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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 33-62038NY
SARATOGA BEVERAGE GROUP, INC.
(Name of small business issuer in its charter)
DELAWARE 14-1749554
(State of incorporation) (I.R.S. Employer ID Number)
11 GEYSER ROAD, SARATOGA SPRINGS, Issuer's telephone number:
NEW YORK 12866 (518) 584-6363
(Address of principal place of business)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT:
Name of each exchange
Title of each class on which registered
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:
CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is not contained in this form, and no disclosure will be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
issuer, based on the closing sale price of the Common Stock on April 9, 1997 as
reported on the NASDAQ Small Cap Market System, was approximately $11,203,165.
Shares of the Common Stock held by each officer and director and by each person
who owns 5% or more of the outstanding Common Stock may be deemed to be
affiliates for this purpose. This determination of affiliate status is not
necessarily a conclusive determination of the affiliates of the issuer for other
purposes.
Issuer's revenues for the fiscal year ended December 31, 1996 were $4,374,825.
As of April 9, 1997, Registrant had outstanding 2,180,799 shares of Class A
Common Stock, $.01 par value per share, and 857,961 shares of Class B Common
Stock, $.01 par value per share.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Transitional Small Business Disclosure Format Yes [ ] No [X]
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PART I
ITEM 1. BUSINESS
GENERAL
The Company is primarily engaged in the bottling, marketing and
distribution of natural spring and mineral water products from naturally
free-flowing springs located on the Company's property in Saratoga Springs, New
York and elsewhere, and in the packaging of products for others (co-packing).
The Company's product line currently includes five water products, including a
sparkling spring water product, three sparkling essence-flavored spring water
products and a non-carbonated spring water product. All of the Company's
products are marketed as premium domestic bottled water under the proprietary
brand name "Saratoga." The Saratoga brand name has been in existence for over
120 years.
The Company's springs and bottling facilities have been operated through
the years by a number of owners, including Anheuser-Busch and, most recently,
Evian Waters of France, a division of BSN, S.A. Anheuser-Busch and Evian Waters
of France each operated the business for approximately two years. The Company
was organized and acquired the assets of its business in April 1992 from the
owners of Evian Waters of France. The Company's bottling facilities, which had
been closed since May 1991 by the previous owners, recommenced operations in May
1992. Since that time, the Company has undertaken the task of rebuilding a
distribution network and customer base for the Saratoga brand beverage products.
On June 23, 1993, the Company consummated an initial public offering (the
"Offering") for the sale of 1,200,000 shares of Class A Common Stock at an
initial offering price of $5.00 per share. An additional 180,000 shares were
subsequently issued to cover over-allotments. The Company received proceeds of
$5,582,450, net of costs incurred in connection with the offering.
Since the end of the 1980s, the bottled water industry has experienced
rapid growth. The industry is divided into two distinct segments: non-carbonated
water and sparkling (carbonated) water. The Company believes that non-carbonated
water is becoming an alternative for municipal tap water and that it is
perceived by consumers as a healthy and refreshing beverage alternative to soft
drinks, coffee, juices and juice products. The Company also believes that
sparkling water is perceived as a healthy and refreshing beverage alternative to
beer, liquor and wine. The Company anticipates that sales in the bottled water
industry will continue to grow as consumer trends involving increased health and
fitness consciousness, alcohol moderation, and caffeine and sodium avoidance
continue to develop and grow. The Company believes that it is well-positioned to
take advantage of the anticipated future growth of the bottled water industry.
PRODUCTS
The main product lines sold under the Saratoga label include five types
of bottled water: sparkling spring water, sparkling lemon essence-flavored
spring water, sparkling lime essence-flavored spring water, sparkling berry
essence-flavored spring water and natural non-carbonated spring water.
The Company's bottled water is sold in a variety of bottle sizes. The
sparkling spring water products are packaged in four different premium sizes:
7.7 ounce, 10 ounce, 28 ounce glass bottles, and a 42.3 ounce PET (polyethylene
terephthalate) recyclable bottle. The non-carbonated water is packaged in 0.5
liter, 1 liter, and 1.5 liter PET recyclable bottles.
MARKETING AND SALES
The Company markets its products as "premium" domestic bottled water
products. A premium domestic bottled water product is distinguished from other
available bottled water products by being packaged in small portable containers,
by being classified as a natural spring water by the FDA and by being priced
higher than other domestic waters, but lower than imported premium water
products.
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The Company positions its products as "premium" domestic products by
highlighting the unique characteristics of the Company's water. The Company
believes that the proprietary Saratoga brand name, which has been in existence
for more than 120 years, is synonymous with a high class American tradition. The
Company's current marketing slogan is "An American Tradition Since 1872."
The Company believes that the high quality packaging of its products
enhances their image as premium domestic bottled water products. The Company's
products are bottled in unique, sleek, clear glass, embossed bottles and in
clear plastic PET recyclable bottles. The Company believes that the distinctive,
vertical, foil labels used for its glass bottled water products are perceived by
consumers to be upscale.
The Company has initially concentrated its marketing and sales activities
on the eastern coast of the United States, particularly in the northeastern
states, where Saratoga is a recognizable brand name. During the second quarter
of 1996 the Company secured a customer with nationwide concession locations and
throughout the year, has sold its product to this customer across the
continental United States. The Company's products are marketed and sold to both
on-premise accounts, such as restaurants and hotels, and to off-premise
accounts, such as supermarkets, convenience stores and delicatessens.
To date, the Company has primarily focused on securing distribution for
its products, and its marketing and sales activities have generally involved
regional product promotions and sponsorships tied to case sales. In addition,
the Company utilized point-of-sale advertising, in-store displays, and trade
incentive programs. The Company has also maintained a limited public relations
campaign with a focus on the tradition of Saratoga Spring water.
As is typical in the retail food and beverage industry, the Company has
provided incentives to certain grocery stores and supermarket chains to support
the merchandising of its products. Such incentives have generally been provided
in the form of free or discounted product, on a temporary basis. In very
competitive situations however, the Company has purchased shelf space in certain
supermarkets where the exposure and sales potential justifies the cost.
DISTRIBUTION
Since the Company commenced operations in 1992, it has been primarily
focused on securing distribution for its products. The Company's distribution
network includes primarily soft drink distributors, beer distributors and wine
distributors. The majority of Company sales have been to distributors located in
New England, the Middle Atlantic region and in Florida with the remaining sales
to distributors and other retailers located primarily throughout the eastern
coast of the United States and Puerto Rico. During 1996 the Company obtained a
customer with a nation wide concession business and has expanded its
distribution nationwide for this customer.
COMPETITION
The bottled water industry is highly competitive, as there are over 700
brands sold in the United States. The industry is dominated by two entities, The
Perrier Group and Evian Waters of France. The Company's market share is
currently very small. On a regional basis, the Company's products compete with a
number of regional brands, including Poland Springs and Deer Park (which are
owned by The Perrier Group) in the northeastern part of the United States and
Zephyrhills (which is also owned by The Perrier Group) in the southeastern part
of the United States. The Company's products also compete with other beverage
products, including, but not limited to, beer, liquor, wine, soft drinks,
coffee, juices and juice products and "new age" beverages.
The Company's competition includes numerous beverage bottlers and
distributors, many of which are more experienced, have greater financial and
management resources and have more established proprietary trademarks and
distribution networks than the Company. The Company believes that it is able to
compete effectively with other bottled water and beverage products because it
offers a diverse product line of quality bottled water at competitive prices.
Additionally, the Company believes that the relative
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proximity of its Saratoga Springs, New York facility to several large
metropolitan markets, such as New York City and Boston, enables it to compete
effectively with other regional brands on the eastern coast of the United States
by minimizing shipping expenses.
PRODUCTION
The sources of the Company's water are free-flowing springs. The Company
has two bottling lines, a PET line purchased and installed during the first
quarter 1994 and a glass bottling line. The production capacity of both the PET
and the glass bottling equipment is over 6 million cases per year.
SUPPLIERS
The Company does not manufacture any of the bottles or packaging in which
its products are sold. The Company purchases most of its PET bottles from
Schmalbach-Lubbeca, Inc. and caps for its PET bottles from IPEC Industries, Inc.
The Company purchases its glass bottles from Anchor Glass Container Corporation
("Anchor") and Vitro Packaging, Inc. ("Vitro"). Anchor and Vitro manufacture the
bottles in accordance with the Company's specifications. The Saratoga brand name
and the Company's logo are embossed on some of the glass bottles. The Company
purchases metal caps for its glass bottles from the Closure Systems
International Division of the Aluminum Company of America (ALCOA). The Company
is not affiliated with these suppliers.
The Company believes that there are alternate supplies of bottles and caps
readily available to it on comparable terms.
DEPENDENCE ON MAJOR CUSTOMERS
Two of the Company's customers accounted for 27% of total revenue, or
approximately $1,173,000 for the year ended December 31, 1996.
The Company renewed a one-year agreement with a Co-packer in July 1996 to
co-pack the customers private label spring water products. The agreement expires
in July 1997 and will automatically renew for one year, with the consent of both
parties. For the year ended December 31, 1996, 17% of total revenues or
approximately $756,000 was generated by this customer. The Company continues to
supply this Co-packer with their private label spring water needs.
Sales to the Company's largest distributor, for the year ended
December 31, 1996 were 10% of total revenues or approximately $418,000. This
distributor continues to purchase Saratoga product.
TRADEMARKS
"Saratoga" is a registered trademark of the Company in the United States
and Canada for use in connection with mineral water, tonic water and ginger ale
products. The Company has twelve other trademarks, either pending or registered,
which include the "Saratoga Vichy" name, the name "Saratoga Splash" and the
Saratoga racetrack oval label used on its bottles and packaging.
GOVERNMENT REGULATION
Bottled water must originate from an "approved source" in accordance with
standards prescribed by the Food and Drug Administration and the state health
departments in each of the states in which the Company's products are sold.
There are annual "compliance tests" of both the source and the finished product.
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The health departments of the individual states also govern water purity
and safety, labeling of bottled water products and manufacturing practices of
producers. The New York State Department of Health has classified the Company's
water as "natural spring water."
The Company believes that its water supply, products and bottling
facilities are in compliance with all applicable state and federal government
regulations.
SEASONALITY
In the beverage industry, sales typically increase in the second and third
calendar quarters due to the seasonal effects of the weather in the eastern
United States. In order to help minimize the impact of seasonality on sales, the
Company has placed considerable emphasis on expanding marketing and distribution
in the southeastern United States, with a concentration in Florida. The Company
has also actively pursued co-packing agreements to bottle spring water for other
companies to smooth the seasonal fluctuations.
RESEARCH AND DEVELOPMENT
During 1996 and 1995, the Company spent less than $10,000 on research and
product development.
PRIOR ALLIANCE WITH TRIARC
On December 13, 1995, the Company consummated a strategic alliance with
Triarc Companies, Inc. ("Triarc"), a publicly-held company listed on the New
York Stock Exchange. The Company and Triarc previously entered into a Credit
Agreement, dated July 13, 1995 that provided for a five-year secured revolving
credit facility (the "Credit Facility") with borrowings of up to $3,000,000.
Pursuant to the Credit Facility, Triarc provided an aggregate principal amount
outstanding at any one time of up to $3,000,000; however, Triarc would not make
any loans during any calendar quarter in excess of $250,000 unless (i) after
giving effect to such loan the aggregate principal amount of all indebtedness
under the Credit Facility would not exceed the borrowing base (as described
below) or (ii) a committee (the "Loan Committee"), comprised of a representative
of each of Triarc, Royal Crown Company ("RCC"), Inc., a wholly-owned subsidiary
of Triarc and the Company determined that loans in excess of $250,000 per
quarter, and in excess of the borrowing base, should be made. The borrowing
base, as of a given date, consisted of (a) 85% of the aggregate amount of
eligible receivables at such date plus (b) 60% of the aggregate value of
eligible inventory at such date; however, the portion of the borrowing base
attributable to eligible inventory may not exceed 60% of the borrowing base (and
would be reduced to the extent that it would otherwise exceed 60%). A condition
precedent to any borrowings under the Credit Facility was that the aggregate
cash and permitted investments held by the Company be less than $100,000
throughout the ten (10) business days immediately preceding the date of any
loan, unless the Loan Committee decided otherwise.
In connection with the Credit Agreement, the Company executed a Security
Agreement and a Mortgage. The Security Agreement granted Triarc a security
interest in substantially all of the assets of the Company, including accounts
receivable, inventory, general intangibles, equipment, documents and
intellectual property of the Company. The Mortgage granted Triarc a first
security mortgage interest in the Company's premises and facilities in Saratoga
Springs, New York (see Item 2, Properties). In addition, the executive officers,
directors and certain shareholders of the Company, as a condition to the
extension of credit under the Credit Facility, executed the lock-up agreements
and a voting agreement.
Borrowings under the Credit Facility bear interest at a rate per annum
equal to the prime rate plus 2% if paid in cash quarterly, or the prime rate
plus 3% if added to the principal balance. The entire principal amount
outstanding under the Credit Facility was due December 12, 2000 and would become
due immediately upon the occurrence of an event of default.
The Credit Agreement contained certain covenants and conditions, which,
among other things, (i) prohibited the payment of dividends; (ii) prohibited
fundamental changes (including certain types of mergers, consolidations,
dispositions, acquisitions, or dissolutions), (iii) required a minimum
consolidated
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tangible net worth of the Company of $1,500,000, less reductions in consolidated
tangible net worth incurred as a result of the Triarc transactions, (iv)
required the maintenance of corporate existence, (v) required compliance with
governmental and regulatory rules and regulations, (vi) required the maintenance
of insurance and (vii) placed limitations on future liens, indebtedness,
investments, transactions with affiliates and the creation of subsidiaries.
As consideration for the execution of the Credit Agreement by Triarc and
the execution of the Sales and Marketing Services Agreement as described below
by RCC, the Company issued two warrants to Triarc: (i) one Non-Callable Warrant
A (the "A Warrant") to purchase a number of shares of Common Stock which would
equal 25% of the total number of shares of Common Stock outstanding on a
fully-diluted basis on the date of exercise, at an exercise price of $.01 per
share, and (ii) one Non-Callable Warrant B (the "B Warrant") to purchase a
number of shares of Common Stock which would equal 26% of the total number of
shares of Common Stock outstanding on a fully-diluted basis on the date of
exercise, at an exercise price of $3.50 per share. The exercise price of the B
Warrant was subject to a reduction from $3.50 per share to $2.46 per share if
the Company sold more than 1,250,000 cases of the Company's branded product
(i.e. "Saratoga" products) during the 12-month period prior to the date of
exercise of the B Warrant. Both Warrants were exercisable in whole, but not in
part, at any time prior to December 12, 2000; however, the B Warrant could not
be exercised prior to the exercise by Triarc of the A Warrant.
SALES AND MARKETING SERVICES AGREEMENT
Effective May 1, 1995, the Company and RCC entered into a five-year Sales
and Marketing Services Agreement, in which the RCC agreed to act as the
Company's sole and exclusive sales agent for the purpose of selling the
Company's products. In connection therewith, RCC agreed to use commercially
reasonable efforts at all times to promote the sale of the Company's products,
including servicing and soliciting retailers, wholesalers, distributors, and
national accounts, and to provide advice and assistance relating to the
marketing of the Company's products, including advice regarding branding,
packaging and positioning for the products, design of trade promotions and
advertising, public relations, and the establishment of relationships with
distributors and the pricing of products to distributors. RCC was required to
stay informed of the conditions in the markets for the Company's products
including, in particular, pricing, trade statistics and demand forecasting by
product and package and to provide such data to the Chief Executive Officer and
Board of Directors (or duly appointed committee thereof) of the Company on a
monthly basis. In addition, RCC provided consulting services with respect to
financial and operational issues. In return for such services, the Company
agreed to pay RCC a commission of $.50 per case of products sold by the Company.
For the years ended December 31, 1996 and 1995, the Company paid RCC $195,200
and $108,400, respectively in commissions related to the Sales and Marketing
Services Agreement. Effective December 1, 1996, the Sales and Marketing Services
Agreement was terminated.
On January 31, 1997, the Company and Triarc entered into a Termination
Agreement whereas, the Credit Agreement, the Security Agreement and the Mortgage
were terminated and all the collateral securing the Credit Facility was
released. In connection with the Termination Agreement, the voting agreement and
each of the lockup agreements were terminated.
As part of the Termination Agreement, the Company paid the $300,000
outstanding balance on the Credit Facility and Triarc acquired 300,000 shares of
the Company's A common stock, $.01 par value, upon partial exercise of the A
Warrant for an aggregate of $3,000. The remainder of the A Warrant and the
entire B Warrant were canceled. The unamortized balance in deferred financing
costs of $68,126, associated with the Credit Agreement, was written off in
December 1996, after the Company determined that it had no future value.
CURRENT BUSINESS COMBINATION DISCUSSIONS
On February 25, 1997, the Company announced it has entered into
discussions concerning a possible business combination and/or merger with HYPE
Beverage Corporation, a privately-held Canadian company which produces a unique
line of vitamin-enhanced energy drinks. The discussions are continuing, but no
agreement has been reached with HYPE Beverage Corporation as of April 9, 1997.
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There can be no assurance that a business combination and/or merger with HYPE
Beverage Corporation or other entity will occur on terms acceptable to the
Company or at all.
EMPLOYEES
As of April 9,1997, the Company's headquarters and bottling operations had
1 part-time and 14 full-time employees, including 9 production, 6 executive,
sales and administrative employees.
None of the Company's employees are represented by a labor organization,
and the Company considers its relationship with its employees to be
satisfactory.
ITEM 2. PROPERTIES
The Company's source springs are located on 48 acres in Saratoga Springs,
New York. The Company's bottling facility and office space are also located
there, enabling it to bottle its carbonated and non-carbonated water products at
the source. The facility is owned by the Company and was subject to a $3,000,000
mortgage on all of the real and personal property of the Company issued in favor
of Triarc (see Item 1, Business, Termination Agreement). The property consists
of an approximately 40,000 sq. ft. building which has been substantially rebuilt
since 1985. The existing bottling equipment is also owned by the Company. The
carbonated bottling line was installed in 1985 and the PET bottling line was
installed in 1994. The Company believes that its insurance policies provide
adequate coverage on its facilities and equipment. The facilities are in
adequate condition for their intended use.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There was no submission of matters to a vote of security holders.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Class A Common Stock is traded on the NASDAQ Small Cap Market under
the symbol TOGA. The following tables lists the high and low market prices for
these shares for each quarter during which Class A Common Stock was traded for
the years 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
---- ----
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
1st Quarter 2 1/4 1 3/8 5 7/8 2 7/8
2nd Quarter 3 1/2 1 5/16 5 1/4 2 1/2
3rd Quarter 2 1/2 1 1/8 4 1/4 2 3/8
4th Quarter 1 7/8 7/8 2 5/8 1 1/4
</TABLE>
As of April 9, 1997, the approximate number of common shareholders of record
was 1,328.
Since its inception in April 1992, the Company has not paid any cash
dividends on its capital stock. The Company anticipates that its future
earnings, if any, will be retained for use in the business or for other
corporate purposes, and it is not anticipated that any cash dividends on the
Common Stock will be paid in the foreseeable future.
ITEM 6. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BACKGROUND
The Company was formed in April 1992 in connection with the acquisition of
assets from Evian Waters of France. Results of operations data are presented for
the years ended December 31, 1996 and 1995. The Company's fiscal year ends on
December 31.
RESULTS OF OPERATIONS
The following selected financial data of the Company has been derived from
the financial statements and notes thereto of the Company, which are included in
this Form 10-KSB.
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Statement of Operations Data:
Total revenue $ 4,374,825 $ 3,265,314
Net loss (147,459) (923,430)
Net loss per share (.06) (.35)
Weighted average number of
common shares outstanding (1) 2,626,651 2,626,179
</TABLE>
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<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Percentage of Total Revenue:
Total revenue 100% 100%
Cost of goods sold
63 73
----------- -----------
Gross profit 37 27
Operating expenses
Marketing and sales 11 18
General and administrative 21 31
Depreciation and amortization 10 11
----------- -----------
Operating loss (5) (33)
Other Income, net 2 4
----------- -----------
Net loss (3%) (27%)
=========== ===========
Balance Sheet Data:
Working capital $ 386,670 $ 255,298
Total assets 2,629,888 2,990,376
Total indebtedness (2) 313,750 150,992
Accumulated deficit (7,267,217) (7,119,758)
Total stockholders' equity 2,014,471 2,176,389
</TABLE>
- ----------------
(1) Excludes the Escrowed Shares discussed in Note 13 of financial statements.
(2) Includes obligations under capitalized lease in 1996. See Note 7 of
financial statements.
REVENUES
Net sales in 1996 increased 34% to $4,374,825, an increase of $1,109,511
from net sales of $3,265,314 in 1995. The increase is primarily attributable to
(i) an increase in co-pack revenue of 154% or $643,073 and (ii) an increase in
branded product sales of 16% or $466,438 in 1996. Co-pack revenue was $1,060,059
in 1996 as compared with $416,986 in 1995. Branded Product sales were $3,314,766
in 1996 as compared with $2,848,328 in 1995.
GROSS PROFIT MARGINS
Gross profit increased 87% to $1,625,704 in 1996 from $869,850 in 1995.
The increase in gross profit dollars is primarily attributable an increase in
net sales in 1996 over 1995. The gross profit percentage increased ten
percentage points from 27% in 1995 to 37% in 1996. The increase in the gross
profit percentage in 1996 Is primarily due to a decrease in fixed costs per case
attributable to the increase in the volume of cases produced during the year.
MARKETING AND SALES EXPENSES
Marketing and selling expenses decreased 19% to $489,701 in 1996 from
$601,887 in 1995. As a percentage of net sales, marketing and selling expenses
decreased to 11% in 1996 from 18% in 1995. The $112,186 decrease in marketing
and selling expenses is primarily attributable to the execution of the Sales and
Marketing Services Agreement (see item 1, Business) which was in place for six
months in 1995 and a full year in 1996. The Agreement required the Company to
pay RCC $.50 for each case of branded product sold. Prior to this Agreement, the
Company had its own sales force. The Sales and Marketing Services Agreement was
terminated effective December 1, 1996.
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GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses decreased 9% to $906,885 in 1996 from
$992,138 in 1995. As a percentage of net sales, general and administrative
expenses decreased to 21% in 1996 from 30% in 1995. The Company's general and
administrative expenses are comprised primarily of fixed costs and, as net sales
increase, these expenses generally remain constant; however, they decrease as a
percentage of net sales. The decrease of $85,253 in general and administrative
expenses reported by the Company in 1996 is primarily attributable to overall
cost-cutting measures with decreases in telephone, travel and entertainment,
professional fees, legal fees and certain insurance costs.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased 31% to $442,143 in 1996 from
$338,714 in 1995. As a percentage of net sales, depreciation and amortization
remained at 10%. The increase of $103,429 in depreciation and amortization in
1996 is primarily attributable to (I) the $85,158 write-off of deferred
financing costs, of which $68,126 was written off in the fourth quarter of 1996,
associated with the Termination Agreement (Item 1, Business, Triarc Alliance)
and an increase in depreciation of $18,271.
OTHER INCOME / EXPENSE
Other income / expense, net, decreased 53% in 1996 to $65,566 from
$139,459 in 1995. The $73,893 decrease is primarily due to a 38% decrease in
commission income of $45,706, a decrease in interest income of $16,246, an
increase in interest expense of $13,559 and a decrease of $1,618 in loss on
disposal of equipment, in 1996 as compared with 1995. The decrease of $45,706 in
commission income is primarily due to the $.50 decrease per case commission for
each case sold after February 1996 in accordance with the Mistic Distribution
Agreement signed by Sample in 1995. The decrease of $16,246 in interest income
is due to the decline in cash available for investment. The $13,559 increase in
interest expense was the result of the $300,000 borrowing under the Credit
Facility partially offset by the elimination of the $91,000 principal balance on
a term loan.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996, the Company's working capital was $386,670,
including cash and cash equivalents of $387,938, as compared to working capital
of $255,298 and cash and cash equivalents of $352,797 at December 31, 1995. The
current ratio at December 31, 1996 was 1.6 to 1 as compared to 1.3 to 1 at
December 31, 1995. The $35,141 increase in cash and cash equivalents is
attributable to (i) net cash provided by operations of $71,771, (ii) net cash
used for investing activities of $137,915, and (iii) net cash provided by
financing activities of $101,285.
The Company's debt-to-equity ratio at December 31, 1996 was .37%. Debt
includes the $7,455, long-term portion of obligation under capital lease for
certain equipment. Current liabilities include accounts payable and accruals of
$301,667, $6,295, short-term portion of obligation under capital lease and
$300,000 on the Credit Facility that was completely paid on January 31, 1997;
accordingly, the entire $300,000 balance under the Credit Facility was
classified as a current liability. As of December 31, 1996, the Company had a
$3,000,000 line of credit with Triarc, of which $300,000 was outstanding.
On January 31, 1997, the Company and Triarc entered into a Termination
Agreement whereby the Credit Agreement was terminated and as such, the Credit
Facility was terminated and the $300,000 outstanding principal balance was
repaid (see Item 1, Business).
The Company anticipates upgrading of their bottling lines in 1997 and
the construction of a facility addition. The estimated cost of the project is
$1,500,000. The project has been approved by the Saratoga County Industrial
Development Agency which will enable the Company to obtain tax-exempt financing.
However, the borrowing has not yet been approved by a financial institution.
10
<PAGE> 11
In addition to the $300,000 payment, made on January 31, 1997, to repay
the outstanding balance of the Credit Facility, and the planned upgrade of the
facility and equipment, the Company has no other significant commitments or
known contingencies that are expected to require sizable cash outlays in 1997.
While the Company will continue to incur costs to develop and introduce new
products, it will strive to limit such costs by (i) using innovative, cost
effective targeted marketing techniques and (ii) negotiating contingent
compensation packages, when practical, for outside professionals involved in new
product activities.
The Company believes that its efforts to reduce operating losses will
generate positive cash flows; this supplemented with the $250,000 line of credit
supplied by the president and a principal shareholder (note 8 of the
Consolidated Financial Statements), will be adequate to meet its operating needs
over the next twelve months.
ACCOUNTING STANDARDS
Effective December 31, 1997, the Company will be required to implement
Financial Accounting Standard No. 128 (FAS 128) "Earnings Per Share". FAS 128
replaces the presentation of primarily earning per share (EPS) with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement and requires a reconciliation of
the numerator and denominator of the basic EPS computation to the numerator and
denominator and denominator of the diluted EPS computation. Management has not
yet made a determination of the impact, if any, that the adoption of this
standard would have on the consolidated financial statements.
SUBSEQUENT EVENTS
On January 31, 1997 the Company and Triarc entered into a Termination
Agreement whereby, the Credit Agreement, the Security Agreement and the Mortgage
were terminated, and the collateral securing the Credit Facility was released.
In connection with the Termination Agreement, the Voting Agreement, and each of
the Lockup Agreements were terminated. The Sales and Marketing Agreement was
terminated, effective December 1, 1996, by a letter dated January 9, 1997.
As part of the Termination Agreement, the Company paid the $300,000
balance outstanding on the Credit Facility and Triarc acquired 300,000 shares of
the Company's A common stock upon partial exercise of the A Warrant for an
aggregate of $3,000. The remainder of the A Warrant and the entire B Warrant
were canceled.
On February 25, 1997 the Company announced it has entered into discussions
concerning a possible business combination and/or merger with HYPE Beverage
Corporation, a privately-held Canadian company which produces a unique line of
vitamin-enriched energy drinks. The discussions are continuing but no agreement
has been reached with HYPE Beverage Corporation as of April 9, 1997. There can
be no assurance that a business combination and/or merger with HYPE Beverage
Corporation or another entity will occur on terms acceptable to the Company, or
at all.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 13.
ITEM 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
11
<PAGE> 12
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Directors, executive officers and key employees of the Company are as
follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Robin Prever (1)(3) 36 President, Chief Executive Officer and Director
Adam Madkour 45 Chief Operating Officer
Anthony Principe 45 Chief Financial Officer
Peter R. Campbell (1)(2) 59 Chairman of the Board
Warren Lichtenstein (3) 31 Director
Alan G. Leyland (4) 58 Director
John A. Morabito (1)(3) 37 Director
Kenneth A. Thomas (4) 43 Director
Leonard Toboroff (1)(2) 64 Director
</TABLE>
- ------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Stock Option Committee.
(4) In connection with the Termination Agreement, Mr. Alan Leyland and Mr.
Kenneth Thomas resigned as directors effective January 31, 1997.
Ms. Prever has been the president, chief executive officer and a
director of the Company since its inception in April 1992. She was the
secretary of the Company from its inception until April 1993. Ms. Prever was
a vice president of Gabelli Asset Management Company ("GAMCO"), an investment
advisory firm, where she was employed from 1986 to 1993. Ms. Prever is an
attorney and has been a member of the bar in the State of Florida since 1985.
Mr. Madkour has been the chief operating officer of the Company since
September 1993. Mr. Madkour was general manager of manufacturing for the Deer
Park Division of Clorox Inc. since 1987, and is an electrical engineer.
Mr. Principe has been the chief financial officer of the Company since
August 1995. Mr. Principe, who is a New York State Certified Public
Accountant, has worked as chief financial officer in the medical device
manufacturing industry. He gained his required certification experience with
KPMG Peat Marwick.
On November 6, 1996, Mr. Campbell was elected Chairman of the Board of the
Company. Mr. Campbell has been a director of the Company since the completion of
the Company's public offering in June 1993. He is president of a consulting
firm, Campbell Resources, in Phoenix, Arizona. Prior to this, he was senior vice
president and managing director for the Corporate Finance Department of Rauscher
Pierce Refsnes, Inc., Phoenix, Arizona, since September 1993. From 1986 to 1993,
he was vice president of mergers and acquisitions for First Albany Corporation.
Mr. Leyland is president of Tribev. From 1993 through 1996, he served RCC
in various senior executive capacities. Prior to joining RCC, Mr. Leyland was
president and owner of C.A.C., Inc., a firm providing consulting services for
clients in the soft drink business. Prior thereto, Mr. Leyland was president of
Lakelands Beverages, Inc., a Canadian soft drink bottler. On January 31, 1997,
in connection with the Termination Agreement, Mr. Leyland resigned from the
Board of Directors.
Mr. Lichtenstein has been a director of the Company since June 29, 1994.
Mr. Lichtenstein has been with Steel Partners since 1990. Prior thereto, he
was with Ballantrae, a private investment firm, for two years. Mr.
Lichtenstein serves as a director of SL Industries, Inc., Synercom Technology
Inc. and Gateway Communications, Inc.
12
<PAGE> 13
Mr. Morabito has been a director of the Company since June 1993, Mr.
Morabito has been the director of sales development for United Distillers
Glenmore, Inc. since 1989. From 1986 through 1989, he was a regional manager for
Brown-Foreman Beverage Company and from 1983 through 1986 he was a regional
manager for Joseph Victori Wine Company. Prior to that time, Mr. Morabito was
employed by each of Foreman Brothers Incorporated and D. Bertoline and Sons as
a sales representative.
Mr. Thomas has been the senior vice president and chief financial officer
of RCC since June 1993. Prior thereto, Mr. Thomas was vice president-finance of
Cadbury Beverages, North America. On January 31, 1997, in connection with the
Termination Agreement, Mr. Thomas resigned from the Board of Directors.
Mr. Toboroff has been a director of the Company since June 1993 and was
elected Chairman of the Board of Company on December 12, 1995. He resigned as
Chairman effective November 6, 1996. He has been vice president and vice
chairman of the board of Allis-Chalmers Corp. since May 1988. Mr. Toboroff has
been a practicing attorney since 1961 and from January 1, 1988 to December 31,
1990 was counsel to Summit Solomon & Feldesman in New York City. He has been a
director of Ameriscribe, Inc. since August 1987 and was the chairman and chief
executive officer thereof from December 1987 to May 1988. Mr. Toboroff was a
director from May 1982 through September 1988, chairman and chief executive
officer in June 1982 and vice chairman from June 1982 through September 1988 of
American Bakeries Company. Mr. Toboroff is also an executive vice president and
a director of Riddell Sports, Inc. Mr. Toboroff is a director of Banner
Industries and Engex Corporation.
All directors of the Company hold office until the next annual meeting of
stockholders, currently scheduled for June 1997, or until their successors are
elected and qualify. All non-employee directors receive $500 per meeting
attended as cash compensation for their services to the Company as directors,
and are reimbursed for reasonable expenses incurred in connection with attending
meetings of the Board of Directors. In addition, Mr. Toboroff received $2,000
per month compensation for his services as Chairman of the Board that ended
November 6, 1996. Directors who are not officers of the Company are also
entitled to participate in the Stock Option Plan. At the date of the public
offering, the Company granted to each of the directors and nominees for
directors of the Company options to purchase 2,000 shares of Class A Common
Stock at a per share price equal to the initial public offering price of the
Class A Common Stock and an additional 2,000 shares on the date of each Annual
Meeting of the Company's stockholders. (see Item 10, Executive Compensation,
Stock Option Plan.) Executive officers hold office until their successors are
chosen and qualify, subject to earlier removal by the Board of Directors.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued for such
services rendered during such period by the chief executive officer. No
other executive officer of the Company had aggregate compensation from the
Company exceeding $100,000 in 1996.
<TABLE>
<CAPTION>
Annual Compensation Payouts
------------------- ---------------------
Position Year Salary Options - # of shares
-------- ---- ------ ---------------------
<S> <C> <C> <C>
Robin Prever, President 1996 $125,000
and Chief Executive Officer 1995 $108,173 15,000 (1)
1994 $ 79,125
</TABLE>
(1) Represents compensation for a voluntary salary reduction in 1994.
- ------------------
13
<PAGE> 14
EMPLOYMENT AGREEMENTS
On June 15, 1993, the Company entered into an employment agreement with
Robin Prever (the "Prever Agreement"), the president and chief executive officer
of the Company. The Prever Agreement has a term of three years and provides for
an annual salary of $125,000 and such bonuses as may be awarded from time to
time by the Board of Directors, with a minimum bonus each year equal to 5% of
the Company's pre-tax profit. After the initial three-year period, the agreement
will automatically renew unless notice is given, 90 days in advance of the
expiration date, by either party. Accordingly, the agreement has been extended
through June 15, 1998. The Board of Directors may increase such salary from time
to time. The Prever Agreement provides for a severance payment equal to the full
amount of Ms. Prever's base salary and bonus (based upon the average of prior
bonuses actually paid) through the term of the agreement in the event that
either (i) Ms. Prever is terminated by the Company other than for "Cause" (as
defined in the Prever Agreement) or (ii) Ms. Prever terminates her employment
for "Good Reason" (as so defined). No options were granted to or exercised by
Ms. Prever during 1996.
The following table sets forth information with respect to Robin Prever
concerning the unexercised options held as of the end of the last fiscal year.
Robin Prever did not exercise options during the Corporation's fiscal year ended
December 31, 1996.
FISCAL YEAR-ENDED OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS AT
AT DECEMBER 31, 1996 DECEMBER 31, 1996
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Name Exercisable Unexercisable Exercisable Unexercisable
Robin Prever 190,000 25,000 -- --
</TABLE>
(1) The closing bid price of the Class A Common Stock on the Nasdaq SmallCap
Market on December 31, 1996 was $0.9375.
STOCK OPTION PLAN
In June 1993, the Board of Directors of the Company approved the adoption
of the Saratoga Spring Water Company 1993 Stock Option Plan (the "Stock Option
Plan"). The Stock Option Plan provided for the issuance of options covering up
to 466,000 shares of Class A Common Stock (subject to adjustments in the event
of stock splits, stock dividends and similar dilutive events) and Stock
Appreciation Rights in tandem with options. Generally, Stock Appreciation Rights
will be subject to the same terms and conditions as options. Options may be
granted under the Stock Option Plan to employees, officers or directors of, and
consultants and advisors to, the Company.
On December 12, 1995 the shareholders of the Company approved an
amendment to the Company's 1993 Stock Option Plan increasing the number of
shares available for issuance from 466,000 to 616,000.
Options granted to employees may either be incentive stock options (as
defined in the Internal Revenue Code of 1986, as amended) or non qualified stock
options. The purchase price of the Class A Common Stock made subject to an
option shall be determined by the Compensation Committee at the time of grant,
provided that the purchase price of incentive stock options may not be less than
the fair market value of the Company's Class A Common Stock on the date of
grant. Subject to the foregoing, the terms of each option and the increments in
which it is exercisable are determined by the Compensation Committee, provided
that no option may be exercised after ten years and one day from the date of
grant (ten years in the case of an incentive stock option) and provided further
that the Contingent Options
14
<PAGE> 15
granted to Ms. Prever and Mr. Anthony Malatino (as described below) will not
become exercisable unless and until the Company achieves certain pre-determined
earnings or market price targets. To the extent that the aggregate fair market
value, as of the date of grant, of the shares for which incentive stock options
become exercisable for the first time by an optionee during any calendar year
exceeds $100,000, the portion of such option which is in excess of the $100,000
limitation will be treated as a non qualified stock option. In addition, if an
optionee owns more than 10% of the total voting power of all classes of the
Company's stock at the time the individual is granted an incentive stock option,
the purchase price per share cannot be less than 110% of the fair market value
on the date of grant and the term of the incentive stock option cannot exceed
five years from the date of grant.
Furthermore, under the Stock Option Plan, directors who are not also
employees of the Company receive an Option ("Initial Option") to purchase 2,000
shares of Class A Common Stock upon their initial election to the Board of
Directors, exercisable at the fair market value on the date of grant. On June
23, 1993, each person who was then a non-employee director received 2,000
options ("IPO Options"), at an exercise price of $5.00 per share. These options
are exercisable as to 33 1/3% of the shares subject thereto on the date of
grant, and as to 33 1/3% on each of the following two anniversaries of such date
of grant. In addition, on the date of each annual meeting of stockholders held
subsequent to January 1, 1994, each qualified director will automatically
receive options ("Annual Options") to purchase 2,000 shares of Class A Common
Stock exercisable 50% per year over a period of two years beginning on the date
of grant, at the fair market value of the Class A Common Stock on the date of
grant.
Generally, options granted to directors under the Stock Option Plan will
terminate three months after the date of the director's termination, resignation
or retirement from the Board of Directors of the Company, but in no event after
the option has expired by its terms. If any option granted under the Stock
Option Plan should expire or become unexercisable for any reason without having
been exercised in full, the unpurchased shares will become available for further
grant under the Stock Option Plan.
Effective June 25, 1993, the Company granted options (the "Contingent
Options") to purchase 100,000 shares of Class A Common Stock to each of Ms.
Prever and Mr. Malatino at an exercise price per share equal to $1.00. The
Contingent Options will become exercisable upon attainment by the Company of the
same earnings or market price targets applicable to the Escrowed Shares. (See
Item 11, Security Ownership of Certain Beneficial Owners and Management,
Escrowed Shares.) In connection with the execution of the Credit Agreement on
December 12, 1995, Mr. Malatino and Ms. Prever each agreed to cancel contingent
options to purchase 75,000 shares of common stock. These options expire April
30,1997.
Also effective June 25, 1993, the Company granted Ms. Prever options to
purchase an aggregate of 50,000 shares of Class A Common Stock at an exercise
price per share equal to the initial public offering price of $5.00, of which
50% were exercisable immediately and 50% became exercisable on June 25, 1994,
the first anniversary of the consummation of the Offering. Also on June 25,
1993, the Company issued options to Ms. Prever to purchase an aggregate of
100,000 shares of Class A Common Stock, 50% of which became exercisable at $7.50
per share on June 25, 1995, and 50% of which became exercisable at $10.00 per
share on June 25, 1996. The Company also granted Mr. Malatino options to
purchase an aggregate of 25,000 shares of Class A Common Stock at $5.00 per
share on June 25, 1993, which were exercisable immediately.
On June 23, 1993, the Company entered into a consulting agreement with Mr.
Toboroff, a director of the Company. Pursuant to the consulting agreement, Mr.
Toboroff rendered management consulting and business development services to the
Company for a period of three years. In lieu of cash compensation for these
services, Mr. Toboroff has been granted options to purchase an aggregate of
50,000 shares of Class A Common Stock at a per share price of $5.00, the initial
public offering price, reduced to $3.50 per share in 1995. Twenty-five percent
(25%) of such options became exercisable on December 31, 1993, with the
remaining options exercisable in equal amounts on June 25, 1994, June 25, 1995
and June 25, 1996.
During 1996, 66,505 stock options were granted, none were exercised, and
1,500 were canceled. The Company does not grant stock appreciation rights.
15
<PAGE> 16
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 9, 1997, certain information with
respect to the beneficial ownership of the Common Stock by (i) each director and
nominee for director of the Company, (ii) each person named in the compensation
table, (iii) all persons known by the Company to be the beneficial owner of more
than 5% of the outstanding shares of the Company's voting securities and (iv)
all officers, directors and nominees for directors of the Company as a group.
<TABLE>
<CAPTION>
Number of
Shares
of Common
Stock Percentage Beneficially Owned
Name and Stock Beneficially -----------------------------
Address of Owned Of Shares Of Voting
Beneficial Owner At April 9,1997 (1) (1)(2)(3) Power(2)(3)(4)
- ---------------- ------------------- --------- --------------
<S> <C> <C> <C>
Anthony Malatino (8) 987,102 (11) 30.6% 62.2%
Robin Prever (5) 987,102 (11) 30.6% 62.2%
Adam Madkour (5) 14,334(14) * *
Anthony Principe (5) 1,692(16) * *
Warren Lichtenstein (7) 5,000(15) * *
John Morabito (9) 7,000(12) * *
Peter R. Campbell (6) 7,000(12) * *
Leonard Toboroff (10) 71,000(13) * *
All officers and
directors as a group
(7 persons) 1,093,128 32.8% 62.8%
</TABLE>
- -----------------
* Less than 1%.
(1) Each holder of Class B Common Stock has placed 7.69% of his or her shares
in escrow and may vote, but not dispose of, any of such shares during the
term of the escrow agreement. See--"Escrowed Shares."
(2) Based upon 2,180,799 shares of Class A Common Stock and 857,961 shares of
Class B Common Stock, including the Escrowed Shares, outstanding at April
9,1997. See "Escrowed Shares."
(3) The Information presented with respect to stock ownership and related
percentage information is based on Common Stock as a percentage of the
aggregate number of shares of Common Stock outstanding, treating the Class
A Common Stock and the Class B Common Stock as a single class. The number
of shares of Class A Common Stock outstanding does not include (i) 120,000
shares issuable upon exercise of warrants issued to the Underwriter in
connection with the Offering , (ii) an aggregate of 591,990 shares issuable
upon exercise of certain outstanding stock options or reserved for issuance
pursuant to the Company's Stock Option Plan, including the Contingent
Options to purchase an aggregate of 50,000 shares which options will become
exercisable upon attainment by the Company of certain pre-determined
earnings or market price targets. See "Management--Stock Option Plan" and
"Underwriting."
(4) The Class A Common Stock and the Class B Stock are identical, except that
the holders of the Class A Common Stock are entitled to one vote per share,
whereas the holders of the Class B Common Stock are entitled to five votes
per share on all matters submitted for stockholder vote. See "Description
of Securities--Class A Common Stock and Class B Common Stock."
16
<PAGE> 17
(5) The business address of each of Messrs. Madkour, Principe, and Ms. Prever
is c/o Saratoga Beverage Group, Inc., 11 Geyser Road, Saratoga Springs, New
York 12866.
(6) The business address of Mr. Campbell is c/o Campbell Resources, 5207 N.
24th Street, Phoenix, AZ 85016
(7) The business address of Mr. Lichtenstein is c/o Steel Partners, 750
Lexington Avenue, New York, NY 10022.
(8) The business address of Mr. Malatino is c/o Dean Witter Reynolds, One Key
Corp Plaza, Albany, NY 12207.
(9) The business address of Mr. Morabito is 1937 Fields Pond Drive, Marietta,
GA 30068.
(10) The business address of Mr. Toboroff is c/o Riddell Sports, 900 Third
Avenue, New York, NY 10022.
(11) Mr. Malatino and Ms. Prever are parties to an agreement wherein they have
each agreed to vote for each other's nominee to the Board of Directors of
the Company and will vote their shares of capital stock together on all
matters submitted to a stockholder vote. They have also granted to each
other the right to vote the other's shares of capital stock of the Company
under certain circumstances. Mr. Malatino and Ms. Prever have granted to
each other, under certain circumstances, a right of first refusal to
purchase his or her shares of capital stock of the Company. See
"--Stockholder Agreement." Mr. Malatino disclaims beneficial ownership of
Ms. Prever's 184,373 shares, and Ms. Prever disclaims beneficial ownership
of Mr. Malatino's 600,729 shares of Class B Common Stock. The number of
shares (I) includes 10,000 shares of Class A Common Stock owned by Mr.
Malatino (ii) includes 192,000 shares of Class A Common Stock issuable upon
exercise of certain options held by Mr. Malatino and Ms. Prever that are
exercisable currently or within 60 days and (iii) excludes 50,000 shares of
Class A Common Stock issuable upon exercise of certain options held by Mr.
Malatino and Ms. Prever that will not be exercisable within 60 days,
including the Contingent Options. See "Management--Stock Option Plan."
(12) Includes 7,000 shares of Class A Common Stock issuable upon exercise of
certain options that are exercisable within 60 days and excludes 1,000
shares issuable upon options that are not exercisable within 60 days.
(13) Includes 67,000 shares of Class A Common Stock issuable upon exercise of
certain options that are exercisable within 60 days and excludes 1,000
shares issuable upon options that are not exercisable within 60 days.
(14) Includes 14,334 shares of Class Common Stock issuable upon exercise of
certain options that are exercisable within 60 days and excludes 6,666
shares issuable upon options that are not exercisable within 60 days.
(15) Includes 5,000 shares of Class A Common Stock issuable upon exercise of
certain options that are exercisable within 60 days and excludes 1,000
shares issuable upon options that are not exercisable within 60 days.
(16) Includes 1,667 shares of Class A Common Stock issuable upon exercise of
certain options that are exercisable within 60 days and excludes 3,333
shares issuable upon options that are not exercisable within 60 days
STOCKHOLDER AGREEMENT; VOTING AGREEMENT
Anthony Malatino, the chairman of the board of the Company until December
12, 1995, and Robin Prever, the president, chief executive officer and a
director of the Company, are parties to a voting trust agreement, dated August
17, 1992, as amended in April 1993 (the "Stockholder Agreement"), wherein until
May 1, 1998, Mr. Malatino and Ms. Prever have agreed to vote for the other's
nominee to the Board of Directors of the Company and to vote their shares of
capital stock of the Company together on all matters
17
<PAGE> 18
submitted to a stockholder vote. In the event Mr. Malatino and Ms. Prever do not
agree on their vote, the Stockholder Agreement provides that the aggregate
shares of capital stock of the Company held by them will be voted in proportion
to the other shares of voting stock of the Company that have been voted.
Pursuant to the Stockholder Agreement, Mr. Malatino and Ms. Prever have also
each been granted the right to vote the other's shares of stock of the Company
in the event that he or she becomes permanently disabled or dies. Each of Mr.
Malatino and Ms. Prever has granted to the other, under certain circumstances, a
right of first refusal to purchase his or her shares of capital stock of the
Company.
Mr. Malatino and Ms. Prever own, in the aggregate, approximately 92% of
the outstanding shares of Class B Common Stock. Any shares of Class A Common
Stock issued to Mr. Malatino or Ms. Prever upon exercise of any outstanding
options will become subject to the terms of the Stockholder Agreement. See
"Management--Stock Option Plan."
ESCROWED SHARES
Of the 1,036,036 shares of Class B Common Stock outstanding at December
31, 1996, 100,000 shares (the "Escrowed Shares") are deposited in escrow until
such time, if ever, as the Escrowed Shares are released from escrow in
accordance with terms of the escrow agreement. Each holder of Class B Common
Stock has contributed pro rata to the number of Escrowed Shares. The Escrowed
Shares are not assignable or transferable, but may be voted, until such time, if
ever, as they are released from escrow. A stockholder's rights to his or her
shares of Class B Common Stock in escrow are not affected by any change in his
or her status as an employee, officer or director of, or his or her relationship
with, the Company, and, in the event of such stockholder's death, the terms of
the escrow agreement will be binding on such stockholder's executor,
administrator, estate and legatees. Upon release, if ever, the Escrowed Shares
shall be returned to the Class B Common Stockholders in the same proportion in
which such shares were originally contributed. All Escrowed Shares remaining in
escrow on April 30, 1997 will be forfeited and then canceled and contributed to
the Company's capital. The arrangement relating to the Escrowed Shares was
required by the underwriter as a condition to the June 1993 Public Offering.
The Escrowed Shares will be released from escrow if and only if (i) the
Company's Minimum Pretax Income (as defined below) is at least $2.8 million for
the fiscal year ending December 31, 1994; (ii) the Minimum Pretax Income is at
least $3.6 million for the fiscal year ending December 31, 1995; or (iii) the
Minimum Pretax Income is at least $4.2 million for the fiscal year ending
December 31, 1996. The Escrowed Shares will also be released if, during the
period commencing December 24, 1994 and ending June 24, 1996, the closing bid
price of the Class A Common Stock shall, for a period of 30 consecutive business
days, average in excess of $25.00 (subject to adjustment in the event of any
stock split, dividend or distribution, reverse stock split or other similar
event). It is unlikely that the escrowed shares will be released.
"Minimum Pretax Income" means for any fiscal year the Company's net
income before provision for income taxes and exclusive of any extraordinary
earnings or charges to income, if any, resulting from the release of the
Escrowed Shares, all as audited and determined by the Company's independent
public accountants.
In the event any of the Escrowed Shares are released to officers and
other employees of the Company, such release will result, for financial
reporting purposes, in compensation expense to the Company. In the event the
Company attains any of the pre-determined earnings or market price targets (or
such events become probable), the difference between the fair market value of
the Escrowed Shares at the time they were placed in escrow and the time they are
released will be deemed to be additional compensation expense to the Company.
Accordingly, the Company will recognize during the period in which the earnings
or market price targets are met (or such events become probable), what could be
a significant one-time charge to income, which could reduce or eliminate
earnings, if any, or increase the Company's loss during such period. The amount
of compensation expense recognized by the Company will not affect the Company's
total stockholders' equity. However, it is not likely that these escrow shares
will be released.
18
<PAGE> 19
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At December 31, 1996, the Company's cash and cash equivalent balance
includes approximately $231,000 of cash equivalents invested in a money market
account with Dean Witter Reynolds, Inc. Anthony Malatino, chairman of the Board
of Directors until December 12, 1995 and principal stockholder of the Company,
is an officer of Dean Witter Reynolds, Inc.
The Company agreed to compensate Peter Campbell $1,667 per month for his
services as Chairman of the Board for one year commencing July 1996.
The Company's president and a major shareholder have supplied the Company
with a $250,000 line-of-credit for a one year period or until such time as the
Company obtains a line-of-credit from a bank. (See note 8 to the Consolidated
Financial Statements)
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. Financial Statements: See Index To Financial Statements
2. Exhibits included herein:
a) Exhibits and Index
Exhibit No.
2.1* (P) Agreement and Plan of Merger
3.1* (P) Restated Certificate of Incorporation of the Company
3.2* (P) By-Laws of the Company
4.1* (P) Specimen of Class A Common Stock Certificate
4.2*** (P) Non-Callable Warrant A dated December 13, 1995 by the Company to
Triarc to purchase 25% of the number of shares of Class A Common
Stock of Saratoga then issued and outstanding, on a fully-diluted
basis
4.3*** (P) Non-Callable Warrant B dated December 13, 1995 by the Company to
Triarc to purchase 26% of the number of shares of Class A Common
Stock of Saratoga then issued and outstanding on a fully-diluted
basis
4.4* (P) Form of Underwriter's Warrant
4.5* (P) Form of Escrow Agreement entered into by the current stockholders
of the Company and the Underwriter
9.1* (P) Agreement, dated August 12, 1992, by and between Anthony Malatino
and Robin Prever, as amended by Amendment No. 1 thereto dated as
of April 30, 1993
10.1* (P) Asset Purchase Agreement, dated as of March 31, 1992, by and
between Saratoga Springs Mineral Water Company and Mineral
Springs Acquisition Group, Inc.
10.2* (P) General Assignment and Bill of Sale, dated April 3, 1992, by
Saratoga Springs Mineral Water Company to Mineral Springs
Acquisition Group, Inc.
10.3* (P) Assignment and Assumption Agreement, dated April 3, 1992, by and
between Saratoga Springs Mineral Water Company and Mineral
Springs Acquisition Group, Inc.
10.4* (P) Assignment, dated April 3, 1992, by Saratoga Springs Mineral
Water Company to Mineral Springs Acquisition Group, Inc.
10.5* (P) Assignment, dated April 3, 1992, by Saratoga Springs Mineral
Water Company to Mineral Springs Acquisition Group, Inc.
10.6* (P) Letter Agreement, dated as of May 1, 1993, by and between the
Company and Mark Wiggins.
19
<PAGE> 20
10.7**+ (P) Employment Agreement, entered into by the Registrant and Robin
Prever
10.8* (P) Form of the Saratoga Spring Water Company 1993 Stock Option Plan
10.9**+ (P) Consulting Agreement entered into by the Company and Leonard
Toboroff
10.10* (P) Form of consulting agreement entered into by the Company and the
Underwriter
10.11* (P) Note, dated August 31, 1992, from the Company to Fleet Bank of
New York, including guarantees
10.12* (P) Letter from Fleet Bank of New York to the Company regarding
waiver of defaults
10.13* (P) Letter Agreement between the Company and Owens-Brockway Glass
Containers
10.14* (P) Form of Mergers and Acquisitions Agreement entered into by the
Company and the Underwriter
10.15** (P) Partnership agreement, dated July 21, 1993, by and between JNJ
Distributors, Inc. and Saratoga Springs Distribution Corp. as
amended by Amendment of Partnership Agreement
(P) Stock agreement, dated July 21, 1993, by and between JNJ
Distributors, Inc. and Saratoga Spring Water Company
10.17** (P) Distribution agreement, dated March 25, 1993, by and between
Joseph Victori Wines, Inc. and JNJ Distributors, Inc.
10.18A*** (P) Credit Agreement dated as of July 13, 1995 between the Company
and Triarc
10.18B**** Termination Agreement dated as of January 31, 1997 between the
Company and Triarc.
10.19*** (P) Amendment, Waiver and Acknowledgment Agreement dated as of
December 13, 1995 by and between the Company and Triarc.
10.20*** (P) Sales and Marketing Services Agreement dated as of May 1, 1995
between the Company and RCC
10.21*** (P) Cott Co-pack Agreement dated as of June 8, 1995
22** (P) Subsidiaries
24*** (P) Power of attorney
(*) Incorporated herein by reference to the Company's Registration
Statement on Form SB-2 filed with the Commission on June 16, 1993
(Registration No. 33-62038NY)
(**) Incorporated herein by reference to the Company's Form 10-KSB
filed with the Commission on March 30, 1994
(***) Incorporated herein by reference to the Company's Form 10-KSB
filed with the Commission on March 29, 1996
(****) Filed herewith
(+) Management Agreement
(b) Reports on Form 8-K: No reports on Form 8-K were filed in the
quarter ended December 31, 1996.
20
<PAGE> 21
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: April 9, 1997
SARATOGA BEVERAGE GROUP, INC.
By: /s/ Robin Prever
----------------------------------------
Robin Prever, President, Chief Executive
Officer and Director
In accordance with the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacities Date
--------- ---------- ----
<S> <C> <C>
/s/ Peter R. Campbell Chairman of the Board of Directors April 9, 1997
- ------------------------------
Peter R. Campbell
/s/ Robin Prever President, Chief Executive Office, April 9, 1997
- ------------------------------ Director
Robin Prever
/s/ Adam Madkour Chief Operating Officer April 9, 1997
- ------------------------------
Adam Madkour
/s/ Anthony Principe Chief Financial Officer April 9, 1997
- ------------------------------
Anthony Principe
/s/ Leonard Toboroff Director April 9, 1997
- ------------------------------
Leonard Toboroff
/s/ John A. Morabito Director April 9, 1997
- ------------------------------
John A. Morabito
/s/ Warren Lichtenstein Director April 9, 1997
- ------------------------------
Warren Lichtenstein
</TABLE>
21
<PAGE> 22
ITEM 13. INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Accountants .................................................................................... F-2
Consolidated balance sheets as of December 31, 1996 and 1995 ......................................................... F-3
Consolidated statements of operations for the years ended December 31, 1996 and 1995.................................. F-4
Consolidated statements of stockholders' equity for the years ended December 31, 1996 and 1995 ....................... F-5
Consolidated statements of cash flows for the years ended December 31, 1996 and 1995.................................. F-6
Notes to consolidated financial statements ........................................................................... F-7
</TABLE>
F-1
<PAGE> 23
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Saratoga Beverage Group, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Saratoga
Beverage Group, Inc. and Subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the two years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall 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 consolidated financial position of Saratoga Beverage
Group, Inc. and Subsidiary, as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Albany, New York
January 31, 1997
F-2
<PAGE> 24
SARATOGA BEVERAGE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 387,938 $ 352,797
Accounts receivable, net of allowance for doubtful accounts of
$95,000 in 1996 and $57,540 in 1995 398,195 286,360
Inventories 183,072 405,208
Prepaid expenses and other current assets 25,427 24,920
----------- -----------
Total current assets 994,632 1,069,285
Property, plant and equipment, net 1,618,397 1,813,843
Deferred financing costs, net 85,158
Other assets, net 16,859 22,090
----------- -----------
TOTAL ASSETS $ 2,629,888 $ 2,990,376
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 301,667 $ 662,995
Short-term debt and current portion of obligation under capital lease 6,295 59,992
Long-term debt, currently callable 91,000
Revolving credit facility 300,000
----------- -----------
Total current liabilities 607,962 813,987
Long-term Debt:
Obligation under capital lease 7,455
----------- -----------
Total liabilities 615,417 813,987
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized,
no shares issued and outstanding
Class A common stock, $.01 par value; 50,000,000 shares authorized;
1,691,224 and 1,686,224 shares issued in 1996 and 1995, respectively 16,913 16,863
Class B common stock, $.01 par value; 2,000,000 shares authorized;
1,036,036 and 1,041,036 shares issued and outstanding in 1996
and 1995, respectively 10,360 10,410
Paid-in capital 9,258,405 9,268,874
Treasury Stock at cost 2,700 shares of Class A (3,990)
Accumulated deficit (7,267,217) (7,119,758)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 2,014,471 2,176,389
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,629,888 $ 2,990,376
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
<PAGE> 25
SARATOGA BEVERAGE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Revenue:
Product sales $3,314,766 $ 2,848,328
Co-Packing 1,060,059 416,986
---------- -----------
Total Revenue 4,374,825 3,265,314
Cost of Goods Sold, exclusive of depreciation
and amortization shown separately below 2,749,121 2,395,464
---------- -----------
Gross Profit 1,625,704 869,850
---------- -----------
Operating Expenses:
Marketing and sales 489,701 601,887
General and administration 906,885 992,138
Depreciation and amortization 442,143 338,714
---------- -----------
1,838,729 1,932,739
---------- -----------
Operating loss (213,025) (1,062,889)
Other Income (Expense):
Commission income $ 75,490 $ 121,196
Interest income 4,969 21,215
Interest expense (14,893) (1,334)
Net loss on disposal of equipment (1,618)
---------- -----------
Other Income (expense), net 65,566 139,459
---------- -----------
Net loss $ (147,459) $ (923,430)
========== ===========
Net loss per common share $ (0.06) $ (0.35)
========== ===========
Weighted average number of common shares
outstanding 2,626,651 2,626,179
========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
<PAGE> 26
SARATOGA BEVERAGE GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
ISSUED
CLASS A CLASS B PAR PAID-IN ACCUMULATED TREASURY
SHARES SHARES VALUES CAPITAL DEFICIT STOCK TOTAL
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 1,663,750 1,086,505 $27,203 $9,349,607 $(6,196,328) $3,180,482
Conversion of Class B into
Class A common stock 45,469 (45,469)
Exercise of stock options 7,005 70 24,727 24,797
Cost of equity financing (61,903) (61,903)
Conversion of Sample
debt to equity 100,000 100,000
Distribution to minority
interest (143,557) (143,557)
Net loss (923,430) (923,430)
--------------------------------------------------------------------------------------------
Balance December 31, 1995 1,686,224 1,041,036 27,273 9,268,874 (7,119,758) 2,176,389
Conversion of Class B into
Class A common stock 5,000 (5,000)
Purchase of Treasury stock (3,990) (3,990)
Distribution to minority
interest (39,090) (39,090)
Issuance of compensatory
stock options 28,621 28,621
Net loss (147,459) (147,459)
--------------------------------------------------------------------------------------------
Balance, December 31, 1996 1,691,224 1,036,036 $27,273 $9,258,405 $(7,267,217) $(3,990) $2,014,471
============================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
<PAGE> 27
SARATOGA BEVERAGE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(147,459) $(923,430)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 442,143 338,714
Issuance of compensatory stock options 28,621
Provision for doubtful accounts 37,460 17,540
Net loss on sale of equipment 1,618
Sales and marketing agreement 50,000
Changes is operating assets and liabilities:
Accounts receivable (149,295) (66,637)
Inventories 222,136 66,964
Prepaid expenses and other current assets (507) 19,699
Accounts payable and accrued liabilities (361,328) 183,498
--------- ---------
Net cash provided by (used in)
operating activities 71,771 (312,034)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment 54,500
Purchase of property, plant and equipment (140,360) (33,612)
Decrease (increase) in other assets 2,445 (3,800)
--------- ---------
Net cash (used in) provided by investing activities (137,915) 17,088
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings 94,386
Proceeds from revolving credit facility 300,000
Principal payments on short-term debt (59,992) (51,961)
Principal payments on long-term debt (91,000) (59,150)
Principal reductions on capital lease obligations (4,643) (5,151)
Cost of equity financing (186,903)
Deferred financing cost (10,158)
Purchase of treasury stock (3,990)
Distribution to minority interest (39,090) (143,557)
Proceeds from the exercise of stock options 24,797
--------- ---------
Net cash provided by (used in) financing activities 101,285 (337,697)
--------- ---------
Increase (decrease) in cash and cash equivalents 35,141 (632,643)
Cash and cash equivalents at beginning of year 352,797 985,440
--------- ---------
Cash and cash equivalents at end of year $ 387,938 $ 352,797
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Interest paid during the period $ 11,186 $ 17,515
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
<PAGE> 28
SARATOGA BEVERAGE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
COMPANY'S ACTIVITY:
Saratoga Beverage Group, Inc. (the "Company") is primarily engaged in
the bottling, marketing, and distribution of natural spring water from springs
located on the Company's 48 acres of land in Saratoga Springs, New York and in
packaging products for others ("co-packing"). The Company distributes product
primarily in New England, the Middle-Atlantic Region and Florida.
The accompanying financial statements include the Company and its
wholly-owned subsidiary Saratoga Springs Distribution Corporation. Saratoga
Springs Distribution Corporation owns a 51% interest in Sample New Age
Distributors ("Sample," a non-operating partnership). All significant
intercompany balances and transactions have been eliminated in consolidation.
In February 1995, Sample sold substantially all of its assets. In
connection with the sale of its assets, Sample sold its Mistic distribution
agreement (its key distribution agreement) to Southern Wine and Spirits, Inc.,
an established South Florida distributor. As a result of these transactions,
Sample operates as a non-operating partnership through February 1997 (Note 2).
On December 12, 1995, the stockholders approved a strategic alliance
with Triarc Companies, Inc. ("Triarc"), a publicly-held company listed on the
New York Stock Exchange. The alliance stipulates that Triarc will provide the
Company with a $3,000,000 revolving credit facility ("Credit Facility"); in
return, the Company issued Triarc two warrants to purchase 25% and 26%,
respectively, of the Company's outstanding Common Stock on a fully-diluted basis
at the time of exercise. Effective December 1, 1996, the Company and Triarc
terminated the Sales and Marketing Services Agreement and on January 31, 1997,
the Company and Triarc terminated the Credit Agreement (Note 6).
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. Estimates also affect the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION:
Revenue is recognized upon shipment of merchandise to a customer for
Saratoga branded product and upon completion of production for co-packed
product.
CASH EQUIVALENTS:
The Company considers all investments with original maturities of three
months or less to be cash equivalents. Cash equivalents includes investments in
money market funds. These investments are stated at cost, which approximate
market value.
INVENTORIES:
Inventories are stated at the lower of cost or market with cost being
determined by the first-in, first-out method.
F-7
<PAGE> 29
PROPERTY, PLANT, EQUIPMENT AND INTANGIBLE ASSETS:
Property, plant, equipment and intangible assets are carried at cost
less allowances for accumulated depreciation and amortization. The cost of
properties held under capital leases are equal to the lower of the net present
value of the minimum lease payments or the fair market value of the leased
property at the inception of the lease. Significant additions or improvements
extending the assets useful lives are capitalized. Normal maintenance and repair
costs are expensed as incurred. When assets are sold, retired, or otherwise
disposed of, the applicable costs and accumulated depreciation are removed from
the accounts and resulting gain or loss recognized.
Depreciation is computed by the straight-line method at rates based
upon the estimated service life of the various classes of assets (7 to 32
years).
Organizational and trademark costs are included in the caption "Other
assets." These costs are amortized over periods of 5 to 15 years on the
straight-line basis. Deferred financing costs are amortized over five years, the
life of the related credit agreement. In 1996, deferred financing costs of
$85,158 were charged to operations upon termination of the Credit Agreement with
Triarc of which $68,126 was in the fourth quarter (Note 6c). When intangible
assets become fully amortized, the applicable costs and accumulated amortization
are removed from the accounts.
The Company evaluates impairment of intangible and long lived assets
whenever circumstances indicate that the carrying amount of an asset may not be
recoverable. An impairment loss is recognized when the carrying amount of the
assets exceeds its fair value.
INCOME TAXES:
The Company accounts for income taxes according to Financial Accounting
Standard No. 109 (FAS 109). The Standard requires the use of the asset and
liability method of accounting for income taxes. Under this method, deferred
taxes are recognized for the tax consequences of temporary differences by
applying enacted statutory tax rates applicable to future years for the
differences between the financial statement and tax basis of existing assets and
liabilities.
At December 31, 1996 and 1995, the Company has available approximately
$4,342,239 and $4,303,808, respectively, of Federal income tax loss
carryforwards which may be subject to annual limitations on their usage and
begin to expire in the year 2008. A tax benefit has not been recognized because
a valuation allowance has been recorded for the entire amount of the deferred
tax asset related to the net operating loss carryforwards.
PER SHARE DATA:
Net loss per share is computed using the weighted average number of
common shares outstanding during each period. Common equivalent shares, shares
placed in escrow and contingent options are antidilutive and, therefore, are
excluded from the weighted average number of common and common equivalent shares
outstanding.
STOCK-BASED COMPENSATION:
The Company adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS 123), in 1996. Under the
provisions of SFAS 123, companies can elect to account for stock-based
compensation plans using a fair-value based method or continue measuring
compensation expense for those plans using the intrinsic value method prescribed
in the Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued
to Employees" (APB 25) and related interpretations. The Company elected to
continue using the intrinsic value method to account for
F-8
<PAGE> 30
its stock-based compensation plans. SFAS 123 requires companies electing to
continue using the intrinsic value method to make certain pro forma disclosures
(Note 13).
RECLASSIFICATION:
Certain 1995 amounts have been reclassified to conform with the 1996
presentation.
2. SAMPLE NEW AGE DISTRIBUTORS
The Company acquired a 51% interest in Sample New Age Distributors
(Sample was a newly-formed partnership) on July 23, 1993, through a
newly-created wholly-owned subsidiary, Saratoga Springs Distribution
Corporation. Sample, a South Florida beverage distributor of new age beverages,
is a Florida partnership in which the minority partner is JNJ Distributors, Inc.
("JNJ").
In February 1995, Sample entered into an agreement with Southern Wine &
Spirits ("Southern"), wherein Sample sold its Mistic distribution agreement to
Southern. The sales agreement provides for Southern to make payments to Sample
over a two-year period, as follows: (i) $50,000 upon signing of the agreement;
(ii) $1.00 per case for each case of Mistic product sold during the first twelve
months; and (iii) $.50 per case for all cases sold during the second twelve
months.
The original Partnership Agreement was amended in February 1995. The
amended Agreement requires Sample to discontinue its distribution business and
distribute to the partners, after payment of interest, all assets, inventory,
and receivables equally, including all funds received from (i) the
Mistic-Southern Agreement and (ii) any other agreements which may be entered
into by Sample.
The Amended Partnership Agreement also provides that Saratoga and JNJ
will retain their original 51% and 49% interests in Sample, respectively.
Sample's commission income for the years ended December 31, 1996 and 1995 was
approximately $75,000 and $121,000, respectively.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Raw Materials $103,189 $188,379
Finished Goods 79,883 216,829
-------- --------
Total Inventories $183,072 $405,208
======== ========
</TABLE>
F-9
<PAGE> 31
4. PROPERTY, PLANT, AND EQUIPMENT
Balances of major classes of assets and allowances for depreciation and
amortization, are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land $ 303,892 $ 303,862
Building 452,836 434,237
Machinery & Equipment 2,098,677 2,003,273
Computer Equipment 43,405 41,108
Furniture & Fixtures 47,844 24,366
Equipment Under Capital Lease 18,974 --
----------- ----------
2,965,628 2,806,876
Less:
Accumulated depreciation (1,345,197) (993,033)
Accumulated amortization
equipment under capital lease (2,034) --
----------- ----------
$ 1,618,397 $1,813,843
=========== ==========
</TABLE>
Included in machinery and equipment is an asset obtained in a non-cash
transaction with a customer in 1995. The equipment had a fair value of
approximately $32,000, on the date of acquisition. The Company recorded the
equipment and a related note payable at the equipment's fair value. The
agreement provides that the Company will allow a $.05 per case discount for each
case of product purchased by this customer, until the entire note is amortized.
At December 31, 1996, the note payable was completely amortized.
Depreciation and amortization expense on property, plant and equipment
for the years ended December 31, 1996 and 1995 was $354,198 and $334,090
respectively.
5. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Organization costs $ 12,300 $ 12,300
Deposit with utilities 12,450 15,669
Trademark costs 6,995 6,220
-------- --------
31,745 34,189
Less: accumulated amortization (14,886) (12,099)
-------- --------
$ 16,859 $ 22,090
======== ========
</TABLE>
Amortization expense was $2,787 for the year ended December 31, 1996
and $4,624 for the year ended December 31, 1995.
6. INDEBTEDNESS
(a) SHORT-TERM DEBT
At December 31, 1996, short-term debt consisted of the $300,000
borrowed under the Credit Facility that has been classified as current; as the
debt was completely paid on January 31, 1997 and the credit agreement with
Triarc under which the Credit Facility was created was terminated as discussed
F-10
<PAGE> 32
below. Also, included in short-term debt is the current portion of obligation
under capital lease of $6,295. At December 31, 1995, short-term debt consisted
of an $80,000 line of credit with a bank, of which, $42,425 was outstanding and
a $17,567 note with a customer for the purchase of equipment (Note 4). Also,
included in short-term debt at December 31, 1995, is a long-term bank note that
was classified as current. The loan agreement contained certain restrictive
covenants requiring, among other matters, the maintenance of a minimum current
ratio of 2:1 and a net worth of $4.8 million. As of December 31, 1995, the
Company was not in compliance with the net worth or the current ratio covenant;
accordingly, the entire debt was classified as a current liability for financial
reporting purposes. The bank note and the equipment note were completely
liquidated by December 31, 1996.
(b) LONG-TERM DEBT
At December 31, 1996, long-term debt is comprised of the long-term
portion of obligation under capital lease of $7,455.
(c) CREDIT FACILITY
The Company and Triarc entered into a Credit Agreement, dated as of
July 13, 1995, which provided for the Credit Facility, with borrowings of up to
$3,000,000. Pursuant to the Credit Facility, Triarc provided an aggregate
principal amount outstanding at any one time of up to $3,000,000.
In connection with the Credit Agreement, the Company executed a
Security Agreement and a Mortgage. The Security Agreement granted Triarc a
security interest in substantially all of the assets of the Company, including
accounts receivable, inventory, general intangibles, equipment, documents and
intellectual property of the Company. The Mortgage granted Triarc a first
security mortgage interest in the Company's premises and facilities in Saratoga
Springs, New York. In addition, the executive officers, directors and certain
shareholders of the Company, as a condition to the extension of credit under the
Credit Facility, executed agreements which require such persons to vote their
shares in the same manner as Triarc votes, and restricts the sale or disposal of
their stock for certain specified periods.
Borrowings under the Credit Facility were to bear interest at a rate
per annum equal to the prime rate plus 2% if paid in cash quarterly, or the
prime rate plus 3% if added to the principal. The entire principal amount
outstanding under the Credit Facility was due December 12, 2000, and would
become due immediately upon the occurrence of an event of default. The Credit
Agreement contained certain covenants and conditions which, among other things,
prohibited the payment of dividends, and required a minimum consolidated
tangible net worth of the Company of $1,500,000, less reductions in consolidated
tangible net worth incurred as a result of the Triarc transaction.
As consideration for the execution of the Credit Agreement by Triarc
and the execution of the Sales and Marketing Services Agreement as described
below by RCC, the Company issued two warrants to Triarc: (i) one Non-Callable
Warrant A (the "A Warrant") to purchase a number of shares of Common Stock which
would equal 25% of the total number of shares of Common Stock outstanding on a
fully-diluted basis on the date of exercise, at an exercise price $.01 per
share, and (ii) one Non-Callable Warrant B (the "B Warrant") to purchase a
number of shares of Common Stock which would equal 26% of the total number of
shares of Common Stock outstanding on a fully-diluted basis on the date of
exercise, at an exercise price of $3.50 per share. The exercise price of the B
Warrant was subject to a reduction from $3.50 per share to $2.46 per share if
the Company sold more than 1,250,000 cases of the Company's branded product
(i.e. "Saratoga" products) during the 12-month period prior to the date of
exercise of the B Warrant.
The fair value of the Warrants for accounting purposes was estimated at
an aggregate of $1,500,000 by an independent investment banking firm, with
$900,000 assigned to the A Warrant and $600,000 assigned to the B Warrant. Of
these amounts, $75,000 was allocated to deferred financing costs associated with
the Credit Agreement and is amortizable over the five-year life of the Credit
Agreement, $50,000 was allocated to the Sales and Marketing Agreement and has
been charged against 1995 earnings upon the issuance of the Warrants, and
$1,375,000 represents amounts assigned to the cost of equity capital.
F-11
<PAGE> 33
In addition, direct costs incurred approximate $200,000 of which
$186,903 was allocated to the cost of equity financing. A summary of the
foregoing is as follows:
<TABLE>
<S> <C>
Valuation of the A and B Warrant $ 1,500,000
Amounts allocated to:
Sales and Marketing Agreement (50,000)
Deferred financing costs (75,000)
-----------
Cost of equity financing $(1,375,000)
Direct cost of equity financing (186,903)
-----------
Cost of equity financing recorded in the
statement of stockholder's equity $ (61,903)
-----------
</TABLE>
On January 31, 1997, the Company and Triarc terminated the Credit
Agreement. As consideration for terminating the agreement and canceling the
Warrants, Saratoga paid the $300,000 outstanding principal balance on the
Revolving Credit Facility plus accrued interest through January 30, 1997 and
issued 300,000 shares of Class A Common Stock to Triarc for $0.01 per share.
Subsequent to the Termination Agreement, the Company has commenced a direct
selling effort and obtained a $250,000 line-of-credit from the Company's
President and a principal shareholder (note 8).
Effective May 1, 1995, the Company and RCC entered into a five-year
Sales and Marketing Services Agreement, in which RCC agreed to act as the
Company's sole and exclusive sales agent for the purpose of selling the
Company's products. In connection therewith, RCC agreed to use commercially
reasonable efforts at all times to promote the sale of the Company's product,
including servicing and soliciting retailers, wholesalers, distributors, and
national accounts, and to provide advice and assistance relating to the
marketing of the Company's products, including advice regarding branding,
packaging and positioning for the products, design of trade promotions and
advertising, public relations, and the establishment of relationships with
distributors and the pricing of products to distributors. RCC was required to
stay informed of the conditions in the markets for the Company's products
including, in particular, pricing, trade statistics and demand forecasting by
product and package and to provide such data to the Chief Executive Officer and
the Board of Directors (or dully appointed committee thereof) of the Company on
a monthly basis. In addition, RCC provided consulting services with respect to
financial and operational issues. In return for such services, the Company paid
RCC a commission of $.50 per case of branded products sold by the Company.
Effective December 1, 1996, Sales and Marketing Services Agreement was
terminated by the Company.
7. LEASES
During 1996, the Company entered into a capital lease for certain
equipment with a cost of $18,974. Operating lease commitments with initial terms
greater than one year include an office equipment lease which expires on May 31,
1999 , and a telephone lease which expires in October 1997. Future minimum
payments for all capital leases and non-cancelable operating leases at December
31, 1996 are as follows:
<TABLE>
<CAPTION>
Year Ended Operating Leases Capital Leases
---------- ---------------- --------------
<S> <C> <C>
1997 $ 6,174 $ 7,373
1998 3,497 7,373
1999 1,457 1,230
------- -------
$11,128 15,976
=======
Less:
Implicit Interest (2,226)
-------
$13,750
=======
</TABLE>
Rental expense for the years ended December 31, 1996 and December 31,
1995 was approximately $6,241 and $19,619, respectively.
F-12
<PAGE> 34
8. RELATED PARTY TRANSACTIONS
At December 31, 1996, the Company's cash and cash equivalent balance
includes approximately $231,093 of cash equivalents invested in a money market
account with Dean Witter Reynolds, Inc. Anthony Malatino, chairman of the Board
of Directors until December 12, 1995 and principal stockholder of the Company,
is an officer of Dean Witter Reynolds, Inc.
The Company agreed to compensate Peter Campbell $1,667 per month for
his services as Chairman of the Board for one year commencing July 1996.
Subsequent to year end, the Company's President and a principal
shareholder have supplied the Company with a line-of-credit for up to $250,000
with interest at prime plus 1%. The line-of-credit is collateralized by the
Company's accounts receivable, inventory and property plant and/or equipment.
The line-of-credit expires in April 1998 at which time all accrued interest and
unpaid principal will be due and payable. The line-of-credit will be payable at
an earlier date if the Company obtains a bank line-of-credit or similar
financing in the amount of at least $250,000 or a change in control of the
Company occurs.
9. COMMITMENTS AND CONTINGENCIES
In June 1993, the Company entered into a three-year employment
agreement with Robin Prever, its president and chief executive officer,
providing for annual compensation of $125,000. The agreement was renewed for an
additional year in the first quarter of 1996. The agreement also provides for
payment of an annual bonus at the sole discretion of the Board of Directors,
with a minimum bonus each year equal to 5% of the Company's pre-tax profit. No
bonuses have been accrued or paid. In addition, the agreement includes certain
insurance and severance benefits.
10. CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and trade receivables.
Two of the Company's customers accounted for 27% of total revenue, or
approximately $1,173,000 for the year ended December 31, 1996.
The Company renewed a one-year agreement with a Co-packer in July 1996
to co-pack the customers private label spring water products. The agreement
expires in July 1997 and will automatically renew for one year, with the consent
of both parties. For the year ended December 31, 1996, 17% of total revenues or
approximately $756,000 was generated by this customer. The Company continues to
supply this Co-packer with their private label spring water needs.
Sales to the Company's largest distributor, for the year ended December
31, 1996 were 10% of total revenues or approximately $418,000. This distributor
continues to purchase Saratoga product.
11. PREFERRED STOCK
The Company's Restated Certificate of Incorporation authorizes the
issuance of 5,000,000 shares of preferred stock with such designations, rights,
and preferences as may be determined from time to time by the Board of Directors
without further stockholder action. The terms of any series of preferred stock
may include priority claims to assets and dividends and voting or other rights.
No preferred shares have been issued.
F-13
<PAGE> 35
12. COMMON STOCK
The Class A Common Stock and the Class B Common Stock are identical,
except that the holder of each share of Class A Common Stock is entitled to one
vote, and the holder of each share of Class B Common Stock is entitled to five
votes on each matter submitted to stockholder vote. Each share of Class B Common
Stock is convertible at any time at the option of the holder into one share of
Class A Common Stock. Subject to certain limited exceptions, each share of Class
B Common Stock will automatically be converted into one share of Class A Common
Stock upon any sale or transfer thereof or upon the death of the Class B Common
Stockholder.
On December 12, 1995, the shareholders approved an increase in the
authorized number of shares of Class A Common Stock from 20,000,000 to
50,000,000 shares.
13. STOCK OPTIONS AND WARRANTS
In June 1993, the Board of Directors of the Company adopted the
Saratoga Spring Water Company 1993 Stock Option Plan (the "Stock Option Plan").
The Stock Option Plan provides for the issuance of options covering up to
466,000 shares of Class A Common Stock (subject to adjustments in the event of
stock splits, stock dividends and similar dilutive events) and Stock
Appreciation Rights in tandem with options. Generally, Stock Appreciation Rights
will be subject to the same terms and conditions as options. Options may be
granted under the Stock Option Plan (at not less than fair market value at date
of grant) to employees, officers, or directors of the Company, and consultants
and advisors to the Company.
On December 12, 1995 the shareholders of the Company approved an
amendment to the Company's 1993 Stock Option Plan increasing the number of
shares available for issuance from 466,000 to 616,000.
Options granted to employees may either be incentive stock options (as
defined in the Internal Revenue Code of 1986, as amended) or non-qualified stock
options. The purchase price of the Class A Common Stock made subject to an
option shall be determined by the Compensation Committee at the time of grant,
provided that the purchase price of incentive stock options may not be less than
the fair market value of the Class A Common Stock on the date of grant. Subject
to the foregoing, the terms of each option and the increments in which it is
exercisable are determined by the Compensation Committee, provided that no
option may be exercised after ten years and one day from the date of grant (ten
years in case of an incentive stock option). To the extent that the aggregate
fair market value, as of the date of grant, of the shares for which incentive
stock options become exercisable for the first time by an optionee during any
calendar year exceeds $100,000, the portion of such option which is in excess of
the $100,000 limitation will be treated as a non-qualified stock option. In
addition, if an optionee owns more than 10% of the total voting power of all
classes of the Company's stock at the time the individual is granted an
incentive stock option, the purchase price per share cannot be less than 110% of
the fair market value on the date of grant and the term of the incentive stock
option cannot exceed five years from the date of grant. Generally, options vest
over a three-year period unless the Compensation Committee accelerates such
provisions.
Under the Stock Option Plan, directors who are not employees of the
Company receive an option (an "Initial Option") to purchase 2,000 shares of
Class A Common Stock upon their initial election to the Board of Directors,
exercisable at the fair market value on the date of grant. In addition, on the
date of each annual meeting of stockholders held subsequent to January 1, 1994,
each qualified director will automatically receive options ("Annual Options") to
purchase 2,000 shares of Class A Common Stock exercisable over a period of two
years beginning on the date of grant, at the fair market value of the Class A
Common Stock on the date of grant.
Generally, options granted to directors under the Stock Option Plan
will terminate three months after the date of the director's termination,
resignation, or retirement from the Board of Directors of the Company, but in no
event after the option has expired by its terms. If any option granted under the
Stock Option Plan should expire or become unexercisable for any reason without
having been exercised in full, shares not purchased will become available for
further grant under the Stock Option Plan.
F-14
<PAGE> 36
Effective June 25, 1993, the Company granted Ms. Prever options to
purchase an aggregate of 50,000 shares of Class A Common Stock at an exercise
price equal to the initial public offering price of $5.00, of which 50% were
exercisable immediately and 50% became exercisable on June 25, 1994, the first
anniversary of the consummation of the Offering. Also on June 25, 1993, the
Company issued options to Ms. Prever to purchase an aggregate of 100,000 shares
of Class A Common Stock, of which 50% became exercisable at $7.50 per share on
June 25, 1995, and 50% became exercisable at $10.00 per share on June 25, 1996.
The Company also granted Mr. Malatino options to purchase an aggregate of 25,000
shares of Class A Common Stock at $5.00 per share on June 25, 1993, that were
exercisable immediately.
Also effective June 25, 1993, the holders of the Class B Common Stock
placed 100,000 shares in escrow pending the Company's attainment of certain
pre-determined earnings or market price targets. In the event the Company
attains any of the pre-determined earnings or market price targets, the
difference between the fair market value of the escrowed shares at the time they
were placed in escrow and the time they are released will be deemed additional
compensation expense to the extent such shares are released from escrow to
officers, directors, or other employees of the Company. On April 30, 1997, all
shares still held in escrow will be forfeited.
The Company has granted contingent options to purchase up to 100,000
shares of its Class A Common Stock at an exercise price of $1.00 per share to
Ms. Prever, its president and chief executive officer, and Mr. Malatino, the
Company's chairman of the board who resigned on December 12, 1995. The
contingent options become exercisable only if the same earnings or market price
targets, applicable to the escrowed shares, are met. If it becomes probable that
these market price or earnings targets will be met, compensation expense will be
recognized for the difference between the option exercise price and the then
fair market value of the stock. In connection with the Credit Agreement, 75,000
options were canceled in June 1995 for both Ms. Prever and Mr. Malatino. These
options expire April 30, 1997.
The following relates to stock options outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
-------------------------------------------------------------------------
WEIGHTED WEIGHTED
WEIGHTED AVERAGE AVERAGE
EXERCISE NUMBER OF AVERAGE EXERCISE NUMBER OF EXERCISE
PRICE RANGE SHARES LIFE (a) PRICE SHARES PRICE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.94 -- 2.50 134,138 7.2 $1.35 73,878 $2.17
$2.51 -- 5.00 208,868 7.0 4.09 201,283 4.13
$7.50 50,000 6.5 7.50 50,000 7.50
$7.51 -- 10.00 51,000 6.5 9.98 51,000 9.98
------- -------
Total 444,006 6.9 4.32 376,161 4.99
======= =======
</TABLE>
(a) Average contractual life remaining in years.
F-15
<PAGE> 37
The following activity occurred during 1996 and 1995 with respect to
options granted under the Stock Option Plan:
<TABLE>
<CAPTION>
1996 1995
--------------------------- ----------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding on January 1, 379,001 $4.79 488,448 $3.98
Granted 66,505 1.50 55,583 2.76
Exercised 7,005 3.54
Canceled 1,500 3.50 158,025 1.09
Outstanding on December 31, 444,006 4.32 379,001 4.79
======= =======
Exercisable on December 31, 376,161 4.99 239,741 4.83
</TABLE>
Shares available for grant were 171,994 and 236,999 at December 31,
1996 and December 31, 1995, respectively.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for the Stock Option Plan. Accordingly, no compensation expense has
been recognized for employee option grants. Compensation expense of $28,621 has
been charged against income in 1996 for non-employee option grants. There were
no non-employee option grants in 1995. Had compensation cost for the Stock
Option Plan been determined based on the fair value at the grant dates, for
awards under the plan, the Company's net income and net income per share would
have been reduced as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1996 1995
- ---------------------------------------------------------------
<S> <C> <C>
Net loss
As reported $(147,459) $(923,430)
Pro forma $(167,920) $(993,654)
Net loss per share
As reported ($0.06) ($0.35)
Pro forma ($0.06) ($0.38)
</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 in 1996 and 1995, respectively; divided yields of 0
percent for both years; expected volatility of 82.9 percent for both years;
risk-free interest rates of 6.7 and 6.9 percent; and expected lives of five
years for both years. The weighted-average fair value of options granted was
$1.50 and $2.92 for the years ended December 31, 1996 and 1995, respectively.
The initial impact of adoption of SFAS No. 123 may not be representative of the
effect on future years because options vest over several years and additional
option grants may be made each year.
In connection with the Company's initial public offering, the Company's
underwriter, D.H. Blair Investment Banking Corp. received a total of 120,000
common stock purchase warrants exercisable over four years, commencing one year
after the effective date of the public offering. Each warrant will entitle the
holder to purchase one share of common stock for $6.00 (120% of the public
offering). This amount was lowered in December of 1995 to $3.50 in connection
with the Credit Agreement. These warrants expire June 22, 1998.
F-16
<PAGE> 38
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value.
CASH AND CASH EQUIVALENTS:
The carrying amount of cash and cash equivalents at December 31, 1996
and 1995 was $387,938 and $352,797, respectively, which approximates fair value
because of the short maturity of those financial instruments.
DEBT:
The carrying amount of short-term debt at December 31, 1996 and 1995
was $306,295 and $150,992, respectively, which approximates fair value. The 1996
balance includes $300,000 on the Credit Facility which was completely paid on
January 31, 1997; accordingly, the entire balance is classified as current. The
1995 balance includes $91,000 that was classified as current as a result of
covenant violations. The carrying amount of long-term debt at December 31, 1996
was $7,455 which approximates fair value. The fair value of these financial
instruments was based on the Company's current borrowing rates for similar types
of borrowing arrangements.
15. NEW ACCOUNTING PRONOUNCEMENTS
Effective December 31, 1997, the Company will be required to implement
Financial Accounting Standard No. 128 (FAS 128) "Earnings Per Share". FAS 128
replaces the presentation of primarily earning per share (EPS) with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement and requires a reconciliation of
the numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. Management has not yet made a
determination of the impact, if any, that the adoption of this standard would
have on the consolidated financial statements.
F-17
<PAGE> 39
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Page
- ------- --- ----
<S> <C> <C>
Termination Agreement 10.18b Exhibit 2-Exhibit 5
</TABLE>
<PAGE> 1
EXHIBIT 10.18b
TERMINATION AGREEMENT
DATED JANUARY 31, 1997
BY AND BETWEEN THE COMPANY AND TRIARC
<PAGE> 2
TERMINATION AGREEMENT
This Termination Agreement, dated as of January 31, 1997, is made and
entered into by and among Triarc Companies, Inc. ("Triarc"), Royal Crown
Company, Inc. ("RCC"), TriBev Corporation ("TriBev"), Saratoga Beverage Group,
Inc. ("Saratoga"), Robin Prever and Anthony Malatino.
WHEREAS, RCC and Saratoga executed a sales and marketing services
agreement dated as of May 1, 1995 (the "Sales and Marketing Agreement") pursuant
to which RCC agreed to perform certain sales and marketing services on behalf of
Saratoga; and
WHEREAS, RCC assigned the Sales and Marketing Agreement to its
wholly-owned subsidiary, TriBev; and
WHEREAS, Triarc, the ultimate parent company of RCC and TriBev, and
Saratoga entered into a credit agreement dated as of July 13, 1995, as amended
by an Amendment, Waiver and Acknowledgment Agreement dated as of December 13,
1995 (the "Credit Agreement"), pursuant to which Triarc agreed to make loans
with a credit limit of $3,000,000 to Saratoga; and
WHEREAS, Saratoga and Triarc entered into a security agreement dated as of
July 13, 1995 (the "Security Agreement") and a Mortgage and Security Agreement
dated as of December 13, 1995 (the "Mortgage") pursuant to which Saratoga
granted security interests in certain property to Triarc to secure loans under
the Credit Agreement; and
WHEREAS, Triarc owns a non-callable Warrant A (the "A Warrant") to
purchase 25% of the shares of Class A Common Stock of Saratoga on a
fully-diluted basis at a price of $.01 per share and a non-callable Warrant B
(the "B Warrant") to purchase 26% of the shares of Class A Common Stock of
Saratoga on a fully-diluted basis at a price of $3.50 per share, subject to
adjustment; and
WHEREAS, Triarc, Robin Prever and Anthony Malatino are parties to a voting
agreement dated as of July 13, 1995 (the "Voting Agreement"); and
WHEREAS, Triarc is the beneficiary of lockup agreements (the "Lockup
Agreements") with Robin Prever, Anthony Malatino, Peter Campbell, Warren
Lichtenstein, Adam Madkour, John Morabito and Leonard Toboroff; and
WHEREAS, Saratoga terminated the Sales and Marketing Agreement by letter
dated January 9, 1997; and
WHEREAS, Triarc and Saratoga have agreed that Saratoga will repay the
balance due under the Credit Agreement; the Credit Agreement, the Security
Agreement, the Mortgage, the Voting Agreement and the Lockup Agreements will be
terminated; and Triarc will acquire 300,000 shares of Class A Common Stock of
Saratoga upon exercise of the A Warrant and Triarc will terminate the remainder
of the A Warrant and the entire B Warrant;
NOW, THEREFORE, for good and valuable consideration, the parties agree as
follows:
<PAGE> 3
1. As of the date hereof, Saratoga owes Triarc $300,000, excluding
interest accrues thereon, under the Note issued pursuant to the Credit
Agreement. Saratoga agrees to repay the outstanding. Loans and all
interest accrued thereon in full upon the execution of this Agreement.
Upon payment in full of the Loans and all interest accrued thereon,
(i) the Credit Agreement, the Security Agreement and the Mortgage will
be terminated, (ii) the Lender Directors will resign from Saratoga's
Board of Directors, (iii) Triarc will execute appropriate UCC
Termination Statements and (iv) all of the collateral securing the
Loans shall be released.
2. Triarc shall acquire 300,000 shares of Class A Common Stock of
Saratoga upon exercise of the A Warrant for an exercise price in the
aggregate of $3,000, and the remainder of the A Warrant and the entire
B Warrant shall terminate, effective upon the execution of this
Agreement. Saratoga hereby acknowledges that the Purchase Form
relating to the exercise of the A Warrant, in the form annexed hereto,
satisfies all conditions precedent to the exercise of the A Warrant.
3. The Voting Agreement and each of the Lockup Agreements shall terminate
effective upon the execution of this Agreement.
4. Saratoga hereby releases and discharges Triarc, RCC, TriBev and their
affiliates, assigns, subsidiaries, parents, predecessors and
successors and the shareholders, employees, officers, directors,
representatives and agents of any of them (collectively the "Triarc
Releases"), from any and all charges, claims or causes of action any
of them may have against any of the Triarc Releases.
5. Triarc, RCC and TriBev hereby release and discharge Saratoga, its
affiliates, assigns, subsidiaries, parents, predecessors and
successors and the shareholders, employees, officers, directors,
representatives and agents of any of them (collectively the "Saratoga
Releases"), from any and all charges, claims or causes of action any
of them may have against any of the Saratoga Releases.
6. Triarc acknowledges that Saratoga is in discussions with various
entities which discussions could result in some form of strategic
alliance or transaction.
7. Capitalized terms not otherwise defined herein have the meanings
assigned to them in the Credit Agreement.
8. This Agreement shall be governed by the laws of the State of New York
applicable to agreements to be performed wholly within such State.
[SIGNATURES BEGIN ON THE NEXT PAGE]
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
31st day of January, 1997.
TRIARC COMPANIES, INC.
By: /s/ Thomas B. Shultz
------------------------------------
Thomas B. Shultz
Vice President & Asst. Treasurer
ROYAL CROWN COMPANY, INC.
By: /s/ Thomas B. Shultz
------------------------------------
Thomas B. Shultz
Vice President & Treasurer
TRIBEV CORPORATION
By: /s/ Thomas B. Shultz
------------------------------------
Thomas B. Shultz
Vice President & Treasurer
SARATOGA BEVERAGE GROUP, INC.
By: /s/ Robin Prever
------------------------------------
/s/ Robin Prever
----------------------------------------
Robin Prever
/s/ Anthony Malatino
----------------------------------------
Anthony Malatino
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 387,938
<SECURITIES> 0
<RECEIVABLES> 493,195
<ALLOWANCES> 95,000
<INVENTORY> 183,072
<CURRENT-ASSETS> 994,632
<PP&E> 2,965,628
<DEPRECIATION> 1,347,231
<TOTAL-ASSETS> 2,629,888
<CURRENT-LIABILITIES> 607,962
<BONDS> 0
0
0
<COMMON> 27,273
<OTHER-SE> 1,987,198
<TOTAL-LIABILITY-AND-EQUITY> 2,014,471
<SALES> 4,374,825
<TOTAL-REVENUES> 4,455,284
<CGS> 2,749,121
<TOTAL-COSTS> 3,238,822
<OTHER-EXPENSES> 1,349,028
<LOSS-PROVISION> 71,367
<INTEREST-EXPENSE> 100,051
<INCOME-PRETAX> (147,459)
<INCOME-TAX> 0
<INCOME-CONTINUING> (147,459)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (147,459)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> 0
</TABLE>
