<PAGE> 1
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, 1997
( ) 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, NEW YORK 12866 Issuer's telephone
(Address of principal place of business) number : (518) 584-6363
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 March 4,1998 as
reported on the NASDAQ Small Cap Market System, was approximately $4,772,998.
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, 1997 were $6,270,691.
As of March 4, 1998, Registrant had outstanding 2,979,139 shares of Class A
common stock, $.01 par value per share, and 439,955 shares of Class B common
stock, $.01 par value per share.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Transitional Small Business Disclosure Format Yes [ ] No [X]
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
The Company is primarily engaged in the bottling, marketing and distribution of
spring and mineral water products and in packaging products for others
("co-packing"). The Company's product line currently includes: sparkling spring
water, sparkling essence-flavored spring water products, non-carbonated spring
water and non-carbonated spring water with flavors. All of the Company's
products are marketed as premium domestic bottled water primarily under the
proprietary brand name "Saratoga." The Saratoga brand name has been in existence
for 125 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 various 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 also markets a line of flavored spring water beverages under the name
Saratoga Splash.
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 (soon to be 12 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.
On June 30, 1997 the Company entered into an agreement with Mistic Brands, Inc.
("Mistic") that granted Saratoga Beverage Group, Inc. the non-exclusive right to
use the formulations and the exclusive right to use the graphic designs utilized
by Mistic in connection with beverages sold under the Saratoga Splash trademark
pursuant to the original agreement. Saratoga will pay to Mistic, on an annual
basis, a royalty of $.50/case on the first 50,000 cases of product sold and
$.25/case for all cases sold thereafter.
Saratoga Splash is a non-carbonated fruit flavored spring water product. It
currently is available in four flavors: Lemon Frost, Orange Twist, Strawberry
Mist, and Blueberry Burst.
In June 1997, the Company entered into a three-year master distribution
agreement whereby the Company was granted the exclusive right and license to act
as the master distributor of certain products in the United
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States until June 2000. The Company will receive a minimum commission of $1.00
per case for each case of Products sold. The Company is responsible for
collecting the receivables from customers and remitting payments to vendors. At
December 31, 1997 $215,000 was included in accounts receivable and $174,000 in
accounts payable and accrued liabilities, related to this agreement.
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.
The Company positions its products as "premium". The Company believes that the
proprietary Saratoga brand name, which has been in existence for 125 years is
perceived as upscale. The Company's current marketing slogan is "Everything Else
Is Just Water (C)."
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, cobalt blue glass, embossed bottles and in clear
plastic PET recyclable bottles. The Company believes that the distinctive 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. The Company sells to 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, from time to time 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 liquor
distributors. The majority of Company sales have been to distributors located on
the east coast and Puerto Rico. The Company has a customer with a nation-wide
concession business and the company 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
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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 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 Company has two bottling lines, a PET line purchased and installed during
the first quarter 1994 (being up-graded in 1998) and a glass bottling line. The
Company's source springs are located on 48 acres in Saratoga Springs, New York
and are classified by the New York State Department of Health as "natural spring
water."
The Company produces "premium" domestic bottled water sold under the Saratoga
brand name and continues to supply co-packers with their private label Spring
water.
SUPPLIERS
The Company does not manufacture any of the bottles or packaging in which its
products are sold. Its glass bottles are purchased from two primary suppliers
who 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 its PET bottles, caps for its PET bottles and
metal caps for its glass bottles from single suppliers. The Company believes
that there are alternate supplies of bottles and caps readily available to it on
comparable terms.
The Company is not affiliated with its suppliers.
MAJOR CUSTOMERS
Revenue from the Company's largest distributor, for the year ended December 31,
1997 was fifteen percent (15%) of total revenues. For the year ended December
31, 1997 thirty-six (36%) of total revenue were generated from co-packing. One
co-packing customer represents 22% of total revenue.
TRADEMARKS
"Saratoga" is a registered trademark of the Company in the United States and
Canada for use in connection with spring water, mineral water, tonic water and
ginger ale products. The Company has fourteen 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.
The health departments of the individual states also govern water quality 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
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seasonally on sales, the Company has placed considerable emphasis on expanding
marketing and distribution in the southeastern United States, with a
concentration in Florida.
PRIOR AGREEMENT
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.
EMPLOYEES
As of a March 4, 1998, the Company's headquarters and bottling operations had 2
part-time and 18 full-time employees, including 10 production, 10 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. 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 and will be substantially upgraded during 1998. 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 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
---- ----
High Low High Low
<S> <C> <C> <C> <C>
1st Quarter 7 3/4 7/8 2 1/4 1 3/8
2nd Quarter 6 2 1/8 3 1/2 1 5/16
3rd Quarter 3 7/16 2 1/8 2 1/2 1 1/8
4th Quarter 3 3/4 2 1 7/8 7/8
</TABLE>
As of February 27, 1998 the approximate number of common shareholders of record
was 969. 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
SAFE HARBOR STATEMENT
The Company has made, and may continue to make, various forward-looking
statements with respect to its financial position, business strategy, and plans
and objectives of management. Such forward-looking statements are identified by
the use of forward-looking words or phrases such as "anticipates," intends,"
"expects," "plans," "believe," "estimates," or words or phrases of similar
import. These forward-looking statements are subject to numerous assumptions,
risks, and uncertainties, and the statements looking forward beyond 1997 are
subject to greater uncertainty because of the increased likelihood of changes in
underlying factors and assumptions. Actual results could differ materially from
those anticipated by the forward-looking statements.
The Company's forward-looking statements represent its judgment only on the
dates such statements are made. By making any forward-looking statements, the
Company assumes no duty to update them to reflect new, changed, or unanticipated
events or circumstances.
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, 1997 and 1996. The Company's fiscal year ends on
December 31.
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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, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Statement of Operations Data:
Total revenue $6,270,691 $4,374,825
Net Income (loss) 804,628 (147,459)
Basic EPS $0.28 $(0.06)
Diluted EPS $0.25 $(0.06)
</TABLE>
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Percentage of Total Revenue:
Total revenue 100 100
Cost of goods sold 60 63
----------- -----------
Gross profit 40 37
Operating expenses
Marketing and sales 6 11
General and administrative 17 21
Depreciation and amortization 6 10
----------- -----------
Operating Income( loss) 11 (5)
Other Income, net 2 2
----------- -----------
Net Income( loss) 13 (3)
=========== ===========
Balance Sheet Data:
Working capital $ 2,512,738 $ 386,670
Total assets 5,704,819 2,629,888
Total indebtedness 1,507,906 313,750
Accumulated deficit (6,462,589) (7,267,217)
Total stockholders' equity 2,914,024 2,014,471
</TABLE>
Revenue
Revenue in 1997 increased 43% to $6,270,691, an increase of $1,895,866 from
revenue of $4,374,825 in 1996. Of the $1.9 million increase in revenue,
approximately 38% is attributable to product sales. The remaining increase is
attributable to co-pack revenue.
Gross Profit Margins
Gross profit increased 54% to $2,508,142 in 1997 from $1,625,704 in 1996. The
gross profit percentage increased three percentage points from 37% in 1996 to
40% in 1997. The increase in the gross profit percentage in 1997 is primarily
due to a decrease in fixed costs per case attributable to the increase in the
volume of cases produced during the year.
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Marketing and Sales Expenses
Marketing and selling expenses decreased 21% to $388,709 in 1997 from $489,701
in 1996. As a percentage of total revenue, marketing and selling expenses
decreased to 6% in 1997 from 11% in 1996. The decrease in marketing and sales
expenses in 1997 is primarily attributable to the reduction of commissions paid.
General and Administrative Expenses
General and administrative expenses increased 15% to $1,044,960 in 1997 from
$906,885 in 1996. As a percentage of total revenue, general and administrative
expenses decreased to 17% in 1997 from 21% in 1996. The Company's general and
administrative expenses are comprised primarily of fixed costs and, as total
revenue increases, they decrease as a percentage of total revenue. The increase
of $138,075 in general and administrative expenses reported by the Company in
1997 is primarily attributable to an increase in personnel and related expenses
as well as increased professional fees.
Depreciation and Amortization
Depreciation and amortization decreased 11% to $393,876 in 1997 from $442,143 in
1996. As a percentage of total revenue, depreciation and amortization decreased
to 6% in 1997 from 10% in 1996. The decrease of $48,267 in depreciation and
amortization in 1997 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, Prior
Agreement) and an increase in depreciation of $17,912 in 1997.
Other Income(Expense)
Other income(expense), net, increased 201% in 1997 to $131,990 from $65,566 in
1996. The $66,424 increase is due to a $51,245 increase in commission income,
and a $47,290 increase in interest income, offset by an increase of $32,111 in
interest expense. The commission income is primarily from Hype Corporation and
is generated for the sale of Hype Beverage products as part of the three-year
master distribution agreement entered into with the Company in June, 1997.
Interest income increased primarily due to income earned on the $1,500,000
proceeds from the 5% Subordinated Convertible Note. Interest expense is accrued
on the unpaid principal amount of the Note. The details of the Note are
disclosed in the Liquidity and Capital Resources section below.
Liquidity and Capital Resources
As of December 31, 1997, the Company's working capital was $2,512,738 including
cash and cash equivalents of $1,567,973, and short term investments of
$1,153,915 as compared to working capital of $386,670 and cash and cash
equivalents of $387,938 at December 31, 1996. The current ratio at December 31,
1997 was 2.9 to 1 as compared to 1.6 to 1 at December 31, 1996.
The Company's debt-to-equity ratio at December 31, 1997 was 51.04%. Debt
includes the $1,500,000 5% Subordinated Convertible Note and $1,208, long-term
portion of obligation under capital lease for certain equipment. Current
liabilities include accounts payable and accruals of $1,282,889 and $6,698,
short-term portion of obligation under capital lease.
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).
On June 12, 1997 the Company entered into a Securities Purchase Agreement with
Parley International, as nominee for Maerki Baumann & Co., A.G. (Zurich)
("Purchaser"), pursuant to which Purchaser acquired $1,500,000 principal amount
of the Company's 5% Subordinated Convertible Notes due 2000 (the "Note") for an
aggregate purchase price of $1,500,000 in a private placement effected under
Section 4(2) of the Securities Act of 1933. Interest on the unpaid principal
amount accrues from the date of issuance at a rate of 5% per annum. Interest
becomes due and payable on each of the first, second and third anniversaries.
The principal amount of the Note is due and payable on the third anniversary of
the Note and is convertible at the option of the holder into shares of the
Company's Class A common stock at a conversion price of $3.50 principal amount
per share. The Note is mandatorily convertible into shares of Class A common
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stock in the event that the closing price of Class A common stock exceeds $5.25
for three consecutive trading days.
Global Financial Group, Inc. acted as placement agent in connection with the
offering of the Note and, in connection therewith, received a cash commission in
the amount of $80,750 and was issued a warrant to acquire 30,000 shares of Class
A common stock for an exercise price of $3.50 per share. The commission and the
fair value of the warrant, determined to be $22,800, were recorded as
deferred financing costs and will be amortized over the life of the Note, three
years.
On December 23, 1997 the Company and Onyx Management Services, LLC ("ONYX")
entered into a loan agreement whereby the Company has agreed to loan Onyx the
sum of $800,000 (the "Loan") for working capital and general business purposes.
As of December 31, 1997 the Company loaned and advanced to Onyx a sum of
$300,000 upon execution of the agreement. In addition, from time to time during
the first two (2) years after the Closing Date, the Company may, after its
review of service contracts secured by Onyx, loan and advance Onyx a sum of
$500,000. The proceeds of the Loan shall be utilized solely for the general
business purposes of Onyx. The loan is collateralized by all assets of Onyx.
Onyx promises to pay interest on the principal amount of the Secured Promissory
Note (the "Note") at a per annum rate equal to the greater of (I) eight percent
(8%) or (ii) the Prime Rate plus one percent (1%) as in effect on the first day
of the calendar quarter for which such interest shall accrue. Such interest
shall be payable in arrears quarterly on the first day of each calendar quarter,
beginning on April 1, 1998. At December 31, 1997, the interest rate was 9.5%.
$300,000 of the principal amount outstanding under this Note shall become due
and payable in full on December 23, 2001 and the remaining unpaid principal
amount outstanding under this Note shall be come due and payable in full on
December 23, 2000. In addition, the Company acquired a ten year warrant to
purchase 35% of outstanding stock of Onyx. The warrant may be exercised by
issuance of 100,000 shares of the Company's Class A common stock.
The Company is upgrading its bottling lines in 1998. In December 1997, the
Company entered into a seven year operating lease for production equipment. At
December 31, 1997 an equipment payable in the amount of $626,470 is reflected in
cash and current liabilities and represents the balance payable on the
production equipment which is in the process of being installed. The lease
contains a purchase option after 72 months.
In addition to 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 1998. 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.
YEAR 2000
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company relies on systems developed by other parties in regard to its
business, accounting and operational software. The Company believes that its
significant business, accounting and operations software are year 2000
compliant. Additionally, the Company has assessed the impact of this issue on
its production equipment and believes that this issue will be mitigated by the
installation of new bottling equipment in 1998. Older equipment in use is relay
controlled and is not believed to be affected by this problem. The Company's
business, financial condition or results of operations could be materially
adversely affected by the failure of its systems and applications or those
operated by other parties to properly manage dates beyond 1999.
Accounting Standards
Effective December 31, 1997, the Company implemented Financial Accounting
Standard No. 128 (FAS 128) "Earnings Per Share". FAS 128 replaces the
presentation of primarily earning per share (EPS) with a
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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. The restatement of
1996 EPS did not materially differ from the previously stated EPS.
Subsequent Events
Subsequent to year end, Steel Partners II L.P. agreed to purchase 275,000 shares
of unregistered Class A common stock from the Company at a purchase price of
$2.25 per share. Steel Partners II L.P., an affiliate of a director of Saratoga
Beverage Group, Inc. is a private investment fund that invests in SmallCap
companies. Carl T. Wolf, Alpine Lace Founder and CEO, became co-chairman of the
Board and Director in February, 1997. At that time, he purchased 175,000 shares
of unregistered Class A common stock from the Company at a purchase price of
$2.25 per share.
Subsequent to year end, Saratoga Beverage Group also repurchased 100,000 shares
of Class A common stock for $1.62 per share from a shareholder.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 13.
ITEM 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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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) 37 President, Chief Executive Officer
and Co-Chairman of the Board
Carl Wolf (1) 54 Co-Chairman of the Board
Adam Madkour 46 Chief Operating Officer
Gayle Henderson 50 Chief Financial Officer
Peter Campbell (4) 60 Director
Warren Lichtenstein (3) 32 Director
John A. Morabito (1)(3) 38 Director
Leonard Toboroff (1)(2) 65 Director
</TABLE>
- ------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Stock Option Committee
(4) Peter Campbell resigned as director effective January 6, 1998.
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. Wolf has been a director of the Company and Co-Chairman of the Board of
Directors since February 5, 1998. Mr. Wolf is Chairman and Managing Director of
Lakota Investment Group, Inc., an investment company, making investments in
consumer product and service companies. Prior thereto, he was Chairman and
Chief Executive Officer of Alpine Lace Brands, Inc. (1983-1997), a publicly
traded company which was purchased by Land O' Lakes, Inc. in December, 1997.
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.
Ms. Henderson has been the chief financial officer of the Company since November
15, 1997. Mrs. Henderson, who is a New York State Certified Public Accountant,
brings several years of financial management experience from the food
manufacturing industry. She was a member of the financial management group for
the Charles Freihofer Baking Company, Inc., a division of Best Foods.
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
11
<PAGE> 12
of mergers and acquisitions for First Albany Corporation. Mr. Campbell resigned
as director effective January 6, 1998 for personal reasons.
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.
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. 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 1998, or until their successors are
elected and qualify. All non-employee directors are reimbursed for reasonable
expenses incurred in connection with attending meetings of the Board of
Directors. Directors 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.
At the January 2, 1998 board meeting it was approved that all outside directors
will receive 10,000 options per year beginning with the 1998 annual meeting.
Additionally, 100,000 options were granted to Mr. Toboroff, 50,000 options were
granted to Mr. Lichtenstein, 10,000 options were granted to Mr. Morabito, 50,000
options were granted to Mr. Madkour, and 100,000 options were granted to Ms.
Prever at the same meeting. All options were granted on January 2, 1998 based on
the closing price of the Company's Class A common stock at January 5, 1998. (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 and chief
operations officer. No other executive officer of the Company had aggregate
compensation from the Company exceeding $100,000 in 1997.
<TABLE>
<CAPTION>
Annual Compensation Payouts
Position Year Salary Bonus Options - # of shares
-------- ---- ------ ----- ---------------------
<S> <C> <C> <C>
Robin Prever, President 1997 $125,000
and Chief Executive Officer 1996 $125,000 (1)15,000
1995 $108,173
Adam Madkour, Chief 1997 $100,000 $5,600
Operating Officer 1996 $ 90,000
1995 $ 84,500
</TABLE>
(1) Represents compensation for a voluntary salary reduction in 1994.
12
<PAGE> 13
Employment Agreements
In June 1993, the Company entered into an employment agreement with its
president, co-chairman and chief executive officer providing for annual
compensation of $125,000. The agreement has been extended through June 1999. 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 in each contract year. In addition, the agreement
includes certain insurance and severance benefits.
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, 1997. 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. In addition, the agreement includes
certain insurance and severance benefits.
FISCAL YEAR-ENDED OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED OPTIONS VALUE OF UNEXERCISED IN-THE-MONEY
AT DECEMBER 31, 1997 OPTIONS AT DECEMBER 31, 1997
--------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C>
Name Exercisable Unexercisable Exercisable Unexercisable
Robin Prever 165,000 -- --
</TABLE>
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). 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
13
<PAGE> 14
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 Option")
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. 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 expired April 30, 1997.
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 liieu 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 priced, 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 1997, 65,423 stock options were granted, 41,834 were exercised, and
57,756 were canceled. The Company did not grant stock appreciation rights.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 4, 1998, 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
Name and Stock Stock Beneficially Percentage Beneficially Owned
Address of Owned Of Shares Of Voting
Beneficial Owner At March 4, 1998 (1) (1)(2)(3) Power (2)(3)(4)
- ----------------- --------------------- ---------- ---------------
<S> <C> <C> <C>
Anthony Malatino (7) 658,955(11) 18.1% 44.8%
Robin Prever (4) 658,955(11) 18.1% 44.8%
Adam Madkour (4) 46,025(14) 1.3% 1.0%
Gayle Henderson(4) (16) * *
Carl Wolf (10) 358,000(17) 10.2% 6.8%
Warren Lichtenstein (6) 307,000(15) 8.9% 5.9%
John Morabito (8) 34,000(12) 1.0% 1.0%
Peter R. Campbell (5) 9,000(12) * *
Leonard Toboroff (9) 119,000(13) 3.4% 2.3%
All officers and
directors as a group
(7 persons) 1,531,980 38.5% 57.4%
</TABLE>
- -----------------
* Less than 1%.
(1) Based upon 2,529,139 shares of Class A common stock and 439,955 shares
of Class B common stock outstanding at March 4, 1998.
14
<PAGE> 15
(2) 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) 30,000 shares
issuable upon exercise of warrants to Global Financial Group, Inc. for
acting as placement agent in connection with the offering of the 5%
subordinated Convertible Note, (iii) shares issuable upon exercise of
certain outstanding stock options or reserved for issuance pursuant to
the Company's Stock Option Plan.
(3) The Class A common stock and the Class B common 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.
(4) The business address of each of Mr. Madkour, Ms. Henderson, and Ms.
Prever is c/o Saratoga Beverage Group, Inc., 11 Geyser Road, Saratoga
Springs, New York 12866.
(5) The business address of Mr. Campbell is c/o Campbell Resources, 5207 N.
24th Street, Phoenix, AZ 85016.
(6) The business address of Mr. Lichtenstein is c/o Steel Partners, 750
Lexington Avenue, New York, NY 10022.
(7) The business address of Mr. Malatino is c/o Dean Witter Reynolds, One
Key Corp Plaza, Albany, NY 12207.
(8) The business address of Mr. Morabito is 1937 Fields Pond Drive,
Marietta, GA 30068.
(9) The business address of Mr. Toboroff is c/o Riddell Sports, 900 Third
Avenue, New York, NY 10022.
(10)The business address of Mr. Wolf is c/o Lakota Investment Group, Inc.,
627 Inwood La., South Orange, NJ 07079
(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 167,960 shares, and Ms. Prever
disclaims beneficial ownership of Mr. Malatino's 271,995 shares of
Class B common stock. The number of shares (i) includes 219,000 shares
of Class A common stock issuable upon exercise of certain options held
by Mr. Malatino and Ms. Prever that are exercisable currently.
(12)Includes 34,000 shares of Class A common stock issuable upon exercise
of certain options that are exercisable within 60 days and excludes
26,000 shares issuable upon options that are not exercisable within 60
days.
(13)Includes 120,000 shares of Class A common stock issuable upon exercise
of certain options that are exercisable within 60 days and excludes
51,000 shares issuable upon options that are not exercisable within 60
days.
(14)Includes 46,000 shares of Class A common stock issuable upon exercise
of certain options that are exercisable within 60 days, 25 shares of
Class A common stock outstanding, and excludes 25,000 shares issuable
upon options that are not exercisable within 60 days.
(15)Includes 32,000 shares of Class A common stock issuable upon exercise
of certain options that are exercisable within 60 days and excludes
26,000 shares issuable upon options that are not exercisable within 60
days.
(16)No shares of Class A common stock issuable upon exercise of certain
options that are exercisable within 60 days and excludes 5,000 shares
issuable upon options that are not exercisable within 60 days
(17)Includes 100,000 shares of Class A common stock issuable upon exercise
of certain options that are execisable within 60 days and 175,000
shares of Class A common stock outstanding. There are no shares
issuable upon options that are not exercisable within 60 days.
15
<PAGE> 16
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 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, 100% 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."
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At December 31, 1997, the Company's cash and cash equivalent balance includes
approximately $2,487,000 in a money market account and short term investments
with Dean Witter Reynolds, Inc. A principal stockholder of the Company is an
officer of Dean Witter Reynolds, Inc.
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.
16
<PAGE> 17
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.
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 t
(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
10.22**** Manufacturing and Distribution Agreement, dated as of July
23, 1996, by and between the Company and Mistic Brands, Inc.
10.23## Bottling Agreement, dated April 16, 1997, by and among the
Company, Hype Corporation, Company, Inc., Hyperholics Inc.,
R.J. Barry Cox and Nigel Spiro
10.24##+ Line of Credit dated as of April 10, 1997 to the Company from
Robin Prever and Anthony Malatino
10.25### Saratoga Splash Agreement, dated as of June 30, 1997, by and
between the Company and Mistic Brands, Inc.
10.26### The Master Distribution Agreement dated as of June 16, 1997 by
and among Saratoga Beverage Group, Inc., Hype Corporation,
World Wide Beverage Inc., Global Brands AG, Hype Water
Company, Inc. and Hyperholics Inc.
10.27#### Loan Agreement, Securities Purchase Agreement, Secured
Promissory Note, and Warrants for Messrs. Holliday, Merhi and
Barr in connection with the loan to Onyx Management Services,
LLC
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
17
<PAGE> 18
(****) Incorporated herein by reference to the Company's form 10-QSB
filed with the Commission on November 12, 1996
(#) Incorporated herein by reference to the Company's form 10-KSB
filed with the Commission on April 15, 1997
(##) Incorporated herein by reference to the Company's form 10-QSB
filed with the Commission on May 13, 1997
(###) Incorporatated herein by reference to the Company's form
10-QSB filed with the Commission on August 8, 1997.
(####) filed herewith
(+) Management Agreement
(b) Reports on From 8-K: No reports on form 8-K were filed in the quarter
ended December 31, 1997.
18
<PAGE> 19
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: March 11, 1998
By: /s/ Robin Prever
Robin Prever, President
By: /s/Gayle Henderson
Gayle Henderson, Chief Financial Officer
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>
President, Chief Executive Officer,
/s/ Robin Prever And Co-Chairman of the Board of Directors
-------------------------------------------
Robin Prever
/s/ Adam Madkour Chief Operating Officer
-------------------------------------------
Adam Madkour
/s/ Gayle Henderson Chief Financial Officer
-------------------------------------------
Gayle Henderson
/s/ Carl Wolf Co-Chairman of the Board of Directors
-------------------------------------------
Carl Wolf
/s/ Leonard Toboroff Director
-------------------------------------------
Leonard Toboroff
/s/ John A. Morabito Director
-------------------------------------------
John A. Morabito
/s/ Warren Lichtenstein Director
-------------------------------------------
Warren Lichtenstein
</TABLE>
19
<PAGE> 20
ITEM 13. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Accountants ............................................................ F-2
Consolidated balance sheets as of December 31, 1997 and 1996 ................................. F-3
Consolidated statements of operations for the years ended December 31, 1997 and 1996 ......... F-4
Consolidated statements of stockholders' equity for the years ended December 31, 1997 and 1996 F-5
Consolidated statements of cash flows for the years ended December 31, 1997 and 1996 ......... F-6
Notes to consolidated financial statements ................................................... F-7
</TABLE>
F-1
<PAGE> 21
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, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the two years in the period ended December 31, 1997. 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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Albany, New York
February 20, 1998
F-2
<PAGE> 22
SARATOGA BEVERAGE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
----------- -----------
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 1,567,973 $ 387,938
Short term investments 1,153,915
Accounts receivable, net of allowance for doubtful accounts of 689,774 398,195
$150,695 in 1997 and $95,000 in 1996
Inventories 360,670 183,072
Prepaid expenses and other current assets 29,993 25,427
----------- -----------
Total current assets 3,802,325 994,632
Property, plant and equipment, net 1,501,030 1,618,397
Deferred financing costs, net 83,415
Note receivable 300,000
Other assets, net 18,049 16,859
----------- -----------
TOTAL ASSETS $ 5,704,819 $ 2,629,888
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 1,282,889 $ 301,667
Current portion of obligation under capital lease 6,698 6,295
Revolving credit facility 300,000
----------- -----------
Total current liabilities 1,289,587 607,962
Obligation under capital lease 1,208 7,455
5% subordinated convertible note 1,500,000
----------- -----------
TOTAL LIABILITIES 2,790,795 615,417
----------- -----------
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; and
2,407,039 and 1,691,224 shares issued in 1997 24,070 16,913
and 1996, respectively
Class B common stock, $.01 par value; 2,000,000 shares authorized;
562,055 and 1,036,036 shares issued and
outstanding in 1997 and 1996, respectively 5,621 10,360
Paid-in capital 9,346,922 9,258,405
Treasury Stock, 2,000 Class A shares at cost (3,990)
Accumulated deficit (6,462,589) (7,267,217)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 2,914,024 2,014,471
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,704,819 $ 2,629,888
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 23
SARATOGA BEVERAGE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Total Revenue $ 6,270,691 $ 4,374,825
Cost of Goods Sold, exclusive of depreciation
and amortization shown separately below 3,762,549 2,749,121
----------- -----------
Gross Profit 2,508,142 1,625,704
----------- -----------
Operating Expenses:
Marketing and sales 388,709 489,701
General and administration 1,044,960 906,885
Depreciation and amortization 393,876 442,143
----------- -----------
1,827,545 1,838,729
----------- -----------
Operating Income (Loss) 680,597 (213,025)
Other Income (Expense):
Commission income 126,735 75,490
Interest income 52,259 4,969
Interest expense (47,004) (14,893)
----------- -----------
Other Income (expense), net 131,990 65,566
----------- -----------
Income(Loss) before income taxes 812,587 (147,459
Provision for income taxes 7,959 --
----------- -----------
Net Income (Loss) $ 804,628 $ (147,459)
=========== ===========
Per Share Information:
Basic EPS $ 0.28 $ (0.06)
Diluted EPS $ 0.25 $ (0.06)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 24
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, 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
Conversion of Class B into
Class A common stock 473,981 (473,981)
Issuance of treasury stock 3,990 3,990
Exercise of stock options 41,834 418 75,083 75,501
Issuance of stock warrant 22,800 22,800
Exercise of stock warrants 300,000 3,000 3,000
Forfeiture and cancellation
of escrowed shares (100,000) (1,000) (1,000)
Distribution to minority
interest (9,366) (9,366)
Net Income 804,628 804,628
--------------------------------------------------------------------------------------------
Balance, December 31, 1997 2,407,039 562,055 $29,691 $9,346,922 $(6,462,589) $ 0 $2,914,024
============================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 25
SARATOGA BEVERAGE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income (Loss) $ 804,628 $ (147,459)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 393,876 442,143
Issuance of compensatory stock options 28,621
Provision for doubtful accounts 56,874 37,460
Changes in operating assets and liabilities:
Accounts receivable (348,453) (149,295)
Inventories (177,598) 222,136
Prepaid expenses and other current assets (4,566) (507)
Accounts payable and accrued liabilities 981,222 (361,328)
----------- -----------
Net cash provided by operating activities 1,705,983 71,771
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of short term investments (1,153,915)
Issuance of note receivable (300,000)
Purchase of property, plant and equipment (255,419) (140,360)
Decrease (increase) in other assets (3,145) 2,445
----------- -----------
Net cash used in investing activities (1,712,479) (137,915)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowing 1,500,000
Payment of financing costs (80,750)
Proceeds from revolving credit facility 300,000
Principal payments on revolving credit facility (300,000)
Principal payments on short-term borrowings (59,992)
Principal payments on long-term borrowings (91,000)
Principal reductions on capital lease obligations (5,844) (4,643)
Proceeds from exercise of stock warrants 3,000
Proceeds from the exercise of stock options 75,501
Issuance (purchase) of treasury stock, at cost 3,990 (3,990)
Distribution to minority interest (9,366) (39,090)
----------- -----------
Net cash provided by financing activities 1,186,531 101,285
----------- -----------
Increase in cash and cash equivalents 1,180,035 35,141
Cash and cash equivalents at beginning of period 387,938 352,797
----------- -----------
Cash and cash equivalents at end of period $ 1,567,973 $ 387,938
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Income taxes paid $ 3,750 $ 0
=========== ===========
Interest paid $ 4,873 $ 11,186
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statement.
F-6
<PAGE> 26
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 and in packaging
products for others ("co-packing"). The Company distributes product primarily on
the east coast of the United States.
The accompanying financial statements include the Company and its wholly-owned
subsidiary which owned a 51% interest in Sample New Age Distributors ("Sample,"
a non-operating partnership). All significant inter-company balances and
transactions have been eliminated.
On December 12, 1995, the stockholders approved a strategic alliance with Triarc
Companies, Inc. ("Triarc"). The alliance stipulated that Triarc would 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. 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, disclosure of contingent
assets and liabilities at the date of the financial statements and 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
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.
SHORT TERM INVESTMENTS:
Short term investments consist of U.S. Treasury bills due in 1998 and are
recorded at fair value. Unrealized and realized gains or losses are recorded in
interest income.
INVENTORIES:
Inventories are stated at the lower of cost or market with cost being determined
by the first-in, first-out method.
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
F-7
<PAGE> 27
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 three years, the life of the
related 5% Subordinated Convertible Note. 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. 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.
In the year ended December 31, 1997, the Company offset substantially all income
taxes through the use of federal income tax loss carryforwards. At December 31,
1997 and 1996 the Company has available approximately $3,781,000 and
$4,342,000, 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:
Effective December 31, 1997, the Company implemented Financial Accounting
Standard No. 128 (FAS 128) "Earnings Per Share". In accordance with this
Standard, net income/(loss) per share is computed using the weighted average
number of shares of Class A and Class B common stock outstanding during each
year. Diluted net income(loss) per share includes the effect of all potentially
dilutive securities. Earnings per share amounts for all periods presented have
been computed in accordance with this Standard.
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 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 1996 amounts have been reclassified to conform with the 1997
presentation.
F-8
<PAGE> 28
2. EARNINGS PER SHARE
The calculation of earnings per share is as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C> <C> <C>
Numerator
Net income (loss) $804,628 Basic $(147,459) Basic
Impact of potential common shares:
Interest expense on 5%
subordinated convertible
note 41,458 -
------ ---------
$846,086 Diluted $(147,459) Diluted
======== =========
Denominator
Weighted-average
outstanding shares 2,924,589 Basic 2,626,651 Basic
Impact of potential common shares:
Stock options 27,280
Convertible debt 428,571 -
----------- ---------
3,380,440 Diluted 2,626,651 Diluted
========= =========
</TABLE>
In 1997 outstanding warrants and options for 440,358 shares of stock were not
included in the calculation of earnings per share because they were considered
to be anti-dilutive. All outstanding warrants and options were considered to be
anti-dilutive at December 31, 1996.
Subsequent to year end Steel Partners purchased 275,000 shares of unregistered
Class A common stock from the Company at a purchase price of $2.25 per share.
Steel Partners, an affiliate of a director of Saratoga Beverage Group, Inc. is a
private investment fund that invests in smallcap companies.
In addition, Carl T. Wolf, Alpine Lace founder and CEO, became co-chairman of
the Board and director in February, 1998. At that time he purchased 175,000
shares of unregistered Class A common stock from the Company at a purchase price
of $2.25 per share.
Subsequent to year end Saratoga Beverage Group, Inc. also repurchased 100,000
shares of Class A common stock for $1.62 per share from a shareholder.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Raw Materials $115,863 $103,189
Finished Goods 244,807 79,883
--------- ------
Total Inventories $360,670 $183,072
======== ========
</TABLE>
F-9
<PAGE> 29
4. PROPERTY, PLANT, AND EQUIPMENT
Balances of major classes of assets and allowances for depreciation and
amortization, are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Land $ 303,892 $ 303,862
Building 493,221 452,836
Machinery & equipment 2,153,555 2,098,677
Computer equipment 60,586 43,405
Furniture & fixtures 107,249 47,844
Equipment under capital lease 18,974 18,974
Construction in progress 83,570 --
----------- -----------
3,221,047 2,965,628
Less:
Accumulated depreciation (1,715,273) (1,345,197)
Accumulated amortization
equipment under capital lease (4,744) (2,034)
----------- -----------
$ 1,501,030 $ 1,618,397
=========== ===========
</TABLE>
Depreciation and amortization expense on property, plant and equipment for the
years ended December 31, 1997 and 1996 was $372,786 and $354,198 respectively.
5. NOTE RECEIVABLE
On December 23, 1997 the Company and Onyx Management Services, LLC ("Onyx")
entered into a loan agreement whereby the Company has agreed to loan Onyx the
sum of $800,000 (the "Loan") for working capital and general business purposes.
As of December 31, 1997 the Company loaned and advanced to Onyx a sum of
$300,000 upon execution of the agreement. In addition, from time to time during
the first two (2) years after the Closing Date, the Company may, after its
review of service contracts secured by Onyx, loan and advance Onyx a sum of
$500,000. The proceeds of the Loan shall be utilized solely for the general
business purposes of Onyx. The loan is collateralized by all assets of Onyx.
Onyx promises to pay interest on the principal amount of the Secured Promissory
Note (the "Note") at a per annum rate equal to the greater of (i) eight percent
(8%) or (ii) the Prime Rate plus one percent (1%) as in effect on the first day
of the calendar quarter for which such interest shall accrue. Such interest
shall be payable in arrears quarterly on the first day of each calendar quarter,
beginning on April 1, 1998. At December 31, 1997 the interest rate was 9.5%.
$300,000 of the principal amount outstanding under this Note shall become due
and payable in full on December 23, 2001 and the remaining unpaid principal
amount outstanding under this Note shall be come due and payable in full on
December 23, 2000. In addition, the Company acquired a ten year warrant to
purchase 35% of outstanding stock of Onyx. The warrant may be exercised by
issuance of 100,000 shares of the Company's Class A common stock.
6. INDEBTEDNESS
The Company entered into a Securities Purchase Agreement with Parley
International, as nominee for Maerki Baumann & Co., A.G. (Zurich) ("Purchaser"),
pursuant to which Purchaser acquired $1,500,000 principal amount of the
Company's 5% Subordinated Convertible Notes due 2000 (the "Note") for an
aggregate purchase price of $1,500,000 in a private placement effected under
Section 4(2) of the Securities Act of 1933. Interest becomes due and payable on
each of the first, second and third anniversaries.
F-10
<PAGE> 30
The principal amount of the Note is due and payable on the third anniversary of
the Note and is convertible at the option of the holder into shares of the
Company's Class A common stock at a conversion price of $3.50 principal amount
per share. The Note is mandatorily convertible into shares of Class A common
stock in the event that the closing price of Class A common stock exceeds $5.25
for three consecutive trading days.
Global Financial Group, Inc. acted as placement agent in connection with the
offering of the Note and, in connection therewith, received a cash commission in
the amount of $80,750 and was issued a warrant to acquire 30,000 shares of Class
A common stock for an exercise price of $3.50 per share. The warrant was
determined to have a fair value of $22,800, using the Black Scholes Valuation
method. The financing costs are amortized over the life of the Note, three
years.
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.
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.
7. COMMITMENTS AND CONTINGENCIES
In December 1997, the Company entered into a seven year operating lease for
production equipment. At December 31, 1997 an equipment payable in the amount of
$626,470 is reflected in cash and current liabilities and represents the balance
payable on the production equipment which is in the process of being installed.
The lease contains a purchase option after 72 months.
Obligations under capital and operating leases at December 31, 1997 are:
<TABLE>
<CAPTION>
Year Ended Operating Leases Capital Leases
---------- ---------------- --------------
<S> <C> <C>
1998 $130,754 $ 7,373
1999 130,754 1,229
2000 130,754
2001 130,754
2002 130,754
Thereafter -------------------------- ----------------------
250,612
-------------------------
$ 904,381 8,602
===========================
Less
Implicit Interest (696)
-----------------------
$7,907
=======================
</TABLE>
Rental expense for the years ended December 31, 1997 and December 31, 1996 was
approximately $17,223 and $6,241, respectively.
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 has been extended through June, 1999.
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 in each contract year. In addition, the
agreement includes certain insurance and severance benefits.
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
F-11
<PAGE> 31
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company relies on systems developed by other parties in regard to its
business, accounting and operational software. The Company believes that its
significant business, accounting and operations software are year 2000
compliant. Additionally, the Company has assessed the impact of this issue on
its production equipment and believes that this issue will be mitigated by the
installation of new bottling equipment in 1998. Older equipment in use is relay
controlled and is not believed to be affected by this problem. The Company's
business, financial condition or results of operations could be materially
adversely affected by the failure of its systems and applications or those
operated by other parties to properly manage dates beyond 1999.
8. RELATED PARTY TRANSACTIONS
At December 31, 1997 and 1996, the Company's cash and cash equivalent balance
includes approximately $2,487,000 and $231,093 respectively in a money market
account and short term investments with Dean Witter Reynolds, Inc. A principal
stockholder of the Company is an officer of Dean Witter Reynolds, Inc.
9. 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.
10. 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. At December 31, 1997, 562,035 shares of class A common stock are
available for conversion of Class B shares.
11. 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
F-12
<PAGE> 32
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.
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. On April 30, 1997, all shares held in escrow
were 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 an officer
and principal shareholder. The contingent options expired and were canceled in
1997.
The following relates to stock options outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
---------------------------------------------------- -----------------------------------
WEIGHTED WEIGHTED
WEIGHTED AVERAGE AVERAGE
EXERCISE NUMBER OF AVERAGE LIFE EXERCISE PRICE NUMBER OF SHARES EXERCISE PRICE
PRICE RANGE SHARES (a)
- ------------------------------ ----------------- ----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
$0.94 -- 2.50 53,561 8.8 $1.66 47,561 $1.56
$2.51 -- 5.00 205,278 6.2 4.07 201,230 4.09
$7.50 50,000 5.5 7.50 50,000 7.50
$7.51 -- 10.00 51,000 5.5 9.98 51,000 9.98
------ ------
Total 359,839 6.4 5.02 349,791 5.09
======= =======
</TABLE>
(a) Average remaining contractual life in years.
F-13
<PAGE> 33
The following activity occurred during 1997 and 1996 with respect to options
granted under the Stock Option Plan:
<TABLE>
<CAPTION>
1997 1996
---------------------------------- -----------------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE PRICE EXERCISE PRICE
SHARES SHARES
-------------- ------------------- ------------------ --------------------
<S> <C> <C> <C> <C>
Outstanding on January 1, 444,006 $4.32 379,001 $4.79
Granted at fair value 15,423 2.59 66,505 1.50
Exercised 41,834 1.78
Canceled 57,756 1.29 1,500 3.50
-----
--------------
Outstanding on December 31, 359,839 5.02 444,006 4.32
======= =======
Exercisable on December 31, 349,791 5.09 376,161 4.99
======= =======
</TABLE>
Shares available for grant were 122,493 and 171,994 at December 31, 1997 and
December 31, 1996, 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 $0 and $28,621
has been charged against income in 1997 and 1996 for non-employee option grants.
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 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income (loss)
As reported $804,628 ($147,459)
Pro forma $781,970 ($167,920)
Earnings per share
Basic EPS as reported $0.28 $(0.06)
Diluted EPS as reported $0.25 $(0.06)
Pro forma Basic EPS $0.27 $(0.06)
Pro forma Diluted EPS $0.24 $(0.06)
</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 1997 and 1996, respectively; divided yields of 0
percent for both years; expected volatility of 103.0 percent for 1997 and 82.9
percent for 1996; risk-free interest rates of 6.0 and 6.7 percent for 1997 and
1996 respectively; and expected lives of five years for both years. The
weighted-average fair value of options granted was $2.59 and $1.50 for the years
ended December 31, 1997 and 1996, respectively. The impact 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.
12. 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.
F-14
<PAGE> 34
CASH, CASH EQUIVALENTS, AND SHORT TERM INVESTMENTS:
The carrying amount of cash and cash equivalents at December 31, 1997 and 1996
was $1,567,973 and $387,938, respectively, which approximates fair value because
of the short maturity of those financial instruments. The short-term investments
of $1,153,915 at December 31, 1997 include two United States Treasury Bills due
May 21, 1998 and November 12, 1998 with a yield to maturity of 5.3770%
DEBT:
The carrying amount of short-term debt at December 31, 1997 and 1996 was $6,698
and $306,295 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 carrying
amount of long-term debt at December 31, 1997 was $1,501,208 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.
13. CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash and trade receivables. At December 31,
1997 and 1996, approximately $113,000 and $56,800 of cash was on deposit at
financial institutions in excess of Federal deposit insurance limits.
Revenue from the Company's largest distributor, for the years ended December 31,
1997 and 1996 was fifteen percent (15%) and ten percent (10%) of total revenues,
respectively. For the years ended December 31, 1997 and 1996 thirty-six (36%)
and twenty-four (24%) of total revenues were generated from co-packing. One
co-packing customer represents 22% and 17% of total revenue for the years ended
December 31, 1997 and 1996, respectively.
F-15
<PAGE> 35
INDEX TO EXHIBITS
<TABLE>
<S> <C>
Exhibit No.
- --------------------------------------------------------------------------------
Onyx Agreement 10.27
</TABLE>
Exhibit-1
<PAGE> 1
EXHIBIT 10.27
ONYX AGREEMENT
Exhibit-2
<PAGE> 2
AGREEMENT
This Agreement is made and entered into as of this 23rd day of
December, 1997, by and between ONYX MANAGEMENT SERVICES, LLC, an Georgia limited
liability company, having its principal office at 1733 Mount Vernon Road, Suite
202, Atlanta, Georgia 30338 ("ONYX"), and Saratoga Beverage Group, Inc., a
Delaware corporation, having its principal business address at 11 Geyser Road,
Saratoga Springs, New York 12866 ("Lender").
W I T N E S S E T H:
WHEREAS, ONYX Group has requested Lender to loan the sum of Eight
Hundred Thousand Dollars ($800,000) (the "Loan") to ONYX for working capital
purposes; and
WHEREAS, Lender has agreed to make the Loan to ONYX upon and subject to
the terms and conditions contained in this Agreement;
NOW, THEREFORE, in consideration of the foregoing, the mutual agreement
of the parties hereto contained herein and other good and valuable consideration
paid by each party to the other, the receipt and sufficiency of which is hereby
acknowledged by each of the parties hereto, the parties do hereby agree as
follows:
A. The Loan.
1. The Loan. Subject to the terms and conditions of this Agreement,
Lender shall, on the Closing Date (as hereinafter defined), loan and
advance to ONYX a sum of up to Three Hundred Thousand Dollars
($300,000). In addition, from time to time after the Closing Date
during the first two (2) years after the date hereof, Lender may, in
its sole and absolute discretion, after its review of service contracts
secured by ONYX, loan and advance to ONYX a sum of up to Five Hundred
Thousand Dollars ($500,000).
1. Loan Obligation. The Loan shall be evidenced by a secured promissory
note (the "Promissory Note") which shall be in the form annexed hereto
as Exhibit A. The Loan shall be payable as set forth in the Promissory
Note.
1. Security. The Loan shall be secured by all assets of ONYX. The Loan
shall be evidenced by a first priority lien position as to all assets
of ONYX. The foregoing grant of security shall be embodied in a
security agreement in the form annexed hereto as Exhibit B (the
"Security Agreement").
1. Warrants. As additional consideration for Lender making the Loan or
advancing sums under the Loan, each member of ONYX shall issue to
Exhibit-3
<PAGE> 3
Lender or its designee a warrant (the "Warrant"), which shall be in the
form annexed hereto as Exhibit C.
1. Amendment of Operating Agreement In connection with the Loan and the
issuance of the Warrant, ONYX shall, on the Closing Date, amend its
Operating Agreement (the "Operating Agreement") to reflect the
provisions annexed hereto as Exhibit D.
1. Loan Documents. The Loan shall be evidenced by the Promissory Note, the
Security Agreement and such other documents which shall be prepared by
Lender or its counsel in form and substance currently utilized in
similar situations and acceptable in the sole discretion of Lender
(collectively, the "Loan Documents").
1. Disbursement and Use of Funds. The proceeds of the Loan shall be shall
be utilized solely for the general business purposes of ONYX. Subject
to the continuing compliance with the Promissory Note, ONYX may draw up
to the full amount of the Loan in one or more draw requests throughout
the term of the Loan; provided, however, that all funds disbursed under
the Loan shall be utilized solely for the general business purposes of
ONYX, and no such funds shall be paid to or drawn by (directly or
indirectly) any of the members, managers or directors of ONYX.
1. Board of Directors. From and after the Closing Date, Lender shall be
entitled to nominate, and ONYX hereby agree to cause to elect, two (2)
people to serve as a member of the board of directors, or equivalent
governing body of ONYX (the "Board of Directors"). ONYX shall cause the
Board of Directors to be fixed at five (5) members, and shall modify
the Operating Agreement to fix the number of directors at five (5) and
to provide that the number of directors of ONYX may not be increased or
decreased without the consent of Lender's designees to the Board of
Directors.
1. Closing Date. Subject to verification and acceptance of all conditions
precedent to closing hereunder by Lender, the transactions contemplated
by this Agreement shall be consummated (the "Closing") simultaneously
with the execution of this Agreement, or such other date as shall be
mutually acceptable by the parties which, for all purposes of this
Agreement, shall be referred to herein as the "Closing Date."
A. Conditions Precedent The obligations of Lender hereunder shall be and
are hereby specifically conditioned and contingent upon the following:
1. Warrants. Each of the members of the Company shall have executed a
Warrant in the form annexed hereto as Exhibit C.
1. Operating Agreement. The Operating Agreement shall have been amended to
reflect the provisions annexed hereto as Exhibit D.
Exhibit-4
<PAGE> 4
2. Financial Information. Lender shall have received all relevant
information, financial or otherwise, relating to ONYX, income,
expenses, operating costs, production costs, raw material costs and
supplies, inventory, information relating to real estate assets,
improvements thereon, building fixtures, equipment or other assets and
inventory, intangible and intellectual property rights (including,
without limitation, trademarks, copyrights, patents, products and
development logos, research materials, advertising materials, supply
and/or delivery contracts, and contracts of any other nature) in
connection with or relating to the ownership or operations of ONYX.
1. Consents: Licenses. ONYX shall have received all consents, licenses,
approvals, all permits from any and all third parties, Governmental
Entities (as hereinafter defined), agencies or quasi-Governmental
Entities having jurisdiction or claiming jurisdiction over any of the
assets or inventory of ONYX, or as otherwise deemed necessary or
appropriate by Lender.
1. Corporate Approvals. ONYX shall have delivered to Lender evidence of
the approval of the transactions contemplated hereby (including the
Loan Documents) by the members and managers of ONYX.
1. Representations and Warranties; Covenants. All representations and
warranties set forth in the Agreement or otherwise made by ONYX to
Lender shall have been true and correct when made and as of the Closing
Date. All covenants and agreements set forth in this Agreement or
otherwise agreed to by ONYX to Lender have been completed, obtained,
fulfilled or otherwise made as of the Closing Date.
1. Legal Opinion. Lender shall have received such opinions of legal
counsel for ONYX and such advice of Lender's counsel as Lender shall
reasonably require, which opinion and/or advice shall be in form and
substance satisfactory to Lender and its counsel.
Exhibit-5
<PAGE> 5
A. Representations and Warranties of ONYX. ONYX hereby represents,
warrants and covenants to Lender as follows:
1. Organization and Qualification. ONYX is a limited liability
company duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation. ONYX has all power and
authority to own, lease and operate its properties and to carry on its
business as now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power and
authority would not have a Material Adverse Effect (as hereinafter
defined) on ONYX. ONYX is duly qualified or licensed to do business and
in good standing in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except where failure
to be so duly qualified or licensed and in good standing would not in
the aggregate have a Material Adverse Effect on ONYX. For purposes of
this Agreement, a "Material Adverse Effect" with respect to ONYX means
any event, circumstance or condition that, individually or when
aggregated with all other similar events, circumstances or conditions
could reasonably be expected to have, or has had, a material adverse
effect on: (i) the business, property, operations, condition (financial
or otherwise), results of operations or prospects of ONYX, (ii) the
assets of ONYX or (iii) the ability of ONYX to consummate the
transactions contemplated hereunder. ONYX is characterized as a
partnership for federal income tax purposes and has not and will not
elect to be treated as an association taxable as a corporation.
1. Authority. ONYX has the requisite corporate power and authority
to execute and deliver this Agreement and each of the Loan Documents
and to consummate the transactions contemplated hereby and thereby. The
execution, delivery and performance of this Agreement and the Loan
Documents and the consummation of the transactions contemplated hereby
and thereby have been duly authorized by all necessary corporate action
on the part of ONYX and no other corporate proceedings on the part of
ONYX are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement and the Loan Documents to
which ONYX is a party have been duly executed and delivered by ONYX
and, assuming this Agreement and the Loan Documents constitute valid
and binding obligations of Lender, constitute valid and binding
obligations of ONYX enforceable against it in accordance with their
respective terms.
1. No Violations. Neither the execution, delivery or performance of
this Agreement or the Loan Documents by ONYX nor the consummation by it
of the transactions contemplated hereby or thereby nor compliance by it
with any of the provisions hereof or thereof will (a)(i) conflict with
or result in any breach of any provision of the Articles of
Organization or the Operating Agreement of ONYX, (ii) require any
filing with, or permit, authorization, consent or approval of, any
court, arbitral tribunal, administrative agency or
Exhibit-6
<PAGE> 6
commission or other governmental or other regulatory authority or
agency (a "Governmental Entity") or other person or entity, (iii)
result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right
of termination, amendment, cancellation or acceleration) under, any of
the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or
obligation to which ONYX is a party or by which any of its properties
or assets may be bound or (iv) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to ONYX or any of its
properties or assets; or (b) except as expressly contemplated in this
Agreement, result in the creation or imposition of a Lien (as
hereinafter defined), or give to any other party any interest or right
in the equity or assets of ONYX.
1. Capitalization. To the best knowledge of ONYX, after due inquiry
of each member, all of the issued and outstanding membership interests
by ONYX are owned, free and clear of any liens, encumbrances,
mortgages, pledges, conditional sales, redemption agreements,
assessments, covenants, restrictions, reservations, hypothecations and
other burdens or charges of any nature (collectively, "Liens"), as
follows: 94% owned by Ronald C. Holliday, 3% owned by Patrick J. Barr
and 3% owned by George Merhi. To the best knowledge of ONYX, after due
inquiry of each member, none of the membership interests of ONYX have
been pledged or assigned to any other party. There are no outstanding
(i) securities convertible into or exchangeable for any membership
interests of ONYX; (ii) options, warrants or other rights to purchase
or subscribe for any membership interests of ONYX or (iii) contracts,
commitments, agreements, understandings or arrangements of any kind
relating to the issuance of any membership interests of ONYX, any such
convertible or exchangeable securities or any such options, warrants or
rights.
1. Subsidiaries. ONYX does not presently own, of record or
beneficially, or control, directly or indirectly, any capital stock,
securities convertible into capital stock or any other equity interest
in any corporation, association or business entity nor is ONYX,
directly or indirectly, a participant in any joint venture, partnership
or other non-corporate entity.
1. Compliance With Laws; Licenses. The conduct of the business of
ONYX has not violated, and as presently conducted does not violate, any
federal, state, local or foreign laws, rules, regulations or
ordinances, or judgments, injunctions, writs, decrees or orders of any
court or Governmental Entity, nor has ONYX received any notice of any
such violation which remains outstanding. ONYX is not subject to any
judgments, injunctions, writs, decrees or orders of any court or
Governmental Entity currently in effect which could have a Material
Adverse Effect.
Exhibit-7
<PAGE> 7
1. Litigation. There are no actions, suits, Liens or proceedings
existing, pending or threatened against or affecting ONYX or its assets
or business or which shall prevent the consummation of the transactions
contemplated herein. ONYX is not aware of any current investigation
with respect to possible violations of any applicable federal, state or
local laws, ordinances or regulations or administrative ruling relating
to any aspect of its business. ONYX has no reasonable grounds to know
of any basis (after inquiry) for any such suit, action, claim or
litigation or of any governmental investigation relating to ONYX or any
of its properties, assets, businesses or prospects.
1. Contracts; Business; Consents. Other than the Operating Agreement
and the Agreement for Concession and Catering Services dated December
5, 1997 between ONYX and Big League Dreams Sports, LLC, there are no
contracts, agreements, arrangements (written or oral) and other
instruments to which ONYX is a party or by which its assets are bound
(collectively, the "Contracts"). Each of the Contracts is in full force
and effect and enforceable in accordance with its terms. ONYX has not
received notice of cancellation of or intent to cancel any of the
Contracts. There exists no event of default or occurrence, condition or
act on the part of ONYX or, to the best knowledge of ONYX, on the part
of the other party to such Contracts which constitutes or would
constitute (with notice or lapse of time or both) a breach under, or
cause or permit acceleration of, any obligation of ONYX. ONYX has not
operated its business prior to the date of this Agreement and owns no
assets other than the Contracts. No consent of any third party is
required in connection with the execution, delivery and performance of
this Agreement by ONYX.
1. Books and Records. Copies of the Articles of Organization, the
Operating Agreement and minutes of ONYX have been previously delivered
to Lender, and such documents are complete, true and correct.
1. Broker and Similar Fees. No person or entity is entitled to any
brokerage, finders' fee or commission in connection with this
transaction.
1. Disclosure. No representation, warranty or statement made by ONYX
in (i) this Agreement, (ii) the Schedules attached hereto, or (iii) in
any other written materials furnished or to be furnished by ONYX to
Lender or its representatives, attorneys and accountants pursuant to
this Agreement, contains or will contain any untrue statement of a
material fact, or omits or will omit to state a material fact required
to be stated herein or therein or necessary to make the statements
contained herein or therein, in light of the circumstances under which
they were made, not misleading.
A. Representations and Warranties of Lender. Lender hereby represents,
warrants and covenants to ONYX as follows:
Exhibit-8
<PAGE> 8
1. Organization and Qualification. Lender is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation.
1. Authority. Lender has the requisite corporate power and authority
to execute and deliver this Agreement and each of the Loan Documents
and to consummate the transactions contemplated hereby and thereby. The
execution, delivery and performance of this Agreement and the Loan
Documents and the consummation of the transactions contemplated hereby
and thereby have been duly authorized by all necessary corporate action
on the part of Lender and no other corporate proceedings on the part of
Lender are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement and the Loan Documents
have been duly executed and delivered by Lender and, assuming this
Agreement and the Loan Documents constitute valid and binding
obligations of ONYX, constitute valid and binding obligations of Lender
enforceable against it in accordance with their respective terms.
(a) No Violation. Neither the execution, delivery or performance of
this Agreement or the Loan Documents by Lender nor the consummation by
it of the transactions contemplated hereby or thereby nor compliance by
it with any of the provisions hereof or thereof will conflict with or
result in any breach of any provision of the charter or by-laws of
Lender, require any filing with, or permit, authorization, consent or
approval of Governmental Entity or other person or entity, result in a
violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of
termination, amendment, cancellation or acceleration) under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation
to which Lender is a party or by which any of its properties or assets
may be bound or violate any order, writ, injunction, decree, statute,
rule or regulation applicable to Lender or any of its properties or
assets.
1. Litigation. There are no actions, suits, Liens or proceedings
existing, pending or threatened against or affecting Lender or its
assets or business which shall prevent the consummation of the
transactions contemplated herein.
1. Broker and Similar Fees. No person or entity is entitled to any
brokerage, finders' fee or commission in connection with this
transaction.
Exhibit-9
<PAGE> 9
A. Exclusive Use of Lender Water Products. So long as the Warrant shall
be outstanding or Lender (or an affiliate of Lender) shall own
membership interests of ONYX, ONYX hereby agrees to use its best
efforts to use the water products of Lender in the business of ONYX and
shall use no water products of any other person or entity in the
business of ONYX, except that ONYX may sell water products of other
persons or entities if a facility to which ONYX is providing services
is contractually required to do so. The agreement set forth in this
Section V shall be memorialized in a longer-form agreement to be
entered into after the Closing Date. The failure to enter into a
longer-form agreement shall not nullify the agreement set forth in
this Section V.
A. Indemnification. The representations and warranties contained herein
shall survive closing of the transactions contemplated hereby. ONYX
will indemnify and hold harmless Lender, its employees, officers,
directors, representatives and agents from and after the date hereof,
against any losses, claims, damages, actions, deficiencies, costs,
expenses, or any other liabilities including, without limitation,
reasonable attorneys' fees, cost of investigation and interest with
respect to any of the following:
I. Any misrepresentation or breach or failure of any warranty,
representation or covenant made herein by ONYX to Lender.
I. Any representation, covenant, warranty or
statement made by ONYX becoming untrue subsequent to
the date hereof, unless such event shall be fully
disclosed to Lender, in which event Lender shall have
the sole and exclusive option to terminate this
Agreement. If such event shall occur subsequent to
the Closing Date, this indemnification shall continue
in full force and effect and any such event shall be
deemed a default under the Loan, in addition to the
indemnification granted hereby.
I. Any action or omission to act by the
designees of Lender who shall act as members of the
Board of Directors, while acting as such, so long as
such designees are eligible for indemnification under
the laws of the State of New York or the State of
Georgia.
I. Any actions, causes of actions,
claims, suits, proceedings, demands, assessments,
settlements, judgments, damages, losses, costs and
legal and other expenses incident to any of the
foregoing.
A. Expenses. Each party shall bear all expenses and costs of any type
or nature incurred by it in connection with this transaction, including
any legal fees or costs.
A. Insurance.
1. Within sixty (60) days after the date hereof, ONYX
shall purchase and, so long as any amounts due under the
Promissory Note shall remain
Exhibit-10
<PAGE> 10
outstanding, maintain life and disability insurance on Ronald
C. Holliday, naming Lender as beneficiary, in an amount to be
determined and adjusted by the Board of Directors not less
often than annually and in all events in an amount no less
than One Million Five Hundred Thousand Dollars ($1,500,000).
ONYX shall pay all premiums due on the policy purchased.
1. So long as any amounts due under the Promissory
Note shall remain outstanding, ONYX shall name Lended as an
additional insured under all liability insurance obtained by
ONYX from and after the date hereof. ONYX shall pay all
premiums due on the policies purchased.
A. Further Assurances. At any time and from time to time after the date hereof,
at Lender's request and without further consideration, ONYX will promptly
execute and deliver such further instruments or documents or perform such acts
as Lender may reasonably request as contemplated under this Agreement or to
confirm the existence or non-existence of facts, or conditions provided for in
this Agreement.
A. Waiver. No failure on the part of any party hereto to exercise and no delay
in exercising any right, power or remedy hereunder, shall operate as a waiver
thereof nor shall any single or partial exercise of any right, power or remedy
hereunder preclude any other or further exercise thereof or the exercise of any
other right, power or remedy.
B. Entire Agreement. This Agreement sets forth the entire understanding of the
parties. No other statements or representations of the parties, whether written
or oral, except as contained herein, may be relied upon by the parties hereto.
This Agreement shall not be amended, modified, supplemented or terminated except
by written agreement of the parties executed by each of the parties hereto. All
the terms and provisions of this Agreement shall be binding upon, inure to the
benefit of and be enforceable by the successors and assigns, their respective
heirs, executors and administrators of each of the parties hereto.
A. Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed to be an original instrument, but all such
counterparts, taken together, shall constitute one and the same instrument.
A. Headings. The headings of all sections of this Agreement are for convenience
of reference only and shall not constitute a part thereof.
A. Governing Law; Consent to Jurisdiction. This Agreement shall be construed in
accordance with, and governed by, the internal laws of the State of New York,
without giving effect to the principles of conflict of laws thereof. The parties
agree that any dispute arising out of or relating to this Agreement shall be
resolved by binding arbitration in the City of Albany, State of New York, under
the Commercial Arbitration Rules of the American Arbitration Association. Each
of the parties hereto consents, for itself and in respect of its property, to
the jurisdiction and venue of the City of Albany, State of New York for purposes
of this Section XIII and hereby irrevocably waives any objection, including any
objection to the laying of venue or based on the grounds of forum non conveniens
which it may now or hereafter have to the bringing of any dispute in the City of
Albany, State of New York, under the Commercial Arbitration Rules of the
American Arbitration Association, in respect of this Agreement or any documents
related thereto. Each of the parties
Exhibit-11
<PAGE> 11
hereto waives personal service of any summons, complaint or other process, which
may be made by any other means permitted under New York law.
Exhibit-12
<PAGE> 12
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
ONYX MANAGEMENT SERVICES, LLC
By:________________________
Ronald C. Holliday
Member and Manager
SARATOGA BEVERAGE GROUP, INC.
By:________________________
Robin Prever
Chief Executive Officer
Exhibit-13
<PAGE> 13
Void after 5:00 p.m. New York City Time, on December 22, 2007.
WARRANT TO PURCHASE EQUITY INTERESTS OF
ONYX MANAGEMENT SERVICES, LLC
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE OR OTHER SECURITIES LAWS AND
MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH
SAID ACT OR LAWS OR AN APPLICABLE EXEMPTION THEREFROM.
This is to certify that, FOR VALUE RECEIVED, Saratoga Beverage Group,
Inc. (the "Holder") is entitled to purchase, subject to the provisions of this
Warrant, from Ronald C. Holliday ("Owner") fully paid, validly issued and
nonassessable equity interests of ONYX Management Services, LLC, a Georgia
limited liability company (the "Company"), representing thirty-five percent
(35%) of the outstanding equity interests (including thirty-five percent (35%)
of the Owner's capital account in the Company) owned by Owner ("Interests"), for
an aggregate purchase price consisting of Ninety-Four Thousand (94,000) shares
of Class A Common Stock, par value $.01 per share ("Common Stock"), at any time
during the period from the date hereof to December 22, 2007, but not later than
5:00 p.m. New York City Time, on December 22, 2007.
The Interests deliverable upon such exercise are hereinafter sometimes
referred to as "Warrant Interests" and the aggregate exercise price of the
Interests is hereinafter sometimes referred to as the "Exercise Price."
I. EXERCISE OF WARRANT. This Warrant may be exercised in whole,
but not in part, at any time on or after the date of this Warrant and until
December 22, 2007 (the "Exercise Period"); provided, however, that (i) if such
day is a day on which banking institutions in the State of New York are
authorized by law to close, then on the next succeeding day which shall not be
such a day, and (ii) in the event of any merger, consolidation or sale of
substantially all the assets of the Company as an entirety, resulting in any
distribution to the Company's members, prior to December 22, 2007, the Holder
shall have the right to exercise this Warrant commencing at such time through
December 22, 2007 into the kind and amount of equity and other securities and
property (including cash) receivable by a holder of the Interests into which
this Warrant might have been exercisable immediately prior thereto. This Warrant
may be exercised by presentation and surrender hereof to Owner with the Purchase
Form annexed hereto duly executed and accompanied by payment of the Exercise
Price for the Interests. Upon receipt by Owner of this Warrant in proper form
for exercise, the Holder shall be deemed to be the owner of record of the
Interests issuable upon such exercise, notwithstanding that the transfer books
of the Company shall then be closed.
Exhibit-14
<PAGE> 14
I. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT.
(1) The Holder may not sell, transfer,
assign or hypothecate all or any portion of this Warrant to
anyone other than an affiliate of the Holder (an "Affiliated
Holder"). If the Holder desires to sell, transfer, assign or
hypothecate all or any portion of this Warrant to an
Affiliated Holder, the Holder shall notify the Owner in
writing and shall surrender the Warrant or Warrants, properly
endorsed, to be so sold, transferred, assigned or
hypothecated. For purposes of this Warrant, an "affiliate" of
a person shall mean an entity controlling, controlled by or
under common control with such person. Upon any sale,
transfer, assignment or hypothecation of the Warrant in
accordance with this Section (b), the Owner shall deliver a
warrant or warrants in the form hereof to the person or
persons entitled thereto; provided, however, that the warrant
issued to the Affiliated Holder shall provide for its
termination at such time as the Affiliated Holder shall cease
to be an affiliate of the Holder unless, prior to or
simultaneously with such time, the Affiliated Holder sells,
transfers, assigns or hypothecates such warrant to the Holder
or to an Affiliated Holder.
(2) Upon receipt by the Owner of evidence
satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Warrant, if mutilated,
the Owner will execute and deliver a new Warrant of like tenor
and date. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of
the Owner, whether or not this Warrant so lost, stolen,
destroyed, or mutilated shall be at any time enforceable by
anyone.
I. RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof,
be entitled to any rights of a member of the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in this Warrant and
are not enforceable against the Owner or the Company except to the extent set
forth herein.
I. ADJUSTMENTS TO EXERCISE PRICE. The Exercise Price in effect at
any time and the number and kind of securities issuable upon exercise of this
Warrant shall be subject to adjustment from time to time as follows:
(1) If the number of shares of Common Stock
outstanding at any time hereafter is increased by a stock
dividend payable in shares of Common Stock or by a subdivision
or split-up of shares of Common Stock, then, following the
record date fixed for the determination of holders of Common
Stock entitled to receive such stock dividend, subdivision or
split-up, the Exercise Price in effect at the time of the
record date for such stock dividend, subdivision or split-up
shall be adjusted so that it shall equal the price determined
by multiplying the Exercise Price by a fraction, the
denominator of which shall be the number of shares of Common
Stock outstanding after giving effect to such action, and the
numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such action. Such
adjustment shall be made successively whenever any event
listed above shall occur.
(2) If at any time hereafter the number of
shares of Common Stock outstanding is decreased by a
combination of the outstanding shares of Common
Exhibit-15
<PAGE> 15
Stock, then, following the record date for such combination,
the Exercise Price in effect at the time of the record date
for such combination shall be adjusted so that it shall equal
the price determined by multiplying the Exercise Price by a
fraction, the denominator of which shall be the number of
shares of Common Stock outstanding after giving effect to such
combination, and the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such
combination. Such adjustment shall be made successively
whenever any event listed above shall occur.
(3) If at any time hereafter there is any
reorganization, reclassification of the capital stock (other
than a change in par value or from par value to no par value
or from no par value to par value or as a result of a stock
dividend or subdivision, split-up or combination of shares),
consolidation or merger (including a merger in which the
Holder is the surviving entity) of the Holder, then each
Warrant shall (in lieu of being exercisable using shares of
Common Stock) after such reorganization, reclassification,
consolidation or merger be exercisable using the kind and
number of shares of stock or other securities or property
(including cash) of the Holder or of the corporation resulting
from such consolidation or surviving such merger to which the
Owner would have been entitled upon such reorganization,
reclassification, consolidation or merger, if the Warrant had
been exercised immediately prior to such reorganization,
reclassification, consolidation or merger. Such adjustment
shall be made successively whenever any event listed above
shall occur.
(4) In the event the Holder shall propose to take any
action of the types described in Section (d)(3), the Holder
shall give notice to the Owner, which notice shall specify the
record date, if any, with respect to any such action and the
date on which such action is to take place. Such notice shall
also set forth such facts with respect thereto as shall be
reasonably necessary to indicate the effect of such action (to
the extent such effect may be known at the date of such
notice) on the Warrants and the number, kind or class of
shares or other securities or property which shall be
deliverable or purchasable upon the occurrence of such action
or deliverable upon exercise of the Warrants. In the case of
any action that would require the fixing of a record date,
such notice shall be given at least fifteen (15) days prior to
the date so fixed, and in case of all other action, such
notice shall be given at least fifteen (15) days prior to the
taking of such proposed action. Failure to give such notice,
or any defect therein, shall not affect the legality or
validity of any such action.
I. MISCELLANEOUS.
(1) All notices, requests, consents and other communications
under this Warrant shall be in writing and shall be deemed to
have been duly made on the date of delivery if delivered
personally or sent by overnight courier, with acknowledgment
of receipt to the party to which notice is given, or on the
fifth day after mailing if mailed to the party to whom notice
is to be given, by registered or certified mail, return
receipt requested, postage prepaid and properly addressed.
(1) All modifications or amendment of this Warrant shall
require the written consent of the party against whom
enforcement of the modification or amendment is sought.
Exhibit-16
<PAGE> 16
(1) The headings contained herein are for
the sole purpose of convenience of reference, and shall not in
any way limit or affect the meaning or interpretation of any
of the terms or provisions of this Warrant.
(1) This Warrant (together with the other
agreements and documents being delivered pursuant to or in
connection with this Warrant) constitutes the entire agreement
of the parties hereto with respect to the subject matter
hereof, and supersedes all prior agreements and understandings
of the parties, oral and written, with respect to the subject
matter hereof.
(1) This Warrant shall inure solely to the
benefit of and shall be binding upon, the Holder and the Owner
and their respective successors, and no other person shall
have or be construed to have any legal or equitable right,
remedy or claim under or in respect of or by virtue of this
Warrant or any provisions herein contained.
(1) This Warrant shall be construed in
accordance with, and governed by, the internal laws of the
State of New York, without giving effect to the principles of
conflict of laws thereof. The parties agree that any dispute
arising out of or relating to this Warrant shall be resolved
by binding arbitration in the City of Albany, State of New
York, under the Commercial Arbitration Rules of the American
Arbitration Association. Each of the parties hereto consents,
for itself and in respect of its property, to the jurisdiction
and venue of the City of Albany, State of New York for
purposes of this Warrant and hereby irrevocably waives any
objection, including any objection to the laying of venue or
based on the grounds of forum non conveniens which it may now
or hereafter have to the bringing of any dispute in the City
of Albany, State of New York, under the Commercial Arbitration
Rules of the American Arbitration Association, in respect of
this Agreement or any documents related thereto. Each of the
parties hereto waives personal service of any summons,
complaint or other process, which may be made by any other
means permitted under New York law.
(1) The failure of the Owner or the Holder
to at any time enforce any of the provisions of this Warrant
shall not be deemed or construed to be a waiver of any such
provision, nor to in any way affect the validity of this
Warrant or any provision hereof or the right of the Owner or
any Holder to thereafter enforce each and every provision of
this Warrant. No waiver of any breach, non-compliance or
non-fulfillment of any of the provisions of this Warrant shall
be effective unless set forth in a written instrument executed
by the party or parties against whom or which enforcement of
such waiver is sought; and no waiver of any such breach,
non-compliance or non-fulfillment shall be construed or deemed
to be a waiver of any other or subsequent breach,
non-compliance or non-fulfillment.
__________________________
Ronald C. Holliday
Dated: December 23, 1997
PURCHASE FORM
Dated ____________________
Exhibit-17
<PAGE> 17
The undersigned hereby irrevocably elects to exercise the within
Warrant in full and hereby makes payment of Ninety-Four Thousand (94,000) shares
of Class A Common Stock, par value $.01 per share, of Saratoga Beverage Group,
Inc. in payment of the actual exercise price thereof.
----------------------
INSTRUCTIONS FOR REGISTRATION OF INTERESTS
Name ____________________________________________________________
(Please typewrite or print in block letters)
Address__________________________________________________________
Signature___________________________________________________
Void after 5:00 p.m. New York City Time, on December 22, 2007.
WARRANT TO PURCHASE EQUITY INTERESTS OF
ONYX MANAGEMENT SERVICES, LLC
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE OR OTHER SECURITIES LAWS AND
MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH
SAID ACT OR LAWS OR AN APPLICABLE EXEMPTION THEREFROM.
This is to certify that, FOR VALUE RECEIVED, Saratoga Beverage Group,
Inc. (the "Holder") is entitled to purchase, subject to the provisions of this
Warrant, from George Merhi ("Owner") fully paid, validly issued and
nonassessable equity interests of ONYX Management Services, LLC, a Georgia
limited liability company (the "Company"), representing thirty-five percent
(35%) of the outstanding equity interests (including thirty-five percent (35%)
of the Owner's capital account in the Company) owned by Owner ("Interests"), for
an aggregate purchase price consisting of Three Thousand (3,000) shares of Class
A Common Stock, par value $.01 per share ("Common Stock"), at any time during
the period from the date hereof to December 22, 2007, but not later than 5:00
p.m. New York City Time, on December 22, 2007.
Exhibit - 18
<PAGE> 18
The Interests deliverable upon such exercise are hereinafter sometimes
referred to as "Warrant Interests" and the aggregate exercise price of the
Interests is hereinafter sometimes referred to as the "Exercise Price."
I. EXERCISE OF WARRANT. This Warrant may be exercised in whole,
but not in part, at any time on or after the date of this Warrant and until
December 22, 2007 (the "Exercise Period"); provided, however, that (i) if such
day is a day on which banking institutions in the State of New York are
authorized by law to close, then on the next succeeding day which shall not be
such a day, and (ii) in the event of any merger, consolidation or sale of
substantially all the assets of the Company as an entirety, resulting in any
distribution to the Company's members, prior to December 22, 2007, the Holder
shall have the right to exercise this Warrant commencing at such time through
December 22, 2007 into the kind and amount of equity and other securities and
property (including cash) receivable by a holder of the Interests into which
this Warrant might have been exercisable immediately prior thereto. This Warrant
may be exercised by presentation and surrender hereof to Owner with the Purchase
Form annexed hereto duly executed and accompanied by payment of the Exercise
Price for the Interests. Upon receipt by Owner of this Warrant in proper form
for exercise, the Holder shall be deemed to be the owner of record of the
Interests issuable upon such exercise, notwithstanding that the transfer books
of the Company shall then be closed.
I. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT.
(1) The Holder may not sell, transfer,
assign or hypothecate all or any portion of this Warrant to
anyone other than an affiliate of the Holder (an "Affiliated
Holder"). If the Holder desires to sell, transfer, assign or
hypothecate all or any portion of this Warrant to an
Affiliated Holder, the Holder shall notify the Owner in
writing and shall surrender the Warrant or Warrants, properly
endorsed, to be so sold, transferred, assigned or
hypothecated. For purposes of this Warrant, an "affiliate" of
a person shall mean an entity controlling, controlled by or
under common control with such person. Upon any sale,
transfer, assignment or hypothecation of the Warrant in
accordance with this Section (b), the Owner shall deliver a
warrant or warrants in the form hereof to the person or
persons entitled thereto; provided, however, that the warrant
issued to the Affiliated Holder shall provide for its
termination at such time as the Affiliated Holder shall cease
to be an affiliate of the Holder unless, prior to or
simultaneously with such time, the Affiliated Holder sells,
transfers, assigns or hypothecates such warrant to the Holder
or to an Affiliated Holder.
(2) Upon receipt by the Owner of evidence
satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Warrant, if mutilated,
the Owner will execute and deliver a new Warrant of like tenor
and date. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of
the Owner, whether or not this Warrant so lost, stolen,
destroyed, or mutilated shall be at any time enforceable by
anyone.
I. RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof,
be entitled to any rights of a member of the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in this Warrant and
are not enforceable against the Owner or the Company except to the extent set
forth herein.
Exhibit - 19
<PAGE> 19
I. ADJUSTMENTS TO EXERCISE PRICE. The Exercise Price in effect at
any time and the number and kind of securities issuable upon exercise of this
Warrant shall be subject to adjustment from time to time as follows:
(1) If the number of shares of Common Stock
outstanding at any time hereafter is increased by a stock
dividend payable in shares of Common Stock or by a subdivision
or split-up of shares of Common Stock, then, following the
record date fixed for the determination of holders of Common
Stock entitled to receive such stock dividend, subdivision or
split-up, the Exercise Price in effect at the time of the
record date for such stock dividend, subdivision or split-up
shall be adjusted so that it shall equal the price determined
by multiplying the Exercise Price by a fraction, the
denominator of which shall be the number of shares of Common
Stock outstanding after giving effect to such action, and the
numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such action. Such
adjustment shall be made successively whenever any event
listed above shall occur.
(2) If at any time hereafter the number of
shares of Common Stock outstanding is decreased by a
combination of the outstanding shares of Common Stock, then,
following the record date for such combination, the Exercise
Price in effect at the time of the record date for such
combination shall be adjusted so that it shall equal the price
determined by multiplying the Exercise Price by a fraction,
the denominator of which shall be the number of shares of
Common Stock outstanding after giving effect to such
combination, and the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such
combination. Such adjustment shall be made successively
whenever any event listed above shall occur.
(3) If at any time hereafter there is any
reorganization, reclassification of the capital stock (other
than a change in par value or from par value to no par value
or from no par value to par value or as a result of a stock
dividend or subdivision, split-up or combination of shares),
consolidation or merger (including a merger in which the
Holder is the surviving entity) of the Holder, then each
Warrant shall (in lieu of being exercisable using shares of
Common Stock) after such reorganization, reclassification,
consolidation or merger be exercisable using the kind and
number of shares of stock or other securities or property
(including cash) of the Holder or of the corporation resulting
from such consolidation or surviving such merger to which the
Owner would have been entitled upon such reorganization,
reclassification, consolidation or merger, if the Warrant had
been exercised immediately prior to such reorganization,
reclassification, consolidation or merger. Such adjustment
shall be made successively whenever any event listed above
shall occur.
(4) In the event the Holder shall propose to take any
action of the types described in Section (d)(3), the Holder
shall give notice to the Owner, which notice shall specify the
record date, if any, with respect to any such action and the
date on which such action is to take place. Such notice shall
also set forth such facts with respect thereto as shall be
reasonably necessary to indicate the effect of such action (to
the extent such effect may be known at the date of such
notice) on the Warrants and the number, kind or class of
shares or other securities or property which shall be
deliverable or purchasable upon the occurrence of such action
or deliverable upon exercise of the Warrants. In the case of
any action that
Exhibit - 20
<PAGE> 20
would require the fixing of a record date, such notice shall
be given at least fifteen (15) days prior to the date so
fixed, and in case of all other action, such notice shall be
given at least fifteen (15) days prior to the taking of such
proposed action. Failure to give such notice, or any defect
therein, shall not affect the legality or validity of any such
action.
I. MISCELLANEOUS.
(1) All notices, requests, consents and
other communications under this Warrant shall be in writing
and shall be deemed to have been duly made on the date of
delivery if delivered personally or sent by overnight courier,
with acknowledgment of receipt to the party to which notice is
given, or on the fifth day after mailing if mailed to the
party to whom notice is to be given, by registered or
certified mail, return receipt requested, postage prepaid and
properly addressed.
(1) All modifications or amendment of this
Warrant shall require the written consent of the party against
whom enforcement of the modification or amendment is sought.
(1) The headings contained herein are for
the sole purpose of convenience of reference, and shall not in
any way limit or affect the meaning or interpretation of any
of the terms or provisions of this Warrant.
(1) This Warrant (together with the other
agreements and documents being delivered pursuant to or in
connection with this Warrant) constitutes the entire agreement
of the parties hereto with respect to the subject matter
hereof, and supersedes all prior agreements and understandings
of the parties, oral and written, with respect to the subject
matter hereof.
(1) This Warrant shall inure solely to the
benefit of and shall be binding upon, the Holder and the Owner
and their respective successors, and no other person shall
have or be construed to have any legal or equitable right,
remedy or claim under or in respect of or by virtue of this
Warrant or any provisions herein contained.
(1) This Warrant shall be construed in
accordance with, and governed by, the internal laws of the
State of New York, without giving effect to the principles of
conflict of laws thereof. The parties agree that any dispute
arising out of or relating to this Warrant shall be resolved
by binding arbitration in the City of Albany, State of New
York, under the Commercial Arbitration Rules of the American
Arbitration Association. Each of the parties hereto consents,
for itself and in respect of its property, to the jurisdiction
and venue of the City of Albany, State of New York for
purposes of this Warrant and hereby irrevocably waives any
objection, including any objection to the laying of venue or
based on the grounds of forum non conveniens which it may now
or hereafter have to the bringing of any dispute in the City
of Albany, State of New York, under the Commercial Arbitration
Rules of the American Arbitration Association, in respect of
this Agreement or any documents related thereto. Each of the
parties hereto waives personal service of any summons,
complaint or other process, which may be made by any other
means permitted under New York law.
(1) The failure of the Owner or the Holder
to at any time enforce any of the provisions of this Warrant
shall not be deemed or construed to be a waiver of any such
provision, nor to in any way affect the validity of this
Warrant or any
Exhibit - 21
<PAGE> 21
provision hereof or the right of the Owner or any Holder to
thereafter enforce each and every provision of this Warrant.
No waiver of any breach, non-compliance or non-fulfillment of
any of the provisions of this Warrant shall be effective
unless set forth in a written instrument executed by the party
or parties against whom or which enforcement of such waiver is
sought; and no waiver of any such breach, non-compliance or
non-fulfillment shall be construed or deemed to be a waiver of
any other or subsequent breach, non-compliance or
non-fulfillment.
--------------------------
George Merhi
Dated: December 23, 1997
PURCHASE FORM
Dated ____________________
The undersigned hereby irrevocably elects to exercise the within
Warrant in full and hereby makes payment of Three Thousand (3,000) shares of
Class A Common Stock, par value $.01 per share, of Saratoga Beverage Group, Inc.
in payment of the actual exercise price thereof.
----------------------
INSTRUCTIONS FOR REGISTRATION OF INTERESTS
Name ____________________________________________________________
(Please typewrite or print in block letters)
Address__________________________________________________________
Signature___________________________________________________
Exhibit - 22
<PAGE> 22
Void after 5:00 p.m. New York City Time, on December 22, 2007.
WARRANT TO PURCHASE EQUITY INTERESTS OF
ONYX MANAGEMENT SERVICES, LLC
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE OR OTHER SECURITIES LAWS AND
MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH
SAID ACT OR LAWS OR AN APPLICABLE EXEMPTION THEREFROM.
This is to certify that, FOR VALUE RECEIVED, Saratoga Beverage Group,
Inc. (the "Holder") is entitled to purchase, subject to the provisions of this
Warrant, from Patrick J. Barr ("Owner") fully paid, validly issued and
nonassessable equity interests of ONYX Management Services, LLC, a Georgia
limited liability company (the "Company"), representing thirty-five percent
(35%) of the outstanding equity interests (including thirty-five percent (35%)
of the Owner's capital account in the Company) owned by Owner ("Interests"), for
an aggregate purchase price consisting of Three Thousand (3,000) shares of Class
A Common Stock, par value $.01 per share ("Common Stock"), at any time during
the period from the date hereof to December 22, 2007, but not later than 5:00
p.m. New York City Time, on December 22, 2007.
The Interests deliverable upon such exercise are hereinafter sometimes
referred to as "Warrant Interests" and the aggregate exercise price of the
Interests is hereinafter sometimes referred to as the "Exercise Price."
I. EXERCISE OF WARRANT. This Warrant may be exercised in whole,
but not in part, at any time on or after the date of this Warrant and until
December 22, 2007 (the "Exercise Period"); provided, however, that (i) if such
day is a day on which banking institutions in the State of New York are
authorized by law to close, then on the next succeeding day which shall not be
such a day, and (ii) in the event of any merger, consolidation or sale of
substantially all the assets of the Company as an entirety, resulting in any
distribution to the Company's members, prior to December 22, 2007, the Holder
shall have the right to exercise this Warrant commencing at such time through
December 22, 2007 into the kind and amount of equity and other securities and
property (including cash) receivable by a holder of the Interests into which
this Warrant might have been exercisable immediately prior thereto. This Warrant
may be exercised by presentation and surrender hereof to Owner with the Purchase
Form annexed hereto duly executed and accompanied by payment of the Exercise
Price for the Interests. Upon receipt by Owner of this Warrant in proper form
for exercise, the Holder shall be deemed to be the owner of record of the
Interests issuable upon such exercise, notwithstanding that the transfer books
of the Company shall then be closed.
Exhibit - 23
<PAGE> 23
I. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT.
(1) The Holder may not sell, transfer,
assign or hypothecate all or any portion of this Warrant to
anyone other than an affiliate of the Holder (an "Affiliated
Holder"). If the Holder desires to sell, transfer, assign or
hypothecate all or any portion of this Warrant to an
Affiliated Holder, the Holder shall notify the Owner in
writing and shall surrender the Warrant or Warrants, properly
endorsed, to be so sold, transferred, assigned or
hypothecated. For purposes of this Warrant, an "affiliate" of
a person shall mean an entity controlling, controlled by or
under common control with such person. Upon any sale,
transfer, assignment or hypothecation of the Warrant in
accordance with this Section (b), the Owner shall deliver a
warrant or warrants in the form hereof to the person or
persons entitled thereto; provided, however, that the warrant
issued to the Affiliated Holder shall provide for its
termination at such time as the Affiliated Holder shall cease
to be an affiliate of the Holder unless, prior to or
simultaneously with such time, the Affiliated Holder sells,
transfers, assigns or hypothecates such warrant to the Holder
or to an Affiliated Holder.
(2) Upon receipt by the Owner of evidence
satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Warrant, if mutilated,
the Owner will execute and deliver a new Warrant of like tenor
and date. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of
the Owner, whether or not this Warrant so lost, stolen,
destroyed, or mutilated shall be at any time enforceable by
anyone.
I. RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof,
be entitled to any rights of a member of the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in this Warrant and
are not enforceable against the Owner or the Company except to the extent set
forth herein.
I. ADJUSTMENTS TO EXERCISE PRICE. The Exercise Price in effect at
any time and the number and kind of securities issuable upon exercise of this
Warrant shall be subject to adjustment from time to time as follows:
(1) If the number of shares of Common Stock
outstanding at any time hereafter is increased by a stock
dividend payable in shares of Common Stock or by a subdivision
or split-up of shares of Common Stock, then, following the
record date fixed for the determination of holders of Common
Stock entitled to receive such stock dividend, subdivision or
split-up, the Exercise Price in effect at the time of the
record date for such stock dividend, subdivision or split-up
shall be adjusted so that it shall equal the price determined
by multiplying the Exercise Price by a fraction, the
denominator of which shall be the number of shares of Common
Stock outstanding after giving effect to such action, and the
numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such action. Such
adjustment shall be made successively whenever any event
listed above shall occur.
(2) If at any time hereafter the number of
shares of Common Stock outstanding is decreased by a
combination of the outstanding shares of Common
Exhibit - 24
<PAGE> 24
Stock, then, following the record date for such combination,
the Exercise Price in effect at the time of the record date
for such combination shall be adjusted so that it shall equal
the price determined by multiplying the Exercise Price by a
fraction, the denominator of which shall be the number of
shares of Common Stock outstanding after giving effect to such
combination, and the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such
combination. Such adjustment shall be made successively
whenever any event listed above shall occur.
(3) If at any time hereafter there is any
reorganization, reclassification of the capital stock (other
than a change in par value or from par value to no par value
or from no par value to par value or as a result of a stock
dividend or subdivision, split-up or combination of shares),
consolidation or merger (including a merger in which the
Holder is the surviving entity) of the Holder, then each
Warrant shall (in lieu of being exercisable using shares of
Common Stock) after such reorganization, reclassification,
consolidation or merger be exercisable using the kind and
number of shares of stock or other securities or property
(including cash) of the Holder or of the corporation resulting
from such consolidation or surviving such merger to which the
Owner would have been entitled upon such reorganization,
reclassification, consolidation or merger, if the Warrant had
been exercised immediately prior to such reorganization,
reclassification, consolidation or merger. Such adjustment
shall be made successively whenever any event listed above
shall occur.
(4) In the event the Holder shall propose to take any
action of the types described in Section (d)(3), the Holder
shall give notice to the Owner, which notice shall specify the
record date, if any, with respect to any such action and the
date on which such action is to take place. Such notice shall
also set forth such facts with respect thereto as shall be
reasonably necessary to indicate the effect of such action (to
the extent such effect may be known at the date of such
notice) on the Warrants and the number, kind or class of
shares or other securities or property which shall be
deliverable or purchasable upon the occurrence of such action
or deliverable upon exercise of the Warrants. In the case of
any action that would require the fixing of a record date,
such notice shall be given at least fifteen (15) days prior to
the date so fixed, and in case of all other action, such
notice shall be given at least fifteen (15) days prior to the
taking of such proposed action. Failure to give such notice,
or any defect therein, shall not affect the legality or
validity of any such action.
I. MISCELLANEOUS.
(1) All notices, requests, consents and
other communications under this Warrant shall be in writing
and shall be deemed to have been duly made on the date of
delivery if delivered personally or sent by overnight courier,
with acknowledgment of receipt to the party to which notice is
given, or on the fifth day after mailing if mailed to the
party to whom notice is to be given, by registered or
certified mail, return receipt requested, postage prepaid and
properly addressed.
(1) All modifications or amendment of this
Warrant shall require the written consent of the party against
whom enforcement of the modification or amendment is sought.
Exhibit - 25
<PAGE> 25
(1) The headings contained herein are for
the sole purpose of convenience of reference, and shall not in
any way limit or affect the meaning or interpretation of any
of the terms or provisions of this Warrant.
(1) This Warrant (together with the other
agreements and documents being delivered pursuant to or in
connection with this Warrant) constitutes the entire agreement
of the parties hereto with respect to the subject matter
hereof, and supersedes all prior agreements and understandings
of the parties, oral and written, with respect to the subject
matter hereof.
(1) This Warrant shall inure solely to the
benefit of and shall be binding upon, the Holder and the Owner
and their respective successors, and no other person shall
have or be construed to have any legal or equitable right,
remedy or claim under or in respect of or by virtue of this
Warrant or any provisions herein contained.
(1) This Warrant shall be construed in
accordance with, and governed by, the internal laws of the
State of New York, without giving effect to the principles of
conflict of laws thereof. The parties agree that any dispute
arising out of or relating to this Warrant shall be resolved
by binding arbitration in the City of Albany, State of New
York, under the Commercial Arbitration Rules of the American
Arbitration Association. Each of the parties hereto consents,
for itself and in respect of its property, to the jurisdiction
and venue of the City of Albany, State of New York for
purposes of this Warrant and hereby irrevocably waives any
objection, including any objection to the laying of venue or
based on the grounds of forum non conveniens which it may now
or hereafter have to the bringing of any dispute in the City
of Albany, State of New York, under the Commercial Arbitration
Rules of the American Arbitration Association, in respect of
this Agreement or any documents related thereto. Each of the
parties hereto waives personal service of any summons,
complaint or other process, which may be made by any other
means permitted under New York law.
(1) The failure of the Owner or the Holder
to at any time enforce any of the provisions of this Warrant
shall not be deemed or construed to be a waiver of any such
provision, nor to in any way affect the validity of this
Warrant or any provision hereof or the right of the Owner or
any Holder to thereafter enforce each and every provision of
this Warrant. No waiver of any breach, non-compliance or
non-fulfillment of any of the provisions of this Warrant shall
be effective unless set forth in a written instrument executed
by the party or parties against whom or which enforcement of
such waiver is sought; and no waiver of any such breach,
non-compliance or non-fulfillment shall be construed or deemed
to be a waiver of any other or subsequent breach,
non-compliance or non-fulfillment.
--------------------------
Patrick J. Barr
Dated: December 23, 1997
PURCHASE FORM
Dated ____________________
Exhibit - 26
<PAGE> 26
The undersigned hereby irrevocably elects to exercise the within
Warrant in full and hereby makes payment of Three Thousand (3,000) shares of
Class A Common Stock, par value $.01 per share, of Saratoga Beverage Group, Inc.
in payment of the actual exercise price thereof.
----------------------
INSTRUCTIONS FOR REGISTRATION OF INTERESTS
Name ____________________________________________________________
(Please typewrite or print in block letters)
Address__________________________________________________________
Signature___________________________________________________
Exhibit - 27
<PAGE> 27
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE OR OTHER SECURITIES LAWS AND
MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH
SAID ACT OR LAWS OR AN APPLICABLE EXEMPTION THEREFROM.
SECURED PROMISSORY NOTE
$800,000.00
December 23, 1997
FOR VALUE RECEIVED, ONYX MANAGEMENT SERVICES, LLC, a Georgia limited
liability company (the "Company"), hereby promises to pay to Saratoga Beverage
Group, Inc. or its assignees as permitted under Section 10 hereof ("Payee"), the
principal sum of up to Eight Hundred Thousand Dollars ($800,000) (or such lesser
amount as shall equal the unpaid principal amount borrowed as evidenced by
Schedule A hereto), on the dates and in the amounts hereinafter set forth. Payee
has loaned the principal amount to the Company for working capital purposes, and
the Company agrees to use such amount for such purpose. This Secured Promissory
Note is hereinafter referred to as this "Note." This Note is issued pursuant to
the terms of an agreement dated as of the date hereof between the Company and
Payee (the "Agreement"), and capitalized terms used but not defined herein shall
have the meanings ascribed to them in the Agreement.
I. Interest. Subject to the terms and conditions hereof, the
Company promises to pay interest on the principal amount of this Note at a per
annum rate equal to the greater of (i) eight percent (8%) or (ii) the Prime Rate
(as defined herein) plus one percent (1%) as in effect on the first day of the
calendar quarter for which such interest shall accrue. The Prime Rate shall
mean, for any day, a rate of interest per annum publicly announced from time to
time by Citibank, N.A. at its principal office in New York City as its prime
rate in effect at such time. Such interest shall be payable in arrears quarterly
on the first day of each calendar quarter (each date on which interest is
payable, an "Interest Payment Date"), beginning on April 1, 1998. Interest on
this Note shall accrue from the date of issuance until repayment of the
principal and payment of all accrued interest and premium in full and shall be
computed on the basis of a 360-day year of twelve 30-day months. Notwithstanding
anything to the contrary in this Note, the Company shall pay interest on any
overdue principal, if any, and, to the extent permitted by applicable law, on
any overdue interest at a per annum rate equal to the greater of (i) eleven
percent (11%) or (ii) the Prime Rate plus four percent (4%) as in effect on the
first day of the calendar quarter from which such interest shall accrue until
paid, payable as aforesaid or, at the option of Payee, on demand.
Exhibit - 28
<PAGE> 28
I. Principal and Maturity Date. Three Hundred Thousand Dollars
($300,000) of the principal amount outstanding under this Note shall become due
and payable in full on the fourth anniversary of the date of this Note, and the
remaining unpaid principal amount outstanding under this Note (up to Five
Hundred Thousand Dollars ($500,000), as evidenced by Schedule A hereto) shall
become due and payable in full on the third anniversary of the date of this
Note.
I. Prepayment. At any time or from time to time, this Note may be
prepaid, in whole or in part, upon thirty (30) days' prior written notice from
the Company to Payee. In addition, in the event that any service contract is
terminated, and the Company receives a payment or return of payment from the
other party to the service contract, the Company shall use such proceeds to
prepay this Note. All prepayments made on this Note shall be applied first to
the payment of all unpaid interest accrued on this Note and then to the
outstanding and unpaid principal amount of this Note as of the date of the
payment, in the order of maturity (i.e., amounts due on the third anniversary
shall be prepaid prior to prepayment of amounts due on the fourth anniversary).
I. General Payment Provisions. All payments or prepayments of
principal and interest and other sums due pursuant to this Note shall be made in
lawful money of the United States of America, with principal payments to be made
by wire transfer of immediately available funds to such account as Payee shall
have previously designated to the Company in writing not later than two (2)
Business Days (as defined below) prior to date on which such payment becomes due
and interest payments to be payable to Payee by check payable to Payee at 11
Geyser Road, Saratoga Springs, New York 12866 or at such other address as Payee
shall have previously designated to the Company in writing not later than two
(2) Business Days prior to the date on which such payment becomes due.
If the due date of any payment under this Note would otherwise fall on
a day which is not a Business Day, such date will be extended to the immediately
succeeding Business Day and interest shall be payable at the rate set forth
herein for the period of the extension. The term "Business Day" shall mean any
day on which commercial banks in the State of New York are not authorized or
required to close.
I. Security. This Note is secured by the Collateral (as defined in
the Security Agreement dated as of the date hereof between the Company and Payee
(the "Security Agreement")) pursuant to the terms of the Security Agreement and
is subject to all of the terms and conditions thereof, including the remedies
specified therein.
Exhibit - 29
<PAGE> 29
I. Events of Default. If one or more of the following events (an
"Event of Default") shall occur and be continuing:
A. the Company shall default in the payment when due of any
principal of this Note, and such default shall continue unremedied for a period
of five (5) days after notice thereof to the Company by Payee;
A. the Company shall default in the payment when due of any
interest under this Note, and such default shall continue unremedied for a
period of fifteen (15) days after notice thereof to the Company by Payee;
A. any default by the Company in the performance of any of its
covenants or agreements in this Note, the Agreement or the Security Agreement,
and such default shall continue unremedied for a period of thirty (30) days
after notice thereof to the Company by Payee;
A. any representation, warranty or certification made or deemed
made by the Company in this Note, the Agreement or the Security Agreement shall
prove to have been false or misleading as of the time made or furnished in any
material respect;
A. any default by the Company under any mortgage, indenture or
instrument under which there may be issued, or by which there may be secured or
evidenced, any debt for borrowed money or debt in connection with the
acquisition by the Company of any other business or entity (including, without
limitation, capitalized leases and purchase money mortgages) whether such
indebtedness now exists or shall hereafter be created, resulting in indebtedness
in excess of Twenty-Five Thousand Dollars ($25,000) becoming or being declared
due and payable prior to the date on which it would otherwise become due and
payable;
A. an uninsured final judgment or judgments aggregating
Twenty-Five Thousand Dollars ($25,000) or more shall have been entered by a
court of competent jurisdiction against the Company and such judgment(s) shall
remain unstayed or undischarged for three (3) days or more;
A. the Company shall admit in writing its inability to, or be
generally unable to, pay its debts as such debts generally become due;
A. the Company shall (i) apply for or consent in writing to the
appointment of, or the taking of possession by, a receiver, custodian, trustee
or liquidator of itself or of all or a substantial part of its assets, (ii) make
an assignment for the benefit of its creditors, (iii) commence a voluntary case
pursuant to Title 11 of the United States Code, as now or hereafter in effect
(the "Bankruptcy Code"), (iv) file a petition seeking to take advantage of any
other law relating to bankruptcy, insolvency, reorganization, winding-up, or
composition or readjustment of debts, (v) acquiesce in writing to any petition
filed against it in an involuntary case under the Bankruptcy Code, or (vi) take
any corporate action for the purpose of effecting any of the foregoing; or
Exhibit - 30
<PAGE> 30
A. a proceeding or case shall be commenced, without the
application or consent of the Company in any court of competent jurisdiction,
seeking (i) its liquidation, reorganization, dissolution or winding-up, or the
composition or readjustment of its debts, (ii) the appointment of a trustee,
receiver, custodian, liquidator or the like of such entity or of all or any
substantial part of its assets, or (iii) similar relief in respect of such
entity, under any law relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or adjustment of debts, and such proceeding or case
shall continue undismissed, or an order, judgment or decree approving or
ordering any of the foregoing shall be entered and continue unstayed and in
effect, for a period of sixty (60) days; or an order for relief against any such
entity shall be entered in an involuntary case under the Bankruptcy Code.
THEREUPON: (i) in the case of an Event of Default (other than an Event
of Default referred to in clause (h) or (i) above), Payee may, by notice to the
Company, declare the principal amount then outstanding of, and the accrued
interest on, this Note and all other amounts payable by the Company under this
Note to be forthwith due and payable, whereupon such amount shall be immediately
due and payable without presentment, demand, protest or other formalities of any
kind, all of which are hereby expressly waived by the Company; (ii) in the case
of the occurrence of an Event of Default referred to in clause (h) or (i) above,
the principal amount then outstanding of, and the accrued interest on, this Note
shall become automatically immediately due and payable without presentment,
demand, protest or other formalities of any kind, all of which are hereby
expressly waived by the Company, and in any case Payee may take such action as
is permitted to enforce its rights hereunder, (iii) the Company shall pay all of
the expenses of Payee incurred for the collection of this Note, including
reasonable attorneys' fees and legal expenses; and (iv) Payee may exercise from
time to time any rights and remedies available to it by law, including those
available under any agreement or other instrument relating to the amounts owed
under this Note. No delay on the part of Payee in the exercise of any right or
remedy shall preclude other or further exercise thereof or the exercise of any
other right or remedy. Payee may apply any funds received from the Company, in
such manner and order of priority and against such payment obligations hereunder
as Payee may determine.
I. Affirmative Covenants. The Company covenants and agrees that,
while this Note is outstanding, it shall:
A. Pay and discharge all taxes, assessments and governmental
charges or levies imposed upon it or upon its income and profits, or upon any
properties belonging to it before the same shall be in default; provided,
however, that the Company shall not be required to pay any such tax, assessment,
charge or levy which is being contested in good faith by proper proceedings and
adequate reserves for the accrual of same are maintained if required by
generally accepted accounting principles;
A. Preserve its corporate existence and continue to engage in
business of the same general type as conducted as of the date hereof;
A. Comply in all respects with all statutes, laws, ordinances,
orders, judgments, decrees, injunctions, rules, regulations, permits, licenses,
authorizations and
Exhibit - 31
<PAGE> 31
requirements ("Requirements") of all governmental bodies, departments,
commissions, boards, companies or associates insuring the premises, courts,
authorities, officials, or officers, which are applicable to the Company; except
wherein the failure to comply would not have a material adverse effect on the
Company; provided that nothing contained herein shall prevent the Company from
contesting the validity or the application of any Requirements;
A. Maintain in good repair and working order all properties used
in their business and from time to time shall make all appropriate repairs and
replacements thereof;
A. Maintain a standard and modern system of accounting in
accordance with generally accepted accounting principles ("GAAP"), with ledger
and account cards or computer tapes, disks, printouts and records that contain
information pertaining to the Collateral that may from time to time be requested
by Payee and not modify or change its method of accounting or enter into any
agreement hereafter with any third-party accounting firm or service bureau for
the preparation or storage of the Company's accounting records without said
accounting firm's or service bureau's agreeing to provide to Payee information
regarding the Collateral and the Company's financial condition;
A. Furnish Payee as soon as practicable but in no event later than
forty-five (45) days after the end of each quarterly fiscal period of each
fiscal year with unaudited quarterly financial statements in form and substance
as required by Payee, including a balance sheet, an income statement and a
statement of cash flows, prepared in accordance with GAAP together with a
certificate executed by the chief financial officer of the Company stating that
the financial statements fairly present the financial condition of the Company
as of the date and for the periods covered and that as of the date of such
certificate there has not been any violation of any provision of this Agreement
or the happening of any Event of Default hereunder;
A. Furnish Payee as soon as practicable but in no event later than
ninety (90) days after the close of each fiscal year commencing with fiscal 1997
with annual financial statements, which financial statements shall be prepared
in accordance with GAAP and shall be reviewed by an independent certified public
accounting firm satisfactory to Payee and, with all such financial statements,
also deliver a certificate of its chief financial officer attesting that no
Event of Default has occurred and is continuing;
A. Promptly supply Payee with such other information concerning
its affairs as Payee may reasonably request from time to time hereafter and
shall promptly notify Payee of any material adverse change in the Company's
financial condition and any condition or event that constitutes a breach of or
event that constitutes an Event of Default and hereby authorizes Payee to
contact credit reporting agencies concerning, the Company's credit standing;
A. Comply in all respects with Article V of the Agreement with
respect to the exclusive use of Payee's water products in the business of the
Company; and
Exhibit - 32
<PAGE> 32
A. Purchase and maintain, at its sole cost, life and disability
insurance on Ronald C. Holliday, naming Saratoga as beneficiary, in an amount to
be determined and adjusted by the Board of Directors not less often than
annually and in all events in an amount no less than One Million Five Hundred
Thousand Dollars ($1,500,000).
I. Negative Covenants. The Company covenants and agrees that,
while this Note is outstanding, it shall not, without the approval of Payee:
A. Approve any material change in the scope of the business of the
Company;
A. Approve any sale of all or substantially all of the assets of
the Company;
A. Approve any amendment to the Articles of Organization or the
Operating Agreement of the Company;
A. Approve any borrowing by the Company, other than borrowing in
the ordinary course of business not in excess of $100,000 individually;
A. Approve any capital expenditure (including for purposes hereof,
any expenditure under any concession service agreement) of the Company in excess
of $100,000 in the aggregate;
A. Approve the creation of any security interest or lien on all or
substantially all of the assets of the Company;
A. Approve any filing for receivership, dissolution or bankruptcy;
A. Approve the acquisition by the Company of the equity securities
or assets of any other person or entity or the creation or formation of any
subsidiary;
A. Approve the participation of the Company in any partnership,
joint venture or other profit sharing agreement;
A. Approve any salary increases or bonuses payable to any Manager
(as defined in the Operating Agreement) or officer of the Company;
A. Approve any arrangement whereby the Company would guarantee or
indemnify any unaffiliated third party in respect of any liability, except in
the ordinary course of business of the Company;
A. Approve any change in the fiscal year end of the Company; or
A. Approve the declaration or payment of any dividend or profit
distribution by the Company to the members of the Company.
I. Amendment. The Company may not modify any of the terms of this
Note without the prior written consent of Payee.
Exhibit - 33
<PAGE> 33
I. No Assignment. This Note may not be assigned by Payee without
the prior written consent of the Company except that Payee may assign this Note
to any affiliate of Payee without such consent. This Note shall be binding upon
and inure to the benefit of the parties hereto and their legal representatives,
successors and assigns.
I. Governing Law; Consent to Jurisdiction. This Note shall be
construed in accordance with, and governed by, the internal laws of the State of
New York, without giving effect to the principles of conflict of laws thereof.
The parties agree that any dispute arising out of or relating to this Note shall
be resolved by binding arbitration in the City of Albany, State of New York,
under the Commercial Arbitration Rules of the American Arbitration Association.
Each of the parties hereto consents, for itself and in respect of its property,
to the jurisdiction and venue of the City of Albany, State of New York for
purposes of this Section 11 and hereby irrevocably waives any objection,
including any objection to the laying of venue or based on the grounds of forum
non conveniens which it may now or hereafter have to the bringing of any dispute
in the City of Albany, State of New York, under the Commercial Arbitration Rules
of the American Arbitration Association, in respect of this Agreement or any
documents related thereto. Each of the parties hereto waives personal service of
any summons, complaint or other process, which may be made by any other means
permitted under New York law.
I. Adjustment of Interest Rate. No provision of this Note shall
require the payment of interest to the extent that receipt of any such payment
by the Company would be contrary to the provisions of law applicable to the
Company limiting the maximum amount of interest that may be charged to or
collected from the Company, and if any sum in excess of such maximum rate of
interest is paid, without premium or penalty, and all payments made thereafter
will be appropriately applied to interest and principal to give effect to such
maximum rate, and after such application any excess shall be immediately
refunded to the Company.
If the maximum rate of interest, if any, now permitted by law to be
charged for this transaction is increased, then for so long as the increase is
in effect, the applicable maximum rate permitted to be charged as referred to in
the paragraph immediately preceding will be deemed to be such increased rate. If
the maximum rate of interest, if any, now permitted by law to be charged for
this transaction should be eliminated so that there would be no maximum rate,
then interest on this Note shall thereafter be paid at the rate provided in this
Note.
IN WITNESS WHEREOF, the undersigned has executed this Secured
Promissory Note as of this 23rd day of December, 1997.
ONYX MANAGEMENT SERVICES, LLC
By: _______________________
Ronald C. Holliday
Member and Manager
Exhibit - 34
<PAGE> 34
SCHEDULE A
Borrowings
Principal Amount Paid Unpaid Principal
Date Loan Made Amount of Loan or Prepaid Amount
- -------------- -------------- ---------- ------
Exhibit - 35
<PAGE> 35
SECURITY AGREEMENT
This SECURITY AGREEMENT (this "Agreement"), dated as of
December 23, 1997, is entered into and made by and between Saratoga Beverage
Group, Inc., a Delaware corporation (the "Secured Party"), and ONYX Management
Services, LLC., a Georgia limited liability company ("ONYX").
WHEREAS, the Secured Party has agreed to lend ONYX an
aggregate of up to Eight Hundred Thousand Dollars ($800,000.00) for general
business operations, and, simultaneously herewith, ONYX is issuing a Secured
Promissory Note (the "Note" ) in such amount to the Secured Party; and
WHEREAS, as security for the loan, ONYX has agreed to grant to
the Secured Party continuing security interests in the Collateral (as
hereinafter defined); and
WHEREAS, it is a condition precedent to Secured Party's
obligations to make the loan to ONYX that ONXY execute and deliver to the
Secured Party this Agreement; and
WHEREAS, ONYX desires to execute and deliver this Agreement to
satisfy the condition described in the preceding paragraph;
NOW, THEREFORE, in consideration of the benefits accruing to
ONYX, and for other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, ONYX covenants and agrees with the Secured
Party as follows:
1. Security for Obligations. This Agreement is for the benefit
of the Secured Party to secure the due and punctual payment and performance of
all indebtedness, liabilities and obligations of ONYX to the Secured Party, of
every kind and description, whether direct, indirect or contingent, now existing
or hereafter acquired or arising, secured or unsecured, primary or secondary,
due or to become due, arising under the Note or this Agreement and any future
amendments thereto (all of the foregoing are hereinafter called the
"Obligations").
2. Definition of Collateral. As used herein, the term
"Collateral" shall mean all tangible and intangible personal property and
fixtures of ONXY, whether now owned or hereafter acquired by or arising in ONYX
or in which ONYX now or hereafter holds or hereafter acquires an interest
(direct or indirect), wherever located; and all additions and substitutions
thereto, wherever located; and all proceeds and products of all of the
foregoing, wherever situated.
3. Pledge of Collateral. To secure the Obligations, ONYX
hereby assigns, grants, conveys, pledges and sets over to the Secured Party a
security interest in all of the Collateral.
Exhibit - 36
<PAGE> 36
4. Payments and Other Distributions. Unless a Default shall
have occurred and be continuing, all cash or other amounts payable in respect of
the Collateral shall be paid to ONYX.
5. Representations, Warranties and Covenants. ONYX hereby
represents, warrants and covenants as follows:
(a) ONYX is, or to the extent that certain of the
Collateral is to be acquired after the date hereof, will be, the owner of the
Collateral, free from any adverse lien, security interest or encumbrance. ONYX
will defend the Collateral against all claims and demands of all persons at any
time claiming any interest therein to the extent that it is commercially
reasonable to do so. ONYX will keep the Collateral free from any adverse lien,
security interest or encumbrance.
(b) No financing statement covering the Collateral is
on file in any public office, other than the financing statements filed or to be
filed by or on behalf of the Secured Party pursuant to this Agreement.
(c) ONYX will promptly pay any and all taxes,
assessments and governmental charges upon the Collateral prior to the date
penalties are attached thereto, except to the extent that such taxes,
assessments and charges have been adequately reserved for and are currently
being contested in good faith by ONYX in appropriate proceedings.
(d) ONYX will immediately notify the Secured Party of
any event causing a substantial loss or diminution in the value of all or any
material part of the Collateral and the amount or an estimate of the amount of
such loss or diminution.
(e) ONXY will not sell or offer to sell or otherwise
assign, transfer or dispose of the Collateral or any interest therein, without
the prior written consent of the Secured Party.
(f) ONYX will provide the Secured Party with not less
than thirty (30) days' prior written notice of any change in the name of ONYX.
(g) ONYX will have and maintain insurance at all
times with respect to the Collateral against risks of damage, fire (including
so-called extended coverage) and theft, and such other risks of damage, fire
(including so-called extended coverage) and theft, and such other risks as the
Secured Party may reasonable require in writing, containing such terms, in such
form, for such periods and written by such companies as may be reasonable
satisfactory to the Secured Party, such insurance shall name the Secured Party
as loss payee and additional insured, as applicable, and shall provide for
thirty (30) days' prior advance notice in writing to the Secured Party of any
amendment or cancellation thereof, and within ten (10) days after the execution
hereof, ONYX shall furnish the Secured Party with certificates or other evidence
satisfactory to the Secured Party of compliance with the foregoing insurance
provisions.
Exhibit - 37
<PAGE> 37
(h) ONXY represents and warrants that all books and
records concerning the Collateral are located at 1733 Mount Vernon Road, Suite
202, Atlanta, Georgia 30338. ONXY shall immediately notify the Secured Party of
any change in the location of its chief executive office, of any new or
additional address where its books and records concerning the Collateral are
located.
(i) ONYX agrees to reimburse the Secured Party on
demand for reasonable out-of-pocket expenses incurred in connection with the
Secured Party's exercise of its rights under this Agreement. ONYX agrees to
indemnify the Secured Party and hold it harmless against any costs, expenses,
losses, damages and liability (including reasonable attorney's fees) incurred in
connection with this Agreement.
(j) ONYX covenants and agrees that ONYX (i) shall
defend the Secured Party's right, title and security interest in and to the
Collateral as a first lien security interest, against the claims and demands of
all persons whomsoever; (ii) shall have like title to and right to pledge any
other property at any time hereafter constituting Collateral and shall likewise
defend the right thereto and first lien security interest therein of Secured
Party; and (iii) shall not, with respect to any Collateral, enter into or grant
any lien or security interest on any of the Collateral (other than the liens
granted pursuant to this Agreement).
6. Remedies in Case of Default.
For purposes of this Agreement, a "Defualt" shall mean the
occurrence of one or more of the following events:
(i) if ONYX shall fail to pay when due any of the
Obligations; or if ONYX shall breach any of the representations, warranties or
covenants contained in this Agreement; or
(ii) if an Event of Default should occur under the
Note.
If a Default shall have occurred and be continuing, the Secured Party shall be
entitled to exercise all of the rights, powers and remedies for the protection
and enforcement of its rights in respect of the Collateral at law or equity and,
in addition, the Secured Party may, without being required to give any notice,
except as herein provided or as may be required by mandatory provisions of law,
sell the Collateral, or any part thereof, at public or private sale or at any
broker's board, for cash, upon credit or for future delivery, and at such price
or prices as the Secured Party may deem satisfactory. The Secured Party shall
have the right to take immediate possession of the Collateral and for the
purpose may enter upon any premises on which any Collateral is located without
notice and remove the same therefrom. ONYX hereby expressly consents to such
repossession of the Collateral and waives all rights to demand any notice with
respect thereto. The Secured Party may be the purchaser of any or all of the
Collateral so sold at any public sale and may apply all or any portion of the
Obligations towards the payment for any Collateral purchased by the Secured
Party, and may thereafter hold the same, absolutely, free from any right or
claim of whatsoever kind. Upon any such sale the Secured Party shall have the
right to deliver, assign and transfer to the purchaser thereof
Exhibit - 38
<PAGE> 38
the Collateral so sold. Each purchaser at any such sale shall hold the
Collateral so sold absolutely, free from any claim or right of whatsoever kind,
including any equity or right of redemption. ONYX, to the extent permitted by
law, hereby specifically waives all rights of redemption, stay or apraisal which
it has or may have under any rule of law or statute now existing or hereafter
adopted. The Secured Party shall give ten (10) days' prior written notice of its
intention to make any such public or private sale. Such notice, in case of a
public sale, shall state the time and place fixed for such sale. Any such public
sale shall be held at such time or times within ordinary business hours and at
such place or places as the Secured Party may fix in the notice of such sale. At
any such sale the Collateral may be sold in one lot as an entirety or in
separate parcels, as the Secured Party may determine. The Secured Party shall
not be obligated to make any such sale pursuant to any such notice. The Secured
Party may, without notice or publication, adjourn any public or private sale or
cause the same to be adjourned from time to time by announcement at the time and
place fixed for the sale, and such sale may be made at any time or place to
which the same may be so adjourned.
7. Transfer by ONYX. ONYX shall not sell or otherwise dispose
of or grant any option with respect to, or pledge or otherwise encumber any of
the Collateral or any interest therein, except for sales of inventory in the
ordinary course of business.
8. Power of Attorney. ONYX hereby appoints the Secured Party
and any designee of the Secured Party as ONYX's attorney-in-fact, at ONYX's own
cost and expense, to exercise at any time after the occurrence of a Default all
or any of the powers, authorities, and discretions conferred on or reserved to
the Secured Party by or pursuant to this Agreement or applicable law, and
(without prejudice to the generality of any of the foregoing) to seal and
deliver or otherwise perfect any deed, assurance, agreements, instrument or act
as the Secured Party may deem proper in or for the purpose of exercising any of
such powers, authorities or discretions. ONYX hereby ratifies and confirms, and
hereby agrees to ratify and confirm, whatever lawful acts the Secured Party or
any of the Secured Party's sub-agents or attorneys shall do or purport to do in
the exercise of the power of attorney granted to the Secured Party pursuant to
this Paragraph 8, which power of attorney, being given for consideration, is
irrevocable.
9. Financing Statements. ONYX agrees to deliver to the Secured
Party concurrently herewith such UCC Financing Statements duly executed as the
Secured Party may reasonable request, for filing in Georgia, and agrees, from
time to time, to deliver to the Secured Party such additional UCC Financing
Statements for filing and take any other actions, as may be appropriate, to
perfect the Secured Party's security interest in such jurisdictions as the
Secured Party may determine to be appropriate.
10. Miscellaneous. ONYX agrees with Secured Party that each of
the obligations and liabilities of ONYX to the Secured Party under this
agreement may be enforced against ONYX without the necessity of joining any
other person as a party. This Agreement shall create a continuing security
interest in the Collateral and shall be binding upon the successors and assigns
of ONYX and shall inure to the benefit of and
Exhibit - 39
<PAGE> 39
be enforceable by the Secured Party and its permitted successors and assigns.
The headings in this agreement are for purposes of reference only and shall not
limit or define the meaning hereof. This agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which shall
constitute one instrument. In the event that any provision of this Agreement
shall prove to be invalid or unenforceable, such provision shall be deemed to be
severable from the other provisions of this Agreement which shall remain binding
on all parties hereto.
11. Termination. Upon such time, if any, as ONYX shall pay,
satisfy or otherwise discharge in full the Obligations, this Agreement shall be
null and void and the security interests granted hereunder shall terminate.
12. Governing Law; Consent to Jurisdiction. This Agreement
shall be construed in accordance with, and governed by, the internal laws of the
State of New York, without giving effect to the principles of conflict of laws
thereof. The parties agree that any dispute arising out of or relating to this
Agreement shall be resolved by binding arbitration in the City of Albany, State
of New York, under the Commercial Arbitration Rules of the American Arbitration
Association. Each of the parties hereto consents, for itself and in respect of
its property, to the jurisdiction and venue of the City of Albany, State of New
York for purposes of this section 12 and hereby irrevocably waives any
objection, including and objection to the laying of venue or based on the
grounds of forum non conveniens which it may now or hereafter have to the
bringing of any dispute in the City of Albany, State of New Yory, under the
Commercial Arbitration Rules of the American Arbitration Association, in repect
of this Agreement or any documents related thereto. Each of the parties hereto
waives personal service of any summons, complaint or other process, which may be
made by any other means permitted under New York law.
Exhibit - 40
<PAGE> 40
IN WITNESS WHEREOF, ONYX and Secured Party have caused this Agreement to be
executed as of the date first above written.
ONYK MANAGEMENT SERVICES, LLC
By:_______________________________________
Ronald C. Holliday
Member and Manager
SARATOGA BEVERAGE GROUP, INC.
By:_______________________________________
Robin Prever
President and Chief Executive Officer
Exhibit - 41
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1997 FINANCIAL STATMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,567,973
<SECURITIES> 1,153,915
<RECEIVABLES> 840,469
<ALLOWANCES> 150,695
<INVENTORY> 360,670
<CURRENT-ASSETS> 3,802,325
<PP&E> 3,221,047
<DEPRECIATION> 1,720,017
<TOTAL-ASSETS> 5,704,819
<CURRENT-LIABILITIES> 1,289,587
<BONDS> 1,500,000
0
0
<COMMON> 29,691
<OTHER-SE> 2,884,333
<TOTAL-LIABILITY-AND-EQUITY> 5,704,819
<SALES> 6,270,691
<TOTAL-REVENUES> 6,449,685
<CGS> 3,762,549
<TOTAL-COSTS> 4,151,258
<OTHER-EXPENSES> 1,438,836
<LOSS-PROVISION> 56,875
<INTEREST-EXPENSE> 66,466
<INCOME-PRETAX> 812,587
<INCOME-TAX> 7,959
<INCOME-CONTINUING> 804,628
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 804,628
<EPS-PRIMARY> .28<F1>
<EPS-DILUTED> .25
<FN>
<F1>THE AMOUNT IS REPORTED AS EPS BASIC AND NOT EPS PRIMARY.
</FN>
</TABLE>
