OR IF SUCH DAY IS NOT A BUSINESS DAY, AFTER 5:00
P.M., OHIO TIME, ON THE NEXT FOLLOWING BUSINESS DAY, UNLESS EXTENDED BY STEARNS
& LEHMAN, INC. OR PURSUANT TO THE PROVISIONS OF PARAGRAPH 4 ON THE REVERSE SIDE
HEREOF.
IN WITNESS WHEREOF, the Company has caused this Certificate to be
executed by its President or Vice President by manual or facsimile signature
attested by its Secretary or Assistant Secretary, by manual or facsimile
signature, and a facsimile of its corporate seal to be affixed or imprinted
hereon.
STEARNS & LEHMAN, INC.
1997
OHIO
STEARNS & LEHMAN, INC.
By:
/s/ William C. Stearns
- --------------------------------------
William C. Stearns, President
ATTEST:
By:
/s/ Sally A. Stearns
- --------------------------------------
Sally A. Stearns, Secretary
Countersigned and Registered:
FIRST-KNOX NATIONAL BANK (Mt. Vernon, Ohio)
Transfer Agent and Registrar
By: /s/ Dave Irvin Dated 4/28/97
- --------------------------------------
Authorized Signature
57
<PAGE> 3
STEARNS & LEHMAN, INC.
1. The Warrant or Warrants represented by this Warrant Certificate (the
"Warrant") shall expire at and shall not be exercisable after 5:00 p.m., Ohio
time, on October 22, 2001. If said date shall not be a business Day (which, as
used in this Warrant Certificate, shall mean a day other than a Saturday, Sunday
or other day on which banks in the state of Ohio are authorized by law to remain
closed), then the Warrant shall expire at and shall not be exercisable after
5:00 p.m., Ohio time, of the next following date which is a Business Day (the
"Expiration Date").
2. The purchase price for each Common Stock Share purchasable pursuant to the
exercise of the Warrants (hereinafter referred to as the Warrant Purchase
Price") shall be $5.75 per share, payable as provided on the face of this
Warrant Certificate and in the Selling Agreement.
3. Anything contained herein to the contrary notwithstanding, the Company shall
not be required to issue any fraction of a Common Share in connection with the
exercise of or conversion of this Warrant, and in any case where the Warrant
Holder would, except for the provisions of this paragraph 3, be entitled under
the terms of this Warrant Certificate to receive a fraction of a share of Common
Stock upon the exercise of this Warrant, the Company shall, upon exercise of the
Warrant and receipt of the Warrant Purchase Price, issue the largest number of
whole shares of Common Stock to which this Warrant Certificate is entitled.
Except upon the exercise of this Warrant and its conversion into the right to
receive shares of Common Stock, the Company shall not be required to make any
cash or other adjustment in respect of such fraction of a share of Common Stock
to which the Warrant Holder would otherwise be entitled. In the event of the
exercise of this Warrant and its conversion into the right to receive shares of
Common Stock, the Company shall not be required to issue any fraction of a share
of Common Stock and may at its option pay cash in lieu of the issuance of such
fractional shares, valued at the price of a share of Common Stock immediately
prior to the close of business on the date of such exercise. The Warrant Holder,
by the acceptance of this Warrant, expressly waives its right to receive a
certificate for any fraction of a share of Common Stock or a fractional Warrant
upon exercise hereof.
4. This Warrant Certificate may be exchanged and is transferable at the
principal corporate office of the Company in the City of Mansfield, State of
Ohio, by the registered holder hereof or by its duly authorized representative
or attorney, upon surrender of this Warrant Certificate duly endorsed or
accompanied (if so required by the Company) by a written instrument or
instruments of transfer satisfactory to the Company. If the right to purchase
less than all of the shares of Common Stock covered hereby shall be so
transferred, the registered holder hereof shall be entitled to receive a new
Warrant Certificate or Warrant Certificates covering in the aggregate the whole
number of shares of Common Stock with respect to which the right to purchase
shall not have been so transferred and the transferee or transferees shall be
entitled to receive a new Warrant Certificate or Warrant Certificates covering
in the aggregate the remaining whole number of shares of Common Stock.
5. No Warrant Holder, as such, shall be entitled to vote or receive dividends or
be deemed the holder of Common Shares for any purpose, nor shall anything
contained in this Warrant Certificate be construed to confer upon any Warrant
Holder, as such, any of the rights of a shareholder of the
58
<PAGE> 4
Company or any right to vote, give or withhold consent to any action by the
Company (whether upon any recapitalization, issue of stock, reclassification of
stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings or other action affecting shareholders, receive dividends or
subscription rights, or otherwise, until this Warrant shall have been exercised
and the shares of Common Shares purchasable upon the exercise hereof shall have
become deliverable: PROVIDED HOWEVER, that any exercise of this Warrant on any
date when the stock transfer books of the Company shall be closed shall
constitute the person or persons in whose name or names the Certificate or
Certificates for such shares are to be issued as the record holder or holders
thereof for all purposes at the opening of business on the next succeeding day
on which such stock transfer books are open and this Warrant shall not be deemed
to have been exercised, in whole or in part as the case may be, until such date
for the purpose of determining entitlement to dividends on such common shares,
the right to receive notice of meetings or the right to vote.
6. The Company may deem and treat the registered holder hereof as the absolute
owner of this Warrant Certificate (notwithstanding any notations of ownership or
writing hereon made by anyone other than the Company) for all purposes and shall
not be affected by any notice to the contrary.
7. This Warrant shall be binding upon any successors or assigns of the Company.
8. THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED AND SOLD TO
THE UNDERWRITER IN CONNECTION WITH A REGISTERED PUBLIC OFFERING OF THE COMPANY
AS "UNDERWRITERS' COMPENSATION" AND, AS SUCH, CANNOT BE SOLD OR OTHERWISE
TRANSFERRED, NOR CAN THE COMMON SHARES ISSUED PURSUANT TO THIS WARRANT BE SO
SOLD OR TRANSFERRED, EXCEPT PURSUANT TO A REGISTRATION STATEMENT REGISTERING
SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR PURSUANT TO AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
PURCHASE FORM
(To be executed by the Warrant Holder if it desires to exercise the Warrant in
whole or in part)
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by this
Warrant Certificate for, and to purchase thereunder, __________________ shares
of the Common Stock provided for herein, and tenders payment herewith in the
amount of $_____________ and requests that certificates for such shares be
issued in the name of ____________________________ and, if said number of shares
of Common Stock shall not be all the shares of Common Stock purchasable
hereunder, that a new Warrant Certificate for the balance remaining of the
shares purchasable under this Warrant Certificate be registered in the name and
delivered to the undersigned
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<PAGE> 5
at the address stated below.
Name of Warrant holder: ____________________________
Address: ___________________________________________
DATED: _____________________________________________
- ------------------------------------------------
Signature of Registered Holder
NOTE: THE ABOVE SIGNATURE MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERNATION OR ENLARGEMENT OR ANY CHANGE WHATEVER, UNLESS THE
CERTIFICATE HAS BEEN ASSIGNED.
SIGNATURE GUARANTEED: _____________________________
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<PAGE> 1
Exhibit #10 (q)
SOFTWARE AGREEMENT NUMBER 970530
This Sales Agreement dated May 30, 1997, between Draves & Barke Systems, Inc.,
having its principal offices at 6866 Washington Avenue South, Eden Prairie, MN
55344 (hereinafter DBS) and Stearns & Lehman, Inc. (the "Customer").
DEFINITIONS
A. Computer software (also called "Information") shall mean all information of
any kind, including, but not limited to machine-readable documentation, or the
media containing such information. Information shall include all computer
programs supplied and all information contained in the user manual(s), as well
as any subsequent corrections or updates which may be provided by DBS.
Information shall include both the machine-readable object code and the
human-readable source code.
Whereas, DBS is the owner/proprietor of business application software and the
Customer desires to purchase said business application software (Schedule I -
Application Software) from DBS;
Whereas, DBS and the Customer together have worked with due diligence to
determine and discuss the standard business software requirements; and the
Customer is licensing the DBS application software upon the promise the DBS
application software meets those discussed software business requirements as
well as DBS documented specifications and
Whereas, the Customer will grant DBS final Acceptance when the Customer has
tested the above DBS software applications in a live environment using actual
customer transactions and the Customer has notified DBS that the standard
business requirements are operational. This will be defined as Final Customer
Acceptance.
LICENSE AGREEMENT
1. Customer is granted the right to use or display the Information at all the
Stearns & Lehman, Inc. networked facilities. Approved server equipment shall
include the IBM RS-6000 series of equipment.
2. Customer has the right to use or modify the above information at the
specified site. If Stearns & Lehman, Inc. desires to transfer this right to a
third party, they must first receive prior written authorization from DBS to do
so.
The only exceptions are when copying the software is an essential step in the
utilization of the information such as recompiling the source code, and the
copying of the information for backup and archive purposes. If the computer
equipment that the Customer normally uses the information on malfunctions, the
information may be copied to and used on different computer equipment. No other
manner of copying is permitted.
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<PAGE> 2
3. Customer acknowledges DBS' vested rights in the trademarks of DBS as shown as
the Information delivered to the Customer, and Customer shall clearly indicate
such trademarks are the trademarks of DBS, as directed by DBS, or in the absence
of such direction, according to applicable trademark law.
4. Customer shall limit access to the Information to its authorized employees.
Customer shall advise such employees of the terms of this license and shall take
all necessary steps to insure compliance with the Agreement terms by such
employees, for the benefit of DBS. The Customer shall have the right to contract
with an independent consultant to make source code changes or to provide the
required support. The Customer agrees to require any consultant given access to
the source code to acknowledge in writing DBS' rights under this contract and
require the consultant to be bound by the confidentiality provisions of this
contract.
5. In the event any material breach of the agreement which is not cured within
thirty (30) days after notice thereof, DBS may terminate this Agreement and may
demand immediate return of all or any part of the information delivered to
Customer, whether or not in possession of Customer, and all compilations, copies
or derivative works of the Information in any machine-readable or human-readable
form, without any refund of any part of the price. Customer shall bear the cost
of returning all such Information.
6. Customer agrees that all terms of this Agreement shall apply to any and all
of the information now provided, or Information Hereafter provided by DBS, or
its subsidiaries or affiliates, to Customer, and not otherwise provided under a
separate agreement; provided, however this agreement shall not apply to any
information in human-readable form and in the public domain once so provided to
Customer.
PAYMENT
7. The net total sale price of $81,000.00 will be paid to the seller according
to the following payment schedule: 10% of the above total ($8,100.00 ) down
payment upon execution of this agreement by the "Customer", 40% upon delivery of
IBM RS/6000 hardware ($32,400.00), 25% ($20,250.00 ) upon installation
completion, and 25%($20,250.00 ) upon Final Acceptance or 90 days from the date
of installation completion which ever comes first.
8. All invoices rendered under the Agreement shall be paid within thirty (30)
days. All amounts mentioned in the Agreement are in U.S. Dollars and do not
include any sales taxes, duties or similar assessments, all of which are the
sole liability of, and shall be paid by the Customer.
WARRANTY
9. DBS warrants and represents that the software shall perform according to all
the material specifications set forth in the user manual and reference guide.
The warranty period is ninety (90) days and commences on the date of Final
Customer Acceptance or 90 days from the date of installation which ever comes
first. DBS represents and warrants that the licensed software will
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<PAGE> 3
correctly perform any date calculations for dates both before and after the year
2000. DBS's warranty obligation is limited to repairing or replacing software
during the warranty period which has been identified by the Customer in writing
as defective and so found by DBS upon inspection at no charge to the Customer.
Should DBS incur travel and/or miscellaneous expense at the Customer's request
in the performance of these corrections, Customer will be responsible for said
charge. It is further agreed that, if the discrepancy is not the fault of DBS,
charges for DBS services will be paid by the Customer. DBS's warranty obligation
is limited to the proper use of the application software on approved equipment.
THE WARRANTY ABOVE IS THE ONLY WARRANTY APPLICABLE TO THIS AGREEMENT. ALL OTHER
WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING BUT NOT LiMITED TO THE IMPLIED
WARRANTIES OR MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, ARE
DISCLMMED.
DBS will have no warranty obligation under this Agreement if the Information is
subjected to abuse, misuse, negligence or accident.
INDEMNITY
10. DBS warrants and represents to the Customer that the Information is its own
Proprietary information, and includes no information which has been
misappropriated, or which constitutes confidential or proprietary information,
trade secrets, or an infringement of any copyright, patent, trademark, or other
proprietary right of any third party. DBS shall indemnify and hold harmless the
Customer from and against any and all direct or indirect loss, cost, liability,
or expense, including without limitation, attorneys fees, which the Customer may
suffer, incur, or sustain, and which results from or arises out of any action or
claim for the misappropriation of confidential or proprietary information or
trade secrets, or the infringement of any copyright, patent, trademark, or other
proprietary right of any third party, and which action or claim arises from or
relates to the information provided by DBS pursuant to this agreement.
Customer agrees to indemnify, defend, and hold DBS harmless from and against any
claims brought against DBS by any of DB S's suppliers resulting from the
Customer's improper use or disclosure of the Products under this agreement.
ASSIGNABILITY
11. Except as provided below, neither party may assign or transfer its rights or
obligations under this agreement to any entity without the prior written consent
of the other party. The Customer shall have the right to assign its interest in
this agreement to any entity which purchases or controls Stearns & Lehman, Inc.
or is controlled by or under common control with Stearns & Lehman, Inc.
including without limitation any owned affiliated or subsidiary of Stearns &
Lehman, Inc. without the prior written consent of DBS. Owned affiliates shall
include all entities in which the Customer's ultimate parent has an equity
interest. If the Customer transfers this license, all of the Customer's rights
and privileges hereunder will be terminated and transferred to the new licensee,
who will be required to agree in writing to be bound by all the terms and
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<PAGE> 4
conditions of this license. The Telephone Support Plan Agreement and Consulting
Services Agreement cannot be assigned or transferred. However, the Customer
shall be required to provide written notice to DBS of the assignment of this
contract.
REMEDIES IN THE EVENT OF DEFAULT
12. DBS and the Customer shall have the right to terminate this Agreement in the
event of any breach hereunder by the other party. No termination may be
effective hereunder until the terminating party shall have delivered to the
other party written notice informing of the alleged default, and such default is
not cured within 90 days after receipt of such notice.
13. Upon termination of this agreement for any reason, Customer will immediately
cease making any use of the Product(s) or any part thereof and shall within 10
days after the date of termination, to DBS the original and all copies of the
Product(s) in whatever form.
14. In any type of action, whether in contract or in torte or otherwise, arising
out of or in any way related to the performance of the Product(s), the rendering
of services under this agreement, shall be limited to general money damages in
an amount not to exceed the initial License Fee paid by the Customer for the
respective Product(s).
APPLICABLE LAW
15. Except as otherwise stated herein, this Agreement shall be governed by the
Laws of the State of Minnesota. Any term or condition prohibited by Law shall,
to the extent prohibited, be ineffective without affecting the other terms and
conditions.
DRAVES AND BARKE SYSTEMS, INC. CUSTOMER
By /s/ Roy S. Barke By /s/ John A. Chuprinko
---------------- ----------------------
Title Vice President Title Chief Financial Officer
Date June 9, 1997 Date June 4, 1997
64
<PAGE> 5
SCHEDULE I
APPLICATION SOFTWARE PRICE LIST
Application Software License Price List to Sales Agreement dated May 30, 1997 by
and between Draves and Barke Systems, Inc. (DBS), a Minnesota Corporation with
offices in Eden Prairie, Minnesota, and Stearns & Lehman, Inc. ("Customer") for
computer system(s) located at Mansfield, Ohio.
DBS InnaTrack Application Software and Source code Base License price includes
20 concurrent users for the following:
1. Purchasing $4,500.00
2. Order Processing $4,500.00
3. ElS $4,500.00
4. Sales Analysis $4,500.00
5. Inventory Control $4,500.00
6. Bins & Lots $4,500.00
7. MPS $4,500.00
8. RF Terminal Support $4,500.00
9. Accounts Payable $4,500.00
10. Accounts Receivable $4,500.00
11. Forecasting $4,500.00
12. General Ledger $4,500.00
13. Work-in-Process $4,500.00
14. DRP $4,500.00
15. MRP $4,500.00
16. Quality Assurance $4,500.00
17. Equipment Maintenance $4,500.00
18. Commissions $4,500.00
19. EDI $4,500.00
20. Payroll, HR $4,500.00
21. Time & Attendance $4,500.00
22. Innatrack Administrative System Utilities $4,500.00
(Spooler, System Security, Support Scripts,
File Directories, Super Menu, Sleeper - Automatic
Scheduler)
Discounted Modules
Equipment Maintenance ($4,500.00)
Bins & Lots ($4,500.00)
Sub-Total Innatrack Software $90,000.00
Less 10% Discount ($9,000.00)
Total InnaTrack Software $81,000.00
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<PAGE> 6
HARDWARE AND 3RD PARTY SOFTWARE AGREEMENT NUMBER 970530
This Sales Agreement dated May 30, 1997, between Draves & Barke Systems, Inc.,
(the "SELLER") at 6866 Washington Avenue South, Eden Prairie, MN 55344
(hereinafter DBS) and Stearns & Lehman, Inc. (the "PURCHASER") located at
Mansfield, Ohio.
SELLER hereby sells and PURCHASER hereby purchases, subject to the terms and
conditions hereof, the data processing machines listed on the schedule of
machines (hereinafter referred to individually as the "Machine" and collectively
as the "Machines"), as shown in Schedules IV with the 3rd party software.
The Model and specification of any Machine may be changed by joint agreement
between the SELLER and the PURCHASER. The following terms and conditions on the
following pages are incorporated in and made part of this agreement.
PURCHASE PRICE, PAYMENT, AND TAXES
1. The Total Purchase Price of $29,484.00 shall be paid to SELLER upon execution
of this agreement by PURCHASER.
There shall be added to the Total Purchase Price amounts equal to any and all
applicable taxes, or fees (including interest and penalties thereon), however
designated or levied, based upon such purchase price, on this Agreement or on
the Machine(s), Including all sales and use taxes, state and local privilege or
excise taxes on gross revenue and any taxes or amounts in lieu thereof,
exclusive, however, of taxes based upon net income of SELLER, and said amounts
shall be promptly paid by PURCHASER when levied. Any personal property taxes
assessable on the Machine(s) on or after the actual delivery to PURCHASER shall
be paid by PURCHASER when levied.
PURCHASER agrees that if payment as specified above is not received by SELLER on
the due date, PURCHASER shall pay to SELLER an amount equal to one and one half
percent (1 1/2%) of the amount due as an interest charge for every thirty (30)
day period or portion thereof that said overdue payments are not made. However,
to the extent that the above interest charge is not allowed under applicable
law, the interest rate to be charged shall be he maximum rate allowed under
applicable law.
DELIVERY, FREIGHT COST, AND RISK OF LOSS
2. PURCHASER shall accept delivery of the Machine(s) and all the Machine(s) to
be installed at a date agreeable to both PURCHASER and SELLER and at the
location designated on schedule IV.
Purchaser shall bear the risk of damage from fire, or other acts of God after
the delivery of the Machine(s) to PURCHASER's location of installation or
delivery to PURCHASER's carrier,
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<PAGE> 7
whichever occurs first.
The PURCHASER shall promptly pay for all transportation, rigging and drayage to
the location of installation. PURCHASER shall pay for all unusual installation
charges such as structural alterations and rental of heavy equipment necessary
to install the Machine(s) at the location of installation. SELLER shall not be
liable for any failure or delay in furnishing the Machine(s) resulting from
fire, flood, storm, act of God, governmental acts, orders or regulations,
hostilities, civil disturbance, strike, labor difficulties, machinery breakdown,
transportation contingencies, difficulty in obtaining parts, supplies or
shipping facilities, or delay of carriers.
OPTION TO TERMINATE
3. Seller reserves the right to terminate this Agreement if (1) PURCHASER
refuses or is unable to accept delivery or allow installation of the Machine(s)
as specified in Section 2 above; (2) PURCHASER becomes insolvent or the subject
of proceedings under any law relating to bankruptcy or the relief of debtors or
(3) PURCHASER fails to perform any other provisions of this Agreement. SELLER's
right to terminate shall be exercised by written notice to PURCHASER whereupon
SELLER shall be entitled to immediate possession of the Machine(s) and may
recover its actual loss, as well as reasonable attorney's fees and costs
incurred in the recovery of the loss sustained by SELLER.
The right of SELLER to terminate this Agreement and recover the Machine(s) shall
not be the exclusive remedies available to SELLER and are in addition to any
other rights and remedies provided under law or under this Agreement.
INSTALLATION
4. The PURCHASER shall promptly pay all normal installation charges. PURCHASER
shall make available and agrees to promptly pay for all costs associated with
providing a suitable place of installation and necessary electrical power,
outlets and air conditioning required for operating the Machine(s) as defined in
the machine manufacturer's installation manual.
TITLE AND SECURITY INTEREST
5. Title to the Machine(s) shall vest in PURCHASER upon delivery and payment of
the Total Purchase Price and all other payments required to be paid pursuant to
Section 1 above.
PURCHASER hereby grants to SELLER, its successor and assigns, a security
interest in the Machine(s) and all proceeds thereof to secure the prompt payment
by PURCHASER when due of all amounts payable to SELLER and all other obligations
to PURCHASER when due of all amounts payable to SELLER and all other in payment
of any amounts due herein or fails to perform any provision of this Agreement,
SELLER shall have the right, after ten (10) days of such default or failure to
pay, to enter the premises of PURCHASER and remove and repossess any and all of
the Machine(s) with or without notice or demand and in addition, shall have the
right to exercise such other rights and remedies as may be available to SELLER
under this
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<PAGE> 8
Agreement or by law.
MAINTENANCE, WARRANTIES, AND DISCLAIMERS
6. SELLER warrants that at the time the Machine(s)and 3rd party software are
delivered, SELLER will be the lawful owner of the Machine(s) and 3rd party
software are delivered free and clear of any liens and encumbrances (other than
those which may arise from this Agreement) and will have frill right, power, and
authority to sell the same to PURCHASER.
SELLER warrants that when delivered, the Machine(s) and 3rd party software will
be eligible for a maintenance agreement by their respective vendors.
PURCHASER recognizing that SELLER is not the manufacturer of the Machine(s) and
3rd party software expressly waives any claim against SELLER based upon any
infringement or alleged infringement of any patent with respect to any Machine.
THE FOREGOING WARRANTIES EXPRESSED IN THIS PARAGRAPH ARE IN LIEU OF ANY AND ALL
OTHER WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING THE WARRANTY OF
MERCHANTABILITY AND OF FITNESS FOR ANY PARTICULAR PURPOSE. PURCHASER
ACKNOWLEDGES THAT THE SELLER SHALL NOT BE LIABLE FOR DAMAGES, INCLUDING SPECIAL
INCIDENTAL OR CONSEQUENTIAL DAMAGES, ARISING OUT OF OR IN CONNECTION WITH THE
PERFORMANCE OF THE MACHINE(S) OR THEIR USE BY PURCHASER, AND SHALL NOT BE LIABLE
FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN
CONNECTION WITH SELLER'S FAILURE TO PERFORM ITS OBLIGATIONS HEREUNDER.
EFFECTIVE DATE
7. This Agreement is subject to acceptance by SELLER at its offices in Eden
Prairie, Minnesota and shall only become effective on the date thereof If this
Agreement shall be executed by SELLER prior to being executed by PURCHASER it
shall become voidable at SELLER's option 0 days after the date of SELLER's
execution thereof, unless SELLER shall have received by such date a copy thereof
executed by a duly authorized representative of PURCHASER.
MISCELLANEOUS
8. This Agreement shall be governed by the laws of the State of Minnesota and
constitutes the entire Agreement between SELLER and PURCHASER with respect to
the purchase of the Machine(s) and 3rd party software, superseding all prior
correspondence between the parties (including, without limitations, any purchase
orders, submitted by PURCHASER to SELLER). No provisions of this Agreement shall
be deemed waived, amended or modified by either party unless such waiver,
amendment or modification is in writing and signed by each of the parties
hereto.
This Agreement is made subject to the terms and conditions included herein and
PURCHASER's
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<PAGE> 9
acceptance is effective only to the extent that such terms and conditions which
are consistent with the terms and conditions herein. Any acceptance which
contains terms and conditions which are in addition to or inconsistent with the
terms and conditions herein will be a counter offer and will not be binding
unless agreed in writing by SELLER. IN WITNESS WHEREOF the parties here to have
caused this Agreement to be signed by their respective duly authorized
representatives.
Accepted by:
<TABLE>
<CAPTION>
DRAVES AND BARKE SYSTEMS, INC. CUSTOMER
<S> <C>
By /s/ Roy S. Barke By /s/ John A. Chuprinko
---------------- ---------------------
Title Vice President Title Chief Financial Officer
Date June 9, 1997 Date June 4, 1997
</TABLE>
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<PAGE> 10
SCHEDULE IV HARDWARE SCHEDULE & 3RD PARTY SOFTWARE -PHASE I
Computer System(s) price list to Sales Agreement dated May 30, 1997 by and
between Draves & Barke Systems, Inc. (DBS), a Minnesota corporation with office
in Eden Prairie, Minnesota and Stearns & Lehman, Inc. ("PURCHASER") for Computer
System(s) to be located at Mansfield, Ohio.
<TABLE>
<CAPTION>
Qty Description Unit Cost Total Cost
Server
<S> <C> <C> <C>
1 7024 IBM RS/6000 E30 Server $ 9,995.00 9,995.00
1 32 Megabyte Memory Inc. Inc.
1 2.1 GB Disk Inc. Inc.
1 CD ROM Drive Inc. Inc.
1 LAN Network Card Inc. Inc.
1 AIX 4.1 On CD-ROM $ 50.00 $ 50.00
1 AIX 4.1 Unlimited License $ 3,000.00 $ 3,000.00
1 IBM 3153 Console Monitor $ 577.00 $ 577.00
1 Internal 4mm Tape Drive 4/8GB $ 2,695.00 $ 2,695.00
Server Total $16,317.00
</TABLE>
Network Hardware for RS-6OOO to LAN/Serial PC's, terminals, and printers.*
(Twisted pair hubbed network required)
<TABLE>
<S> <C> <C> <C>
5 Multi-Tech Modem (33.6 kbs) $ 249.00 $ 1,245.00
2 Lantronix Transceiver $ 29.00 $ 58.00
2 Lantronix ETS16U Server $ 1,895.00 $ 3,790.00
1 3 Com 8 Port Ethernet Hub $ 229.00 $ 229.00
(Doesn't include Cabling and Communications Equipment)
Network Total: $5,322.00
</TABLE>
Software/3rd Party Required**
<TABLE>
<S> <C> <C>
AccuCobol Runtime $ 1,500.00
UniQueue Print Spooler $ 1,450.00
ICE-10 Emulation (25 users) $ 795.00
Total 3rd Party Software Price: $3,745.00
</TABLE>
Peripheral Equipment
<TABLE>
<S> <C> <C> <C>
8 IBM 3151 Console Monitor $ 195.00 $1,560.00
</TABLE>
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<PAGE> 11
<TABLE>
<S> <C> <C> <C>
2 Time & Attendance Terminal $ 1,270.00 $2,540.00
Total Peripherals Price: $4,100.00
</TABLE>
Total Phase I Hardware & Third Party Software 29,484.00
SCHEDULE V -- PHASE II 3RD PARTY
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Qty Description Unit Cost Total Cost
TELXON
Base Station
1 GCP-4005 (P/N 05-0500/1.1) Basic $5,115.00 $5,115.00
(Same Ethernet Wiring)
1 Factory Integration of GCP-4005 $225.00 $225.00
1 101 key keyboard for GCP-4005 $80.00 $80.00
1 VGA monochrome monitor for GCP-4005 $180.00 $180.00
Subtotal: 5,600.00
Handheld remote frequency scanners
3 PTC-960XDS12 W/ANSI-TCP (Terminal) $4,730.00 14,190.00
3 PTC-960XDS12 Spare Battery Pack $60.00 $180.00
3 Long Range Scanner Upgrade PTC-960XD $100.00 $300.00
Subtotal: $14,670.00
Antennas and network connections
1 PTC-960XDS 12 4 Bay Fast Charger $155.00 $155.00
1 Arlan 630-900 Inc. Power Supply $1,795.00 $1,795.00
1 Arlan 630 Mounting Hardware $25.00 $25.00
1 3DB Gain Antenna (18725-000) $119.00 $119.00
1 Antenna Mounting Kit(P-81257-000) $66.00 $66.00
Subtotal: $2,160.00
Hardware And Software Install $2,000.00
(Estimated 16 Hrs @ $ 125/hour)
TOTAL TELXON $24,430.00
Less 20% discount on margin components ($4,054.00)
(Base station and hand held units)
NET TELXON TOTAL: $20,376.00
EDI Software/Hardware
Cleo 3780P1us for RS/6000 $1,395.00
EDI Edge(RS-6000 version) $4,995.00
</TABLE>
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<PAGE> 12
<TABLE>
<S> <C> <C>
1 Year Maintenance Plan $1,600.00
Total Third Party EDI Price: $7,990.00
</TABLE>
Cabling, modems, connectors and local hubs are not included in this
configuration.
Phase II 3rd party will be ordered at customer discretion.
SOFTWARE UPGRADE PLAN SALES AGREEMENT
Application Software Upgrade Plan Price List to Sales Agreement dated May 30,
1997 between Draves & Barke Systems, Inc. (DBS), a Minnesota corporation with
offices in Eden Prairie, Minnesota and Stearns & Lehman, Inc. (the "Customer")
for computer system(s) located at Mansfield, Ohio.
DBS agrees to make available to the Customer the latest versions of all
previously licensed Application Software packages defined in Schedule II. The
annual price for this upgrade plan is 12% of the current list license prices for
Application Software presently installed on the Customer's Computer System.
This plan only covers DBS Application Software license prices for the
Application Software packages listed in Schedule I and excludes any Consulting
Services, Seminars, Software Preparation, Operating System Licenses, Reapplying
Modifications, or other expenses associated with delivering and converting the
new versions of Application Software.
The total sale price of $ 11,880.00 for the Annual Application Software Upgrade
Plan shall be paid to the SELLER as follows: $0.00 as a down payment, upon
execution of the Software Agreement (970530 dated May 30, 1997) by PURCHASER,
and $1 1,880.00 upon Final Acceptance as defined in the Software Agreement
(970530 dated May 30, 1997). The Application Software Upgrade Plan will remain
in effect and valid for 12 months after the PURCHASER's date of installation.
<TABLE>
<CAPTION>
DRAVES AND BARKE SYSTEMS, INC. CUSTOMER
<S> <C>
By /s/ Roy S. Barke By /s/ John A. Chuprinko
---------------- ---------------------
Title Vice President Title Chief Financial Officer
Date June 9, 1997 Date June 4, 1997
</TABLE>
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<PAGE> 13
SCHEDULE II
ANNUAL APPLICATION SOFTWARE UPGRADE PLAN PRICE LIST
<TABLE>
<CAPTION>
DBS Application Software Licenses Covered 1997 Annual Upgrade Price
<S> <C> <C>
1. Purchasing $540.00
2. Order Processing $540.00
3. ElS $540.00
4. Sales Analysis $540.00
5. Inventory Control $540.00
6. Bins & Lots $540.00
7. MPS $540.00
8. RF Terminal Support $540.00
9. Accounts Payable $540.00
10. Accounts Receivable $540.00
11. Forecasting $540.00
12. General Ledger $540.00
13. Work-in-Process $540.00
14. DRP $540.00
15. MRP $540.00
16. Quality Assurance $540.00
17. Equipment Maintenance $540.00
18. Commissions $540.00
19. EDI $540.00
20. Payroll, HR $540.00
21. Time & Attendance $540.00
22. Innatrack Administrative System Utilities $540.00
(Spooler, System Security, Support Scripts,
File Directories, Super Menu, Sleeper - Automatic
Scheduler)
Total InnaTrack Software Upgrade: $11,880.00
</TABLE>
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<PAGE> 14
CONSULTING SERVICES SALES AGREEMENT
Consulting Services Price List to Purchase Agreement dated May 30, 1997 by and
between Draves & Barke Systems, Inc. (DBS), a Minnesota corporation with offices
in Eden Prairie, Minnesota and Stearns & Lehman, Inc. ("Customer") for computer
system(s) located at Mansfield, Ohio.
<TABLE>
<CAPTION>
Time and Materials Services Hourly Rates
<S> <C>
System Support $125/hr
Programming $80/hr
Telephone Support $100/hr
System Engineering $125/hr
Daily rate for System Engineering $1,000/day
Daily rate for Training and Implementation $1,000/day
</TABLE>
Consulting Services rates are based on current DBS labor rates which may be
revised upon 90 days written notice. In addition to these rates, Purchaser will
pay reasonable out-of-pocket expenses for work done at Purchaser's location such
as meals, lodging, transportation, an allowance for auto mileage, long distance
telephone charges for work done at DBS on Purchasers computer system, and travel
time. All Consulting Services travel time is billable at 1/2 the regular rate
for the selected service.
There will be a 1/2 hour minimum Consulting Services charge for all work
performed at DBS, including telephone calls. There will be a 2 hour minimum
Consulting Services charge for on-site work performed for DBS customers within
60 miles of the DBS office. For DBS customers outside 60 miles there will be a 4
hour minimum Consulting Services charge for work performed on-site. A 50%
premium is added for all work performed on weekends and holidays for the
selected service.
DBS will receive Customer approval before beginning Consulting Services work.
All Consulting Services time is billable to the Customer immediately upon
completion of the service (with the sole exception of correcting warranted
programming errors) whether it occurs at the Customer's site, at DBS, or over
the phone. It is DBS's policy not to require prepayment for DBS services they
are billed as they are performed. Stearns & Lehman, Inc. is in complete control
of this budget and through careful planning Stearns & Lehman, Inc. can reduce
services cost as compared to the estimate in schedule III.
<TABLE>
<CAPTION>
DRAVES AND BARKE SYSTEMS, INC. CUSTOMER
<S> <C>
By /s/ Roy S. Barke By /s/ John A. Chuprinko
---------------- ---------------------
Title Vice President Title Chief Financial Officer
Date June 9, 1997 Date June 4, 1997
</TABLE>
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<PAGE> 15
<TABLE>
<CAPTION>
SCHEDULE III
ESTIMATED SERVICES
Installation # of Days Cost$
<S> <C> <C>
InnaTrack System Installation, and InnaTrack
System Administration Training 3 $3.000.00
Installation Sub Total: 3 $3,000.00
Training, Implementation, and Support for first year
Project Management.
Implementation 1 $1,200.00
Project Execution 1 $1,200.00
Training
Financial 6 $6,000.00
Customer Service 7 $7,000.00
Manufacturing 8 $8,000.00
Project Management & Training Subtotal 23 $23,400.00
Consulting/Implementation Support 12 $12,000.00
Programming/Customization - $5,000.00
Total Installation, Training, and Implementation: 38 $43,400.00
</TABLE>
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<PAGE> 1
Exhibit #10(r)
LICENSE AGREEMENT
AGREEMENT, made as of this 30th day of June, 1997, by and between Godiva
Chocolatier, Inc., 355 Lexington Avenue, New York, New York 10017 ("LICENSOR")
and Stearns & Lehman, Inc., 52 Surrey Road, Mansfield, Ohio 44901 ("LICENSEE");
WITNESSETH:
WHEREAS, LICENSOR owns and has the right to license the trademarks set
forth in Paragraph 1(a) below; and
WHEREAS, LICENSEE desires to utilize the Licensed Marks solely in
connection with the manufacture, distribution, advertisement, promotion and sale
of the products described in Paragraph 1(b) below.
THEREFORE, in consideration of the premises and the mutual promises and
covenants herein contained and with the intent to be legally bound, the parties
hereto agree as follows:
1. DEFINITIONS.
For the purpose of this Agreement:
(a) "Licensed Marks" shall mean the names, logos, symbols, designs and/or
identifications of LICENSOR, as set forth on Exhibit "A attached hereto.
(b) "Licensed Products" shall mean flavored syrup to be sold under the "Cafe
Godiva" label.
(c) "Net Sales" shall mean the amount of the gross sales of a Licensed Product
by LICENSEE, after deducting any bona-fide credit or adjustment for returns
actually made. In computing Net Sales, no direct or indirect expenses or costs
incurred in connection with paying royalties due under this Agreement or
manufacturing, selling, distributing, or advertising (including cooperative and
other advertising and promotion allowances) the Licensed Products shall be
deducted, nor shall any deduction be made for uncollectible accounts, cash
discounts, eady payment discounts, discounts relating to advertising, markdown
allowances or other allowances. Net Sales resulting from sales to any party
directly or indirectly related to or affiliated with LICENSEE (a "Related
Transaction") shall be computed based on regular selling prices to the trade. If
such related party or affiliate is a reseller to the trade of the Licensed
Products, the sales price for purposes of determining Net Sales of a Related
Transaction shall be the higher of the sales price to the related or affiliated
party or the sales price charged to the trade by such related or affiliated
party.
(d) "Territory" shall mean the fifty (50) States of the United States of
America, including the District of Columbia, and Canada, subject to the
distribution restrictions set forth in Paragraph 2(d) below.
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<PAGE> 2
2. LICENSING RIGHTS.
(a) Grant of License: LICENSOR hereby grants to LICENSEE the right and license
to use the Licensed Marks solely in connection with the manufacture,
distribution, advertising, promotion and sale of Licensed Products in the
Territory subject to the provisions set forth in Paragraph 2(d) below.
(b) Limitation on License: No license is granted hereunder for the use of the
Licensed Marks for any purposes other than upon the Licensed Products and in the
promotion and advertisement thereof.
(c) Designs of Licensed Products: All designs of the Licensed Products using
the Licensed Marks including any packages or containers shall be used solely in
furtherance of this Agreement, and such designs will not be used in any other
respect by LICENSEE nor will LICENSEE authorize any third party to use such
designs.
(d) Distribution Channels: It is contemplated that LICENSEE will sell Licensed
Product to third parties who will either sell the product to consumers (e.g.,
specialty fine food stores), or use the product in connection with its
food/beverage business (e.g., coffee houses). LICENSEE acknowledges that in
order to best merchandise the product, the Licensed Product should only be sold
with other high quality fine foods. Therefore, unless otherwise agreed to by
LICENSOR in writing, LICENSEE will only sell Licensed Products to third parties
which also sell LICENSEE's "Dolce" product or to whom LICENSEE has in the past
either sold Dolce products or solicited sales of Dolce product. Notwithstanding
the foregoing, LICENSEE will also be required to obtain LICENSOR's prior written
consent in order to sell Licensed Product to any third party which operates
three or more stores/cafes/restaurants under the same retail name. In addition
to the foregoing, unless agreed to by LICENSOR in writing, LICENSEE will not
sell Licensed Product to any third party to which LICENSOR is currently selling
GODIVA products (e.g., LICENSEE could not sell Licensed Product to Godiva
boutiques or department stores or fine food stores where Godiva sells its
chocolate, coffee or other products).
(e) LICENSOR will provide LICENSEE with all SKU numbers with MOA's and complete
UPC numbers for the Licensed Products.
3. LETTERS OF INTRODUCTION.
LICENSEE agrees to exercise best efforts to coordinate introductions and
meetings between LICENSOR and "potential customers" for LICENSOR's GODIVA
product line (e.g., chocolates, coffee and biscuits). Potential customers
include fine specialty food stores and other upper end retail stores or
restaurants/cafes where GODIVA product is not currently being sold. LICENSEE
acknowledges that its ability to provide access to such venues is a significant
factor in LICENSOR's willingness to enter into this license agreement with
LICENSEE and the success of LICENSEE's efforts in this regard will be a primary
basis on which LICENSOR shall determine whether to renew this Agreement upon
expiration.
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<PAGE> 3
4. TERM OF LICENSE.
The term of this Agreement shall be for the period commencing on the date of
this Agreement and ending December 31, 1998.
5. ROYALTY RATES AND TERMS OF PAYMENT.
(a) Royalty Rates: During the term of this Agreement and during any period of
disposal allowed hereunder, LICENSEE shall pay LICENSOR an amount equal to ten
percent (10%) of Net Sales. LICENSEE agrees that Licensed Products will be
priced competitively with similar high quality branded products. LICENSEE shall
not be obligated to pay royalties on any promotional free giveaways of Licensed
Product, provided LICENSOR is notified in advance of the details of such
promotional plan.
(b) Statement and Payments: By the 15th day following the end of each month
during the term hereof, LICENSEE shall furnish LICENSOR with a full and accurate
statement sufficient in detail to show the number of cases sold and cases
returned and Net Sales for the preceding monthly accounting period.
Simultaneously with the submission of each monthly statement LICENSEE shall make
all royalty payments relating to sales reported for such month. Such monthly
statements shall be furnished whether or not there are any Net Sales for that
month. LICENSEE shall not deduct or withhold any amounts by reason of any tax.
Any applicable tax on the distribution and sale of the Licensed Products shall
be borne, and paid directly, by LICENSEE. All payments and computations to be
made under this Agreement shall be in U.S. dollars. If LICENSEE shall fail to
timely pay any amount due under this Paragraph, LICENSEE shall pay interest on
such amount at a rate equal to the lesser of (i) three percent (3%) per annum
over the highest prime rate (announced by Morgan Guaranty Trust Co. of New York)
prevailing during the period between the date the payment first became due and
the date such payment is actually paid or (ii) the highest rate permitted by law
during the period between the date the payment first became due and the date
such payment is actually paid. The receipt or acceptance by LICENSOR of any of
the statements furnished or royalties paid by LICENSEE (including the cashing of
any royalty checks) shall not preclude LICENSOR from questioning their accuracy
at any time, auditing LICENSEE's books and records pursuant to Paragraph 15 or
claiming any shortfall in royalty payments.
6. EXCLUSIVITY.
LICENSOR agrees that during the Term of this Agreement, it shall not enter into
any agreements with any third party in connection with the manufacture,
distribution or sale of products which are the same or similar to the Licensed
Products in the Territory. Notwithstanding the foregoing, LICENSEE agrees that
LICENSOR shall have the right to purchase Licensed Products from LICENSEE at a
mutually agreed upon price for sale in LICENSOR's boutique shops or for sale by
LICENSOR to third parties. LICENSOR reserves the right to sell Licensed Product
outside of the territory.
LICENSEE will not be obligated to pay a royalty to LICENSOR for any sales of
Licensed Product by LICENSEE to LICENSOR.
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<PAGE> 4
7. APPROVAL.
LICENSEE shall provide LICENSOR with samples of the Licensed Products (including
packaging) together with any and all advertising and promotional materials
bearing the Licensed Marks for LICENSOR's pre-approval. Notwithstanding the
foregoing, at LICENSEE's expense, LICENSOR will create and supply LICENSEE with
pre-approved promotional materials. LICENSOR's approval rights shall include,
without limitation, approval of product composition, package composition,
product stability, tampering and other safety issues, as well as all uses of the
Licensed Marks. LICENSEE will promptly remedy any aspect of the Licensed Prnduct
or use of the Licensed Marks which LICENSOR, in its sole discretion, deems
unsatisfactory. In order to ensure the proper use of the Licensed Marks by
LICENSEE's customers, LICENSEE will ensure that its customers only use
pre-approved promotional materials and LICENSEE and LICENSOR will work together
to determine the usage of Licensed Marks on customers' signage, menus, etc.
8. QUALITY CONTROL.
LICENSEE shall comply with all established industry standards, good
manufacturing and storage practices, and all laws and regulations having
application to the advertisement, production, manufacture or sale of Licensed
Products, and shall maintain a vigorous quality control and safety assurance
program with respect to the Licensed Products. At LICENSOR's written request,
LICENSEE shall provide LICENSOR with the results of all laboratory testing of
the Licensed Products as a condition precedent to the initial production of the
Licensed Products. Laboratory testing may be performed by LICENSOR. Should the
results of such laboratory testing fail to comply with the standards as stated
herein, LICENSEE shall be given sixty (60) days to resubmit Licensed Products
that will pass laboratory testing.
9. PROTECTION OF RIGHTS.
(a) Goodwill: LICENSEE recognizes the great value of the good will associated
with the Licensed Marks and acknowledges that all rights therein and good will
attached thereto belong exclusively to LICENSOR, and that the Licensed Marks
have secondary meaning in the minds of the public. LICENSEE agrees that it will
not, during the term of this Agreement or thereafter, attack LICENSOR's property
rights, in and to the Licensed Marks, or attack the validity, legality or
enforceability of this Agreement.
(b) Assistance in Protecting Marks: LICENSEE shall cooperate to the fullest
extent necessary to assist LICENSOR in the protection of the rights of LICENSOR,
including, without limitation, executing and delivering any and all documents
necessary or desirable in connection with obtaining, defending or maintaining
LICENSOR's rights in and to the Licensed Marks. LICENSOR shall reimburse
LICENSEE for any reasonable out-of-pocket costs actually incurred by LICENSEE in
providing such cooperation and assistance.
(c) Ownership of Marks: LICENSEE acknowledges that LICENSOR is the exclusive
owner of the Licensed Marks. Any intellectual property rights in the Licensed
Marks that may accrue to LICENSEE shall inure to the benefit of LICENSOR and
shall be assigned to LICENSOR upon its
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<PAGE> 5
request. LICENSEE acknowledges that it has received only a license to use the
Licensed Marks and that this Agreement does not constitute any form of
assignment or transfer of ownership in the Licensed Marks, or the right to
register any trademark(s) similar to the Licensed Marks so as to suggest
association with or sponsorship by LICENSOR in the United States or in any other
country in the world, or the right to use any trademark or trademarks similar to
LICENSOR's trademarks. LICENSEE shall take all necessary steps to secure an
assignment to LICENSOR of the copyright from a creator of work incorporating the
Licensed Marks that is not work-for-hire. Any copyright, trademark or service
mark affecting or relating to the Licensed Marks (excluding trademarks owned by
LICENSEE) already procured or applied for by LICENSEE shall be assigned to
LICENSOR. LICENSEE shall supply LICENSOR with any necessary supporting materials
required to obtain copyright or trademark registrations of any copyrights or
trademarks relating to the Licensed Marks (but excluding trademarks owned by
LICENSEE) required to be assigned to LICENSOR under this Agreement.
(d) Notices, Labeling and Records: In every instance in which any Licensed Mark
is used, LICENSEE shall cause to appear on the packaging of each Licensed
Product sold, the notice "(TM)" "(R)" "(C)" or such other copyright, trademark
or service mark notices (including the form, location and content of such
notices) as LICENSOR designates. In addition, the following general notice (in
the English language and the language of the country where the products will be
sold) must be included on the packaging material of the Licensed Product:
Circle "C" [Insert first year of publication] and TRADEMARKS LICENSED BY GODIVA
CHOCOLATIER, INC. ALL RIGHTS RESERVED.
LICENSEE shall keep appropriate records, and advise LICENSOR, of the date when
the Licensed Products are first placed on sale or sold in the Territory (along
with a copy of the invoice) and the date of first use of the Licensed Marks on
the Licensed Products and any promotional or packaging materials.
(e) LICENSEE Trade Names and Trademarks: LICENSEE shall not incorporate the
Licensed Marks into LICENSEE's corporate or business name or trademark in any
manner whatsoever and shall place its trade names and trademarks on Licensed
Products only as approved by LICENSOR.
(f) Ownership of Formulas: LICENSEE acknowledges that LICENSOR is the owner of
all formulas used to manufacture the Licensed Products and that upon expiration
of this Agreement, LICENSEE shall have no right to use such formulas.
10. REPRESENTATIONS AND WARRANTIES.
Each party represents and warrants that it has the right and authority to enter
into and perform this Agreement and to grant the rights and render the
performances required under this Agreement. LICENSEE represents and warrants
that all advertising and promotional materials shall comply with all applicable
laws, regulations and standards.
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<PAGE> 6
LICENSOR's approval of such materials is not a representation that LICENSOR
believes such materials are sufficient to meet applicable laws, regulations and
standards, nor is it a representation that LICENSOR agrees with or supports any
claims made by LICENSEE in any advertising materials relating to the Licensed
Products. LICENSEE further represents and warrants that all advertising and
promotional materials and all graphics used on Licensed Products will not
violate the intellectual property rights of any third party.
11. INFRINGEMENTS.
LICENSOR and LICENSEE shall notify each other of any actual or threatened
infringement of or act of unfair competition with respect to the Licensed Marks
in the Territory for goods of the same description as Licensed Products or for
related goods as to which they have notice and shall consult with each other
about any action to be taken. LICENSOR shall use its best reasonable efforts
and exercise diligence to successfully prosecute such infringements or acts of
unfair competition. All costs, disbursements and expenses of any actions which
LICENSOR prosecutes shall be borne by LICENSOR.
If the parties agree to jointly take action against an infringement, or act of
unfair competition, with respect to the Licensed Products, the cost of the
action and any damages accruing shall be shared equally. If one party takes
action against an infringer, it shall be entitled to retain all damages, costs
or other compensation it may recover.
12. INDEMNIFICATIONS.
(a) LICENSEE shall be solely responsible for, and shall defend, hold harmless
and indemnify LICENSOR, its parents and subsidiaries, and each of their
respective affiliates, directors, officers, employees and agents (collectively
Campbell Parties") against, any claims, demands, causes of action or damages,
including reasonable attorneys' fees and expenses (collectively, "Claims"),
arising out of or in connection with: (i) any act or omission of LICENSEE; (ii)
any unauthorized use by LICENSEE of the Licensed Marks; (iii) any breach of any
representation, warranty, covenant or agreement made by LICENSEE herein; (iv)
any defect (whether obvious or hidden and whether or not present in any sample
approved by LICENSOR) in the Licensed Products or any packaging or other
materials (including advertising materials), or arising from personal injury or
damages or loss to property or any infringement of any rights of any other
person or entity by the manufacture, sale, possession or use of Licensed
Products or their failure to comply with applicable laws, regulations and
standards or (v) any claim that the use of any design or other graphic component
of any Licensed Product (other than the Licensed Marks) violates or infringes
upon the trademark, copyright or other intellectual property rights (including
trade dress) of a third party, provided LICENSEE is given prompt written notice
of and shall have the option to undertake and conduct the defense of any such
Claim. In any instance to which the foregoing indemnities pertain, LICENSOR
shall cooperate fully with and assist LICENSEE in all respects in connection
with any such defense. LICENSEE shall reimburse LICENSOR for all reasonable
out-of-pocket costs actually incurred by LICENSOR in connection with such
cooperation and assistance. In any instance to which such indemnities pertain,
LICENSEE shall not enter into a settlement of such Claim or admit liability or
fault without LICENSOR's prior written approval. LICENSEE shall obtain and
maintain, at its sole cost,
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<PAGE> 7
comprehensive general liability insurance coverage, including, but not limited
to, Products Liability, Contractual Liability and Advertising Liability, which
policy shall be written for the benefit of LICENSEE and which shall name the
Campbell Parties as an additional insured with respect to third party liability.
The amount of coverage (which may be comprised of a primary general liability
policy and an excessive liability policy) shall be a minimum of Two Million U.S.
dollars (USD 2,000,000) per occurrence combined single limit and Three Million
U.S. dollars (USD 3,000,000) general aggregate. The policy and certificate of
insurance shall be endorsed to indicate that LICENSEE's insurance is primary and
not in excess of or contributory to any other insurance in effect for the
Campbell Parties. Such insurance shall be carried by an insurer authorized to
conduct business in the State of New Jersey with a rating by A.M. Best & Co. of
A- or other rating satisfactory to LICENSOR. Such insurance policy shall also
provide that LICENSOR receive written notice within thirty (30) days prior to
the effective date of the cancellation, non renewal or any material change in
coverage. In the event that LICENSEE (i) fails to deliver to LICENSOR a
certificate of such insurance evidencing satisfactory coverage prior to or
simultaneously with LICENSOR's execution of this Agreement, or (ii) modifies
such policy so as not to comply with the terms of this paragraph, LICENSOR shall
have the right to terminate this Agreement at any time. Such insurance
obligations shall not limit LICENSEE's indemnity obligations, except to the
extent that LICENSEE's insurance company actually pays LICENSOR amounts which
LICENSEE would otherwise be obligated to pay LICENSOR.
(b) LICENSOR shall be solely responsible for, and shall defend, hold harmless
and indemnify LICENSEE, its directors, officers, employees and agents against
any Claims arising out of: (i) a claim that the use of the Licensed Marks as
authorized by this Agreement violates or infringes upon the trademark, copyright
or other intellectual property rights of a third party in or to the Licensed
Marks or (ii) any breach of any representation, warranty, covenant or agreement
made by LICENSOR herein, provided LICENSOR is given prompt written notice of and
shall have the option to undertake and conduct the defense of any such Claim. In
any instance to which the foregoing indemnities pertain, LICENSEE shall
cooperate fully with and assist LICENSOR in all respects in connection with any
such defense.
3. CONFIDENTIALITY.
The parties expressly acknowledge and agree that all technical and/or commercial
information, whether written or oral, furnished by either party ("Disclosing
Party") to the other ("Receiving Party") or an officer, director, employee,
agent or representative thereof ("Representative") and relating to the
formulation, production, marketing, advertising, promotion, distribution or sale
of the Licensed Product shall be deemed to be confidential information and shall
not be disclosed to any third party, but shall be safeguarded and maintained by
each Receiving Party and Representative in confidence, provided, however, that
this obligation of confidentiality with respect to the confidential information
of a Disclosing Party shall not apply to information which (a) is or becomes
generally available to the public other than as a result of a disclosure by a
Receiving Party or its Representatives, (b) was available to Receiving Party on
a non confidential basis prior to its disclosure by Disclosing Party; or (c)
becomes available to Receiving Party on a non confidential basis from a person
other than Disclosing Party who is not otherwise bound by a confidentiality
agreement with Disclosing Party or its Representatives, or is not otherwise
prohibited from
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<PAGE> 8
transmitting the information to Receiving Party. In addition, LICENSEE agrees
that it shall not (without the express prior written consent of LICENSOR, given
in its sole discretion), issue press releases concerning LICENSOR or any
affiliate of LICENSOR or their activities, or disclose, make commercial or
other use of, or give or sell to any person, firm or corporation, any
proprietary information received directly or indirectly by it from LICENSOR.
14. DISTRIBUTION; COMPLIANCE.
(a) If LICENSEE desires to have a third party manufacture or distribute the
Licensed Products, LICENSEE must first notify LICENSOR of the name and address
of such third party. LICENSOR shall have the right, in its sole discretion, to
withhold approval for such third party manufacturer or distributor. If LICENSOR
grants approval for such third party manufacture or distribution, it may grant
such approval pursuant to an agreement (on a form supplied by LICENSOR) to be
entered into prior to such manufacture or distribution among LICENSOR, LICENSEE
and such manufacturer or distributor which will, among other things, require
that the third party manufacturer or distributor be subject to all of the terms
and conditions of this Agreement. If LICENSOR does not require the third party
to enter into a separate agreement, LICENSEE must provide LICENSOR with a copy
of its agreement with the third party, which agreement must provide that it is
subject to this Agreement. If any of LICENSEE's authorized manufacturers or
distributors uses the Licensed Marks for any unauthorized purpose, LICENSEE
shall be responsible for, and shall cooperate fully and use its best efforts in
stopping, such unauthorized use. Any change by LICENSEE from a third party
manufacturer or distributor previously approved by LICENSOR shall require
approval in accordance with this Paragraph.
(b) LICENSEE shall at all times conduct all aspects of its business in a fair
and reasonable manner and in compliance with all applicable laws, government
rules and regulations, court and administrative decrees and the highest standard
of business ethics then prevailing in the industry.
15. RECORDS; AUDITS.
LICENSEE shall keep accurate books of account and records covering all
transactions relating to the license granted in this Agreement. LICENSOR and its
authorized representatives shall have the right, at all reasonable hours of the
day, to examine and audit such books of account and records and all other
documents and materials in LICENSEE's possession or under its control (including
records of LICENSEE's parents, subsidiaries, affiliates and third parties, if
they are involved in activities which relate to this Agreement) relating to this
Agreement. LICENSOR shall have free and full access for such purposes and for
the purpose of making extracts and copies. Should an audit by LICENSOR establish
a deficiency between the amount found to be due LICENSOR and the amount LICENSEE
actually paid or reported, the LICENSEE shall pay the amount of such deficiency,
plus interest at the then current prime rate (as announced by Morgan Guaranty
Trust Co. of New York) from the date such amount should have been paid until the
date of payment. Should such audit establish a deficiency of more than five
percent (5%), LICENSEE shall also pay for the cost of the audit. LICENSEE shall
pay such amounts within thirty (30) days. All such books of account and records
shall be kept available for at least two (2) years after the expiration or
termination of this Agreement.
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<PAGE> 9
16. EARLY TERMINATION.
(a) Without prejudice to any other rights LICENSOR may have pursuant to this
Agreement or otherwise, LICENSOR shall have the right to terminate this
Agreement at any time if:
(1) LICENSEE shall fail to timely remit a royalty payment when due and shall
fail to cure such non-payment within fifteen (15) days of its receipt of written
notice from LlCENSOR.
(2) LICENSEE or any guarantor under this Agreement shall be unable to pay its
liabilities when due, or shall make any assignment for the benefit of creditors,
or under any applicable law admits in writing its inability to meet its
obligations when due or commit any other act of bankruptcy, institute voluntary
proceedings in bankruptcy or insolvency or permit institution of such
proceedings against it.
(3) LICENSEE shall fail to perform or shall be in breach of any other term or
condition of this Agreement; provided, however, that if such breach can be
cured, termination shall take effect thirty (30) days after written notice of
such breach is sent by LICENSOR if such breach has not been cured during such
thirty (30) day period.
(b) LICENSEE shall have the right to terminate this Agreement at any time if:
(1) LICENSOR or any guarantor under this Agreement shall be unable to pay its
liabilities when due, or shall make any assignment for the benefit of creditors,
or under any applicable law admits in writing its inability to meet its
obligations when due or commit any other act of bankruptcy, institute voluntary
proceedings in bankruptcy or insolvency or permit institution of such
proceedings against it.
(2) LICENSOR shall fail to perform or shall be in breach of any other term or
condition of this Agreement; provided, however, that if such breach can be
cured, termination shall take effect thirty (30) days after written notice of
such breach is sent by LICENSEE if such breach has not been cured during such
thirty (30) day period.
17. DISPOSAL OF STOCK.
Thirty (30) days before the expiration of this Agreement and ten (10) days after
any termination under Paragraph 16, LICENSEE will furnish to LICENSOR a
certificate showing the number and description of Licensed Products on hand or
in process of manufacture. After expiration or termination of this Agreement,
LICENSEE shall have no further right to manufacture, authorize any third party
to manufacture, advertise, distribute, sell, promote or otherwise deal in any
Licensed Products or use the Licensed Marks except as provided below. For a
period of ninety (90) days following the expiration (but not after the
termination unless authorized by LICENSOR) of this Agreement, LICENSEE may
sell-off and deliver completed Licensed Products which are on hand at the time
of such expiration (the "Sell-Off Period"); provided, however, that (i) all
payments then due are first made to LICENSOR and (ii) statements and payments
with respect to the Sell-Off Period are made in accordance with this Agreement.
LICENSOR shall have the option to conduct
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<PAGE> 10
physical inventories before the expiration of this Agreement until the end of
the Sell-Off Period in order to verify such inventory and/or statements. If
LICENSEE refuses to permit such physical inventory, LICENSEE shall forfeit its
right to dispose of its inventory. Upon termination of the Agreement or after
the Sell-Off Period, as the case may be, all inventory on hand or in process
(including all promotional and packaging materials) will either be returned to
LICENSOR or destroyed and LICENSEE shall deliver to LICENSOR a certified
statement signed by LICENSEE's President or Chief Financial Officer that such
materials have been returned to LICENSOR or destroyed.
18. EQUITABLE RELIEF.
LICENSEE acknowledges that LICENSOR is entering into this Agreement not only in
consideration of the royalties to be paid, but also for the promotional value
and intrinsic benefit resulting from the manufacture, advertisement,
distribution, sale and promotion of the Licensed Products by LICENSEE in the
Territory. LICENSEE acknowledges that the Licensed Marks possess a special,
unique and extraordinary character which makes difficult the assessment of the
monetary damage which LICENSOR would sustain as a result of the unauthorized use
of the Licensed Marks. LICENSEE further acknowledges that: (i) its failure to
manufacture, advertise, distribute, sell and promote the Licensed Products in
accordance with this Agreement, including LICENSEE's failure to satisfy its
obligation to maintain and not to detract from the value of the Licensed Marks,
and (ii) the unauthorized use of the Licensed Marks, will, in either case, cause
immediate and irreparable damage to LICENSOR for which LICENSOR would not have
an adequate remedy at law. Therefore, LICENSEE agrees that, in the event of a
breach of this Agreement by LICENSEE, in addition to such other legal and
equitable rights and remedies as shall be available to LICENSOR, LICENSOR shall
be entitled to injunctive and other equitable relief, without the necessity of
proving damages or furnishing a bond or other security.
19. NOTICES.
All notices of breach or default must be in writing and sent by facsimile,
overnight express delivery, by personal delivery or registered or certified
mail, return receipt requested, properly addressed and stamped, and shall be
deemed to have been given at the time it is sent.
<TABLE>
<S> <C>
If to LICENSOR: Godiva Chocolatier, Inc.
355 Lexington Avenue
New York, New York 10017
Attention:_____________________
with a copy to: CAMPBELL SOUP COMPANY
Campbell Place
Camden, New Jersey 08103
Attention: Corporate Secretary
If to LICENSEE: STEARNS & LEHMAN, INC.
52 Surrey Road
</TABLE>
85
<PAGE> 11
Mansfield, Ohio 44901
Attention: President
20. NO JOINT VENTURE.
Nothing herein contained shall be construed to place the parties in the
relationship of partners or joint ventures or principal and agent or employer
and employee and LICENSEE shall have no power to obligate or bind LICENSOR in
any manner whatsoever.
21. ENTIRE AGREEMENT.
This Agreement constitutes the entire Agreement and understanding between the
parties hereto with respect to the subject matter and terminates and supersedes
any such prior agreement or understanding, oral or written, between LICENSOR and
LICENSEE. None of the provisions of this Agreement can be waived or modified
except in writing signed by both parties. THERE ARE NO REPRESENTATIONS,
PROMISES, AGREEMENTS, WARRANTIES, COVENANTS OR UNDERTAKINGS MADE BY LICENSOR OR
BY LICENSEE OTHER THAN THOSE EXPRESSLY CONTAINED HEREIN. -
22. SEVERABILITY.
In the event any provision of this Agreement is found to be void, invalid or
unenforceable as a result of any judicial or administrative proceeding or
decree, this Agreement shall be construed and enforced as if such provision were
not contained in this Agreement.
23. ASSIGNMENT; CHANGE IN CONTROL.
This Agreement and any rights granted under this Agreement are personal to
LICENSEE and shall not be assigned, sublicensed, subcontracted or encumbered,
directly or indirectly, by law or by contract, without LICENSOR's prior written
consent which consent may, in LICENSOR's sole discretion, (i) be contingent upon
a fee payable by LICENSEE or the transferee, the amount of which shall be
determined by LICENSOR in its sole discretion, and/or (ii) impose other terms
and conditions upon the assignment, sublicense or transfer. Any transfer of a
controlling interest in LICENSEE or in any party which currently controls
LICENSEE, directly or indirectly, shall be deemed an assignment prohibited by
the preceding sentence. Any nonconsensual assignment, sublicense, subcontract or
encumbrance of this Agreement by LICENSEE shall be invalid and of no force or
effect. Upon any such nonconsensual assignment, sublicense or encumbrance, this
Agreement shall terminate and all rights granted under this Agreement shall
immediately revert to LICENSOR.
24. ARBITRATION OF CERTAIN MATTERS.
Any dispute or disagreement between the parties relating solely to the amount of
royalty payments owing under this Agreement shall be settled by arbitration
under the Commercial Arbitration Rules of the American Arbitration Association.
Judgment upon the award may be entered in any court
86
<PAGE> 12
having jurisdiction. No other dispute or disagreement between the parties
(including any claim by LICENSOR that LICENSEE is using the Licensed Marks in a
manner not authorized by this Agreement or is otherwise in breach of this
Agreement) shall be settled by arbitration.
25. GOVERNING LAW AND JURISDICTION.
This Agreement shall be construed in accordance with the laws of the State of
New Jersey, USA, without regard to its principles of conflicts of laws. Any
claim arising under this Agreement (except as provided under Paragraph 24) shall
be prosecuted in a federal or state court of competent jurisdiction located
within the City of Camden, New Jersey, USA, and LICENSEE consents to the
jurisdiction of such court and to the service of process by mail.
26. SURVIVAL.
No expiration or termination of this Agreement shall relieve LICENSEE of its
obligation to pay LICENSOR any amounts due to LI CENSOR at the time of
termination, regardless of whether these amounts are then or thereafter payable.
The provisions of Paragraphs 12,13 and 15 shall survive the expiration or
termination of this Agreement.
27. NO WAIVER.
No waiver by either party of a breach or a default hereunder shall be deemed a
waiver by such party of a subsequent breach or default of like or similar
nature.
28. CAPTIONS.
The captions used in connection with the paragraphs of this Agreement are
inserted only for the purpose of reference and shall not affect the
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have respectively caused two copies of
this Agreement to be executed by a fully authorized officer as of the day and
year first above written.
GODIVA CHOCOLATIER, INC. STEARNS & LEHMAN, INC.
By: /s/ E. M. Dunkin By: /s/ Bill C. Stearns
---------------- -------------------
Title: V.P. Sales & Marketing Title: President
87
<PAGE> 1
Exhibit #23
Securities and Exchange Commission
450 5th Street, N. W.
Judiciary Plaza
Washington, D. C. 20549
We consent to the inclusion in this Annual Report on Form 10-KSB (File No.
0-21879) of our report dated June 20, 1997, on our audits of the financial
statements of Stearns & Lehman, Inc. as of April 30, 1997 and 1996 and for the
years then ended.
/S/ Coopers & Lybrand L.L.P.
-----------------------------
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
July 25, 1997
88
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> APR-30-1997
<CASH> 730,833
<SECURITIES> 0
<RECEIVABLES> 930,459
<ALLOWANCES> (46,000)
<INVENTORY> 1,239,671
<CURRENT-ASSETS> 2,956,601
<PP&E> 3,016,009
<DEPRECIATION> (780,538)
<TOTAL-ASSETS> 5,780,362
<CURRENT-LIABILITIES> 1,050,774
<BONDS> 2,256
<COMMON> 3,563
0
0
<OTHER-SE> 4,723,769
<TOTAL-LIABILITY-AND-EQUITY> 5,780,362
<SALES> 7,381,105
<TOTAL-REVENUES> 7,395,057
<CGS> 5,432,588
<TOTAL-COSTS> 7,002,633
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 18,820
<INTEREST-EXPENSE> 53,814
<INCOME-PRETAX> 305,671
<INCOME-TAX> (96,601)
<INCOME-CONTINUING> 402,272
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 402,272
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
<PAGE> 1
Exhibit #99(c)
MUTUAL RELEASE
THIS AGREEMENT is by and between BICK GOSS and BRUCE SAUNDERS, Co-
Trustees of the ERNIE PARMENTIER TRUST in their capacity as Co-Trustees arid
within their authority and powers as Co-Trustees of the ERNIE PARMENTIER TRUST
to bind the Trust on the one part, and STEARNS & LEHMAN, INC., acting by and
through WILLIAM C. STEARNS, its President acting within his powers as an officer
of the company, on the other part.
WHEREAS, there have been diverse business dealings and transactions
between the ERNIE PARMENTIER TRUST and STEARNS & LEHMAN, INC. with reference to
production and distribution of products under the GRAN MERE product label and
otherwise; and
WHEREAS, disputes and differences have arisen between and among the
parties hereto regarding the continuation or non-continuation into the future of
the dealings and transactions between and among them; and
WHEREAS, the Co-Trustees of the ERNIE PARMENTIER TRUST, acting within
their power to bind the Trust, and STEARNS & LEHMAN, INC. have agreed to settle
and resolve fully and completely and for all time, all of the said disputes and
differences between and among them by making certain payments and promises each
to the other;
NOW, THIS AGREEMENT WITNESSETH THAT, in pursuance of the said agreement
between and among the ERNIE PARMENTIER TRUST and STEARNS & LEHMAN, INC., it is
hereby agreed as follows:
A. STEARNS & LEHMAN, INC. shall pay to the ERNIE PARMENTIER TRUST the
sum of Fifty Thousand and 00/100 Dollars ($50,000.00) within three (3) business
days of receipt of a fully executed copy of this Mutual Release;
B. STERNS & LEHMAN, INC. gives up, relinquishes, transfers and assigns
all of its rights, title arid interest to the GRAN MERE product line and
existing trademarks, logos, or other intangible things related thereto;
C. All rights to the GRAN MERE product line shall revert to the ERNIE
PARMENTIER TRUST;
D. The ERNIE PARMENTIER TRUST and its Trustees, settlers, and
beneficiaries hereby expressly release, acquit and forever discharge STEARNS &
LEHMAN, INC., its officers, agents, employees, shareholders and subsidiary
corporations or related entities of and from any and all claims, actions, causes
of action, demands, rights, damages, costs, losses of service, expenses,
compensation, and/or obligations of any and all types growing out of or in any
way related to the previous business dealings between the ERNIE PARMENTIER TRUST
and STEARNS & LEHMAN, INC.;
89
<PAGE> 2
E. STEARNS & LEHMAN, INC., for itself and for its officers,
shareholders, and any subsidiaries or related companies hereby expressly
releases, acquits and forever discharges the ERNIE PARMENTIER TRUST and its
Co-Trustees, settlers, beneficiaries, and any other re!ated entities from any
and all claims* actions, causes of action, demands, rights, damages, costs,
losses of service, expenses, compensation, and/or obligations of any and all
types growing out of or in any way related to the previous business dealings
between the ERNIE PARMENTIER TRUST and STEARNS & LEHMAN, INC.
F. Notwithstanding anything contained herein, STEARNS & LEHMAN, INC.
INC. continue to have the right for a period of ninety (90) days to sell all
remaining GRAN MERE finished goods inventory and related components as it may
deem appropriate. STEARNS & LEHMAN, INC. shall be entitled to all proceeds from
all sales made pursuant to the preceding sentence of this Paragraph F. After the
ninety (90) day period established herein, there shall be no further sales of
finished goods inventory and related components by STEARNS & LEHMAN, INC. and
all remaining finished goods inventory not sold at the end of said ninety (90)
day period shall be destroyed. Further, the ERNIE PARMENTIER TRUST shall inform
STEARNS & LEHMAN. INC. of who it has chosen as the new manufacturer of the GRAN
MERE product line so that STEARNS & LEHMAN, INC. may try to negotiate the sale
of all of its remaining raw materials (i.e.~ jars, caps, etc.) to such new
manufacturer, with STEARNS & LEHMAN, INC. to be entitled to all proceeds from
all sales of said remaining raw materials to the new manufacturer. The ninety
(90) day limit provision and the no further sales and destruction of goods
provisions of this Paragraph F. shall not apply to this potential sale of raw
materials.
G. STEARNS & LEHMAN, INC. represents that it is the owner of all of the
rights of Select Origins by merger of Select Origins into STEARNS & LEHMAN, INC.
and that therefore, STEARNS & LEHMAN, INC. has the present right to transfer
and/or relinquish all of said rights in the original license agreement between
the ERNIE PARMENTIER TRUST and Select Origins. Further, STEARNS & LEHMAN, INC.
represents that is has clear title to all of the items transferred or
relinquished herein and that said title is subject to no claim or lien of any
nature or type except for any possible claims by the ERNIE PARMENTIER TRUST.
H. STEARNS & LEHMAN, INC. shall indemnify and hold harmless the ERNIE
PARMENTIER TRUST for any claims resulting from STEARNS & LEHMAN'S use, sale
and/or exploitation of the product in all medium, and against the items sold or
relinquished pursuant to the agreement embodied in this Mutual Release accruing
up through the date of this Mutual Release, save and except therefrom any and
all claims resulting from or relating to the original formulation of the
products described herein.
I. STEARNS & LEHMAN, INC. shall provide to the ERNIE PARMENTIER TRUST
any and all formulas and/or recipes associated with the GRAN MERE product line.
Further, after the ERNIE PARMENTIER TRUST elects a new manufacturer, when such
manufacturer purchases the raw material inventory from STRERNS & LEHMAN at cost,
STEARNS & LEHMAN shall provide such new manufacturer with a customer list
listing all customers who have purchased any products in the GRAN MERE product
line.
90
<PAGE> 3
IN WITNESS WHEREOF, the parties have set their hands to this Mutual
Release the day and year set forth beside such party's signature.
ERNIE PARMENTIER TRUST
Date: June 20,1997 By: /s/ Bick Goss
---------------
BICK GOSS, Co-Trustee
And By: /s/ Bruce Saunders
--------------------
BRUCE SAUNDERS, Co-Trustee
STEARNS & LEHMAN, INC.
Date: July 9, 1997 By: /s/ William C. Stearns
------------------------
WILLIAM C. STEARNS, President
91
