================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended December 31, 1996
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the transition period from ____________ to ____________
Commission file number: 33-93982-LA
ANNIE'S HOMEGROWN, INC.
(Exact name of Small Business Issuer as specified in its charter)
DELAWARE 06-1258214
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
180 SECOND STREET, SUITE 202, CHELSEA, MA 02150
(Address of principal executive offices) (Zip Code)
617-889-2822
(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act: NONE
Securities registered pursuant to Section 12(g) of the Exchange Act: NONE
Check whether the Issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B in this form, and no disclosure will be contained, to the best of
the Issuer'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.
The issuer's revenue for the fiscal year ended December 31, 1996 was $4,811,762.
As of December 31, 1996, the aggregate market value of the Issuer's voting stock
held by non-affiliates was approximately $6,735,726 based on the initial public
offering price of Common Stock of $6.00 per share.
As of December 31, 1996, there were 4,256,895 shares of the Issuer's Common
Stock, $.001 par value, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
================================================================================
PART I
ITEM 1. BUSINESS
GENERAL
Annie's Homegrown, Inc. ("Annie's" or the "Company"), which was founded by Ann
E. Withey and Andrew M. Martin, is engaged in the manufacture, marketing and
sale of premium natural macaroni and cheese dinners and other pasta products.
The Company's products include: Annie's Shells and Cheddar, Annie's Alfredo,
Annie's Whole Wheat Shells and Cheddar and Annie's Mild MexicanTM . In the first
quarter of 1997, the Company introduced a new line of all natural pasta dinners
called Annie's One-Step. The One-Step dinners combine different pasta shapes
with five sauce recipes which provide the convenience and simplicity of
one-step, one-pot cooking.
The Company's products are manufactured by contract packers according to the
specifications provided by the Company, which include the recipe, ingredients,
graphics and packaging for the product. The Company's products are sold
primarily through supermarkets and natural and specialty food stores. The
Company also manufactures a private label house brand for a specialty retailer,
using its premium all natural white cheddar cheese formula together with elbow
macaroni. To date, the Company has focused its marketing and distribution
efforts on the Northeast and West Coast U.S. markets. The Company's strategy is
to expand its supermarket distribution nationally in addition to developing new
and unique all natural food products to sell to its existing customer base.
Annie's mission is to provide the highest quality, all natural food products to
its customers and to serve as an ethically, socially, and environmentally
conscious business model for customers, other companies and the food industry.
The Company promotes environmental efforts to minimize the consumption of
resources and encourages individuals to make personal commitments to social and
environmental causes.
The Company was founded in January 1989 as a Delaware corporation. Its principal
executive offices are located at 180 Second Street, Suite 202, Chelsea, MA 02150
and its telephone number is (617) 889-2822.
Statements in this Form 10-KSB which are not historical facts, so called
"forward-looking statements", are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. When used in this Form
10-KSB, the terms "anticipates", "expects","estimates","believes" and other
similar terms as they relate to the Company or its management are intended to
identify such forward-looking statements. The Company's actual results,
performance or achievements may differ materially from those expressed or
implied by such forward-looking statements. Investors are cautioned that all
forward-looking statements involve risks and uncertainties, including those
detailed herein and in the Company's other filings with the Securities and
Exchange Commission. See "Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Certain Factors That May Affect
Future Results."
PRODUCTS
The Company manufactures and sells a variety of macaroni and cheese dinners
under the Annie's name. The Company's products are made using all natural
ingredients including its premium all natural white cheddar cheese formula
together with petite pasta shells made from 100% durum semolina. The Company's
products include:
Annie's Shells and Cheddar, introduced in January 1989, made with petite durum
semolina pasta shells and premium all natural white Vermont cheddar cheese.
Annie's Alfredo, introduced in August 1989, made with petite durum semolina
pasta shells and premium all natural white Vermont cheddar cheese with garlic
and basil.
Annie's Whole Wheat Shells and Cheddar, introduced in February 1990, made with
an organically grown whole wheat pasta shells and premium all natural white
Vermont cheddar cheese.
1
Annie's Mild MexicanTM , introduced in November 1994, made with petite durum
semolina pasta shells and premium all natural white Vermont cheddar cheese and
Mexican spices.
These products are typically priced at retail between $0.99 and $1.49 for a 7.25
oz. package.
In the first quarter of 1997, the Company introduced a new line of five all
natural pasta dinners called Annie's One-Step. The dinners combine different
pasta shapes with five sauce recipes which provide the convenience and
simplicity of one-step, one-pot cooking Annie's one-step dinners include the
following:
Annie's One-Step Rotini with Four Cheese Sauce
Annie's One-Step Penne Pasta with Alfredo Sauce
Annie's One-Step Radiatore Pasta with Sundried Tomato and Basil Sauce
Annie's One-Step Corkscrew Pasta with Savory Herb and Garlic Sauce
Annie's One-Step Curly Fettuccine with White Cheddar and Broccoli Sauce
Annie's One-Step dinners are typically priced at retail between $1.59 and $1.99
for a 5 oz . package.
SALES, MARKETING AND DISTRIBUTION
The Company sells its products primarily to two classes of retailers: (i)
supermarket chains, also known as "mass markets;" and (ii) natural and specialty
food stores. Selection of new regional markets is based upon consumer profiles,
product opportunity and costs of introduction.
In the mass markets, the Company sells to large supermarket chains such as Stop
and Shop in New England and Safeway Stores in California. The Company currently
has penetrated all of the major supermarket chains in New England, and sells in
several major supermarket chains in New York and California. The Company is
currently expanding its sales area to include major supermarkets in the
Mid-Atlantic states as well as the Rocky Mountain region.
The Company's products are also sold to natural food markets and specialty food
stores, such as Whole Foods and Fresh Fields, and to select natural and
specialty food distributors. Buying practices of natural and specialty food
stores are highly selective due to the nature of the retailers, which reflect
their customers demands for both natural and premium quality products. According
to Spence Information Services, the only sales information service catering to
the natural food trade, Annie's was the Number 2 ranked brand, based on total
dollar sales, in the Entree and Mixes category with the top two selling items in
that category for the year ended December 31, 1996.
In October 1996, the Company signed a master distribution agreement with Liberty
Richter, Inc.("Liberty"). The agreement calls for Liberty to distribute all of
the Company's products except for the private label and mail order lines in the
continental United States. The Company sells the products to Liberty who in turn
sells the products to supermarket chains and natural and specialty food stores.
Liberty has two warehouses, one located in New Jersey and the other located in
California. Liberty distributes and sells Annie's products within the territory
utilizing its own sales force and sub distributors that they maintain. In
addition, Liberty provides other services such as order processing, invoicing,
record management, sales coverage, broker management, promotion execution,
management of sales allowances and trade show participation. All promotions and
slotting presentations as well as sub distributors and brokers are subject to
Annie's approval.
Using the Company's sales and marketing presentation, Liberty, through its
regional managers and food brokers, presents the Company's products to the
supermarket or distributor buyer. The key competitive factors in influencing
2
a purchasing decision by the buyer include the product quality, packaging, sales
history, profitability and consumer demand. If a buyer decides to accept the
product, other issues such as the cost of acquiring shelf space (introductory
slotting) and the Company's specific commitments to marketing programs are
negotiated. Introductory slotting fees and marketing programs often vary from
customer to customer. Emphasizing the selling features of its products, the
Company, through Liberty and its brokers, attempts to negotiate the lowest
slotting cost. Slotting fees can take the form of cash payments and/or free
product allowances. Utilizing both Liberty`s and the brokers' knowledge
regarding specific accounts, the Company tailors its introductory marketing
program to each new account.
Under the Liberty Agreement, Liberty must distribute any new products that
Annie's chooses to distribute through Liberty's channels unless Liberty has a
preexisting non compete provision with another vendor. The initial contract
expires December 31, 1997 with automatic renewals scheduled on a year to year
basis.
Prior to October 1996, the Company sold its products directly to supermarket
chains and wholesale distributors, utilizing regional food brokers on a
commission basis. Regional food brokers served as the Company's sales
representatives and assisted the Company in the sales process. The Company had
retained 21 food brokers. Using the Company's sales and marketing presentation,
the food brokers presented the Company's products to the supermarket or
distributor buyer. Prior to entering into the Liberty Agreement the Company's
products were shipped directly from the manufacturer via common carrier to
either of the Company's two public warehouses located in Massachusetts and
California. The Company did not rent the warehouses but was charged a fee based
on the amount of use. The Company then distributed its products by shipping
either directly to supermarket chains' central warehouses, where the products
were then redistributed to individual stores as needed, or to a wholesale
grocery distributor.
The Company's sales strategy is to continue to expand its supermarket
distribution nationally in addition to developing new and unique all-natural
food products to sell to its existing customer base. Management believes the
Company will benefit from greater trade relations due to Liberty's favorable
position in the supermarket and natural food trade. In addition, Management
believes its consolidated distribution with Liberty's other products will
provide the Company greater access to key accounts in expansion markets as well
as facilitate new product introductions into its existing customers.
For the fiscal years ending December 31, 1995 and 1996, no one customer
accounted for more than 10% of the Company's net sales.
CUSTOMERS
The Company's products are marketed toward mothers, children and young adults.
These three groups are the primary purchasers in the macaroni and cheese dinner
category. Management believes its customers are people who prefer to buy a
natural, better-tasting product and are willing to pay a premium price.
The Company relies primarily on brand loyalty and word of mouth to promote its
products. The Company's marketing strategy is designed to encourage customers to
try its products for the first time and develop brand loyalty. The Company
accomplishes this by continually educating customers about the differences
between its all natural products and the competition's products, as well as
through product sampling, community giveaways, promotional pricing and account
specific marketing events such as buy-one get-one free promotions.
PRODUCT QUALITY AND DEVELOPMENT
Ann E. Withey, the Company's co-founder, Director, and Inspirational President,
maintains the final responsibility for the recipes for the Company's products.
The Company takes great pride in producing high quality, all natural, easy to
prepare meals. Annie's petite pasta shells are made from 100% durum semolina
flour. Management believes the quality of its 100% durum semolina pasta is one
of the more important differences between Annie's and other competitive national
brands. Several of the lower priced brands are prepared from a lower grade, less
expensive blend of spring wheat and durum flour. Pure durum semolina flour
produces a golden, translucent looking finished
3
pasta product, while blended enriched flour produces a faded, chalky looking
finished product. The Company has retained a product development consultant to
increase the speed at which new products are created and introduced to the
market. The consultant reviews all recipes and flavors with Ms. Withey which are
subject to Ms. Withey's final approval.
MANUFACTURING
The Company's products are manufactured by two contract packers according to the
specifications provided by the Company, which include the recipe, ingredients,
graphics and packaging for the product. The Company has never experienced
material shortages or delays in the manufacture of its products. However, its
products are subject to the inherent risks in agriculture and all of its
products must be transported from its manufacturer and are therefore subject to
work stoppages and other risks. The Company believes that there are numerous
companies which could manufacture its products under its quality specifications
without a substantial increase in cost or delay in delivery.
COMPETITION
The industry in which the Company competes is highly competitive. The principal
methods of competition in the macaroni and cheese market include pricing,
product quality and taste, brand advertising, trade and consumer promotions,
packaging and the development of new products. The Company competes not only for
consumer acceptance but also for shelf space in supermarkets and natural food
stores and for the marketing focus by the Company's distributors, some of which
also distribute other competing products. The Company competes in two primary
classes of trade: (i) the mainstream supermarket trade, also known as the "mass
markets" and (ii) the natural food trade. The macaroni and cheese category in
the mass market trade is highly competitive. The leading brand in the category
is Kraft's Original Macaroni and Cheese Dinner (Kraft is owned by Philip Morris
Companies, Inc.) which accounted for over 40% of the total dollar sales in the
category in 1996 according to Information Resources Infoscan reports. In
addition to the Kraft brand, the category is comprised of other products such as
Golden Grain (The Quaker Oats Company), private label products (store brands),
and several regional brands. Store brands are usually sold at prices well under
the Company's products. Most of the companies that compete in the macaroni and
cheese category are larger than Annie's and have significantly greater
resources.
Management believes that the Company's products do not directly compete with
these "value-priced" lines. The Company's products are positioned as a "premium"
brand and viewed as a natural alternative to the low-priced,
artificially-flavored brands. Management believes its target customers are
people who prefer to buy natural, better-tasting products and are willing to pay
a premium for those products. The Company uses unique, brightly colored
packaging to differentiate its products from competing brands, which tend to be
very similar in graphical design.
The macaroni and cheese category is less competitive in natural food stores,
which do not typically carry Kraft Macaroni and Cheese or Golden Grain. The
Company competes in that market with other products based on quality and all
natural ingredients. Several of these brands are also offered by companies
larger than the Company. There is less pricing competition within this segment,
as natural, specialty and gourmet food stores typically sell products based on
their quality and ingredients, not price.
Management believes that the principal bases of competition include price,
product quality, taste, reputation and brand loyalty. The Company believes that
it competes favorably with respect to these factors, although there can be no
assurance that it will be able to continue to do so. The ability of the Company
to compete successfully in the future will depend on factors both within and
outside its control, including the Company's ability to respond to changing
market conditions and the activities of its competitors, to control costs, to
introduce successful new products, to grow its customer base, and general market
and economic conditions. There can be no assurance that the Company will be able
to compete successfully with respect to these factors in the future or that
present competitors or future entrants will not successfully compete with the
Company in the future, any of which could have a material adverse effect on the
Company's business, results of operations or financial condition.
PHILOSOPHY AND CORPORATE CULTURE
4
The Company understands that it has a responsibility to produce profits for its
shareholders. However, in addition to its corporate responsibilities, the
Company is committed to benefiting the community as a reward for its support.
Since its inception, the Company has supported hundreds of non-profit and school
groups that helped women, children and the environment. Currently, Annie's
Homegrown continues to support hundreds of non-profit groups through its
Community Enrichment Program.
COMMUNITY ENRICHMENT PROGRAM
The Company's mission is to provide the highest quality all natural food
products to its customers and to serve as an ethically, socially, and
environmentally conscious business model for customers, other companies and the
food industry. The Company promotes environmental efforts to minimize the
consumption of resources and encourages individuals to make personal commitments
to social and environmental causes. The Company also actively supports a variety
of non-profit and school groups that help women, children and the environment.
The Company's Community Enrichment Program contributes cases of its products to
PTA groups, walkathons, book fairs, bake sales, daycare centers and other
non-profit groups and events. These groups can give away the cases or sell the
free cases as a fund-raiser to generate support for their organization. The
Community Enrichment Program helps society and the environment while
simultaneously increasing the public awareness for Annie's products.
The Company has also created and supports the Be Green(R) environmental
awareness program. There is a description on each package of the Company's
product describing how individuals can help the environment by increasing
environmental awareness. Consumers can receive a free Be Green(R) bumper sticker
which helps consumers express their support for the environment.
Be Green(R) Magazine is a publication produced by the Company and is a forum
whereby the Company can communicate its philosophy, products and community
programs. Be Green(R) Magazine features inspiring articles and stories, facts
about the environment, coloring pages, comic strips for kids, stories about
groups that are helping the environment and society.
For the year ended December 31, 1995, the Company contributed approximately
$38,600 in cash, resources and products to various organizations. The Company,
adhering to its philosophy, made contributions of approximately $ 24,000 in
cash, resources and products for the year ended December 31, 1996.
INTELLECTUAL PROPERTY RIGHTS
The Company regards its trademarks, its packaging, promotional material and
other art work and its trade secrets comprising of its processes, formulas,
ingredients, and recipes as critical to its success and attempts to protect such
property. The Company has registered the following trademarks in the United
States; "Bernie-Rabbit of Approval", "Annie's", "Annie's Homegrown", "Annie's
Pasta," "Be Green" and "Annie's Mild Mexican. The Company also uses several
other trademarks for which federal trademark registrations are now pending. The
Company also uses appropriate copyright notices with its packaging, promotional
materials and other art work. The Company's suppliers, pursuant to
confidentiality agreements with the Company, have agreed to retain in confidence
and not use the Company's trade secrets except for the benefit of the Company.
The Company intends to take all necessary and appropriate action to protect
against imitation of its products, packaging, promotional materials and other
art work and to defend such trademarks, copyrights, and trade secrets. The
Company does not have any patents.
REGULATION
The production and marketing of the Company's products are subject to the rules
and regulations of various federal, state, and local heath agencies, including
the United States Food and Drug Administration (the "FDA"). The FDA also
regulates the labeling of the Company's products.
EMPLOYEES
5
As of December 31, 1996, the Company had nine employees: two general management,
one salesperson, three sales and marketing support, and three operations
including financial management. The Company has never participated in a
collective bargaining agreement. Management believes its relationship with its
employees are good.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company leases 1,500 square feet at 180 Second Street, Suite 202, Chelsea,
Massachusetts and leases 800 square feet of office space at 200 Gate Five Road,
Suite 211, Sausalito, California. The Chelsea lease expires on December 31,
1997, and has a monthly rent of $1,150 for the term of the lease with an
additional amount due for its portion of building expenses over a base period of
1994. The Sausalito lease expires on September 30, 1997, and has a monthly rent
of $1,250. The Company believes that both properties are adequately covered by
insurance.
The Company believes that its facilities and equipment are in good condition and
are suitable for its operations as presently conducted and for its foreseeable
future operations. The Company currently believes that additional facilities and
equipment can be acquired if necessary, although there can be no assurance that
additional facilities and equipment will be available upon reasonable or
acceptable terms, if at all.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently involved in any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual meeting of stockholders held on October 28, 1996, the
Company's stockholders:
(i) Elected the following persons as Directors of the Company to serve a
one year term:
<TABLE>
<CAPTION>
Total Vote For Total Vote Withheld
Each Director From Each Director
----------------------------------------------
<S> <C> <C>
Ann E. Withey 3,654,906 1,280
Andrew Martin 3,654,906 1,280
Deborah Churchill Luster 3,654,856 1,330
Brady Bevis 3,654,706 1,480
Patrick DeTemple 3,654,856 1,330
Paul Geffner 3,654,856 1.330
Kare Anderson 3,654,806 1,380
</TABLE>
(ii) Approved the Company's 1996 Stock Plan. With respect to such
matter, the votes were as following: 3,648,540 shares voted for the
proposal, 3,535 shares voted against the proposal, and 4,111 shares
abstained from voting on the proposal.
(iii) Ratified the appointment of KPMG Peat Marwick LLP as the
Company's independent auditor's for the fiscal year ending December 31,
1996. With respect to such matter, the votes were as following:
3,651,875 shares voted for the proposal, 722 shares voted against the
proposal, and 3,589 shares abstained from voting on the proposal.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
6
The Company's Common Stock, $.001 par value, is not listed on any public
securities exchange or market and there can be no assurances that the Company's
Common Stock will be listed on a stock exchange or market or that a trading
market will ever develop .
The approximate number of record holders of the Company's Common Stock as of
December 31, 1996 was 2,580. The Company has never paid a cash dividend with
respect to its shares of the Common Stock. The Company currently intends to
retain earnings, if any, for use in its business and does not anticipate paying
cash dividends on its shares of Common Stock in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
The Company has developed four premium macaroni and cheese dinners: Annie's
Shells and Cheddar, Annie's Alfredo, Annie's Whole Wheat Shells and Cheddar, and
Annie's Mild Mexican(TM) . In the first quarter of 1997, the Company introduced
a new line of all natural pasta dinners called Annie's One-Step. The dinners
combine different pasta shapes with five sauce recipes which provide the
convenience and simplicity of one-step, one-pot cooking as follows: Annie's
One-Step Rotini with Four Cheese Sauce, Annie's One-Step Penne Pasta with
Alfredo Sauce, Annie's One-Step Radiatore Pasta with Sundried Tomato and Basil
Sauce, Annie's One-Step Corkscrew Pasta with Savory Herb and Garlic Sauce,
Annie's One-Step Curly Fettuccine with White Cheddar and Broccoli Sauce. The
Company also has an agreement with a specialty retailer to provide a private
label house brand using the Company's premium all natural white cheddar cheese
formula together with elbow macaroni.
In October 1996, the Company signed a master distribution agreement with Liberty
Richter, Inc.("Liberty"). The Liberty Agreement calls for Liberty to distribute
all of the Company's products except for the private label and mail order lines
in the continental United States. The Company sells the products to Liberty who
in turn sells the products to its two main classes of trade supermarket chains
and natural and specialty food stores. Liberty has two warehouses, one located
in New Jersey and the other located in California.
Liberty distributes and sells Annie's products within the territory utilizing
its own sales force and sub distributors that they maintain. In addition,
Liberty provides other services such as order processing, invoicing, record
management, sales coverage, broker management, promotion execution, management
of sales allowances and food show participation. All promotions and slotting
presentations as well as sub distributors and brokers are subject to Annie's
approval.
Using the Company's sales and marketing presentation, Liberty through its food
brokers presents the Company's products to the supermarket or distributor buyer
The key competitive factors in influencing a purchasing decision by the buyer
include the product quality, packaging, sales history, profitability and
consumer demand. If a buyer decides to accept the product, other issues such as
the cost of acquiring shelf space (introductory slotting) and the Company's
specific commitments to marketing programs are negotiated. Introductory slotting
fees and marketing programs often vary from customer to customer. Emphasizing
the selling features of its products, the Company, through Liberty and its
brokers, attempts to negotiate the lowest slotting cost. Slotting fees can take
the form of cash payments and/or free product allowances. Utilizing both
Liberty`s and the brokers' knowledge regarding specific accounts, the Company
tailors its introductory marketing program to each new account.
Under the Liberty Agreement , Liberty must distribute any new products that
Annie's chooses to distribute through their channels unless Liberty has a
preexisting non compete provision with another vendor. The initial contract
expires December 31, 1997 with automatic renewals scheduled on a year to year
basis.
The Company's cost of sales consists of the cost of finished product shipped
from a co-packer. The raw materials are purchased by the Company according to
the specifications provided by the Company, which include the recipe,
ingredients, graphics and packaging for the product and shipped to the
co-packer. Then, the co-packer packages the
7
raw materials into the appropriate boxes and cases according to orders specified
by the Company. The products are shipped directly from the manufacturer via
common carrier to either of Liberty's two public warehouses located in New
Jersey and California. The Company distributes its products through Liberty's
distribution system to either the supermarket chains' central warehouses or to a
wholesale grocery distributor.
Selling expenses include the costs of product marketing, sales commissions, cost
of product distribution and account management. Liberty retains brokers at the
approval of the Company who present the Company's products to supermarket chains
and distributors. The brokers work on a commission basis, generally 5% of net
cash received. The Company negotiates, through the broker, the cost of acquiring
shelf space (introductory slotting) as well as the continuing support needed for
the product as indicated. Introductory slotting fees can take the form of cash
payments and/or free product allowances.
The Company's sales strategy is to continue to expand its supermarket
distribution nationally in addition to developing new and unique all-natural
food products to sell to its existing customer base. The Company will benefit
from greater trade relations due to Liberty's favorable position in the
supermarket and natural food trade. Management believes its consolidated
distribution with Liberty's other products will provide the Company greater
access to key accounts in expansion markets as well as facilitate new product
introductions into its existing customers. For the fiscal year ended December
31,1995 and 1996, no one customer accounted for more than 10% of the Company's
net sales.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net sales, certain items
included in the Company's Statements of Operations (see Financial Statements and
related Notes) for the years indicated:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1995 1996
-------- -------
STATEMENTS OF OPERATIONS DATA:
<S> <C> <C>
Net sales........................................ 100.00% 100.00%
Cost of sales.................................... 57.33 57.88
Gross profit..................................... 42.67 42.12
Selling expenses................................. 29.81 27.93
General and administrative expenses.............. 14.01 14.00
Slotting fees.................................... 6.88 4.73
Compensation of outside directors................ 0.99 0.31
Operating income (loss).......................... (9.02) (4.85)
Interest expense and borrowing charges........... 1.08 1.06
Interest and other income........................ 0.24 0.17
Income tax expense............................... 0.06 0.07
Net income (loss)................................ (9.92) (5.81)
</TABLE>
FISCAL YEAR ENDED DECEMBER 31, 1996 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1995
Net sales. Net sales increased by $265,551 or 5.84% from $4,546,211 in 1995 to
$4,811,762 in 1996. The net sales increase was primarily a result of growth in
the slotting of new accounts. The Company believes that it has penetrated all
major supermarket chains in the New England states, and sells in several major
supermarket chains in New York and California. The Company has expanded its
supermarket business into the Mid-Atlantic states as well as the Rocky Mountain
region. For the fiscal years ended December 31, 1995 and 1996, none of the
Company's customers accounted for more than 10% of the Company's net sales.
8
Gross profit. As a percentage of net sales, gross profit decreased from 42.67%
in 1995 to 42.12% in 1996. This decrease was primarily the result of the
increase in dairy and wheat costs during 1996,offset by reduced raw material
costs due to the Company's decision to purchase all its raw materials directly
from suppliers and having the co-packers produce the product using these raw
materials. This enabled the Company to achieve better pricing than purchasing
the finished product from the co-packer. where the co-packer provided the raw
materials.
Selling expenses. Selling expenses decreased by $11,045 or 0.82% from $1,355,129
in 1995 to $1,344,084 in 1996 and decreased as a percentage of net sales from
29.81% in 1995 to 27.93% in 1996. The decrease in selling expenses as a
percentage of net sales primarily reflected a leveling off in spending in three
primary areas; personnel, freight costs and promotional spending. The Company
maintained the same number of personnel to sell and support its products and
customer base. Freight costs remained level due to efficiencies of larger
customer orders and customers picking up orders despite the customer base
expanding away from the Company's warehouses. Promotional spending including
price reductions were kept consistent with 1995 levels.
General and administrative expenses. General and administrative expenses
increased by $36,755 or 5.77% from $636,939 in 1995 to $673,694 in 1996 and
decreased as a percentage of net sales from 14.01% in 1995 to 14.00% in 1996.
This increase was due primarily to expenditures related to increased
professional costs due to governmental reporting requirements required by the
Company's initial public offering.
Slotting fees. Slotting expenses decreased by $85,258 or 27.27% from $312,661 in
1995 to $227,403 in 1996, and decreased as a percentage of net sales from 6.88%
in 1995 to 4.73% in 1996. The decrease was due to the Company's decision to
scale back purchasing additional shelf space at supermarkets which requires
paying introductory slotting fees as a result of insufficient working capital.
These slotting fees are required by most supermarkets and are expensed at the
time of product introduction.
Compensation of outside directors. In 1995, $24,000 in compensation for Common
Stock issued and $21,000 in compensation for stock options granted was recorded
for the four outside directors of the Company. In 1996, $15,000 in compensation
for stock options granted in 1995 was recorded for the four outside directors of
the Company. The Company pays no compensation for its directors who are also
employees of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date through the initial public
offering of Common Stock, private sale of equity and convertible debt
securities, a line of credit from a financial institution and cash generated
from operations. At December 31, 1996 and 1995, the Company had a working
capital (deficit) of $564,350 and $(193,412), respectively. The increase in
working capital was primarily generated by the amount of working capital
received through the Company's initial public offering.
Net cash used in operating activities for the year ended December 31, 1996 was
$170,407, consisting primarily of a decrease in net income along with a
substantial increase in inventory , offset by a substantial increase in accounts
payable and advances from distributor. Net cash provided by operating activities
was $40,621 in 1995 consisting primarily of increases in collection on related
party accounts, as well as increases in accruals and trade payables and offset
in part by increases in slotting and accounts receivables.
Net cash used in investing activities consisted of capital expenditures totaling
$18,044 in 1996 and $18,787 in 1995 which related principally to the purchase of
office equipment.
The Company had net cash provided by financing activities of $1,013,490 and
$11,187 for 1996 and 1995, respectively. In 1996 and 1995, net cash used in
financing activities was used primarily to pay off the revolving line of credit.
The Company had a revolving line of credit with a financial institution in the
amount of $150,000 which bore
9
interest at the prevailing prime rate plus 3%. In addition, each borrowing
incurred a service fee which varies from 0.5% to 8% (up to 90 days) depending on
the number of days the borrowing is outstanding. The line of credit was secured
by the Company's accounts receivable and inventory and guaranteed by an officer
and certain directors of the Company. In June 1996, the Company renegotiated its
line of credit with the financial institution. The Company increased its line of
credit from $150,000 to $300,000. In addition, the service fees charged were
reduced from 0.5% to 8% (up to 90 days) to 0.4% to 6.4% (up to 90 days). In
October 1996, the Company terminated the use of the line of credit. The Company
also has a $10,000 unsecured line of credit with a bank which bears interest at
the prime rate plus 8.9%. At December 31, 1995, the Company had $32,129 of
outstanding borrowings under the lines of credit. At December 31, 1996, The
Company had $10,014 outstanding on the unsecured line of credit from the bank.
The Company also has a $7,500 demand note payable to an Officer of the Company
which bears interest at 11%. The Company used the proceeds of the note for
general working capital.
On July 31, 1996, the Company closed its initial public offering. In total,
256,895 shares were sold resulting in gross proceeds of approximately
$1,500,000. Expenses from the inception of the offering totaled approximately
$310,000. The Company's primary capital needs are for expansion into national
supermarket distribution and to develop new products. The Company intends to
expand its supermarket distribution throughout the United States by acquiring
shelf space or new "slots" (one product in one store equals one slot). The
Company acquired new slots of shelf space during 1996 and 1995 by opening new
accounts and slotting its Alfredo and Mild Mexican products into selected
existing accounts. The Company's expenditures for slotting fees of $227,403 in
1996 were funded with a portion of the net proceeds of the initial public
offering. Slotting expenses for 1995 were $312,661.
The Company believes that the net proceeds from the initial public offering,
together with the funds that may be generated from operations, will be
sufficient to fund the Company's currently anticipated working capital
requirement and expenditure requirements at least through December 31,1997.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Company, statements made by its
employees or information included in its filings with the Securities and
Exchange Commission (including this Form 10-KSB) may contain statements which
are not historical facts, so called "forward-looking statements", which involve
risks and uncertainties. Forward-looking statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of
1995.When used in this Form 10-KSB, the terms "anticipates",
"expects","estimates","believes" and other similar terms as they relate to the
Company or its management are intended to identify such forward-looking
statements. In particular, statements made above in "Item 2. Description of
Property" relating to the suitability of the Company's facilities and equipment
for future operations and the availability of additional facilities and
equipment in the future and in "Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations" relating to the sufficiency of
funds for the Company's working capital requirements during 1997 and the
Company's expectation that future cash flow will continue to be provided from
operations will have any significant impact on its business may be
forward-looking statements. The Company's actual future results may differ
significantly from those stated in any forward-looking statements. Factors that
may cause such differences include, but are not limited to, the factors
discussed below. Each of these factors, and others, are discussed from time to
time in the Company's filings with the Securities and Exchange Commission.
The Company's future results are subject to substantial risks and uncertainties.
The Company has operated at a loss or a very small profit for its entire history
and there can be no assurance of it ever achieving consistent profitability. The
Company had working capital at December 31, 1996 of $564,350 and a working
capital deficit of approximately $193,000 at December 31, 1995. In addition, the
Company completed its initial public offering in July 1996. The Company may
still require additional working capital in the future and there can be no
assurance that such working capital will be available on acceptable terms, if at
all. The macaroni and cheese marketplace is highly competitive and many of the
Company's competitors have significantly greater financial and other resources
greater than the Company. The failure of the Company to compete effectively with
existing or new competitors
10
could result in price erosion, decreased margins and decreased revenues, any or
all of which could have a material adverse effect on the Company's business,
results of operations, and financial condition. The Company historically has
relied on a relatively small number of customers for a large percentage of its
total revenues. Loss of, or a decrease in orders from, any one or more of these
customers could have a material adverse effect on the Company's results of
operations and financial condition.
The Company's quarterly and annual operating results are affected by a wide
variety of factors that could materially affect revenues and profitability,
including: competitive pressure on selling prices and margins; cost of
ingredients; transportation and distribution costs; timing of customer orders;
timing and amount of slotting fees and capital expenditures; and the
introduction of new products by the Company's competitors. As a result of the
foregoing and other factors, the Company may experience material fluctuations in
future operating results on a quarterly or annual basis which could materially
and adversely affect its business, operating results and stock price.
In October 1996, the Company signed a master distribution agreement with Liberty
Richter, Inc.("Liberty"). The Liberty Agreement calls for Liberty to distribute
all of the Company's products except for the private label and mail order lines
in the continental United States. The Company will sell substantially all of its
the products to Liberty who in turn sells the products to its two main classes
of trade: (i) supermarket chains and (ii) natural and specialty food stores. The
Liberty Agreement expires on December 31, 1997 but automatically renews for
twelve months periods unless terminated by September 15 of the then current
year. Management also believes the Company will benefit from greater trade
relations due to Liberty's favorable position in the supermarket and natural
food trade. Management believes its consolidated distribution with Liberty's
other products will provide the Company greater access to key accounts in
expansion markets as well as facilitate new product introductions into its
existing customers. The ability of the Company to achieve its operating plan
will be largely dependent on the ability of Liberty to sell the Company's
products and execute its business strategy. The loss or termination of the
Liberty Agreement or the inability of Liberty to execute the Company's strategy
may have a material adverse effect on the Company's business, results of
operations, and financial condition.
The Company's strategy is to expand its sales by purchasing shelf space
(slotting fees) at major supermarket chains in addition to developing new and
unique all-natural food products to sell to its existing customer base. The
inability of the Company to execute this strategy may have a material adverse
effect on the Company's business, results of operations, and financial
condition.
To date, the Company has relied significantly on the talents and abilities of
Ann E. Withey, the Company's co-founder and Inspirational President, and Andrew
M. Martin, the Company's co-founder and Chairman and CEO. The loss of either of
these people could have a material adverse effect on the Company's business,
results of operations, and financial condition.
ITEM 7. FINANCIAL STATEMENTS
Please refer to pages F-1 through F-13
Independent Auditors' Report
Balance Sheets at December 31, 1996 and 1995
Statements of Operations for the Years ended December 31, 1996 and 1995
Statements of Stockholders' Equity (Deficit) at December 31, 1996 and 1995
Statements of Cash Flows for the Years ended December 31, 1996 and 1995 Notes to
Financial Statements at December 31, 1996 and 1995
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
11
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS: COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
EXECUTIVE OFFICERS, KEY PERSONS AND DIRECTORS
The executive officers and directors of the Company as of December 31,1996 are
as follows:
Name Age Position
---- --- --------
Ann E. Withey 34 Inspirational President and Director
Andrew Martin 42 Chairman and Chief Executive Officer
Paul Nardone 29 President
Deborah Churchill 34 Secretary and Director
Neil Raiff 39 Chief Financial Officer and Treasurer
Brady Bevis 52 Director
Patrick DeTemple 45 Director
Paul Geffner 43 Director
Kare Anderson 47 Director
ANN E. WITHEY co-founded the Company in 1989 and is currently a director
and the Company's Inspirational President. Ms. Withey has served as a
director of the Company since 1989. Ms. Withey's responsibilities also
include new product development and consumer correspondence and relations.
Approximately 95% of Ms. Withey's time is devoted to the Company's matters.
Ms. Withey is also a co-founder and is currently a director of The Good
Idea Foods Company, Inc. Ms. Withey was co-founder of Smartfood, Inc. and
creator of the original recipe for Smartfood Popcorn. Smartfood Inc. was
sold to Frito-Lay a division of PepsiCo in 1989. Ms. Withey and her husband
own and operate a small organic produce farm in Connecticut. Ms. Withey
actively supports a variety of programs that benefit women, children,
education and the environment. Ms. Withey holds a B.A. degree from the
University of Connecticut.
ANDREW M. MARTIN co-founded the Company, and since 1989, has been the
Company's Chairman and Chief Executive Officer. Mr. Martin participates in
all aspects of the Company's development, including strategic planning,
product development, finance, management, sales and marketing. Mr. Martin
was a co-founder, President and Chairman of Smartfood, Inc. In 1989, Mr.
Martin founded, and is currently the Chairman and Chief Executive Officer
of Simple Packaging Solutions, Inc., an international packaging technology
corporation located in Sausalito, California. In 1993, Mr. Martin also
founded, and is currently the Chairman and Chief Executive Officer of The
Good Idea Foods Company, Inc., a regional snack food company located in
Chelsea, Massachusetts. Mr. Martin spends approximately 60% of his time on
matters relating to the Company. Mr. Martin holds several international and
national patents and awards for technology excellence. He has also created
several successful programs to benefit the homeless and the environment.
PAUL NARDONE is currently the Company's President. Mr. Nardone is
responsible for managing the Company's strategic plan. In 1988, Mr. Nardone
founded The Olde Boston Snacks brand which is distributed by Galaxy Foods,
Inc. Mr. Nardone continues to work in an advisory role with Galaxy Foods,
Inc.. In 1990, Mr. Nardone founded New England Snacks, Inc., a regional
snack food distributorship. In March, 1992, New England Snacks, Inc. was
sold to Alternative Distributors where Mr. Nardone served as Vice President
of sales until joining the Company in 1993. Mr. Nardone also serves as
President of Good Idea Foods Company, Inc. Approximately 95% of his time is
spent on matters relating to the Company. Mr. Nardone holds a B.A. degree
in Political Science from Tufts University in Medford, Massachusetts.
12
DEBORAH CHURCHILL is currently serving as the Company's Secretary and has
been a director since 1991. She has also served as the Company's President.
Her responsibilities include serving as a spokesperson for the Company, its
products and philosophy. She has been honored as a speaker by many groups
on behalf of issues relating to women, business and the environment. Ms.
Churchill works closely with the Company's President and Treasurer in
directing Company matters. She is also a director of Simple Packaging
Solutions, Inc. and the Good Idea Foods Company, Inc. Prior to joining the
Company in May 1990, Ms. Churchill was a District Loan Officer, in charge
of all loan operations in Northern California, with Glendale Federal Bank
of San Mateo California. Ms. Churchill holds a B.A. in Economics from the
University of California at Santa Barbara.
NEIL RAIFF is a certified public accountant and currently serves as the
Company's Chief Financial Officer and Treasurer. From 1989 to September
1994, Mr. Raiff served in this capacity on a contractual basis. On October
1, 1994, Mr. Raiff was retained as a part-time employee, and in May 1995
his status was changed to a full-time employee. Mr. Raiff is responsible
for all financial and administrative functions including financial
forecasting and strategic planning, expense control, accounting, purchasing
and banking and insurance relationships. From 1991 to May 1995, Mr. Raiff
was self employed as a CPA in private practice. From 1989 to 1991, Mr.
Raiff was a Manager with Cohen and Havian, certified public accountants in
Boston, Massachusetts. Mr. Raiff holds a B.S. in Accountancy from Bentley
College in Waltham, Massachusetts.
BRADY BEVIS was elected a director in May, 1995. Ms. Bevis, a public
interest lawyer and businesswoman, is currently the Program Coordinator for
the Bay Area Multimedia Partnership. Ms. Bevis was formerly on the Board of
Supervisors for the County of Marin during which she ended the 17-year
polarization over the conversion of Hamilton Air Force Base and started a
collaborative process for planning its future. Prior to elected office, Ms.
Bevis was Chair of the Marin SANE/Freeze, active in the nation wide Lawyers
Alliance on Nuclear Policy, and the Marin County Peace Conversion
Commission. Ms. Bevis was a founding member of Marin Action, Exodus -
establishing residential treatment facilities for autistic children, and
the Marin County Commission on Homelessness. In addition, Ms. Bevis has
served on the Boards of Directors for numerous organizations including The
California Council on Partnerships, Marin Conservation League, and the
California Elected Women's Association for Education and Research.
PATRICK DETEMPLE has been a director of the Company since September 1996.
Mr. DeTemple is an attorney in private practice with a history of
commitment to social issues. Mr. DeTemple has extensive experience in
community, labor and political organizing, negotiations, and campaigns. In
these capacities he has worked with labor organizations community groups
and political organizations In 1989 and 1990 Mr. DeTemple served as
National Field Director for Earth Day 1990. Mr. DeTemple has served as an
attorney for the City of Cambridge, practiced immigration law., served as
senator's chief of staff in the Massachusetts State House and traveled,
worked, wrote and spoke extensively in regard to events in Central America
and the Philippines during the 1980's. Mr. DeTemple has obtained degrees
from Brown, Northeastern and Harvard Universities and is a member of the
Massachusetts and California Bars.
PAUL GEFFNER has been a director of the Company since September, 1996. Mr.
Geffner owns Escape From New York Pizza, a group of three pizza restaurants
in San Francisco. Mr. Geffner founded Captain Video, a chain of video
stores in Northern California, which he sold in 1988.. Mr. Geffner has
assisted in the creation and development of many different retail ventures
including a juice and yogurt bar (Fruitopia) , a women's clothing store,
and an event production company. Mr. Geffner has been a big brother for
seventeen years and wrote and produced commercials for Big Brothers of
California, which won an Emmy award in 1990.
KARE ANDERSON has been a director of the Company since September, 1996. Ms.
Anderson is an author and speaker who translates research on gut
instinctual reactions into techniques to inspire and support for an idea or
product. Ms. Anderson is a former California state senator's chief of
staff; reporter for
13
newspapers, including The Wall Street Journal and Le Monde ; producer for
"Inside Sacramento", a syndicated radio feature; won an Emmy for television
political commentaries; co founder on nine women's political action
committees and was Pacific Bell's first Cable TV and Wideband Division
Director.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Not Applicable
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal years ended December 31, 1996 and
1995, certain compensation paid by the Company, including salary, bonuses and
certain other compensation, to its Chief Executive Officer and all other
executive officers whose annual compensation for the year ended December 31,
1996 and 1995 exceeded $100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Number of
Securities
All Other
Name and Principal Position Year Salary Bonus Options Compensation
- --------------------------- ---- ------ ----- ------- ------------
<S> <C> <C> <C> <C>
Andrew M. Martin............................1996 $ 75,000 -- -- --
Chairman & Chief Executive Officer 1995 $ 84,000 -- 37,302 --
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to the Named Executive
Officers concerning the grant of options during fiscal year ended December 31,
1996 and 1995, under the Company's 1990 Incentive Stock Option Plan. No options
were granted under the 1996 Stock Plan.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS EMPLOYEES FOR PRICE EXPIRATION
NAME YEAR GRANTED 1996/1995 $/SHARE DATE
- ---- ---- ------- --------- ------- ----
<S> <C> <C> <C> <C>
Andrew M. Martin............................1996 -- -- -- --
Chairman & Chief Executive Officer 1995 37,302 37.22% $5.90 (1) 1/16/2000
(1) The exercise price on the date of grant was equal to or exceeded 110% of the fair market value of the Common
Stock of the Company on the date of grant.
</TABLE>
14
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to the Named Executive
Officers concerning the exercise of options during fiscal year end December 31,
1996 and 1995 and unexercised options held as of the end of fiscal 1996.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT
OPTIONS AT FY- FY-END ($)(1)
SHARES ACQUIRED END EXERCISABLE/ EXERCISABLE/
NAME YEAR ON EXERCISE UNEXERCISABLE UNEXERCISABLE
- ---- ---- ----------- ------------- -------------
<S> <C> <C> <C>
Andrew M. Martin............................1996 -- 268,874/0 $1,177,444/$0
Chairman & Chief Executive Officer 1995 -- 268,874/0 $1,177,444/$0
(1) Calculated based on the initial public offering price of the Company's Common Stock ($6.00), minus the
exercise price of the option.
</TABLE>
DIRECTOR COMPENSATION
Directors are not paid any salary, fees or other compensation for services as a
director, except for shares of Common Stock and options to purchase shares of
Common Stock granted to non-employee members of the Board of Directors.
Directors may be reimbursed for certain expenses in connection with attendance
at Board and committee meetings.
1996 STOCK PLAN
On October 28, 1996, the Company adopted a 1996 stock option plan (the "1996
Plan"). The purpose of the 1996 Plan is to encourage ownership of Common Stock
of the Company by officers, key employees, directors, consultants and other
persons not employed by the Company. Pursuant to the 1996 Plan, the Company may
grant incentive stock options and non-qualified stock options to the Company's
employees, officers, directors and consultants. A total of 200,000 shares of
Common Stock were reserved for issuance under the 1996 Plan. The Board of
Directors is authorized to determine the employees, officers, directors and
consultants to whom options are granted and the number of shares for each
option. The Board also interprets the 1996 Plan and the options granted
thereunder and is authorized to adopt, amend or rescind the rules and
regulations and make all other determinations necessary or advisable for the
administration of the 1996 Plan. At December 31, 1996, no options were issued
under this 1996 Plan. The 1996 Plan may be amended at any time by the Board,
although certain amendments would require shareholder approval
The Board has the discretion to determine the extent to which an option may be
exercised in part and the extent to which any part may or may not be exercised
prior to expiration of specified periods of time after the grant. However, no
option shall be exercisable to any extent after the expiration of ten years
(five years in the case of an incentive stock option granted to a greater-than
10% shareholder). If the optionee terminates his or her services with the
Company, the optionee must exercise the option within the earlier of the
expiration date of such option or within 90 days of termination of services for
any reason other than death or disability. In the event of
15
death or disability, the incentive stock option shall terminate at the earlier
of such date of expiration or within 180 days and 90 days respectively following
such event. The exercise price of incentive stock options granted under the 1996
Plan must be at least equal to the fair market value of the Common Stock of the
Company on the date of grant. The exercise price of incentive stock options
granted to an optionee who owns stock possessing more than 10% of the Company's
Common Stock must equal at least 110% of the fair market value of the Common
Stock on the date of grant.
1990 INCENTIVE STOCK OPTIONS PLAN
In January 1990, the Company adopted an incentive stock option plan (the
"Plan"). The purpose of the plan is to encourage ownership of Common Stock of
the Company by officers, key employees, directors, consultants and other persons
not employed by the Company. Pursuant to the Plan, the Company may grant
incentive stock options and non-qualified stock options to the Company's
employees, officers, directors and consultants. A total of 969,854 shares of
Common Stock were reserved for issuance under the Plan. The Board of Directors
is authorized to determine the employees, officers, directors and consultants to
whom options are granted and the number of shares for each option. The Board
also interprets the Plan and the options granted thereunder and is authorized to
adopt, amend or rescind the rules and regulations and make all other
determinations necessary or advisable for the administration of the Plan.
The Board has the discretion to determine the extent to which an option may be
exercised in part and the extent to which any part may or may not be exercised
prior to expiration of specified periods of time after the grant. However, no
option shall be exercisable to any extent after the expiration of ten years
(five years in the case of an incentive stock option granted to a greater-than
10% shareholder). If the optionee terminates his or her services with the
Company, the optionee must exercise the option within the earlier of the
expiration date of such option or within 30 days of termination of services for
any reason other than death, retirement or disability. In the event of death or
retirement, the incentive stock option shall terminate at the earlier of such
date of expiration or within 180 days and 90 days respectively following such
event. The exercise price of incentive stock options granted under the Plan must
be at least equal to the fair market value of the Common Stock of the Company on
the date of grant. The exercise price of incentive stock options granted to an
optionee who owns stock possessing more than 10% of the Company's Common Stock
must equal at least 110% of the fair market value of the Common Stock on the
date of grant.
As of December 31, 1996, options to purchase an aggregate of 957,519 shares were
outstanding at exercise prices per share ranging from $0.007 to $5.90, and
12,338 shares of Common Stock were available for future grants under the Plan.
The Plan may be amended at any time by the Board, although certain amendments
would require shareholder approval. The Plan will terminate in January, 2000,
unless earlier terminated when the total amount of Common Stock with respect to
which options may be granted shall have been issued upon the exercise of options
or by action of the Board, whichever shall occur first.
16
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
regarding the beneficial ownership of the Company's Common Stock as of December
31, 1996, for (i) each shareholder known by the Company to own beneficially 5%
or more of the outstanding shares of its Common Stock; (ii) each director; and
(iii) all directors and executive officers as a group. The Company believes that
the beneficial owners of the Common Stock listed below, based on information
furnished by such owners, have sole investment and voting power with respect to
such shares, subject to community property laws where applicable.
<TABLE>
<CAPTION>
Directors, Shares
Executive Officers Beneficially Percentage of
and 5% Shareholders: Owned Common Shares Outstanding (1)(2)
-------------------- ----- --------------------------------
<S> <C> <C>
Ann E. Withey (3)
c/o Annie's Homegrown, Inc.
180 Second Street, Suite 202
Chelsea, MA 02150..................... 1,704,209 39.18%
Andrew Martin (4)
c/o Annie's Homegrown, Inc.
200 Gate Five Road., Suite 211
Sausalito, CA 94965................... 1,785,679 40.15%
Deborah Churchill (5).................. 185,266 4.27%
Brady Bevis (6)........................ 11,000 *
Patrick DeTemple ...................... 0 *
Paul Geffner .......................... 0 *
Kare Anderson ......................... 0 *
All directors and executive officers
as a group (9 persons) (7)........... 3,943,525 77.84%
</TABLE>
* Less than 1% of total voting securities
(1) Shares of Common Stock subject to options exercisable within 60 days of
December 31, 1996, are deemed outstanding for computing the percentage of
the person or group holding such securities.
(2) Percentage of beneficial ownership is calculated on the basis of the amount
of outstanding securities at December 31, 1996 (4,256,895) plus, for each
person or group, any securities that person or group has the right to
acquire within 60 days pursuant to options or other rights.
(3) Includes 171,839 shares of Common Stock issuable upon exercise of certain
options granted pursuant to the Company's 1990 Incentive Stock Option Plan
and 30,439 shares of Common Stock issuable upon exercise of certain options
granted pursuant to the Company's 1990 Incentive Stock Option Plan held by
her husband
(4) Includes 268,874 shares of Common Stock issuable upon exercise of certain
options granted pursuant to the Company's 1990 Incentive Stock Option Plan.
(5) Includes 159,155 shares of Common Stock issuable upon exercise of certain
options granted pursuant to the Company's 1990 Incentive Stock Option Plan.
(6) Includes 10,000 shares of Common Stock issuable upon exercise of options
granted to Ms. Bevis as a part of her Director's compensation.
17
(7) Includes 809,251 shares of Common Stock issuable upon exercise of certain
options granted to directors and executive officers pursuant to the
Company's 1990 Incentive Stock Option Plan.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Andrew Martin, Chairman and Chief Executive Officer and a Director of the
Company, is also the majority stockholder and holds similar offices with Simple
Packaging Solutions, Inc. ("Simpak") and Good Idea Foods Company, Inc. ("Good
Idea"). Ann Withey , Inspirational President and Director of the Company, is
also a Director of Good Idea. Deborah Churchill, Secretary and Director of the
Company, is also a Director of Simpak and Good Idea. Ms. Withey and Ms.
Churchill each own less than 5% of the outstanding shares of Simpak. Ms. Withey
is a 25% stockholder of Good Idea. Paul Nardone, President of Annie's Homegrown,
Inc., is President of Good Idea and devotes approximately 3% of his time to the
Good Idea business.
Simpak has borrowed from the Company, for which it has been charged
interest at the rate of 11%. At December 31, 1996, there was an outstanding
balance of $67,598. See Note 4 of Notes to Financial Statements. All future
material affiliated transactions and loans will be made or entered into on terms
that are no less favorable to Annie's than those that can be obtained from
unaffiliated third parties; and all future material affiliated transactions and
loans, and any forgiveness of loans, must be approved by a majority of the
independent outside members of the Company's Board of Directors who do not have
an interest in the transactions.
ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(A) EXHIBITS
Exhibit Number Description
-------------- -----------
<S> <C>
** 3.1 Certificate of incorporation, as amended
** 3.2 By-Laws, as amended
** 10.1 Lease agreement with Second Street Limited Partnership
dated December 19, 1994 for Chelsea, MA office
** 10.2 Lease agreement with Marin Freeholders dated
August 31, 1995 for Sausalito, CA office
** 10.31 1990 Incentive Stock Option Plan
* 10.32 1996 Stock Plan
** 10.41 Loan Agreement and Security Agreement with Inventory
Addendum dated June 7, 1996 with Presidential
Financial Corporation of Massachusetts
** 10.42 Demand and Secured Promissory Note dated June 7, 1996
payable to Presidential Financial Corporation of
Massachusetts
* 10.6 Distribution Agreement with Liberty Richter, Inc.
* 10.7 Employment Contract with Paul B. Nardone
* 11 Computation of Per Share Earnings
* 24.1 Power of Attorney (included on Signature Page of this report)
* 27.1 Financial Data Schedule
</TABLE>
- -------------------
* Filed herewith
** Previously filed as an Exhibit to the Company Registration statement on Form
SB-2 (R6 No. 33-93982-L.A.) and incorporated herein by reference.
(B) REPORTS ON FORM 8-K
18
No reports on Form 8-K were filed by the Company during the Company's fiscal
quarter ended December 31, 1996.
19
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ANNIE'S HOMEGROWN, INC.
Registrant
/s/ Andrew Martin
--------------------------
Andrew Martin, Chairman
Chairman, Chief Executive Officer
March 27, 1997
Date
Each person whose signature appears below appoints Andrew M. Martin, Deborah
Churchill, and Neil Raiff, as his or her attorney-in-fact, with full power of
substitution and resubstitution to sign any and all amendments to this report on
Form 10-KSB of Annie's Homegrown, Inc. and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that said
attorney-in-fact and agent or his or her substitute or substitutes may lawfully
do or cause to be done by virtue hereof. In accordance with the Exchange Act,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Andrew M. Martin Chairman, Chief Executive Officer March 27 , 1997
- -------------------------- and Director (Principal Executive Officer)
Andrew M. Martin
/s/ Ann E. Withey Inspirational President & Director March 27 , 1997
- --------------------------
Ann E. Withey
/s/ Paul Nardone President March 27, 1997
- --------------------------
Paul Nardone
/s/ Deborah Churchill Secretary & Director March 27, 1997
- --------------------------
Deborah Churchill
/s/ Neil Raiff Chief Financial Officer & Treasurer March 27, 1997
- --------------------------
Neil Raiff (Principal Financial and Accounting Officer)
20
_______________________________ Director March 27, 1997
Brady Bevis
/s/ Patrick DeTemple Director March 27, 1997
- -------------------------------
Patrick DeTemple
/s/ Paul Geffner Director March 27, 1997
- -------------------------------
Paul Geffner
_______________________________ Director March 27, 1997
Kare Anderson
</TABLE>
21
SUPPLEMENTAL INFORMATION TO BE
FURNISHED WITH REPORTS FILED PURSUANT
TO SECTION 15(d) OF THE EXCHANGE
ACT BY NON-REPORTING ISSUERS
No annual report or proxy material has been sent to the Issuer's security
holders with respect to the year ended December 31, 1996. A copy of the Issuer's
Annual Report to Shareholders for the fiscal year ended December 31, 1996 and
the Issuer's Proxy Statement for the 1996 Special Meeting in Lieu of Annual
Meeting of Shareholders will be furnished to shareholders and filed with the
Securities and Exchange Commission on or about August 1, 1997.
22
ANNIE'S HOMEGROWN, INC.
Financial Statements
December 31, 1995 and 1996
(With Independent Auditors' Report Thereon)
23
Independent Auditors' Report
----------------------------
The Board of Directors and Stockholders
Annie's Homegrown, Inc.:
We have audited the accompanying balance sheets of Annie's Homegrown, Inc. as of
December 31, 1995 and 1996, and the related statements of operations,
stockholders' equity (deficit), 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 Annie's Homegrown, Inc. at
December 31, 1995 and 1996, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
March 7, 1997
24
ANNIE'S HOMEGROWN, INC.
Balance Sheets
<TABLE>
<CAPTION>
December 31,
------------
Assets 1995 1996
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 35,463 860,502
Accounts receivable:
Trade (notes 5 and 9) 204,693 86,096
Related parties (note 4) 20,753 97,690
Inventory (note 5) 405,764 1,234,110
Other current assets 500 5,878
------- ---------
Total current assets 667,173 2,284,276
------- ---------
Office equipment, plates and dies 56,622 74,666
Accumulated depreciation (24,291) (35,464)
------- -------
Office equipment, plates and dies, net 32,331 39,202
------ ------
Due from officer (note 4) 75,000 75,000
Other assets 19,153 25,767
------ ------
Total assets $ 793,657 2,424,245
============== =========
Liabilities and Stockholders' Equity (Deficit)
----------------------------------------------
Current liabilities:
Notes payable (note 5) $ 39,629 17,514
Accounts payable, trade (note 10) 591,659 1,017,630
Accrued expenses (note 6) 179,583 105,053
Deferred revenue from distributor (note 2b) - 535,068
Due to employees 49,714 44,661
------ ------
Total current liabilities 860,585 1,719,926
------- ---------
Commitments (note 7)
Stockholders' equity (deficit) (note 8):
Common stock, $.001 par value. Authorized 10,000,000
shares; issued 4,178,211 shares and 4,368,801
shares at December 31, 1995 and 1996, respectively 4,178 4,369
Additional paid-in capital 726,518 1,761,932
Accumulated deficit (690,874) (970,232)
Note receivable stockholder (1,750) (1,750)
Deferred compensation directors (15,000) -
Treasury stock, 111,906 common shares at cost (90,000) (90,000)
------- -------
Total stockholders' (deficit) equity (66,928) 704,319
------- -------
Total liabilities and stockholders' (deficit) equity $ 793,657 2,424,245
============== =========
</TABLE>
See accompanying notes to financial statements.
ANNIE'S HOMEGROWN, INC.
Statements of Operations
<TABLE>
<CAPTION>
Years ended
December 31,
------------
1995 1996
---- ----
<S> <C> <C>
Net sales (notes 2 and 9) $ 4,546,211 4,811,762
Cost of sales 2,606,381 2,784,902
--------- ---------
Gross profit 1,939,830 2,026,860
--------- ---------
Operating expenses:
Selling 1,355,129 1,344,084
General and administrative 636,939 673,694
Slotting fees (note 2f) 312,661 227,403
Compensation of outside directors (note 8) 45,000 15,000
--------- ---------
Total operating expenses 2,349,729 2,260,181
--------- ---------
Operating loss (409,899) (233,321)
Other (expense) income:
Interest expense and borrowing charges (note 5) (49,092) (50,952)
Interest and other income (note 4) 10,846 8,201
--------- ---------
Loss before income tax expense (448,145) (276,072)
Income tax expense (note 3) 2,865 3,286
Net loss $ (451,010) (279,358)
============ ========
Primary net loss per share $ (.11) (.07)
============ ========
Primary weighted average common shares outstanding 3,986,769 4,180,910
============ ========
See accompanying notes to financial statements.
</TABLE>
ANNIE'S HOMEGROWN, INC.
Statements of Stockholders' Equity (Deficit)
Years ended December 31, 1995 and 1996
<TABLE>
<CAPTION>
Additional Note Deferred
Common stock paid-in Accumulated receivable- compensation
Shares Amount capital deficit stockholder directors
------ ------ ------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 4,013,906 $ 4,014 $ 476,966 $ (239,864) $ - $ -
Exercise of stock options (note 8) 94,000 94 3,686 - (1,750) -
Grant of common stock to
directors (note 8) 4,000 4 23,996 - - -
Issuance of common stock upon
public offering (note 8) 66,305 66 397,764 - - -
Public offering costs (note 8) - - (211,894) - - -
Deferred compensation relating to
directors stock options (note 8) - - 36,000 - - (15,000)
Net loss - - - (451,010) - -
--------- --------- ---------- ------------- -------- ----------
Balance at December 31, 1995 4,178,211 4,178 726,518 (690,874) (1,750) (15,000)
Issuance of common stock upon
public offering (note 8) 190,590 191 1,134,457 - - -
Public offering costs (note 8) - - (99,043) - - -
Amortization of deferred
compensation of directors - - - - - 15,000
Net loss - - - (279,358) - -
--------- --------- ---------- ------------- -------- ----------
Balance at December 31, 1996 4,368,801 $ 4,369 $ 1,761,932 $ (970,232) (1,750) -
========= ========= =========== ============= ======== ==========
Stockholders'
Treasury Stock equity
Shares Amount (deficit)
------ ------ ---------
<C> <C> <C>
111,906$ (90,000) $ 151,116
- - 2,030
- - 24,000
- - 397,830
- - (211,894)
- - 21,000
- - (451,010)
------- ----------- -----------
111,906 (90,000) (66,928)
- - 1,134,648
- - (99,043)
- - 15,000
- - (279,358)
------- ----------- -----------
111,906 $ (90,000) $ 704,319
======= =========== ===========
</TABLE>
See accompanying notes to financial statements.
ANNIE'S HOMEGROWN, INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended
December 31,
------------
1995 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(451,010) (279,358)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 9,666 11,173
Outside directors compensation 45,000 15,000
Changes in:
Accounts receivable - trade 17,117 118,597
Accounts receivable - related parties 276,373 (76,937)
Inventory (200,384) (828,346)
Other assets (11,310) (11,992)
Accounts payable - trade 272,918 425,971
Deferred revenue from distributor - 535,068
Accrued expenses 64,485 (74,530)
Due to employees 17,766 (5,053)
------ ------
Net cash provided by (used in) operating activities 40,621 (170,407)
------ --------
Cash flows from investing activities:
Purchase of office equipment, plates and dies (18,787) (18,044)
------- -------
Net cash used in investing activity (18,787) (18,044)
------- -------
Cash flows from financing activities:
Repayment of notes payable (176,779) (22,115)
Issuance of common stock and exercise of stock options, net 187,966 1,035,605
------- ---------
Net cash provided by financing activities 11,187 1,013,490
------ ---------
Net increase in cash and cash equivalents 33,021 825,039
Cash and cash equivalents, beginning of year 2,442 35,463
----- ------
Cash and cash equivalents, end of year $ 35,463 860,502
========== =======
Supplemental disclosures of cash flow information:
Cash paid for interest $ 4,299 5,990
========== =====
Cash paid for income taxes $ 2,865 3,286
========== =====
Supplemental disclosure of noncash financing activities are as follows:
During 1995 and 1996, compensation expense of $45,000 and $15,000
was recorded for common stock issued and stock options granted to four
outside directors, respectively.
See accompanying notes to financial statements.
</TABLE>
ANNIE'S HOMEGROWN, INC.
Notes to Financial Statements
December 31, 1995 and 1996
(1) DESCRIPTION OF BUSINESS
Annie's Homegrown, Inc. (the "Company"), incorporated in 1989, sells
premium macaroni and cheese food products to the natural food and
grocery business.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments with an original maturity of three
months or less to be cash equivalents.
(b) Revenue Recognition
Effective December 1996, a majority of the Company's sales are made to a
distributor under contract terms allowing certain rights of return on
unsold merchandise held by the distributor. Accordingly, the Company
defers recognition of such sales until the product is sold by the
distributor. See note 12.
(c) Inventories
Inventories are valued at the lower of average cost, using the first-in,
first-out (FIFO) method, or market.
(d) Office Equipment, Plates and Dies
Office equipment, plates and dies are recorded at cost. The cost of
office equipment, plates and dies is depreciated using accelerated
depreciation methods over the estimated useful lives of the related
assets, generally five to seven years.
(e) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date.
(f) Slotting Fees
Introductory slotting fees paid as required by most retailers for the
acquisition of shelf space at supermarkets are fully expensed at the
time of new product introduction.
(g) Loss per Share
Net loss per share is computed based on the weighted average number of
common shares outstanding during each period after giving effect to
the dilutive effect of stock options, which are considered common
stock equivalents. For 1995 and 1996, net loss per share, assuming
full dilution, is considered to be the same as primary since the
effect of common stock equivalents would be antidilutive.
(Continued)
2
ANNIE'S HOMEGROWN, INC.
Notes to Financial Statements
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, common stock issued for consideration below the IPO price of
$6.00 per share and stock options issued with exercise prices below
the IPO price during the twelve-month period preceding the date of
the initial filing of the Registration Statement have been included
in the calculation of common equivalent shares, using the treasury
stock method, as if they were outstanding for both years presented.
(h) 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.
(i) Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses and notes payable approximate fair
value because of the short maturity of those instruments.
(j) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of The Company adopted the provisions of SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, on January 1, 1996. This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the asset
exceeds the fair value of the asset. Assets to be disposed of are
reported at the lower of the carrying amount or fair value, less
costs to sell. Adoption of this Statement did not impact the
Company's financial position, results of operations, or liquidity.
(k) Stock Option Plan
Prior to January 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. As such, compensation expense would be
recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. On January 1, 1996, the
Company adopted SFAS No. 123, Accounting for Stock-Based
Compensation, which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date
of grant. Alternatively, SFAS No. 123 also allows entities to
continue to apply the provisions of APB Opinion No. 25 and provide
pro forma net income (loss) and pro forma earnings (loss) per share
disclosures for employee stock option grants made in 1995 and future
years as if the fair-value-based method defined in SFAS No. 123 had
been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123.
(Continued)
3
ANNIE'S HOMEGROWN, INC.
Notes to Financial Statements
(3) INCOME TAXES
Income tax expense consists of state taxes of $2,865 and $3,286 in 1995
and 1996, respectively.
As of December 31, 1996, the Company had the following net operating loss
carryforwards for tax purposes:
Federal $ 486,267
=============
State $ 478,659
=============
These net operating loss carryforwards are available to offset future
federal/state taxable income through 2011. The Company also has
alternative minimum tax net operating loss carryforwards of $378,087
as of December 31, 1996, which are available to reduce future federal
alternative minimum taxable income through 2011. Pursuant to Section
382 of the Internal Revenue Code, if there is a change in stock
ownership of the Company exceeding 50% during a three-year period,
the utilization of the Company's net operating loss carryforwards may
be limited. The provision for income taxes differs from the amounts
computed by applying the lowest federal statutory rate (15%) to
pre-tax loss due to the following:
<TABLE>
<CAPTION>
Years ended
December 31,
------------
1995 1996
---- ----
<S> <C> <C>
Federal income tax expense (benefit) at statutory rate $ (67,222) (41,410)
State income taxes, net of federal benefit 2,435 2,793
Change in federal valuation allowance 69,986 39,253
Other (2,334) 2,650
------ -----
Actual income tax expense $ 2,865 3,286
============== ===========
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets are presented below:
December 31,
------------
1995 1996
---- ----
Deferred tax assets:
Net operating loss carryforward $ 126,136 112,350
Deferred revenue - 86,712
Payroll expense, due to accrual for financial
reporting purposes 39,481 19,091
------ ------
165,617 218,153
Valuation allowance (165,617) (218,153)
-------- --------
- -
Deferred tax liabilities - -
-------- --------
Net deferred tax asset $ - -
=========== ==========
(Continued)
</TABLE>
4
ANNIE'S HOMEGROWN, INC.
Notes to Financial Statements
The total federal and state valuation allowance was $165,617 and $218,153
at December 31, 1995 and 1996, respectively.
(4) RELATED PARTY TRANSACTIONS
Amounts due from related parties consist of:
<TABLE>
<CAPTION>
December 31,
------------
1995 1996
---- ----
<S> <C> <C>
Due from Simple Packaging Solutions, Inc. $ - 67,598
Due from officer 75,000 75,000
Other related parties 20,753 30,092
------ ------
$ 95,753 172,690
========= =======
The balances due from Simple Packaging Solutions, Inc. and officer earn interest at an annual
rate of 11%.
The balance due from other related parties at December 31, 1995 and 1996 represents costs
incurred by the Company on behalf of a related party.
</TABLE>
(5) NOTES PAYABLE
Notes payable consist of:
<TABLE>
<CAPTION>
December 31,
------------
1995 1996
---- ----
<S> <C> <C>
(a) Notes payable - financial institution $ 21,370 -
(b) Notes payable - bank 10,759 10,014
(c) Notes payable - officer 7,500 7,500
----- -----
$ 39,629 17,514
========= ==========
</TABLE>
(a) The Company had a revolving line of credit with a financial
institution in the amount of $150,000 at December 31, 1995. Under
this agreement, borrowings incurred service fees which ranged from
.5% to 8% (up to 90 days) depending on the number of days the
borrowings were outstanding. The line of credit was secured by the
Company's accounts receivable and inventory and guaranteed by an
officer and certain directors of the Company. This line of credit
expired in 1996.
(b) The Company obtained a $10,000 unsecured line of credit with a bank
in 1995 which bears interest at the prime rate plus 8.9% (17.4% and
17.15% at December 31, 1995 and 1996, respectively). There was
$10,759 and $10,014 outstanding under the agreement at December 31,
1995 and 1996, respectively.
(c) The Company has a $7,500 demand note payable to an officer of the
Company at December 31, 1995 and 1996 which bears interest at 11%.
(Continued)
5
ANNIE'S HOMEGROWN, INC.
Notes to Financial Statements
(6) ACCRUED EXPENSES
Accrued expenses consist of:
December 31,
------------
1995 1996
---- ----
Compensation $ 162,946 87,143
Other 16,637 17,910
---------- ----------
$ 179,583 105,053
========== ==========
(7) LEASES
The Company leases office space under operating leases that expire in
1997. Future minimum lease payments total $25,580.
Total rent expense on operating leases amounted to $24,775 and $28,687
for the years ended December 31, 1995 and 1996, respectively.
(8) STOCKHOLDERS' EQUITY
On August 22, 1995, the Company filed an effective Registration
Statement offering for sale 600,000 shares of common stock. The
offering was made directly by the Company and was closed on July 31,
1996. The Company sold 256,895 shares of common stock under the
offering for gross proceeds of $1,532,478. Expenses related to the
offering totaled $310,937.
The Company maintains a 1990 stock option plan which permits the Company
to grant stock options to key employees and certain non-employees.
The Board of Directors administers the plan, selects individuals to
whom options will be granted, and determines the number of shares and
the exercise price of each option. All options under the plan are
exercisable upon the date of grant, expire five years from the date
of grant, and have certain transfer restrictions. As of December 31,
1996, options to purchase 957,519 shares were outstanding at exercise
prices per share ranging from $0.007 to $5.90, and 12,338 shares were
available for future grants.
In May 1995, the Company's directors expanded the board and appointed
four new outside directors. Each new director was issued 1,000 shares
of the Company's common stock, as compensation for service as a
director, and each was granted an option to purchase 10,000 shares of
the Company's common stock at an exercise price equal to 85% of the
public offering price. These options vested on the first anniversary
of the date of grant and expire if not exercised within three years
after the vesting date.
In October 1996, the Company adopted the 1996 stock plan. Under this
plan, the Company has authorized 200,000 shares to be granted as
stock options to officers, employees, directors and consultants. The
Board of Directors administers the plan, selects individuals to whom
options will be granted, and determines the number of shares and the
exercise price of each option. All options under the plan are
exercisable upon the date of grant, expire ten years from the date of
grant, and have certain transfer restrictions. At December 31, 1996,
no options were issued under this plan.
(Continued)
6
ANNIE'S HOMEGROWN, INC.
Notes to Financial Statements
A summary of changes in common stock options is as follows:
<TABLE>
<CAPTION>
Weighted
average
Number exercise price
of shares per share
--------- ---------
<S> <C> <C>
Outstanding at December 31, 1994 1,045,092 $ .85
Options granted 140,231 5.49
Options exercised (94,000) .04
Options expired/canceled (93,804) .92
--------
Outstanding at December 31, 1995 997,519 1.57
Options granted - -
Options exercised - -
Options expired/canceled - -
--------
Outstanding at December 31, 1996 997,519 1.57
======== ========
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding and Exercisable
-----------------------------------
Weighted
Number average Weighted
Range of outstanding remaining average
exercise prices at December 31, 1996 contractual life exercise price
--------------- -------------------- ---------------- --------------
<S> <C> <C> <C> <C>
$.007 2,984 1.0 year $ .007
.80 to 1.01 854,304 2.0 .93
5.10 to 5.90 140,231 5.0 5.49
-------
$.007 to 5.90 997,519 1.57
=======
</TABLE>
The Company applies APB Opinion No. 25 and related interpretations for
its stock option plan. Had compensation cost for the Company's stock
option plan been determined consistent with SFAS No. 123, the
Company's net loss and loss per share would have increased to the
following pro forma amounts:
(Continued)
7
ANNIE'S HOMEGROWN, INC.
Notes to Financial Statements
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Net loss as reported $ (451,010) (279,358)
================ ========
Pro forma net loss $ (684,725) (279,358)
================ ========
Net loss per shares as reported $ (.11) (.07)
================ ========
Pro forma net loss per share $ (.17) (.07)
================ ========
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants issued in 1995: no
dividend yield; expected volatility of 0%; risk-free interest rate of
6.13%; and expected lives of 5 years.
(9) CONCENTRATION OF CREDIT RISK
For the years ended December 31, 1995 and 1996, no one customer accounted
for more than 10% of net sales. The Company's top ten customers
accounted for approximately 56% and 51% of net sales for the years
ended December 31, 1995 and 1996, respectively.
Two customers accounted for 23% of accounts receivable at December 31,
1995. Three customers accounted for 50% of accounts receivable at
December 31, 1996.
(10) SUPPLIER/SOURCES OF SUPPLY
One vendor accounted for 60% of accounts payable at December 31, 1995.
Three vendors accounted for 60% of accounts payable at December 31,
1996.
(11) JOINT VENTURE
In May 1995, the Company and the former sole supplier of its macaroni
and cheese products entered into a joint and equal venture to produce
and market a line of premium organic pasta products. The Company was
responsible for the marketing and sales of products, while the
supplier was responsible for the manufacture, packaging and
distribution of the products.
The Company and the supplier each owned 50% of the issued and outstanding
shares of the corporation formed to carry out the joint venture. The
Company purchased its shares by paying $100 and signing a promissory
note for $49,900, which accrued interest at 10% per annum and was due
on August 17, 1995. The supplier paid for its shares of stock by
transferring all the plates, dies and trademarks relating to the
production, packaging and marketing of the products to the newly
formed corporation.
As of December 31, 1995, the Company had written off its $100 investment
and has not recorded the $49,900 promissory note since the parties
have verbally agreed to discontinue the venture with no further
liability to the Company.
(Continued)
8
ANNIE'S HOMEGROWN, INC.
Notes to Financial Statements
(12) DISTRIBUTION AGREEMENT
In October 1996, the Company signed a master distribution agreement with
Liberty Richter, Inc. ("Liberty"). The agreement calls for Liberty to
distribute all of the Company's products except for the private label
and mail order lines in the continental United States. The Company
sells the products to Liberty who in turn sells the products to
supermarket chains, and natural and specialty food stores. Liberty
has two warehouses, one located in New Jersey and the other located
in California.
Liberty distribtes and sells the Company's products within the territory
utilizing its own sales force and sub distributors that they
maintain. In addition, Liberty provides other services such as order
processing, invoicing, record management, sales coverage, broker
management, promotion execution, management of sales allowances and
trade show participation. All promotions and slotting presentations
as well as sub distributors and brokers are subject to the Company's
approval.
Under the Liberty Agreement, Liberty must distribute any new products
that the Company chooses to distribute through their channels unless
Liberty has a pre-existing non compete provision with another vendor.
The initial contract expires December 31, 1997 with automatic
renewals scheduled on a year-to-year basis.
EXHIBIT 10.32
EXHIBIT A
ANNIE'S HOMEGROWN, INC.
1996 STOCK PLAN
---------------
1. PURPOSE. The purpose of the Annie's Homegrown, Inc.'s 1996 Stock Plan
(the "Plan") is to encourage key employees of Annie's Homegrown, Inc. (the
"Company") and of any present or future parent or subsidiary of the Company
(collectively, "Related Corporations") and other individuals who render services
to the Company or a Related Corporation, by providing opportunities to
participate in the ownership of the Company and its future growth through (a)
the grant of options which qualify as "incentive stock options" ("ISOs") under
Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code");
(b) the grant of options which do not qualify as ISOs ("Non-Qualified Options");
(c) awards of stock in the Company ("Awards"); and (d) opportunities to make
direct purchases of stock in the Company ("Purchases"). Both ISOs and
Non-Qualified Options are referred to hereafter individually as an "Option" and
collectively as "Options." Options, Awards and authorizations to make Purchases
are referred to hereafter collectively as "Stock Rights." As used herein, the
terms "parent" and "subsidiary" mean "parent corporation" and "subsidiary
corporation," respectively, as those terms are defined in Section 424 of the
Code.
2. ADMINISTRATION OF THE PLAN.
A. BOARD OR COMMITTEE ADMINISTRATION. The Plan shall be
administered by the Board of Directors of the Company (the "Board") or,
subject to Paragraph 2D (relating to compliance with Section 162(m) of the
Code), by a committee appointed by the Board (the "Committee").
Hereinafter, all references in this Plan to the "Committee" shall mean the
Board if no Committee has been appointed. Subject to ratification of the
grant or authorization of each Stock Right by the Board (if so required by
applicable state law), and subject to the terms of the Plan, the Committee
shall have the authority to (i) determine to whom (from among the class of
employees eligible under paragraph 3 to receive ISOs) ISOs shall be
granted, and to whom (from among the class of individuals and entities
eligible under paragraph 3 to receive Non-Qualified Options and Awards and
to make Purchases) Non-Qualified Options, Awards and authorizations to
make Purchases may be granted; (ii) determine the time or times at which
Options or Awards shall be granted or Purchases made; (iii) determine the
purchase price of shares subject to each Option or Purchase, which prices
shall not be less than the minimum price specified in paragraph 6; (iv)
determine whether each Option granted shall be an ISO or a Non-Qualified
Option; (v) determine (subject to paragraph 7) the time or times when each
Option shall become exercisable and the duration of the exercise period;
(vi) extend the period during which outstanding Options may be exercised;
(vii) determine whether restrictions such as repurchase options are to be
imposed on shares subject to
Options, Awards and Purchases and the nature of such restrictions, if any,
and (viii) interpret the Plan and prescribe and rescind rules and
regulations relating to it. If the Committee determines to issue a
Non-Qualified Option, it shall take whatever actions it deems necessary,
under Section 422 of the Code and the regulations promulgated thereunder,
to ensure that such Option is not treated as an ISO. The interpretation
and construction by the Committee of any provisions of the Plan or of any
Stock Right granted under it shall be final unless otherwise determined by
the Board. The Committee may from time to time adopt such rules and
regulations for carrying out the Plan as it may deem advisable. No member
of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Stock
Right granted under it.
B. COMMITTEE ACTIONS. The Committee may select one of its members
as its chairman, and shall hold meetings at such time and places as it may
determine. A majority of the Committee shall constitute a quorum and acts
of a majority of the members of the Committee at a meeting at which a
quorum is present, or acts reduced to or approved in writing by all the
members of the Committee (if consistent with applicable state law), shall
be the valid acts of the Committee. From time to time the Board may
increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in
substitution therefor, fill vacancies however caused, or remove all
members of the Committee and thereafter directly administer the Plan.
C. GRANT OF STOCK RIGHTS TO BOARD MEMBERS. Stock Rights may be
granted to members of the Board. All grants of Stock Rights to members of
the Board shall in all respects be made in accordance with the provisions
of this Plan applicable to other eligible persons. Members of the Board
who either (i) are eligible to receive grants of Stock Rights pursuant to
the Plan or (ii) have been granted Stock Rights may vote on any matters
affecting the administration of the Plan or the grant of any Stock Rights
pursuant to the Plan, except that no such member shall act upon the
granting to himself or herself of Stock Rights, but any such member may be
counted in determining the existence of a quorum at any meeting of the
Board during which action is taken with respect to the granting to such
member of Stock Rights.
D. PERFORMANCE-BASED COMPENSATION. The Board, in its discretion,
may take such action as may be necessary to ensure that Stock Rights
granted under the Plan qualify as "qualified performance-based
compensation" within the meaning of Section 162(m) of the Code and
applicable regulations promulgated thereunder ("Performance-Based
Compensation"). Such action may include, in the Board's discretion, some
or all of the following (i) if the Board determines that Stock Rights
granted under the Plan generally shall constitute Performance-Based
Compensation, the Plan shall be administered, to the extent required for
such Stock Rights to constitute Performance-Based Compensation, by a
Committee consisting solely of two or more "outside directors" (as defined
in applicable regulations promulgated under Section 162(m) of the Code),
(ii) if any Non-Qualified Options with an
-2-
exercise price less than the fair market value per share of Common Stock
are granted under the Plan and the Board determines that such Options
should constitute Performance-Based Compensation, such options shall be
made exercisable only upon the attainment of a pre-established, objective
performance goal established by the Committee, and such grant shall be
submitted for, and shall be contingent upon shareholder approval and (iii)
Stock Rights granted under the Plan may be subject to such other terms and
conditions as are necessary for compensation recognized in connection with
the exercise or disposition of such Stock Right or the disposition of
Common Stock acquired pursuant to such Stock Right, to constitute
Performance-Based Compensation.
3. ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted only to employees of
the Company or any Related Corporation. Non-Qualified Options, Awards and
authorizations to make Purchases may be granted to any employee, officer or
director (whether or not also an employee) or consultant of the Company or any
Related Corporation. The Committee may take into consideration a recipient's
individual circumstances in determining whether to grant a Stock Right. The
granting of any Stock Right to any individual or entity shall neither entitle
that individual or entity to, nor disqualify such individual or entity from,
participation in any other grant of Stock Rights.
4. STOCK. The stock subject to Stock Rights shall be authorized but
unissued shares of Common Stock of the Company, par value $.001 per share (the
"Common Stock"), or shares of Common Stock reacquired by the Company in any
manner. The aggregate number of shares which may be issued pursuant to the Plan
is 200,000, subject to adjustment as provided in paragraph 13. If any Option
granted under the Plan shall expire or terminate for any reason without having
been exercised in full or shall cease for any reason to be exercisable in whole
or in part or shall be repurchased by the Company, the unpurchased shares of
Common Stock subject to such Option shall again be available for grants of Stock
Rights under the Plan.
No employee of the Company or any Related Corporation may be granted
Options to acquire, in the aggregate, more than 140,000 of shares of Common
Stock under the Plan during any fiscal year of the Company. If any Option
grnated under the Plan shall expire or terminate for any reason without having
been exercised in full or shall cease for any reason to be exercisable in whole
or in part or shall be repurchased by the Company, the shares subject to such
Option shall be included in the determination of the aggregate number of shares
of Common Stock deemed to have been granted to such employee under the Plan.
5. GRANTING OF STOCK RIGHTS. Stock Rights may be granted under the Plan at
any time on or after September 24, 1996 and prior to September 24, 2006. The
date of grant of a Stock Right under the Plan will be the date specified by the
Committee at the time it grants the Stock Right; provided, however, that such
date shall not be prior to the date on which the Committee acts to approve the
grant.
6. MINIMUM OPTION PRICE; ISO LIMITATIONS.
-4-
A. PRICE FOR NON-QUALIFIED OPTIONS, AWARDS AND PURCHASES. Subject
to Paragraph 2D (relating to compliance with Section 162(m) of the Code),
the exercise price per share specified in the agreement relating to each
Non-Qualified Option granted, and the purchase price per share of stock
granted in any Award or authorized as a Purchase, under the Plan may be
less than the fair market value of the Common Stock of the Company on the
date of grant; provided that, in no event shall such exercise price or
such purchase price be less than the minimum legal consideration required
therefor under the laws of any jurisdiction in which the Company or its
successors in interest may be organized.
B. PRICE FOR ISOS. The exercise price per share specified in the
agreement relating to each ISO granted under the Plan shall not be less
than the fair market value per share of Common Stock on the date of such
grant. In the case of an ISO to be granted to an employee owning stock
possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related Corporation, the
price per share specified in the agreement relating to such ISO shall not
be less than one hundred ten percent (110%) of the fair market value per
share of Common Stock on the date of grant. For purposes of determining
stock ownership under this paragraph, the rules of Section 424(d) of the
Code shall apply. The date of grant for purposes of this subparagraph
shall mean the date that the Company or Related Corporation completes the
corporate action constituting an offer of stock for sale to an individual.
C. $100,000 ANNUAL LIMITATION ON ISO VESTING. Each eligible
employee may be granted Options treated as ISOs only to the extent that,
in the aggregate under this Plan and all incentive stock option plans of
the Company and any Related Corporation, ISOs do not become exercisable
for the first time by such employee during any calendar year with respect
to stock having a fair market value (determined at the time the ISOs were
granted) in excess of $100,000. The Company intends to designate any
Options granted in excess of such limitation as Non-Qualified Options, and
the Company shall issue separate certificates to the optionee with respect
to Options that are Non-Qualified Options and Options that are ISOs.
D. DETERMINATION OF FAIR MARKET VALUE. If, at the time an Option
is granted under the Plan, the Company's Common Stock is publicly traded,
"fair market value" shall be determined as of the date of grant or, if the
prices or quotes discussed in this sentence are unavailable for such date,
the last business day for which such prices or quotes are available prior
to the date of grant and shall mean (i) the average (on that date) of the
high and low prices of the Common Stock on the principal national
securities exchange on which the Common Stock is traded, if the Common
Stock is then traded on a national securities exchange; or (ii) the last
reported sale price (on that date) of the Common Stock on the Nasdaq
National Market, if the Common Stock is not then traded on a national
securities exchange; or (iii) the closing bid price (or average of bid
prices) last quoted (on that date) by an
-5-
established quotation service for over-the-counter securities, if the
Common Stock is not reported on the Nasdaq National Market. If the Common
Stock is not publicly traded at the time an Option is granted under the
Plan, "fair market value" shall mean the fair value of the Common Stock as
determined by the Committee after taking into consideration all factors
which it deems appropriate, including, without limitation, recent sale and
offer prices of the Common Stock in private transactions negotiated at
arm's length.
7. OPTION DURATION. Subject to earlier termination as provided in
paragraphs 9 and 10 or in the agreement relating to such Option, each Option
shall expire on the date specified by the Committee, but not more than (i) ten
years from the date of grant in the case of Options generally and (ii) five
years from the date of grant in the case of ISOs granted to an employee owning
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related Corporation, as determined
under paragraph 6(B). Subject to earlier termination as provided in paragraphs 9
and 10, the term of each ISO shall be the term set forth in the original
instrument granting such ISO, except with respect to any part of such ISO that
is converted into a Non-Qualified Option pursuant to paragraph 16.
8. EXERCISE OF OPTION. Subject to the provisions of Paragraphs 9 through
12, each Option granted under the Plan shall be exercisable as follows:
A. VESTING. The Option shall either be fully exercisable on the
date of grant or shall become exercisable thereafter in such installments
as the Committee may specify.
B. FULL VESTING OF INSTALLMENTS. Once an installment becomes
exercisable, it shall remain exercisable until expiration or termination
of the Option, unless otherwise specified by the Committee.
C. PARTIAL EXERCISE. Each Option or installment may be exercised
at any time or from time to time, in whole or in part, for up to the total
number of shares with respect to which it is then exercisable.
D. ACCELERATION OF VESTING. The Committee shall have the right to
accelerate the date that any installment of any Option becomes
exercisable; provided that the Committee shall not, without the consent of
an optionee, accelerate the permitted exercise date of any installment of
any Option granted to any employee as an ISO (and not previously converted
into a Non-Qualified Option pursuant to paragraph 16) if such acceleration
would violate the annual vesting limitation contained in Section 422(d) of
the Code, as described in paragraph 6(C).
9. TERMINATION OF EMPLOYMENT. Unless otherwise specified in the agreement
relating to such ISO, if an ISO optionee ceases to be employed by the Company
and all Related Corporations other than by reason of death or disability as
defined in
-6-
paragraph 10, no further installments of his or her ISOs shall become
exercisable, and his or her ISOs shall terminate on the earlier of (a) three
months after the date of termination of his or her employment, or (b) their
specified expiration dates, except to the extent that such ISOs (or unexercised
installments thereof) have been converted into Non-Qualified Options pursuant to
paragraph 16. For purposes of this paragraph 9, employment shall be considered
as continuing uninterrupted during any bona fide leave of absence (such as those
attributable to illness, military obligations or governmental service) provided
that the period of such leave does not exceed 90 days or, if longer, any period
during which such optionee's right to reemployment is guaranteed by statute or
by contract. A bona fide leave of absence with the written approval of the
Committee shall not be considered an interruption of employment under this
paragraph 9, provided that such written approval contractually obligates the
Company or any Related Corporation to continue the employment of the optionee
after the approved period of absence. ISOs granted under the Plan shall not be
affected by any change of employment within or among the Company and Related
Corporations, so long as the optionee continues to be an employee of the Company
or any Related Corporation. Nothing in the Plan shall be deemed to give any
grantee of any Stock Right the right to be retained in employment or other
service by the Company or any Related Corporation for any period of time.
10. DEATH; DISABILITY.
A. DEATH. If an ISO optionee ceases to be employed by the Company
and all Related Corporations by reason of his or her death, any ISO owned
by such optionee may be exercised, to the extent otherwise exercisable on
the date of death, by the estate, personal representative or beneficiary
who has acquired the ISO by will or by the laws of descent and
distribution, until the earlier of (i) the specified expiration date of
the ISO or (ii) 180 days from the date of the optionee's death.
B. DISABILITY. If an ISO optionee ceases to be employed by the
Company and all Related Corporations by reason of his or her disability,
such optionee shall have the right to exercise any ISO held by him or her
on the date of termination of employment, for the number of shares for
which he or she could have exercised it on that date, until the earlier of
(i) the specified expiration date of the ISO or (ii) 180 days from the
date of the termination of the optionee's employment. For the purposes of
the Plan, the term "disability" shall mean "permanent and total
disability" as defined in Section 22(e)(3) of the Code or any successor
statute.
11. ASSIGNABILITY. No ISO shall be assignable or transferable by the
optionee except by will or by the laws of descent and distribution, and during
the lifetime of the optionee shall be exercisable only by such optionee. Stock
Rights other than ISOs shall be transferable to the extent set forth in the
agreement relating to such Stock Right.
12. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in
-7-
paragraphs 6 through 11 hereof and may contain such other provisions as the
Committee deems advisable which are not inconsistent with the Plan, including
restrictions applicable to shares of Common Stock issuable upon exercise of
Options. The Committee may specify that any Non-Qualified Option shall be
subject to the restrictions set forth herein with respect to ISOs, or to such
other termination and cancellation provisions as the Committee may determine.
The Committee may from time to time confer authority and responsibility on one
or more of its own members and/or one or more officers of the Company to execute
and deliver such instruments. The proper officers of the Company are authorized
and directed to take any and all action necessary or advisable from time to time
to carry out the terms of such instruments.
13. ADJUSTMENTS. Upon the occurrence of any of the following events, an
optionee's rights with respect to Options granted to such optionee hereunder
shall be adjusted as hereinafter provided, unless otherwise specifically
provided in the written agreement between the optionee and the Company relating
to such Option:
A. STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock
shall be subdivided or combined into a greater or smaller number of shares
or if the Company shall issue any shares of Common Stock as a stock
dividend on its outstanding Common Stock, the number of shares of Common
Stock deliverable upon the exercise of Options shall be appropriately
increased or decreased proportionately, and appropriate adjustments shall
be made in the purchase price per share to reflect such subdivision,
combination or stock dividend.
B. CONSOLIDATIONS OR MERGERS. If the Company is to be consolidated
with or acquired by another entity in a merger or other reorganization in
which the holders of the outstanding voting stock of the Company
immediately preceding the consummation of such event, shall, immediately
following such event, hold, as a group, less than a majority of the voting
securities of the surviving or successor entity, or in the event of a sale
of all or substantially all of the Company's assets or otherwise (each, an
"Acquisition"), the Committee or the board of directors of any entity
assuming the obligations of the Company hereunder (the "Successor Board"),
shall, as to outstanding Options, either (i) make appropriate provision
for the continuation of such Options by substituting on an equitable basis
for the shares then subject to such Options either (a) the consideration
payable with respect to the outstanding shares of Common Stock in
connection with the Acquisition, (b) shares of stock of the surviving or
successor corporation or (c) such other securities as the Successor Board
deems appropriate, the fair market value of which shall not materially
exceed the fair market value of the shares of Common Stock subject to such
Options immediately preceding the Acquisition; or (ii) upon written notice
to the optionees, provide that all Options must be exercised, to the
extent then exercisable or to be exercisable as a result of the
Acquisition, within a specified number of days of the date of such notice,
at the end of which period the Options shall terminate; or (iii) terminate
all Options in exchange for a cash payment equal to the excess of the
-8-
fair market value of the shares subject to such Options (to the extent
then exercisable or to be exercisable as a result of the Acquisition) over
the exercise price thereof.
C. RECAPITALIZATION OR REORGANIZATION. In the event of a
recapitalization or reorganization of the Company (other than a
transaction described in subparagraph B above) pursuant to which
securities of the Company or of another corporation are issued with
respect to the outstanding shares of Common Stock, an optionee upon
exercising an Option shall be entitled to receive for the purchase price
paid upon such exercise the securities he or she would have received if he
or she had exercised such Option prior to such recapitalization or
reorganization.
D. MODIFICATION OF ISOS. Notwithstanding the foregoing, any
adjustments made pursuant to subparagraphs A, B or C with respect to ISOs
shall be made only after the Committee, after consulting with counsel for
the Company, determines whether such adjustments would constitute a
"modification" of such ISOs (as that term is defined in Section 424 of the
Code) or would cause any adverse tax consequences for the holders of such
ISOs. If the Committee determines that such adjustments made with respect
to ISOs would constitute a modification of such ISOs or would cause
adverse tax consequences to the holders, it may refrain from making such
adjustments.
E. DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action or at such
other time and subject to such other conditions as shall be determined by
the Committee.
F. ISSUANCES OF SECURITIES. Except as expressly provided herein,
no issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares subject to Options. No adjustments shall be made for
dividends paid in cash or in property other than securities of the
Company.
G. FRACTIONAL SHARES. No fractional shares shall be issued under
the Plan and the optionee shall receive from the Company cash in lieu of
such fractional shares.
H. ADJUSTMENTS. Upon the happening of any of the events described
in subparagraphs A, B or C above, the class and aggregate number of shares
set forth in paragraph 4 hereof that are subject to Stock Rights which
previously have been or subsequently may be granted under the Plan shall
also be appropriately adjusted to reflect the events described in such
subparagraphs. The Committee or the Successor Board shall determine the
specific adjustments to be made under this paragraph 13 and, subject to
paragraph 2, its determination shall be conclusive.
-9-
14. MEANS OF EXERCISING OPTIONS. An Option (or any part or installment
thereof) shall be exercised by giving written notice to the Company at its
principal office address, or to such transfer agent as the Company shall
designate. Such notice shall identify the Option being exercised and specify the
number of shares as to which such Option is being exercised, accompanied by full
payment of the purchase price therefor either (a) in United States dollars in
cash or by check, (b) at the discretion of the Committee, through delivery of
shares of Common Stock having a fair market value equal as of the date of the
exercise to the cash exercise price of the Option, (c) at the discretion of the
Committee, by delivery of the grantee's personal recourse note bearing interest
payable not less than annually at no less than 100% of the lowest applicable
Federal rate, as defined in Section 1274(d) of the Code, (d) at the discretion
of the Committee and consistent with applicable law, through the delivery of an
assignment to the Company of a sufficient amount of the proceeds from the sale
of the Common Stock acquired upon exercise of the Option and an authorization to
the broker or selling agent to pay that amount to the Company, which sale shall
be at the participant's direction at the time of exercise, or (e) at the
discretion of the Committee, by any combination of (a), (b), (c) and (d) above.
If the Committee exercises its discretion to permit payment of the exercise
price of an ISO by means of the methods set forth in clauses (b), (c), (d) or
(e) of the preceding sentence, such discretion shall be exercised in writing at
the time of the grant of the ISO in question. The holder of an Option shall not
have the rights of a shareholder with respect to the shares covered by such
Option until the date of issuance of a stock certificate to such holder for such
shares. Except as expressly provided above in paragraph 13 with respect to
changes in capitalization and stock dividends, no adjustment shall be made for
dividends or similar rights for which the record date is before the date such
stock certificate is issued.
15. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board on
September 24, 1996, subject, with respect to the validation of ISOs granted
under the Plan, to approval of the Plan by the stockholders of the Company at
the next Meeting of Stockholders or, in lieu thereof, by written consent. If the
approval of stockholders is not obtained prior to September 24, 1997, any grants
of ISOs under the Plan made prior to that date will be rescinded. The Plan shall
expire at the end of the day on September 23, 2006 (except as to Options
outstanding on that date). Subject to the provisions of paragraph 5 above,
Options may be granted under the Plan prior to the date of stockholder approval
of the Plan. The Board may terminate or amend the Plan in any respect at any
time, except that, without the approval of the stockholders obtained within 12
months before or after the Board adopts a resolution authorizing any of the
following actions: (a) the total number of shares that may be issued under the
Plan may not be increased (except by adjustment pursuant to paragraph 13); (b)
the provisions of paragraph 3 regarding eligibility for grants of ISOs may not
be modified; (c) the provisions of paragraph 6(B) regarding the exercise price
at which shares may be offered pursuant to ISOs may not be modified (except by
adjustment pursuant to paragraph 13); and (d) the expiration date of the Plan
may not be extended. Except as otherwise provided in this paragraph 15, in no
event may action of the Board or stockholders alter or impair the rights of a
grantee, without such grantee's consent, under any Stock Right previously
granted to such grantee.
-10-
16. MODIFICATIONS OF ISOS; CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS.
Subject to Paragraph 13D, without the prior written consent of the holder of an
ISO, the Committee shall not alter the terms of such ISO (including the means of
exercising such ISO) if such alteration would constitute a modification (within
the meaning of Section 424(h)(3) of the Code). The Committee, at the written
request or with the written consent of any optionee, may in its discretion take
such actions as may be necessary to convert such optionee's ISOs (or any
installments or portions of installments thereof) that have not been exercised
on the date of conversion into Non-Qualified Options at any time prior to the
expiration of such ISOs, regardless of whether the optionee is an employee of
the Company or a Related Corporation at the time of such conversion. Such
actions may include, but shall not be limited to, extending the exercise period
or reducing the exercise price of the appropriate installments of such ISOs. At
the time of such conversion, the Committee (with the consent of the optionee)
may impose such conditions on the exercise of the resulting Non-Qualified
Options as the Committee in its discretion may determine, provided that such
conditions shall not be inconsistent with this Plan. Nothing in the Plan shall
be deemed to give any optionee the right to have such optionee's ISOs converted
into Non-Qualified Options, and no such conversion shall occur until and unless
the Committee takes appropriate action. Upon the taking of such action, the
Company shall issue separate certificates to the optionee with respect to
Options that are Non-Qualified Options and Options that are ISOs.
17. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of shares pursuant to Options granted and Purchases authorized under the
Plan shall be used for general corporate purposes.
18. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. By accepting an ISO
granted under the Plan, each optionee agrees to notify the Company in writing
immediately after such optionee makes a Disqualifying Disposition (as described
in Sections 421, 422 and 424 of the Code and regulations thereunder) of any
stock acquired pursuant to the exercise of ISOs granted under the Plan. A
Disqualifying Disposition is generally any disposition occurring on or before
the later of (a) the date two years following the date the ISO was granted or
(b) the date one year following the date the ISO was exercised.
19. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a
Non-Qualified Option, the transfer of a Non-Qualified Stock Option pursuant to
an arm's-length transaction, the grant of an Award, the making of a Purchase of
Common Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 18), the vesting or transfer of restricted
stock or securities acquired on the exercise of an Option hereunder, or the
making of a distribution or other payment with respect to such stock or
securities, the Company may withhold taxes in respect of amounts that constitute
compensation includible in gross income. The Committee in its discretion may
condition (i) the exercise of an Option, (ii) the transfer of a Non-Qualified
Stock Option, (iii) the grant of an Award, (iv) the making of a Purchase of
Common
-11-
Stock for less than its fair market value, or (v) the vesting or transferability
of restricted stock or securities acquired by exercising an Option, on the
grantee's making satisfactory arrangement for such withholding. Such arrangement
may include payment by the grantee in cash or by check of the amount of the
withholding taxes or, at the discretion of the Committee, by the grantee's
delivery of previously held shares of Common Stock or the withholding from the
shares of Common Stock otherwise deliverable upon exercise of a Option shares
having an aggregate fair market value equal to the amount of such withholding
taxes.
20. GOVERNMENTAL REGULATION. The Company's obligation to sell and deliver
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
Government regulations may impose reporting or other obligations on the
Company with respect to the Plan. For example, the Company may be required to
send tax information statements to employees and former employees that exercise
ISOs under the Plan, and the Company may be required to file tax information
returns reporting the income received by grantees of Options in connection with
the Plan.
21. GOVERNING LAW. The validity and construction of the Plan and the
instruments evidencing Options shall be governed by the laws of The Commonwealth
of Massachusetts, or the laws of any jurisdiction in which the Company or its
successors in interest may be organized.
EXHIBIT 10.6
DISTRIBUTION AGREEMENT
This DISTRIBUTION AGREEMENT ("Agreement") is made this 18th day of
October, 1996 between ANNIE'S HOMEGROWN, INC., a Delaware corporation having
offices at 180 Second Street, Chelsea, Massachusetts ("Annie's") and LIBERTY
RICHTER, INC., a New Jersey Corporation, having offices at 400 Lyster Avenue,
Saddle Brook, New Jersey 07662 ("Liberty").
BACKGROUND
Annie's manufactures and sells certain lines of pasta and other
foodstuffs. Liberty is in the business of importing, marketing and distributing
specialty and fancy foods. Annie's is desirous of appointing Liberty as its
exclusive distributor with respect to certain of its pastas.
AGREEMENT
1.0 DEFINED TERMS. The following terms, each bearing initial capital
letters, shall have the meanings set forth below:
1.1 "Products" shall mean those certain pasta products and other
foodstuffs set forth on Exhibit "A" attached hereto and any Additional
Foodstuffs incorporated into this Agreement pursuant to ss.8.11.
1.2 "Net Sales" shall mean gross proceeds of sales by Liberty to its
customers, minus (i) off invoice promotions, (ii) customer bill backs, (iii)
1
scan down fees, (iv) all variable marketing expenses paid to customers and (v)
pickup allowances.
1.3 "Trademarks" shall mean those trademarks, tradenames and
distinctive designs of Annie's used in connection with the marketing,
distribution and sale of the Products pursuant to this Agreement, including
without limitation the trademarks "Annie's", "Annie's Homegrown", "Bernie's
Rabbit of Approval" and rabbit design.
1.4 "Territory" shall mean the continental United States, Puerto Rico,
the U.S. Virgin Islands and Bermuda.
1.5 "Initial Term" shall mean the period from the date of this
Agreement through December 31, 1997.
1.6 "Extended Term" shall mean any calendar year commencing with 1998
and thereafter during which this Agreement remains in effect pursuant to ss.2.3.
1.7 "Term of this Agreement" shall mean any time period covered by
either the Initial Term or any Extended Term.
1.8 "Additional Foodstuffs" shall mean any foodstuffs other than the
Products set forth on Exhibit "A", which Annie's wishes to market, sell or
distribute on a wholesale or retail basis using the Trademarks.
2
1.9 "Saleable Inventory" shall mean all inventory of the Products in
condition acceptable to the trade customers and not more than 360 days old.
1.10 "Sub-Distributors" shall mean such distributors and brokers as
Liberty may, from time to time, engage to assist in the wholesale distribution
of the Products.
1.11 "Prime Rate" shall mean the prime rate as published in the Wall
Street Journal, from time to time.
2.1 APPOINTMENT. Subject to the terms and conditions of this Agreement,
Annie's hereby appoints Liberty as the sole and exclusive distributor of the
Products within the Territory for the following "Retail Channels":
* National, regional or independent chains;
* Natural food stores;
* Club stores;
* Mass merchandising or drug store chains;
* Gourmet or specialty outlets;
* Food service industry and other institutional sales;
* Armed forces sales and outlets.
3
Annie's specifically excludes appointing Liberty as sole and exclusive
distributor of products within the Territory for sales through private label
channels or Annie's mail order business.
During the term of this Agreement, Annie's agrees (i) not to distribute
or sell the Products in the Territory through retail channels, directly or
indirectly, except through Liberty, (ii) not to license or otherwise authorize
any third party to distribute or sell the Products in the Territory through
retail channels and (iii) not to license or otherwise authorize any third party
to use the Trademark in connection with the wholesale or retail trade of the
Products in the Territory.
2.2 ACCEPTANCE. Liberty hereby accepts the appointment and agrees to
exercise commercially reasonable efforts to distribute the Products through
Retail Channels within the Territory as provided herein.
2.3 TERM. Following the Initial Term, either party may terminate this
Agreement effective December 31 of a particular year, by giving notice to the
other party on or before September 15 of that year, time being of the essence.
In the event that neither party terminates the Agreement within the time and in
the manner provided, the Agreement shall automatically be extended for any
additional year.
4
3.1 PRICES. Annie's suggested distribution prices for the Products are
as set forth on Exhibit "B", as such may be changed from time to time by
Annie's.
3.2 TITLE. Title and risk of loss shall be with Annie's until either
(i) delivery of the Products to Liberty's warehouse, (ii) delivery of the
Products by Annie's to Liberty's customer's warehouse, or (iii) receipt of the
Products by Liberty or its assigned carrier at Annie's manufacturer's facility
or its manufacturer's warehouse.
3.3 PAYMENT TERMS. Terms of payment by Liberty for its purchase of the
Products shall be net thirty (30) days from receipt of the invoice. Annie's
shall not submit any invoices to Liberty prior to the movement of the Products
covered by the particular invoice. Invoices may be either mailed, faxed or
electronically transmitted to Liberty. Payments are to be made via wire
transfers into Annie's account. Late payments accrue interest at 1.5% per month.
Notwithstanding the provisions of this ss.3.3 and of ss.3.1, the amount of the
payments to be made within 30 days of the receipt of the invoice shall be
determined by reference to ss.3.4 and not by reference to the amount on the
invoice or the price list.
3.4 PAYMENT FROM LIBERTY TO ANNIE'S. Liberty will pay to Annie's for
the purchases of the Products: (i) Liberty's estimated average selling price
5
of the Products, (ii) less Liberty's estimated credit of 2% of all Net Sales
through December 31, 1996 and 5% of all Net Sales commencing January 1, 1997,
(iii) less Liberty's estimated reimbursement of all of the expenses paid or
incurred by Liberty, as set forth in ss.3.5(c).
3.5 ADDITIONAL PAYMENTS TO ANNIE'S. Commencing February 1, 1997,
Liberty shall pay to Annie's the amount produced by the following computation
with respect to the sale of the Products by Liberty during the period from the
date of this Agreement through December 31, 1996:
(a) The gross proceeds of sales by Liberty to its customers during
the period in question.
(b) LESS the amounts paid by Liberty to Annie's pursuant to ss.3.3
& ss.3.4 for the purchase of the volume of Products which were
sold during the period in question.
(c) LESS the following expenses paid, allowed or incurred by
Liberty during the period in question, on an actual or
estimated basis, as the case may be, as indicated:
(i) Liberty's actual freight costs;
(ii) Liberty's actual warehouse and handling charges;
(iii) Liberty's actual sales brokerage payments;
6
(iv) Any new distribution slotting payments approved by
Annie's and actually paid or allowed by Liberty;
(v) Any promotion allowances and cash discounts approved by
Annie's and actually paid or allowed by Liberty;
(vi) Liberty's incurred inventory finance charges for the
Products, calculated on a per diem basis at the Prime
Rate from the date of payment by Liberty pursuant to
ss.3.3 and ss.3.4, less finance charges saved due to
product movement prior to the aforesaid date of payment.
(vii) Liberty's incurred finance charges for its receivables,
calculated on a per diem basis at the Prime Rate;
(viii)Liberty's bad debt reserve, as agreed with Annie's
pursuant to ss.4.3.
(ix) Spoiled, defective or damaged Products returned by
Liberty's customers as approved by Liberty and actually
paid or allowed by Liberty to its customers less amounts
reimbursed from freight claims or insurance;
7
(x) Such amounts as the parties may agree upon for
additional services from Liberty to Annie's, outside
the scope of ss.4.1, as the parties may agree upon.
(d) LESS an allowance of a credit to Liberty in the amount of two
percent of all Net Sales through December 31, 1996 and five
percent (5%) of net sales commencing January 1, 1997, as
compensation to Liberty for its services pursuant to ss.3.4.
The foregoing computation and payment shall be made quarterly
thereafter on each succeeding February 1, May 1, August 1 and November 1 for the
respective three month period commencing four months prior to the computation
and payment date, until termination of the Agreement.
In the event that the foregoing computation yields a net credit to
Liberty, Annie's agrees to pay that amount to Liberty within 30 days of
notification by Liberty of the amount due.
Either party shall have the option to calculate interest on a per diem
basis on the amounts due as the result of the foregoing calculation within 90
days after each calculation by Liberty and to bill the other party for said
interest. The interest due shall be paid within 30 days of receipt of the bill.
Any party failing to submit such a bill within 90 days shall be deemed to have
waived the right to the aforesaid interest.
8
4.1 LIBERTY'S DUTIES. During the Term of this Agreement, Liberty shall
have the following duties and obligations:
(a) To exercise commercially reasonable efforts to sell and
distribute the Products within the Territory, utilizing its
own sales force and such Sub-Distributors as provided for in
this Agreement.
(b) To provide the following services to Annie's, in a
commercially reasonable manner, with respect to the Products:
OPERATIONS
----------
Purchasing
SALES AND SALES ADMINISTRATION
------------------------------
Order Processing
Sales Coverage
Broker Management
Promotion Execution
Management of Sales Allowances; on/off invoice
Food Shows Participation
MARKETING
---------
Assist in Development of Strategy, Objectives and Sales Plan
Provide Contact Person (to assist Annie's in communication
with all parts of the Liberty organization)
FINANCE
-------
9
Invoicing and Record Management
MANAGEMENT SERVICES
-------------------
Provide Industry Expertise to Annie's
(c) To provide Annie's with Liberty Richter standard reports as
listed in Exhibit "C" on the dates indicated on Exhibit "C".
(d) To provide Annie's with a quarterly computation showing the
amount to be paid to Annie's or to Liberty, as set forth in
detail in ss.3.5.
(e) To comply with all governmental laws and regulations
applicable to the sale of the Products.
(f) To maintain products liability and general liability insurance
on an occurrence basis in commercially reasonable amounts,
which insurance policies shall name Annie's as an additional
named insured.
(g) To utilize the Trademarks only in connection with the
marketing and distribution of the Products during the Term of
this Agreement and to exercise commercially reasonable efforts
to require any Sub-Distributors to do the same as provided in
Subsection 7 (i) below.
10
(h) To conduct its business with respect to the Products in a
commercially reasonable manner and accordance with good
business judgment.
(i) To exercise commercially reasonable efforts to have its
Sub-Distributors comply with the provisions of this Agreement,
as provided herein in the following manner. In the event that
Annie's notifies Liberty that a particular Sub-Distributor has
violated any obligation to Annie's under this Agreement,
Liberty agrees to send written notice to the particular
Sub-Distributor within 5 business days demanding that the
Sub-Distributor cease the improper conduct. If the
Sub-Distributor fails to cease the improper conduct within 5
business days of receipt of the notice, Liberty agrees to
cease placing or accepting orders for the Products from or
with the particular Sub-Distributor. In such case Liberty
shall have no further obligation in this context, and Liberty
may continue to do business with the Sub-Distributor as to
other lines which are not Products as defined herein.
(j) To perform any other promise to Annie's set forth elsewhere in
this Agreement.
11
4.2 ANNIE'S DUTIES. During the Term of this Agreement, Annie's shall
have the following duties and obligations:
(a) To make commercially reasonable efforts to cause its
manufacturers to make the Products available for purchase by
Liberty in commercially reasonable amounts and timeframes.
(b) To maintain products liability and general liability insurance
on an occurrence basis in commercially reasonable amounts,
which insurance policies shall name Liberty as an additional
named insured and to require any manufacturer of the Products
to do likewise.
(c) To comply with all governmental laws and regulations
applicable to the manufacture of the Products.
(d) To perform any other promise to Liberty set forth elsewhere in
this Agreement.
4.3 INITIAL ESTIMATED EXPENSES. Annexed hereto as Exhibit "D" are
certain estimated expenses of Liberty as agreed by the parties. In February,
1997, the parties agree to review the expenses set forth on Exhibit "D" and to
reasonably agree on any needed adjustments, based on Liberty's experience.
Thereafter, the same process shall be undertaken upon
12
request of either party, but in no event sooner than 3 months since the last
review.
5.0. WARRANTIES AND REPRESENTATIONS OF ANNIE'S.
a. Annie's warrants and represents that each of the warranties
and representations in this section 5.0(a) are true at the
time of the execution of this Agreement and shall remain true
during the Term of this Agreement:
(i) That it is the sole owner of the Trademarks, free and
clear of all liens, encumbrances, security interests
or rights of any party whatsoever and that it has the
full and complete right to sell the Products bearing
the Trademarks to Liberty as set forth in this
Agreement.
(ii) That it has not licensed or otherwise authorized any
third party to utilize the Trademarks in connection
with the sales or distribution of the Products within
the Territory.
(iii) That the execution of this Agreement and the
consummation of the transactions contemplated hereby
do no conflict with or result in a default or breach
under any (a) agreement, indenture, mortgage,
contract or instrument to which Annie's is bound or
to which any of its assets is
13
subject, (b) any order, writ, injunction, judgment or
decree to which Annie's or its assets are bound, or
(c) any law or regulation applicable to Annie's or by
which its assets are bound.
(iv) That, to the knowledge of Annie's, the formulas,
recipes or processes for the Products do not infringe
on any other person's ownership, proprietary or
patent rights.
(v) That, to the knowledge of Annie's, the Trademarks do
not infringe on any other person's trademark or other
intellectual property rights.
b. Annie's warrants and represents that each of the statements in
this section 5.0(b) are true at the time of the execution of
this Agreement:
(i) That there is no pending or, to Annie's knowledge,
threatened claim or litigation related in any way (i)
to its exclusive ownership of and rights to the
Trademarks or (ii) to its right to sell the Products
bearing the Trademarks to Liberty as set forth in
this Agreement.
(ii) That there is no pending or, to Annie's knowledge,
threatened claim or litigation related in any way to
its
14
ownership of the recipes, patents or formulas for the
Products.
5.1 ANNIE'S INDEMNIFICATION AS TO WARRANTIES, REPRESENTATIONS AND
COVENANTS. Annie's agrees to indemnify, hold harmless and defend in the first
instance Liberty from any and all costs, claims, damages, losses liabilities and
expenses (including reasonable attorneys fees) which Liberty may incur from
third party claims with respect to the subject matter of the aforesaid
warranties and representations of Annie's in ss.5.0 (regardless of whether or
not made to Annie's knowledge). This covenant shall survive termination of this
Agreement for any reason. In the event of any such claim, Annie's shall have the
right to control the conduct of the litigation and any monetary settlement paid
by Annie's.
6.0 WARRANTIES AND REPRESENTATIONS OF LIBERTY. Liberty hereby warrants
and represents as follows to Annie's:
(a) That the execution of this Agreement and the
consummation of the transactions contemplated hereby
do not conflict with or result in a default or breach
under any (i) agreement, indenture, mortgage,
contract or instrument to which Liberty is bound or
to which any of its assets is subject, (ii) any
order, writ, injunction, judgment or decree to which
Liberty
15
or its assets are bound, or (iii) any law or
regulation applicable to Liberty or by which its
assets are bound and that such state of acts shall
remain true during the Term of this Agreement,
Liberty warrants and represents that each of the aforesaid warranties
and representations are true at the time of the execution of this Agreement and
shall remain true during the Initial Term of this Agreement and any Extended
Term hereof.
Liberty agrees to indemnify, hold harmless and defend in the first
instance Annie's from any and all costs, claims, damages, losses liabilities and
expenses (including reasonable attorneys fees) from third party claims incurred
by Annie's with respect to the subject matter of the aforesaid warranties and
representations of Liberty. This covenant shall survive termination of this
Agreement for any reason. In the event of any such claim, Liberty shall have the
right to control the conduct of the litigation and any monetary settlement paid
by Liberty.
7.0 TERMINATION.
16
(a) Convenience. This Agreement may be terminated at any time by the
mutual agreement of the parties. Except as set forth in Section 2.3, no party
will have a unilateral right to terminate for convenience. (b) Cause. In the
event either party commits a material breach of one or more of the terms of this
Agreement, and does not cure such breach (or commence actions to cure the breach
and to proceed diligently as to breaches which cannot practically be cured
within the aforesaid period) within ten (10) business days (five (5) business
days for the non-payment of undisputed amounts of money) after written notice of
such breach from the other party, then the notifying party may terminate this
Agreement immediately by written notice.
(c) Creditor's Remedies, Etc. Either party may terminate this Agreement
immediately upon written notice if the other party makes any arrangement with
its creditors generally, or has a receiver appointed for all or a substantial
part of its business or properties, or an insolvency, bankruptcy or similar
proceeding is brought by or against such other party and involving such other
party as debtor, and if brought against such other party, is not dismissed
within sixty (60) days from its institution, or if such other party goes into
liquidation or otherwise ceases to operate as a going concern.
17
(d) Sale Minimums. If during the initial Term or any Extended Term,
Liberty shall fail to sell a minimum of five hundred thousand (500,000) cases of
the Products during a Calendar Year, Annie's may, at its sole discretion, either
(i) terminate this Agreement upon ten (10) days written notice; or (ii) continue
the rights and obligations of both parties under the Agreement. Notwithstanding
ss.7(g), the foregoing option of terminating the agreement shall be the sole and
exclusive remedy of Annie's in the event that Liberty fails to sell the
"minimum" of 500,000 cases. Under no circumstances shall Liberty be liable to
Annie's for damages for failure to sell the aforesaid "minimum" or any related
claims.
(e) Termination Limitations. Notwithstanding the provisions described
in this Section 7.0, if any valid, applicable law or regulation of a
governmental authority having jurisdiction over this Agreement, Annie's and/or
Liberty, limits a party's rights of termination or requires different or longer
periods than those set forth herein, this Section 7.0 shall be deemed amended
solely to conform to such laws and regulations.
(f) Effective Date of a Termination. Unless a period of notice is
provided elsewhere in this Agreement for a specific type of termination,
18
termination of this Agreement shall be effective immediately upon a party giving
to the other party written notice of termination.
(g) Choice of Remedies. Upon the occurrence of a breach of this
Agreement, a non-breaching party may in its sole discretion independently
exercise or not exercise any or all rights which it may have under this
Agreement or any other agreements by and between the breaching and non-breaching
parties, and the exercise of the non-breaching party's rights under this
Agreement shall not exclude any of the remedies which such non-breaching party
may have at law or in equity, all such remedies being cumulative in effect.
7.1 RIGHTS AND OBLIGATIONS OF THE PARTIES ON TERMINATION. In the event
that this Agreement is terminated, for any reason (i) Liberty shall immediately
cease holding itself out as having any on-going business relationship with
Annie's or with the Products, and (ii) Annie's agrees to purchase from Liberty
all Saleable Inventory at Liberty's landed warehouse costs, plus "in & out"
warehouse charges and monthly warehouse storage fees.
8.0 RELATIONSHIP BETWEEN THE PARTIES. Nothing contained in this
Agreement shall be deemed to create any relationship of principal and agent,
partners or joint venturers as between Annie's and Liberty.
19
8.1 RIGHT TO INSPECT THE BOOKS AND RECORDS. During the term of this
Agreement and for a period of two (2) years thereafter, Annie's shall be
allowed, upon 7 days written notice, access during reasonable business hours to
review and inspect the Books and Records of Liberty regarding the administration
of this Agreement, including inspection of all books, records, contracts,
agreements or other information relating to distribution of the Products under
this Agreement. The failure of Liberty to allow any such inspection shall be
deemed a material breach of this Agreement.
8.2 ENTIRE AGREEMENT. This Agreement is the sole understanding and
agreement between the parties with respect to its subject matter. There are no
other terms, covenants, conditions, warranties or representations between the
parties, whether written or unwritten, not set forth herein. This Agreement s
persedes any other such prior or contemporaneous oral or written discussion,
agreements, understandings or correspondence. Any revisions to this Agreement
must be approved in writing signed by both parties.
8.3 HEADINGS AND RECITALS. The recitals set forth in the beginning of
this Agreement and the headings of the Sections and Subsections of this
Agreement have been added for convenience only and shall not be deemed to be a
part hereof.
20
8.4 EXHIBITS. The Exhibits attached hereto are an integral part hereof.
8.5 CONSEQUENTIAL DAMAGES. Under no circumstances shall either party be
liable to the other party for consequential damages with respect to this
Agreement. The term "consequential damages" shall not be construed to limit the
right of either party to sue for any lost profits. Under no circumstances shall
either party have the right to sue for loss of the value of its business or its
good will as the result of any breach.
8.6 FORCE MAJEURE. Neither party shall be liable for any loss, damage
or delay resulting from any cause whatsoever beyond its reasonable control or
resulting from a force majeure, including without limitation, fire, flood,
strike, lockout, civil or military authority, insurrection, war, embargo,
container or transportation shortage or delay of suppliers due to such causes.
8.7 Construction. This Agreement was prepared by both parties with the
assistance of counsel and so any rule of construction against the draftsman
shall not be applicable.
8.8 CONFIDENTIALITY. From time to time during the Term of this
Agreement, both parties may become privy to certain confidential or sensitive
business information pertaining to the other party, including
21
without limitation any business, financial or technical information or data of
either party, whether patentable or unpatentable, which is confidential or
proprietary in nature, including customer lists; business and marketing
strategies; financial projections; confidential business information; operating
margins and pricing policies; formulae; recipes; and other information marked or
identified as confidential ("Confidential Information"). In such event, the
party acquiring such confidential information agrees to hold the information
confidential and to refrain from disclosing such information to third parties,
directly or indirectly, during the Term of this Agreement or thereafter, except
with the prior written consent of the other party. Information shall not be or
shall cease to be Confidential Information if it is or becomes publicly
available through no direct or indirect act of the receiving party or any of its
employees, agents or contractors. This provision shall survive any termination
or expiration of this Agreement.
8.9 NO THIRD PARTY BENEFICIARY INTENT. Nothing contained herein shall
be deemed to create any third party beneficiary rights in any third party.
8.10 ADDITIONAL FOODSTUFFS. In the event that Annie's shall develop any
Additional Foodstuffs that it wishes to sell or distribute on a wholesale or
retail basis within the Territory utilizing the Trademarks,
22
Annie's may, at its sole discretion, include such additional foodstuffs as a
product to be distributed by Liberty pursuant to this Agreement. In such case,
Liberty shall have thirty days after written notice by Annie's to incorporate
the Additional Foodstuff as a Product under this Agreement. Failure by Liberty
to incorporate the Additional Foodstuff as a Product shall be deemed a material
breach of this Agreement. If Annie's chooses not to include any additional
foodstuffs as a product under this agreement, Annie's shall be free to market
and distribute the Additional Foodstuff under the Trademarks without any
obligation to Liberty under this Agreement. Notwithstanding the foregoing, in
the event that the Additional Foodstuff which Annie's seeks to incorporate in
the Agreement is covered by an existing non-compete provision which Liberty has
with any of its other vendors, during the aforesaid 30 day period Liberty shall
notify Annie's of the conflict with the existing non-compete provision, in which
case the proposed Additional Foodstuff shall not be incorporated into this
Agreement and the Agreement shall remain in full force in effect without the
proposed Additional Foodstuff.
8.11 NOTICES. All notices and other communications under this Agreement
shall be in writing. Notices may be delivered personally or by
23
nationally recognized overnight delivery service and shall be effective upon
receipt. Notices shall be sent as follows:
AS TO ANNIE'S:
--------------
Neil Raiff
Annie's Homegrown, Inc.
180 Second Avenue, Suite 202
Chelsea, Massachusetts 02150
WITH A COPY TO:
Mitchell S. Bloom, Esq.
Testa Hurwitz & Thibeault, LLP
125 High Street
Boston, MA 02110
AS TO LIBERTY:
--------------
Lawrence LaPare
President
Liberty Richter, Inc.
400 Lyster Avenue
Saddle Brook, NJ 07662
WITH A COPY TO:
E. Neal Zimmermann
Waters, McPherson, McNeill, P.C.
300 Lighting Way
Secaucus, NJ 07096
24
8.12 NEW JERSEY LAW This Agreement shall be governed and construed by
the laws of the State of New Jersey. The federal and state courts of New Jersey
shall have exclusive jurisdiction to hear and resolve and disputes arising this
Agreement or related to the subject matter thereof.
8.13 SUBDISTRIBUTORS. Annie's acknowledges that Liberty intends to
distribute the Products, in part, through brokers, commercial agents and
sub-distributors. Liberty will keep Annie's informed on a timely basis as to the
names and addresses of its distributors and brokers. If feasible, Liberty will
advise Annie's prior to the retention of any new distributor or broker.
Nothwithstanding the preceding sentence, Liberty shall obtain Annie's written
consent prior to the retention of a distributor in areas of the Territory where
Annie's currently sells to chain supermarkets on a direct basis. After Annie's
gives its consent as to the retention of a distributor in a particular area,
Liberty need not seek Annie's consent prior to changing the distributor in that
area.
25
Signed, sealed and delivered by a duly authorized representative of
each party hereto as of the date first written above.
ANNIE'S HOMEGROWN, INC.
s/Neil Raiff
-----------------------
By Neil Raiff
---------------------
Its CFO
--------------------------
LIBERTY RICHTER, INC.
s/Lawrence J. LaPare
-----------------------
By Lawrence J.LaPare
--------------------
Its President
-------------------
26
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
This Agreement made as of this 26th day of November, 1996 by and
between Annie's Homegrown, Inc., a Delaware corporation with its principal place
of business at 180 Second Street, Suite 202, Chelsea, Massachusetts 02150 (the
"Company") and Paul Nardone an individual whose mailing address is 84 Reservoir
Avenue, Revere, Massachusetts 02151 (the "Employee").
WITNESSETH
WHEREAS, Employee is a senior executive of the Company and has made and
is expected to continue to make major contributions to the Company; and
WHEREAS, the Company desires Employee to serve as President and Chief
Operating Officer and Employee is willing to provide such services under
mutually satisfactory terms and conditions as set forth herein;
NOW, THEREFORE, for and in consideration of the mutual covenants and
promises herein contained, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Company and Employee
agree as follows:
1. Term. Subject to the terms and conditions hereof, the term of this
Agreement will commence on November 1, 1996 and expire on December 31, 1998 (the
"Term"). The terms and conditions hereof shall be reviewed by the parties at
least ninety (90) days prior to the expiration of the Term and this Agreement
shall be either extended or amended upon mutual agreement of the parties, and if
the parties fail to agree, the Agreement shall be terminated upon the expiration
of the Term.
2. Budget/Projections. The 1997 Budget Projections ("1997 Budget")
attached hereto as Exhibit A shall serve as the benchmark for performance for
the first year of the Term. The 1998 Budget Projections ("1998 Budget") will be
mutually agreed to by the parties and included in this Agreement prior to
November 1, 1997, and will serve as the benchmark for performance in the second
year of the Term.
-2-
The 1997 Budget and the 1998 Budget are collectively referred to herein as the
"Budget/Projections."
3. Duties and Responsibilities.
(a) During the Term, the Employee shall serve as the President
and Chief Operating Officer of the Company. In the performance of his
responsibilities as the President and Chief Operating Officer, the Employee
shall be subject to all of the Company's policies, rules and regulations
applicable to its Employees of comparable status and shall report directly to,
and shall be subject to the direction and control of, the Board of Directors of
the Company (the "Board"), and shall perform such duties as shall be assigned to
him by the Board. In performing such duties, the Employee will be subject to and
will substantially abide by, and will use reasonable efforts to cause employees
of the Company to be subject to and substantially abide by, all policies and
procedures developed by the Company.
(b) During the Term, the Employee shall devote all of his
business time, energies, skills and attention to the affairs and activities of
the Company. The Employee shall provide the services to the Company described in
this Agreement in a professional and diligent manner and in a manner consistent
with the highest standards of performance in the retail food industry. During
the Term, the Employee shall not devote any of his business time, energies,
skills or attention to the affairs or activities of any other business or
organization, without the prior approval of the Board (which approval shall not
be unreasonably withheld). The Employee shall provide to the Board, on a
quarterly basis, a description of any involvement with any other business or
organization, such description to include (i) the name of the company or
organization; (ii) type of involvement; and (iii) type of product; provided,
however, that no description is required for a quarter where there has been no
change from the description last provided to the Board.
(c) To induce the Company to enter into this Agreement, the
Employee represents and warrants to the Company that: (i) the Employee is not a
party or subject to any employment agreement or arrangement with any other
person, firm, company, corporation or other business entity
-3-
and the Employee is subject to no restraint, limitation or restriction by virtue
of any agreement or arrangement, or by virtue of any law or rule of law or
otherwise which would impair the Employee's right or ability (A) to enter the
employ of the Company, or (B) to perform fully his duties and obligations
pursuant to this Agreement, and (ii) to the Employee's knowledge, no material
litigation is pending or threatened against any business or business entity
owned or controlled or formerly owned or controlled by the Employee.
4. Insurance and Indemnification. The Company agrees that during the
Term of this Agreement, without the consent of the Employee, it shall not amend
the provisions of Article VII Section 7 (Indemnification) of its By-laws.
5. Compensation.
(a) Base Salary: So long as Employee remains employed, during the Term
of this Agreement, Employee shall receive a monthly gross salary (the "Base
Salary"),which shall be paid in equal installments on the 15th and final day of
each month, equal to: (i) five thousand five hundred dollars ($5,500.00) for
each month during the period November 1, 1996 through December 31, 1996 (ii) six
thousand five hundred dollars ($6,500.00)for each month during the period from
January 1, 1997 through December 31, 1997, ; and (iii) seven thousand five
hundred dollars ($7,500.00) for each month during the period from January 1,
1998 through December 31, 1998.
(b) Bonuses: (i) So long as Employee remains employed, for each
calendar quarter beginning with the quarter starting January 1, 1997, in
addition to any and all other amounts payable to Employee hereunder, Employee
shall receive a bonus payment, payable within forty-five (45) days of the end of
the quarter, as follows:
(A) If the Company has achieved less than fifty
percent (50%) of the "net income before operating expenses" as
described in the Budget/Projections for such quarter, the Employee
shall receive no bonus for such quarter;
(B) If the Company has achieved fifty percent (50%)
or more, but less than one hundred
-4-
percent (100%) of the "net income before operating expenses" as
described in the Budget/Projections for such quarter, the Employee
shall receive a bonus payment for such quarter equal to one and
one-half percent (1 1/2%) of the gross profit after "selling expenses"
for such quarter;
(C) If the Company has achieved one hundred percent
(100%) or more of the "net income before operating expenses" as
described in the Budget/Projections for such quarter, the Employee
shall receive a bonus payment for such quarter equal to two and
one-half percent (2 1/2%) of the gross profit after "selling" expenses
for such quarter.
(ii) In addition to any bonus paid pursuant to Section 5(b)(i)
above, if the actual gross profit after selling expenses for any calendar year
during the Term exceeds one million dollars ($1,000,000), the Employee shall
receive a bonus payment equal to one percent (1%) of the gross profit after
"selling expenses". Such additional annual bonus shall be paid within forty-five
(45) days following the end of the calendar year.
(iii) For purposes of this Agreement, "selling expenses"
include the costs outlined in the Budget/Projections and shall include, without
limitation, price reductions, account advertising, trade advertising, ordinary
consumer marketing expenses, trade show expenses, brokerage expenses and other
ordinary selling expenses.
6. Expense Reimbursement. The Employee is authorized to incur
reasonable expenses in the performance of his duties hereunder during the Term.
The Company shall reimburse the Employee for all such expenses upon the
presentation by the of signed, itemized accounts of such expenditures and
vouchers, all in accordance with the Company's procedures and policies as
adopted and in effect from time to time and applicable to its employees of
comparable status.
7. Vacation Time. The Employee shall be entitled to paid vacation,
personal and sick leave during the Term in accordance with the Company's
policies regarding such vacation and leaves.
-5-
8. Grant of Stock Options. The Company shall grant Employee a stock
option, which option shall be fully vested on the date of grant, to purchase
twelve thousand five hundred (12,500) shares of the Company's Common Stock (such
number of shares to be adjusted based on changes in capitalization) for each
calendar quarter during the Term, beginning with the quarter January 1, 1997
through March 31, 1997, that the Company has achieved one hundred percent (100%)
or more of the "net income before operating expenses" as defined in the
Budget/Projections, provided, however, that the aggregate number of shares of
the Company's Common Stock granted to Employee pursuant to this Section 8 shall
not exceed 100,000 shares. Each option shall be granted pursuant to a stock plan
maintained by the Company in compliance with Section 16b-3 under the Securities
Exchange Act of 1934, if applicable. The options shall be granted at an exercise
price equal to the fair market value of the Company's Common Stock on the date
of grant and such options shall be subject to the other terms and conditions
provided in the Company's stock option plan, provided, however, that such
options granted pursuant to this Section 8 shall remain exercisable for a period
of five (5) years, subject to the terms and conditions of this Agreement,
regardless of whether Employee remains employed with the Company.
9. Listing on an Exchange.
(a) In the event the Common Stock of the Company is listed on a
national or regional exchange or on the Nasdaq Small Cap or Nasdaq National
Market, then the Company shall, at the request of the Employee, agree to lend
the Employee, for the sole purpose of exercising vested stock options, an amount
not to exceed $100,000, such loan to be evidenced by a full recourse note in the
form attached hereto as Exhibit B, bearing interest at a rate equal to the prime
rate as published by The First National Bank of Boston on the date the loan is
made, and for a term not to exceed the Term of this Agreement regardless of any
extension thereto. The note shall be secured by all of the capital stock of the
Company owned, at the time of the loan and in the future, by the Employee and
any proceeds from the sale thereof.
(b) The Employee agrees to execute and deliver, upon the request of the
Company, such instruments, including, but not limited to a pledge agreement, and
take such further
-6-
actions, as may be necessary or desirable to evidence the security interest
being granted to the Company pursuant to this Section 9.
10. Payment in Connection with a Merger or Sale of the Company. So long
as Employee remains employed, upon consummation of a Change in Control (as
hereinafter defined), Employee shall be entitled to receive from the Company an
amount equal to two percent (2%) of the Consideration (as hereinafter defined)
paid in connection with the Change in Control less (i) the amount due, including
all accrued interest, on all notes due to the Company from the Employee and (ii)
any gain received by Employee upon the exercise and sale of the Company's Common
Stock underlying the stock options (the "Change in Control Payment"). In order
to receive the Change in Control Payment, Employee must agree to terminate or
otherwise cancel all stock options to purchase shares of Company's Common Stock
Employee currently holds or is entitled to receive pursuant to this Agreement.
For purposes hereof, "Change in Control" means the occurrence of any of the
following events during the Term: (a) The Company is merged or consolidated or
reorganized into or with another corporation or other legal person, and as a
result of such merger, consolidation or reorganization less than a majority of
the combined voting power of the then-outstanding securities of such surviving,
resulting or reorganized corporation or person immediately after such
transaction is held in the aggregate by the holders of the then-outstanding
securities entitled to vote generally in the election of directors of the
Company ("Voting Stock") immediately prior to such transaction; or (b) the
Company sells or otherwise transfers all or substantially all of its assets to
any other corporation or other legal person, and as a result of such sale or
transfer less than a majority of the combined voting power of the
then-outstanding securities of such corporation or person immediately after such
sale or transfer is held in the aggregate by the holders of Voting Stock of the
Company immediately prior to such sale or transfer. For purposes hereof,
"Consideration" shall mean cash and securities paid to the Company and/or its
shareholders upon consummation of the Change in Control and shall exclude (a)
any amount to be paid after the
-7-
consummation of the Change in Control and (b) any debt assumed by the acquiror.
11. Termination of Employment.
(a) Voluntary Termination. The Employee may voluntarily terminate his
employment with the Company upon sixty (60) days written notice to the Company.
In the event that Employee voluntarily terminates his employment with Company,
any and all of Employee's right to payment under this Agreement will terminate
as of the effective date of such termination; provided, however, that Company
will pay Employee any sums which accrued to Employee prior to the effective date
of termination, including any accrued bonus earned but not yet paid, and Company
will grant Employee options pursuant to Section 8 that have accrued, but not yet
been granted.
(b) Involuntary Termination. Employee may be terminated by the Company
before the expiration of this Agreement with or without cause by a majority vote
of the Board of Directors. "Cause" shall be defined as: (a) the Employee's
conviction of any crime (whether or not involving the Company) which constitutes
a felony in the jurisdiction involved; (b) any intentional act of theft, fraud
or embezzlement by the Employee in connection with his work with the Company; or
(c) the Employee's continuing, repeated and willful failure or refusal to
perform his duties and services under this Agreement (other than due to his
incapacity due to illness or injury). In the event that Employee is terminated
for any reason other than Cause as defined herein, Company shall continue to pay
Employee the Base Salary, as then in effect, and bonus sums, without any
adjustments, for a period of six (6) months following such termination.
(c) Nonrenewal. If the Company does not extend or amend this Agreement
for the period of January 1, 1999 through December 31, 1999, the Company shall
pay the Employee severance equal to six (6) months Base Salary, then in effect.
12. Non-Competition.
-8-
(a) During the term of this Agreement and for a period of two
years following the voluntary termination of the Employee pursuant to Section
11(a) above, the Employee shall not, directly or indirectly, perform any
services in the United States for any person or entity other than the Company
that is in the business, directly or indirectly, of selling pasta or other
specialty pasta products of the type the Company is selling, or developing at
the time of the Employee's voluntary termination; or, without limiting the
generality of the foregoing, be or become or agree to be or become, interested
in or associated with, in any capacity (whether as a partner, shareholder,
owner, officer, director, employee, principal, agent, creditor, trustee,
consultant, co-venturer or otherwise) any individual, corporation, firm,
association, partnership, joint venture or other business entity that competes
with the Company; provided, however, that the Employee may own, solely as an
investment, not more than one percent (1%) of any class of securities of any
corporation that is publicly traded on any national securities exchange in the
United States of America or reported on the National Association of Securities
Dealers, Inc.'s Automated Quotation System.
(b) During the term of this Agreement and for a period of two (2)
years following any termination, the Employee shall not, directly or indirectly,
(i) induce or attempt to influence any employee of the Company to leave its
employ, (ii) aid or agree to aid any competitor, customer or supplier of the
Company in any attempt to hire any person who shall have been employed by the
Company within the one-year period preceding such requested aid, or (iii) induce
or attempt to influence any person or business entity who was a customer of the
Company during any portion of the Term of this Agreement and for a period of two
(2) years following any termination, to transact business with a competitor of
the Company in the Company's business. Notwthstanding the previous sentence,
this section 12(b) shall not apply if Employee is terminated without cause
during the Term of this Agreement.
13. Non-disclosure. During the term of this Agreement and thereafter,
except pursuant to his duties to the Company hereunder, the Employee shall not
disclose to anyone any material or confidential information about the affairs of
the Company, including trade secrets, recipes, trade "know-
-9-
how," inventions, customer lists, business plans, operational methods, pricing
policies, marketing plans, sales plans, identity of customers, sales, profits or
other financial information which is confidential to the Company or is not
generally known in the relevant trade.
14. Notices. Notices will be sent by registered or certified mail, postage
prepaid, return receipt requested, or by a recognized expedited delivery service
to the address set forth on page one hereof, unless specifically changed by
either party by written notice to the other.
15. Miscellaneous.
(a) This Agreement is a personal contract, and the rights and
interests of the Employee hereunder may not be sold, transferred, assigned,
pledged or hypothecated, except as otherwise expressly permitted by the
provisions of this Agreement. Except as otherwise expressly provided herein, the
Employee shall not have any power of anticipation, alienation or assignment of
payments contemplated hereunder, and all rights and benefits of the Employee
shall be for the sole personal benefit of the Employee, and no other person
shall acquire any right, title or interest hereunder by reason of any sale,
assignment, transfer, claim or judgment or bankruptcy proceedings against the
Employee; provided, however, that in the event of the Employee's death, the
Employee's estate, legal representative or beneficiaries (as the case may be)
shall have the right to receive all of the benefits that accrued to the Employee
pursuant to, and in accordance with, the terms of this Agreement prior to the
date of the Employee's death.
(b) The Company shall have the right to assign this Agreement
to any successor of substantially all of its business or assets, and any such
successor shall be bound by all of the provisions hereof.
(c) This Agreement may not be changed, amended, terminated or
superseded orally, but only by an agreement in writing, nor may any of the
provisions hereof be waived orally, but only by an instrument in writing, in any
such case signed by the party against whom enforcement
-10-
of any change, amendment, termination, waiver, modification, extension or
discharge is sought.
(d) Except as otherwise provided herein, this Agreement shall
be governed by and construed and enforced in accordance with the laws of the
Commonwealth of Massachusetts, without giving effect to the principles of
conflict of laws thereof.
(e) All descriptive headings of the several Sections of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
(f) If any provision of this Agreement, or part thereof, is
held to be unenforceable, the remainder of this Agreement and provision, as the
case may be, shall nevertheless remain in full force and effect.
(g) Each of the parties hereto shall, at any time and from time
to time hereafter, upon the reasonable request of the other, take such further
action and execute, acknowledge and deliver all such instruments of further
assurance as necessary to carry out the provisions of this Agreement.
(h) This Agreement contains the entire agreement and
understanding between the Company and the Employee with respect to the subject
matter hereof. No representations or warranties of any kind or nature relating
to the Company or its affiliates or their respective businesses, assets,
liabilities, operations, future plans or prospects have been made by or on
behalf of the Company to the Employee; nor have any representations or
warranties of any kind or nature been made by the Employee to the Company,
expect as expressly set forth in this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-11-
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date above first written.
ANNIE'S HOMEGROWN, INC.
s/ Andrew Martin
-----------------------
By:
Title:Chairman
s/Paul B. Nardone
-----------------------
Paul Nardone
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Annie's Homegrown, Inc.
Computation of Earnings per Common Share
(in 000s except for per share data)
Twelve months ended December 31, 1995
Primary Computation
- -------------------
Net loss per statement of operations $(451)
=====
Weighted average number of common
shares outstanding 3,987
Weighted average number of common
stock equivalents --
-----
Weighted average number of common
shares as adjusted 3,987
=====
Primary loss per common share $(.11)
=====
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Annie's Homegrown, Inc.
Computation of Earnings per Common Share (Continued)
(in 000s except for per share data)
Twelve months ended December 31, 1995
Fully Diluted Computation
- -------------------------
Net loss per statement of operations $(451)
=====
Weighted average number of common
shares outstanding 3,987
Weighted average number of common
stock equivalents 742
-----
Weighted average number of common
shares as adjusted 4,729
=====
Fully diluted loss per common share $(.10)(A)
=====
(A) This computation is submitted as an exhibit to the Company's Form 10-K in
accordance with Regulation S-K Item 601(b)(11), although presenting the
computation is not in accordance with paragraph 40 of APB Opinion 15
because the computation produces an antidilutive result.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Annie's Homegrown, Inc.
Computation of Earnings per Common Share (Continued)
(in 000s except for per share data)
Twelve months ended December 31, 1995
Fully Diluted Computation
- -------------------------
Net loss per statement of operations $(279)
=====
Weighted average number of common
shares outstanding 4,181
Weighted average number of common
stock equivalents 733
-----
Weighted average number of common
shares as adjusted 4,914
=====
Fully diluted loss per common share $(.06)(A)
=====
(A) This computation is submitted as an exhibit to the Company's Form 10-K in
accordance with Regulation S-K Item 601(b)(11), although presenting the
computation is not in accordance with paragraph 40 of APB Opinion 15
because the computation produces an antidilutive result.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Annie's Homegrown, Inc.
Computation of Earnings per Common Share (Continued)
(in 000s except for per share data)
Twelve months ended December 31, 1995
Primary Computation
- -------------------
Net loss per statement of operations $(279)
Weighted average number of common
shares outstanding 4,181
Weighted average number of common
stock equivalents --
-----
Weighted average number of common
shares as adjusted 4,181
=====
Primary loss per common share $(.07)
=====
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 860,502
<SECURITIES> 0
<RECEIVABLES> 183,786
<ALLOWANCES> 0
<INVENTORY> 1,234,110
<CURRENT-ASSETS> 5,878
<PP&E> 74,666
<DEPRECIATION> 35,464
<TOTAL-ASSETS> 2,424,245
<CURRENT-LIABILITIES> 1,719,926
<BONDS> 0
0
0
<COMMON> 4,369
<OTHER-SE> 699,950
<TOTAL-LIABILITY-AND-EQUITY> 2,424,245
<SALES> 4,811,762
<TOTAL-REVENUES> 4,811,762
<CGS> 2,784,902
<TOTAL-COSTS> 2,260,181
<OTHER-EXPENSES> (8,201)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,952
<INCOME-PRETAX> (276,072)
<INCOME-TAX> 3,286
<INCOME-CONTINUING> (279,358)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (279,358)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
