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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 1999
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________ to
___________
COMMISSION FILE NUMBER: 33-62038NY
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SARATOGA BEVERAGE GROUP, INC.
(Name of small business issuer in its charter)
DELAWARE 14-1749554
(State of incorporation or organization) (I.R.S. Employer Identification No.)
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1000 American Superior Boulevard, Winter Haven, Florida 33884 Issuer's telephone number:
(Address of principal executive offices) (Zip Code) (863) 299-6915
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Securities registered pursuant to Section 12(b) of the Exchange Act:
Name of each exchange
Title of each class on which registered
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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 there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Issuer's revenues for the fiscal year ended December 31, 1999 were $50,740,691.
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The aggregate market value of the voting and non-voting common equity
held by non-affiliates of the issuer, based on the closing sales price of the
common stock on March 8, 2000 as reported on the Nasdaq SmallCap Market, was
approximately $7,542,756. 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.
As of March 8, 2000, the issuer had outstanding 5,036,746 shares of
Class A common stock, $.01 par value per share, and 522,955 shares of Class B
common stock, $.01 par value per share.
DOCUMENTS INCORPORATED BY REFERENCE
None. Transitional Small Business Disclosure Format Yes [ ] No [X]
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PART I
ITEM 1. BUSINESS
GENERAL
Saratoga Beverage Group, Inc. ("Saratoga" or the "Company")
manufactures, markets and distributes fresh squeezed and frozen fresh squeezed
citrus juices, fresh squeezed organic juices, fresh fruit smoothies, which are
blends of juices and puree, and other non-carbonated beverages marketed under
the labels "Fresh Pik't," "the Fresh Juice Company," "Hansen's Juices," "The
Ultimate Juice" and "Just Pik't."
The majority of the juice produced by Saratoga is fresh squeezed orange
juice. The only ingredient used to produce "Just Pik't," "Fresh Pik't," "Florida
Pik't," "The Ultimate Juice," and "Hansen's Juices," orange and grapefruit
juices is fresh citrus fruit. Similarly, "Hansen's Juices" and "Just Pik't"
smoothies are made with a blend of orange juice, apple juice, bananas, berries
and other fruit puree. Saratoga is one of the only national fresh juice
companies, with bi-coastal facilities in California and Florida.
Saratoga is also engaged in the bottling, marketing and distribution of
spring and mineral water products and in packaging products for others, also
known as co-packing. Saratoga's product line currently includes:
o sparkling spring water;
o sparkling essence-flavored spring water products;
o non-carbonated spring water; and
o non-carbonated spring water with flavors.
All of Saratoga's water products are marketed as premium domestic
bottled water primarily under the proprietary brand name "Saratoga." The
Saratoga brand name has been in existence for 127 years.
Saratoga had been owned over the years by Anheuser-Busch and Evian
Waters of France, a division of BSN, S.A. Since that time, Saratoga has
undertaken the task of rebuilding a distribution network and customer base for
the Saratoga brand beverage products.
Since the end of the 1980s, the bottled water industry has experienced
rapid growth. The industry is divided into non-carbonated water and sparkling,
or carbonated, water. Saratoga 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 and other
beverages. Saratoga also believes that sparkling water is perceived as a healthy
and refreshing beverage alternative to beer, liquor and wine. Saratoga
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
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develop and grow. Saratoga believes that it is well-positioned to take advantage
of the anticipated future growth of the bottled water industry.
PRODUCTS
Saratoga is the largest national producer of fresh squeezed orange
juice. The fresh squeezed juices are marketed under the label "The Ultimate
Juice". Saratoga also produces a fresh squeezed frozen juice (Just Pik't) and a
fruit smoothie line on the west coast marketed under the Hansen's name as a
licensee pursuant to the Hansen Trust Agreement. On September 27, 1999 the Fresh
Juice Company of California, Inc., a subsidiary of Saratoga, entered into an
agreement to discontinue use of the "Hansen's" trademark over the next five
years. This agreement was a settlement of an arbitration involving Hansen
Beverage Company, the Hansen's Trust, Hansen's Juices, Inc., the Fresh Smoothie
Company, Hansen's Juice Creations, and The Fresh Juice Company of California,
Inc., related to use of the "Hansen's" trademark. Saratoga received an initial
payment of $343,750 and has recorded a discounted note receivable in the amount
of $373,472 payable over three years. In May 1999, Saratoga launched a new
smoothie line on the east coast called "Saratoga Smoothie's" and a vitamin
enhanced line, "Fruit for Thought". Saratoga intends to develop this national
brand on the west coast over the next five years.
The Fresh Juice product line includes fresh squeezed and frozen fresh
squeezed citrus juices, organic fresh squeezed juices, fresh fruit smoothies,
vitamin and herb fortified smoothies, and other non-carbonated beverages. The
juices are sold in a variety of sizes ranging from 8 ounces to one gallon.
Smoothies are sold primarily in 16 ounce sizes.
The main product lines sold under the Saratoga label include the
following various types of bottled water:
o sparkling spring water;
o sparkling essence-flavored spring water; and
o natural non-carbonated spring water.
Saratoga's bottled water is sold in both PET recyclable bottles in
sizes from one-half liter to 5 gallon, and cobalt glass bottles in 12 ounce and
28 ounce sizes.
Saratoga also markets a line of flavored spring water beverages under
the name Saratoga Splash.
Saratoga Splash is a non-carbonated fruit flavored spring water
product. It currently is available in the following six flavors:
o Lemon Frost;
o Orange Twist;
o Strawberry Mist;
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o Blueberry Burst;
o Grapes Galore; and
o Raspberry Rush.
Saratoga recently commenced operations in the home and office 5 gallon
business.
On June 30, 1997, Saratoga entered into an agreement with Mistic
Brands, Inc. that granted Saratoga 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 pays Mistic a royalty for cases
sold under the Saratoga Splash trademark.
MARKETING AND SALES
Saratoga markets its products as fresh squeezed, pasteurized and frozen
juice, smoothies and "premium" domestic bottled water. Saratoga believes that
the proprietary Saratoga brand name, which has existed for over 125 years, and
its upscale packaging connotes a premium image. The majority of juice produced
is fresh squeezed orange juice from citrus fruit. Fresh squeezed, pasteurized
and frozen juices are marketed under the brand names "Ultimate", "Just Pik't",
"Fresh Pik't" and "Hansen's Juices".
Saratoga and Hansen's Juices are recognizable brand names and Saratoga
has sold its products to customers through institutional sales throughout the
United States. Saratoga products are marketed and sold to restaurants, hotels,
food service accounts, convenience stores and distributors.
Saratoga has developed a limited public relations campaign with a focus
on the tradition of Saratoga Spring water. Marketing and sales activities have
generally involved product promotions and sponsorships. Point of sale
advertising, trade incentives, and in-store displays are also used to support
the sale of Saratoga products. From time to time Saratoga has provided retail
incentive programs to support merchandising of its products. These incentives
are common to the industry and have generally been provided as free or
discounted product for short periods of time. In very competitive situations
Saratoga has purchased shelf space where the exposure and potential sales
justify the cost.
DISTRIBUTION
Saratoga is primarily focused on securing distribution for its product
line. Saratoga's distribution network includes produce distributors, dairy
distributors, soft drink distributors, beer distributors, liquor distributors
and national distributors.
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COMPETITION
The market for orange juice and fruit beverages is highly competitive
and is dominated by major companies including PepsiCo Inc., which owns
Tropicana, and The Coca-Cola Company, which owns Minute Maid. Presently, the
major orange juice companies are involved primarily in the production of chilled
pasteurized juice and frozen or reconstituted concentrate juice. Saratoga
operates in a niche category as a producer, distributor and marketer of fresh
squeezed, minimally processed juices and juice-based beverages. Saratoga's
largest competitors are Odwalla, Inc., California Day-Fresh Foods, Inc., a
subsidiary of Chiquita Brands, Inc., and Fresh Samantha, Inc.. Saratoga
anticipates that sales in the fresh juice industry will grow as a result of
consumer trends towards natural products and increased health consciousness.
Saratoga believes that it can continue to grow its natural and organic juice
business.
The bottled water industry is also highly competitive. There are over
700 brands sold in the United States. The industry is dominated by two
companies, Greater Water of France (Perrier) and Danone Group (Evian). On a
regional basis, Saratoga's products compete with a number of regional brands
including Poland Springs and San Pellegrino, which are both owned by the Perrier
Group. In the southeastern part of the United States, Saratoga competes with
Zephyrills, which is also owned by the Perrier Group. Saratoga'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.
Saratoga's competition includes numerous beverage bottlers and
distributors, many of which are more experienced, have greater financial
resources and more established and proprietary trademarks and distribution
networks than Saratoga. Saratoga believes that it is able to compete effectively
with other bottled water and beverage products because it offers a diverse
product line of quality-bottled water at competitive prices. In addition,
Saratoga believes that the proximity of its Saratoga Springs, New York facility
to several large metropolitan markets, including New York and Boston, enables
Saratoga to compete effectively with other east coast regional brands.
PRODUCTION
Saratoga operates fruit processing and bottling plants in Winter Haven,
Florida and Azusa, California. Saratoga also owns a water production and
bottling plant in Saratoga Springs, New York.
SUPPLIERS
The significant raw materials in Saratoga's products are citrus juice,
fruit puree and spring water. Saratoga purchases fresh fruit from a number of
growers and fruit puree from various suppliers. Alternate supplies of fruit are
available from a large number of citrus growers in Florida, California, Arizona,
and Texas. Fruit puree are available from a number of companies that specialize
in producing these products.
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Saratoga does not manufacture the bottles or packaging for its
products. Packaging and bottles are purchased from suppliers that are located
throughout the United States. A large number of companies manufacture the
packaging products Saratoga uses for its products.
Saratoga is not affiliated with its suppliers.
MAJOR CUSTOMERS
Saratoga sells to a large number of customers including food service
companies, beverage distributors, produce distributors, retail chain grocery,
and convenience stores. Saratoga also has toll-packing customers for water and
juices.
TRADEMARKS
"Saratoga" is a registered trademark of Saratoga in the United States
and Canada for use in connection with spring water, mineral water, tonic water
and ginger ale products. Saratoga has numerous other trademarks, either pending
or registered, which include "Jango's", the "Saratoga Vichy" name, "Saratoga
Splash" and the Saratoga racetrack oval label used on its bottles and packaging.
The Fresh Juice Company, Inc., a wholly-owned subsidiary of the Company
("Fresh Juice"), also has numerous trademarks including "Just Pik't" and "The
Ultimate Juice".
GOVERNMENT REGULATIONS
Saratoga and its subsidiaries are subject to certain regulations of
federal, state and local government authorities regarding distribution and sale
of food products. The Florida Department of Citrus and USDA have a defined
inspection program and routinely sample fruit and inspect product. The FDA has
performed reviews of the bottled water and fresh juice industry. From time to
time various proposals are made for new laws and regulations impacting
Saratoga's industry as a whole. It is impossible to predict whether any such
proposals will be adopted and the impact, if any, of such adoption on the
business of Saratoga. Saratoga believes that it currently is in compliance with
all applicable federal, state and local government regulations.
SEASONALITY
The unit sales of citrus juices are generally greater in the 1st and
2nd quarters due to seasonal factors. Sales of bottled water are generally
greater in the 3rd quarter due to seasonal factors.
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EMPLOYEES
As of December 31, 1999, Saratoga and its subsidiaries had 5 part-time
and 326 full-time employees, including 244 production, and 87 executive, sales
and administrative employees. None of Saratoga's employees are represented by a
labor organization, and Saratoga considers its relationship with its employees
to be satisfactory.
SUBSEQUENT EVENTS
On January 5, 2000, the Company entered into a Stock Purchase Agreement
and Agreement and Plan of Merger by and among Saratoga, NCP-SBG, L.P., a
Delaware limited partnership (the "Purchaser"), and NCP-SBG Recapitalization
Corp., a Delaware corporation ("MergerCo"). The merger agreement provides,
subject to the approval of the stockholders of Saratoga at a special meeting and
subject to the satisfaction or waiver of certain other conditions, that:
o MergerCo will be merged with and into Saratoga, with Saratoga
continuing as the surviving corporation of the merger;
o each share of Class A common stock and Class B common stock that is
outstanding at the effective time of the merger, excluding:
o a minimum of 550,000 and a maximum of 700,000 shares of Class
A common stock held by certain other stockholders, including
the Chief Executive Officer, certain directors of Saratoga and
Anthony Malatino, who will convert a minimum of 550,000 and a
maximum of 700,000 of their shares of Class A common stock
into shares of common stock of the surviving corporation and
will continue to be stockholders of Saratoga (such continuing
stockholders, the "Continuing Stockholders" and the shares of
such Continuing Stockholders that will not be converted into
the right to receive $6.00 per share in cash, without
interest, the "Rollover Stock"),
o shares held by Saratoga as treasury stock, and
o shares as to which dissenters' rights are perfected in
accordance with Delaware law,
will be converted into the right to receive $6.00 per share in cash,
without interest, subject to applicable back-up withholding taxes;
o each share of Rollover Stock will be converted into the right to
receive one share of common stock of Saratoga as the corporation
surviving the merger; and
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o each existing option and warrant, whether vested or unvested, to
purchase shares of Class A common stock shall be canceled or
repurchased for an amount equal to the excess, if any, of $6.00 per
share of Class A common stock purchasable under each option and warrant
over the exercise price with respect to each share.
In connection with the execution of the merger agreement, each
Continuing Stockholder entered into a voting agreement with the Purchaser and
appointed the Purchaser as his, her or its irrevocable proxy to vote all of his,
her or its shares in favor of the merger agreement. The voting agreements are
subject to certain terms and conditions and terminate upon termination of the
merger agreement, including termination of the merger agreement in connection
with the acceptance by Saratoga of a company superior proposal, as defined in
the merger agreement. Accordingly, unless the merger agreement is terminated in
accordance with its terms, the adoption of the merger agreement by Saratoga's
stockholders is expected to occur irrespective of whether or the manner in which
Saratoga's other stockholders vote their shares of Class A common stock.
Saratoga has filed a proxy statement and Schedule 13E-3 pursuant to
which proxies will be solicited by and on behalf of the board of directors of
Saratoga for use at the special meeting of stockholders. The stockholders of
Saratoga will consider and vote upon whether to approve and adopt the merger
agreement. Saratoga anticipates that the merger will occur during the second
quarter of 2000.
The proxy statement and Schedule 13E-3 may be viewed on the SEC's
Internet site on the World Wide Web at "http://www.sec.gov". WE URGE YOU TO
REVIEW THE PROXY STATEMENT AND SCHEDULE 13E-3 CAREFULLY TO OBTAIN ADDITIONAL
INFORMATION REGARDING THE MERGER.
ITEM 2. PROPERTIES
Florida Production Facility and Headquarters
Fresh Juice owns a facility located at 1000 American Superior
Boulevard, Winter Haven, Florida which consists of a 70,000 square foot facility
on four acres, 20,000 square feet of which consists of either chilled or freezer
space (the "Florida Plant"). The Florida Plant contains the first spiral quick
freeze system in the citrus industry. Fresh Juice designed the Florida Plant to
be capable of producing fresh squeezed juice, fresh frozen juice and pasteurized
juice, in addition to other juice-based beverages. Each segment of the
production process is separate and distinct with separate extraction rooms,
filling rooms; blending rooms and a separate spiral freeze system for the frozen
fresh squeezed juice. The Florida Plant is equipped with a laboratory designed
to provide an additional measure of quality control to assist in providing
optimal flavor and shelf life for its customers. In January 2000, Saratoga moved
its headquarters to the Florida Plant from Saratoga Springs, New York.
New York Production Facility
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Saratoga owns a bottling facility and office space located on 48 acres
in Saratoga Springs, New York. The property consists of an approximately 40,000
sq. ft. building, which has been substantially rebuilt since 1985. The
carbonated bottling line was installed in 1985 and the PET bottling line was
installed in 1994 and substantially upgraded during 1998. Saratoga believes that
its insurance policies provide adequate coverage on its facilities and
equipment.
Newark Offices and Distribution Facility
Fresh Juice leases approximately 27,000 square feet of space located at
280 Wilson Avenue, Newark, New Jersey which includes a warehouse with 3,000
square feet of freezer space, 11,000 square feet of cooler space and 7,800
square feet of dry storage space, as well as approximately 5,200 square feet of
office space. The lease was executed in November 1997 and provides for an
initial term which terminates on August 31, 2007. The lease contains two
five-year options to renew which, if exercised, could extend the lease term
through August 31, 2012 and August 31, 2017, respectively.
California Offices, Warehouse and Production Facility
The Fresh Juice Company of California, Inc., leases commercial space in
Azusa, California, in which its offices, warehouse and production facility are
located. The total amount of leased space is 35,000 square feet, consisting of
approximately 3,000 square feet of office space and approximately 32,000 square
feet of production and refrigerated warehouse space. The lease is for an initial
term which terminates on June 1, 2003. The lease contains one five-year option.
The facilities are suitable and adequate to support Saratoga's current
business.
ITEM 3. LEGAL PROCEEDINGS
On December 22, 1999, lawsuits were filed in the Court of Chancery of
the State of Delaware by each of Moses Semel, Marian Lustig and Melvin Tepler on
their own behalf and as purported class actions on behalf of all security
holders of Saratoga, against Saratoga and its directors. The complaints in the
three lawsuits are materially identical, and each alleges, among other things,
that (1) the $6.00 per share price to be paid in the merger is "unfair and
inadequate consideration" because, among other things, (a) "the intrinsic value
of the stock of Saratoga is materially in excess of $6.00 per share, giving due
consideration to the prospects for growth and profitability of Saratoga in light
of its business, earnings and earnings power, present and future," and (b) "the
$6.00 per share price was fixed by [Robin Prever, unidentified members of
Saratoga management and an undisclosed financial sponsor (the "Buyout Group")]
to 'cap' artificially the market price of Saratoga's stock, as part of the plan
by the Buyout Group to obtain complete ownership of Saratoga's assets and
business at the lowest possible price"; (2) the members of Saratoga's board of
directors "suffer from material conflicts of interest" because they are
"significant participants in the Buyout Group"; and (3) the members of the
Buyout Group are using "superior knowledge" of Saratoga's finances and value
"to effectuate the [purchase of all of
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Saratoga's shares not already owned by the Buyout Group for $6.00 per share] at
the expense of the Company's public shareholders." Saratoga and the members of
its board of directors who have been named as defendants believe that the
lawsuits are without merit and intend to defend the lawsuits vigorously. Counsel
for the plaintiffs in the three actions have indicated that they intend to seek
an Order consolidating the three lawsuits and have agreed to extend the time for
the defendants to respond to the complaints.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
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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 over-the-counter on the Nasdaq
SmallCap Market under the symbol TOGA. The table below sets forth the range of
the high and low bid and asked sales prices for the Class A common stock as
reported by the Nasdaq SmallCap Market for the periods indicated.
HIGH LOW
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1998
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First Quarter $3.8750 $2.0625
Second Quarter 3.5625 2.7500
Third Quarter 3.2500 2.1250
Fourth Quarter 2.7500 1.6250
1999
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First Quarter $3.0000 $2.0000
Second Quarter 2.8750 2.0625
Third Quarter 3.6875 2.1875
Fourth Quarter 6.2500 2.5000
As of March 8, 2000 the approximate number of Class A common
stockholders of record was 2,402 and the number of Class B common stockholders
of record was two.
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. In addition, payments of
dividends on the Class A common stock are restricted by Saratoga's Bank of
America credit facility.
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 1999 are
subject to greater
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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. In January 1999, the Company acquired all
of the capital stock of Fresh Juice. The transaction was accounted for as a
purchase. Results of operations data are presented for the years ended December
31, 1999 and 1998. The Company's fiscal year ends on December 31.
Results of Operations
The following selected financial data of the Company has been derived
from the financial statements and notes thereto of the Company, which are
included in this Form 10-KSB.
Year ended Year ended
December 31, 1999 December 31, 1998
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Statement of Operations Data:
Total revenue $50,740,691 $8,881,242
Net Income $1,761,212 $867,146
Basic EPS $0.34 $0.27
Diluted EPS $0.32 $0.26
Year ended Year ended
December 31, 1999 December 31, 1998
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Percentage of Total Revenue:
Total revenue 100% 100%
Cost of goods sold 78 62
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Gross profit 22 38
Operating expenses:
Selling, general and administrative 13 20
Depreciation, amortization and
lease expense 3 6
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Operating Income 6 12
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Other Expense, net (3) (2)
--- ---
Net Income 3% 10%
=== ===
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Balance Sheet Data:
Working capital $8,484,432 $2,402,837
Total assets 41,347,338 7,499,219
Total indebtedness 24,129,687 1,570,089
Accumulated deficit (3,834,231) (5,595,443)
Total stockholders' equity 11,990,161 4,390,070
Revenue
In 1999 revenues increased $41.9 million to $50.7 million from $8.9
million in revenues in 1998. Revenue in 1999 includes eleven months of Fresh
Juice results. The increase in revenues, exclusive of the acquisition, was
primarily due to an increase in branded water sales.
Gross Profit Margins
Gross profit increased to $11.4 million in 1999, an increase of $8
million from gross profit of $3.4 million in 1998. Gross profit margin in 1999
includes eleven months of Fresh Juice results subsequent to the acquisition.
Gross profit margin decreased from 38% in 1998 to 22.5% in 1999. The overall
decrease in gross profit margin is primarily due to Fresh Juice which incurs a
higher cost of goods sold. The cost to produce fresh juice includes higher costs
for raw materials, including citrus fruit.
Selling, General and Administrative Expenses
Selling, general and administrative expenses in 1999 were $6.6 million
compared to $1.7 million in 1998. Selling, general and administrative expenses,
as a percentage of sales, decreased from 20% in 1998 to 13% in 1999. Excluding
the acquisition of Fresh Juice, selling, general and administrative expenses in
1999 were comparable to 1998.
Depreciation, Amortization, and Equipment Lease Expense
Depreciation, amortization and equipment lease expense increased
$757,000 to $1.3 million in 1999 from $566,000 in 1998. Depreciation,
amortization and lease expense includes eleven months of Fresh Juice results
subsequent to the acquisition. Fresh Juice depreciates production plants in
Azusa, California and Winter Haven, Florida. Fresh Juice also has a leased
distribution facility in Newark, New Jersey. Fruit juice extraction equipment is
leased in both production facilities. Amortization includes amortization of
goodwill that was recorded related
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to the Fresh Juice acquisition. As a percentage of sales, depreciation,
amortization and lease expense decreased from 6% of sales in 1998 to 3% of sales
in 1999.
Other Income (Expense)
For the year ended December 31, 1999, the Company reported other
expense, net of other income, of $1.6 million as compared to other expense, net
of other income, of $207,000 reported for the year ended December 31, 1998.
Interest income decreased primarily due to a reduction in cash paid in
connection with the Fresh Juice acquisition. Interest expense increased due to
increased debt financing associated with the Fresh Juice acquisition. Other
income recorded includes commissions on certain water products and royalty
income on certain Hansen's Juices trademarks.
Income Taxes
In the year ended December 31, 1999, the Company offset substantially
all income taxes through the use of federal income tax loss carryforwards. At
December 31, 1999 and 1998, the Company has available approximately $3,238,000
and $2,813,000, 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.
Liquidity and Capital Resources
As of December 31, 1999, the Company's working capital was $8.5 million
including cash and cash equivalents of $474,000, as compared to working capital
of $2.4 million and cash and cash equivalents of $2.5 million at December 31,
1998. The current ratio at December 31, 1999 was 2.6 to 1 as compared to 2.5 to
1 at December 31, 1998.
Subordinated Convertible Note
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 stock in the event that the closing price of Class A common stock
exceeds $5.25 for three consecutive trading days.
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As of January 10, 2000, the Note was converted into 428,571 shares of
Class A common stock under the mandatory conversion provision of the Note as the
Class A common stock price equaled or exceeded $5.25 for three consecutive
trading days.
Onyx Note Receivable
On December 23, 1997, the Company and Onyx Management Services, LLC
("Onyx") entered into a loan agreement whereby the Company agreed to loan Onyx
up to $800,000 (the "Loan") for working capital and general business purposes.
As of December 31, 1998, the Company had loaned and advanced to Onyx a sum of
$400,000. All assets of Onyx collateralized the Loan.
At December 31, 1998, the Company declared a default under the Loan and
recorded an allowance of $400,000 for the Loan receivable. On December 1, 1999,
the Company agreed to a settlement of $55,785 in four monthly installments.
Subsequent to year end, the $55,785 settlement was received.
Debt
In connection with the acquisition of Fresh Juice, the Company
consummated financing with NationsBank, N.A., which included an $8 million term
loan and a $14 million revolving credit facility. The financing constituted the
principal source of the funds for the acquisition. Availability under the
Revolver shall be reduced in $750,000 amounts, the first such reduction
occurring on the last business day of the 27th month after January 29, 1999 and
each quarterly anniversary thereafter until the revolver maturity date. The
revolver will terminate and all remaining amounts outstanding thereunder will be
due and payable five years following closing. The term loan facility reduces
with eight equal quarterly payments of $1,000,000 the first such payment being
due on the last business day of the 63rd month following January 29, 1999 and
subsequent payments due on each succeeding quarterly anniversary. The term loan
will terminate seven years following closing. The interest rate on the revolving
credit facility may be elected from two interest rate bases: floating rate
(Federal Funds rate plus 50 basis points or prime rate) or reserve-adjusted
Eurodollar rate. The Eurodollar rate will be determined by adding a margin of
100 basis points to the floating rate or 250 basis points to the Eurodollar
rate, in both instances using a 360 day basis. At all times the interest rate on
the term loan will be calculated as the Eurodollar rate plus 350 basis points,
using a 360 day basis. Within one year from January 29, 1999 the Company is
required to enter into interest rate hedging agreements to fix or limit its
interest rate risk exposure on not less than forty percent of the drawn amount
of the facilities and for a term of not less than 3 years. The debt agreement
includes administrative and financial covenants, including consolidated leverage
ratio, consolidated fixed charge ratio and consolidated interest charge ratio,
all as defined.
The Company has also entered into three interest rate swaps that fix a
total of $7,400,000 of debt at interest rates ranging from 5.31% to 6.1925% and
have expiration dates ranging from March 1, 2001 through October 19, 2001. The
Company enters into these transactions pursuant
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to the credit agreement and to protect the Company from variable interest rate
exposure. The fair value of these swaps is estimated to be approximately
$84,000.
At December 31, 1999, debt consists primarily of $11,000,000 borrowed
under the revolving credit line using the 90-day reserve-adjusted Eurodollar
rate plus 250 basis points, ranging from 7.73% to 8.10%, $2,600,000 borrowed
under the revolving credit line based on prime plus 100 basis points at a rate
of 9.25%, $8,000,000 term loan at a Eurodollar rate plus 350 basis points at a
rate of 8.98% and a $1,500,000 5% subordinated convertible note.
Acquisition of Fresh Juice Company, Inc. (Unaudited)
On January 29, 1999, the Company acquired Fresh Juice. Fresh Juice
produces, markets and sells fresh squeezed and frozen fresh squeezed orange
juice, grapefruit juice, fresh fruit smoothies and other non-carbonated
beverages nationally under the brand names "Just Pik't", "Fresh Pik't", "Florida
Pik't", "Ultimate" and "Hansen's". The majority of the juice produced by Fresh
Juice is fresh squeezed orange juice. The transaction was accounted for as a
purchase. The purchase price of $21.4 million was comprised of cash of
approximately $16.0 million and 2,133,553 shares of Class A common stock. A
portion of the cash payment was financed through a credit agreement consummated
with NationsBank, N.A., which included an $8 million term loan and a $14 million
revolving credit facility. Preliminary estimates anticipate that the purchase
price exceeded the fair value of net assets acquired by approximately $18.9
million, which is being amortized on a straight-line basis over 30 years.
The following summarized unaudited proforma financial information for
the years ended December 31, 1999 and 1998 assumes the acquisition had occurred
on January 1 of each year:
PRO FORMA INFORMATION (UNAUDITED)
(in millions, except per share data) 1999 1998
- -------------------------------------------------------------------------------
Net sales $ 53.0 $46.5
Net income (loss) 1.8 (0.8)
Earnings (loss) per share
Basic $ .34 $(.14)
Fully Diluted $ .31 $(.14)
- -------------------------------------------------------------------------------
For 1998, these amounts include Fresh Juice's results for the year
ended November 30, 1998 and the Company's results for the year ended December
31, 1998 after giving effect to certain proforma adjustments. Proforma
information includes adjustments for interest expense that would have been
incurred to finance the acquisition, amortization of goodwill acquired in the
acquisition, increase in inventory and cost of goods sold to fair value, and
adjustments to record income taxes at the expected effective rate. For 1999,
these amounts include the actual results of Saratoga for the full year and 11
months actual and one month proforma for Fresh Juice. The proforma data is for
informational purposes only and may not necessarily reflect the
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results of operations of the Company had the acquired business operated as part
of the Company for the entire years ended December 31, 1999 and 1998.
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
Saratoga'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. Costs incurred by
Saratoga to prepare for Year 2000 amounted to approximately $500,000.
Saratoga relies on systems developed by other parties in regard to its
business, accounting and operational software. Saratoga believes that its
significant business, accounting and operations software is year 2000 compliant.
Additionally, Saratoga assessed the impact of this issue on its production
equipment. The new bottling line installed in 1998 is certified year 2000
compliant by the equipment manufacturer. Older manufacturing equipment is relay
controlled and is not believed to be affected by the Year 2000 issue. Saratoga
evaluated its management information systems, including information technology
and non-IT computerized systems and believes it is year 2000 compliant. No Year
2000 issues have emerged to date during 2000.
Risk
Saratoga relies on third party suppliers for raw materials,
transportation, utilities, and other critical services. Company operations could
be affected by the interruption of significant suppliers. Saratoga has evaluated
the status of suppliers' compliance with year 2000 issues. These evaluations
were intended to minimize risk, but cannot eliminate the potential for
disruption due to third party failures to be year 2000 compliant. Saratoga has
experienced no year 2000 problems to date during 2000.
Saratoga also is dependent on customers for sales and for cashflow.
Interruptions in our customers' operations due to year 2000 could result in
decreased revenue, increased inventory and cash flow reductions. Saratoga has
evaluated its customers' year 2000 risks, as well as developing alternative
sales strategies. Saratoga has experienced no year 2000 problems to date during
2000.
Despite Saratoga's efforts in regard to the Year 2000 issue, Saratoga'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.
New Accounting Standards
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The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The standard establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that a company recognize derivatives as assets or liabilities measured at fair
value. This standard is effective in 2001. Management believes that the adoption
of this pronouncement will not have a significant effect on the financial
statements.
ITEM 7. FINANCIAL STATEMENTS
See Item 13.
ITEM 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As of March 13, 2000, the directors, executive officers and key employees of the
Company are as follows:
Name Age Position
Robin Prever (1) 40 President, Chief Executive Officer and
Chairperson of the Board
Adam Madkour 48 Executive Vice President
Kim A. James 47 Chief Financial Officer
John A. Morabito 40 Executive Vice President
Jeffrey Heavirland 39 Executive Vice President
Steven Bogen 43 Director
William Colaianni 52 Director
R. J. Barry Cox 55 Director
Warren Lichtenstein (2)(3) 34 Director
Leonard Toboroff (1)(2)(3) 67 Director
- ------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Stock Option Committee
Ms. Prever has been the President and Chief Executive Officer and a
director of the Company since its inception in April 1992. Ms. Prever has been
the Chairperson of the Board of
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the Company since December 12, 1995. Ms. Prever was a vice president of Gabelli
Asset Management Company, an investment advisory firm, where she was employed
from 1986 to 1993. Ms. Prever is an attorney and has been a member of the bar in
the State of Florida since 1985.
Mr. Madkour has been an Executive Vice President and the Chief
Operating Officer of the Company since September 1993. Mr. Madkour was general
manager of manufacturing for the Deer Park Division of Clorox Inc. since 1987,
and is an electrical engineer.
Mr. James joined the Company in August 1999 as Chief Financial Officer.
Mr. James is a CPA who was previously with a privately held citrus flavor and
juice processor in Florida since 1994. He was with International Minerals and
Chemical Corporation ("IMC") in various financial and administrative management
positions from 1977 through 1993. Prior to joining IMC, he was with Arthur
Andersen & Co.
Mr. Morabito has been Executive Vice President of Sales for the Company
since January 1999. From June 1993 to January 1999, Mr. Morabito was a director
of the Company. In addition to his duties at the Company, Mr. Morabito has been
the director of sales development for United Distillers Glenmore, Inc., where he
has been employed 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. Heavirland became an Executive Vice President of the Company on
January 1999 concurrently with the merger between the Company and Fresh Juice.
Mr. Heavirland has held several positions with Hansen's Juices, Inc. He was
Director of Sales from July 1988 to December 1993; Vice President of Sales and a
Director from December 1993 to January 1994; Director, Vice President and
Secretary from January 1994 to December 2, 1996. Mr. Heavirland was President,
Chief Executive Officer and Assistant Secretary of The Fresh Juice Company of
California, Inc. from December 2, 1996 to January 29, 1999. He was also Vice
President of Sales and Administration of Fresh Juice from October 1997 to
January 1999 and a Director from June 1997 to January 1999.
Mr. Colaianni became a director of the Company in September 1999. Mr.
Colaianni has been a member of Holding Capital Group LLC, a private investment
firm, since 1993. Prior to joining Holding Capital Group LLC, Mr. Colaianni was
President of Pony Sports and Leisure and Executive Vice President of Adidas USA.
Prior to Pony Sports and Leisure, Mr. Colaianni was a Vice President of Bankers
Trust.
Mr. Cox became a director of the Company in January 1999. Mr. Cox has
extensive experience in the food and beverage industry, including serving as
Chairman of the
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world-famous Hard Rock Cafe in its formative years as a public company. Mr. Cox
was Director for Whitchurch from 1988 - 1995 and a director for the Pelican
Group, Inc. from 1991 - 1993.
Mr. Bogen became a director of the Company in January 1999 concurrently
with the merger between the Company and Fresh Juice. Mr. Bogen was Chief
Executive Officer of The Ultimate Juice Company, Inc. ("Ultimate Juice"), a
juice company, from 1988 to January 1999; Chairman of the Board of Ultimate
Juice from 1989 through March 31, 1996; Chairman of the Board of Clear Springs
Citrus, Inc. ("Clear Springs") from July 27, 1993 through August 31, 1996;
President of Clear Springs from July 27, 1993 through March 11, 1994;
Co-Chairman of the Board, Chief Executive Officer and Secretary of Fresh Juice
from April 1, 1996 to January 29, 1999.
Mr. Lichtenstein has been a director of the Company since June 1994.
Mr. Lichtenstein has been with Steel Partners II, L.P., a private investment
firm that invests in small-cap companies ("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., all of which are publicly-traded
companies.
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 1988 to December 1990 was
counsel to Summit Solomon & Feldesman in New York City. He has been a director
of Ameriscribe, Inc., a publicly-traded company, 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, each of which is a publicly-traded
company.
All directors of the Company hold office until the next annual meeting
of stockholders 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 Saratoga's stock option plan. All
non-employee directors receive a fee of 5,000 options per year, and $1,000 for
each quarterly meeting attended. Executive officers hold office until their
successors are chosen and qualify, subject to earlier removal by the Board of
Directors.
As contemplated by the merger agreement and the stockholders agreement,
the directors of Saratoga immediately following the merger will consist of four
directors nominated by the Purchaser and three directors nominated by Robin
Prever, as long as she is the Chief Executive
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Officer of the Company or, if Ms. Prever is no longer Chief Executive Officer,
then the Continuing Stockholders may nominate one director so long as they own
in the aggregate at least 5% of the outstanding common stock of the Company.
Section 16(a) Beneficial Ownership Report Compliance
Based solely on a review of Forms 3, 4 and 5 and written
representations made by each person who, at any time during 1999, was a
director, officer, beneficial owner of more than 10% of the Class A common
stock, the Company is not aware of any failure of any such person to file on a
timely basis reports required by Section 16(a) of the Securities Exchange Act of
1934, as amended, during 1999 or prior fiscal years.
ITEM 10. EXECUTIVE COMPENSATION
To be incorporated by reference to a definitive proxy statement or
provided by amendment.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth, as of March 1, 2000, 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.
Number of Shares of Percentage Beneficially Owned
Common Stock -----------------------------
Name and Stock Address Beneficially Owned at Of Voting
of Beneficial Owner March 1, 2000(1) Of Shares(1)(2)(3) Power(2)(3)
------------------- ------------- ------------------ -----------
Anthony Malatino (4)(5) 718,127 (12) 12.0% 26.5%
Robin Prever (5)(6) 418,285 (13) 6.9% 13.3%
Adam Madkour (6) 81,716 (14) 1.4% 1.0%
Gayle Henderson (6) 7,793 (15) * *
Warren Lichtenstein (7) 552,512 (16) 9.2% 6.8%
John Morabito (6) 25,000 (17) * *
Leonard Toboroff (8) 207,500 (18) 3.4% 2.5%
Jeffrey Heavirland (9) 81,106 (19) * *
Steven Bogen (10) 389,293 (20) 6.5% 4.8%
R. J. Barry Cox (6) 2,500 (21) * *
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Kim James (6) 0 (22) * *
William Colaianni (11) 87,500 (23) 1.4% 1.1%
Irene Fonzi (6) 0 * *
All officers and directors 1,853,205 28.3% 29.3%
as a group
(12 persons)
- -----------------
* Less than 1%.
(1) Based upon 5,460,218 shares of Class A common stock and 522,955 shares
of Class B common stock outstanding at March 1, 2000. This table does
not include the impact that the execution of the voting agreements by
Continuing Stockholders may have had on the beneficial ownership of the
Purchaser. Purchaser and MergerCo have informed Saratoga that they
beneficially owned no shares of Class A common stock of Saratoga as of
January 14, 2000, other than, with respect to the Purchaser, any
beneficial ownership which may be attributed to the Purchaser as a
result of the execution of the voting agreements.
(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) 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, (ii) 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 Mr. Malatino is c/o Morgan Stanley Dean Witter,
340 Broadway, Saratoga Springs, NY 12866.
(5) Ms. Prever and Mr. Malatino were married on February 12, 2000. Each of
Ms. Prever and Mr. Malatino disclaim beneficial ownership of the other
person's common stock.
(6) The business address of each of Ms. Prever, Ms. Henderson, Mr.
Morabito, Mr. Cox, Mr. James and Ms. Fonzi is c/o Saratoga Beverage
Group, Inc., 1000 American Superior
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Boulevard, Winter Haven, Florida 33884. The business address of Mr.
Madkour is c/o Saratoga Beverage Group, Inc., 11 Geyser Road, Saratoga
Springs, New York 12866.
(7) The business address of Mr. Lichtenstein is c/o Steel Partners II, LP,
150 East 52nd Street, 21st Floor, New York, New York 10022.
(8) The business address of Mr. Toboroff is c/o Lincolnshire Management,
Inc., 780 3rd Avenue, 40th Floor, New York, NY 10017.
(9) The business address of Mr. Heavirland is c/o The Fresh Juice Company
of California, Inc., 875 West Eighth Street, Azusa, CA 91702-2247.
(10) The business address of Mr. Bogen is The Fresh Juice Company of New
York, Inc., 280 Wilson Avenue, Newark, NJ 07105.
(11) The business address of Mr. Colaianni is Holding Capital Group, Inc.,
10 E. 53rd St., 30th Floor, New York, NY 10022
(12) Includes 363,132 shares of Class A common stock outstanding and 354,995
shares of Class B common stock outstanding.
(13) Includes 100,000 shares of Class A common stock issuable upon exercise
of certain options that are exercisable within 60 days, 150,325 shares
of Class A common stock outstanding and 167,960 shares of Class B
common stock outstanding, and excludes 200,000 shares issuable upon
options that are not exercisable within 60 days.
(14) Includes 80,666 shares of Class A common stock issuable upon exercise
of certain options that are exercisable within 60 days, 1,050 shares of
Class A common stock outstanding, and excludes 19,334 shares issuable
upon options that are not exercisable within 60 days.
(15) Includes 6,668 shares of Class A common stock issuable upon exercise of
certain options that are exercisable within 60 days, 1,125 shares of
Class A common stock outstanding, and excludes 8,332 shares issuable
upon options that are not exercisable within 60 days. March 13, 2000
was Ms. Henderson's last day of employment with Saratoga.
(16) No shares of Class A common stock issuable upon exercise of certain
options that are exercisable within 60 days, 552,512 shares of Class A
common stock outstanding, and excludes 2,500 shares issuable upon
options that are not exercisable within 60 days.
(17) Includes 25,000 shares of Class A common stock issuable upon exercise
of certain options that are exercisable within 60 days, no shares of
Class A common stock are outstanding, and excludes 50,000 shares
issuable upon options that are not exercisable within 60 days.
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(18) Includes 207,500 shares of Class A common stock issuable upon exercise
of certain options that are exercisable within 60 days, and excludes
2,500 shares issuable upon options that are not exercisable within 60
days.
(19) Includes 50,000 shares of Class A common stock issuable upon exercise
of certain options that are exercisable within 60 days, 31,106 shares
of Class A common stock outstanding, and excludes 50,000 shares
issuable upon options that are not exercisable within 60 days.
(20) Includes 2,500 shares of Class A common stock issuable upon exercise of
certain options that are exercisable within 60 days, 386,793 shares of
Class A common stock outstanding, and excludes 2,500 shares issuable
upon options that are not exercisable within 60 days.
(21) Includes 2,500 shares of Class A common stock issuable upon exercise of
certain options that are exercisable within 60 days, no shares of Class
A common stock are outstanding, and excludes 4,500 shares issuable upon
options that are not exercisable within 60 days.
(22) No shares of Class A common stock issuable upon exercise of certain
options that are exercisable within 60 days, no shares of Class A
common stock are outstanding, and excludes 20,000 shares issuable upon
options that are not exercisable within 60 days.
(23) Includes 87,500 shares of Class A common stock issuable upon exercise
of certain options that are exercisable within 60 days, no shares of
Class A common stock are outstanding, and excludes 2,500 shares
issuable upon options that are not exercisable within 60 days.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On February 12, 2000, Robin Prever, Chairman of the Board, President
and Chief Executive Officer of Saratoga, and Anthony Malatino, the Chairman of
the Board of Saratoga until December 12, 1995, were married. Each of Ms. Prever
and Mr. Malatino disclaim beneficial ownership of the other person's Saratoga
stock. Mr. Malatino and Ms. Prever, entered into a stockholders' agreement,
dated as of October 22, 1998, granting each of them the option to purchase all
or a portion of the other person's Class B common stock upon the death of such
person. Mr. Malatino and Ms. Prever, entered into a voting trust agreement,
dated August 17, 1992, as amended in April 1993. This agreement expired in 1998.
On January 5, 2000, Warren Lichtenstein, a director of Saratoga,
exercised options to purchase an aggregate of 95,500 shares of Class A common
stock with an aggregate exercise price of $233,920. Mr. Lichtenstein exercised
his options using a cashless exercise and, therefore, received 46,254 shares of
common stock in exchange for his options.
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On December 23, 1999, Ms. Prever exercised options to purchase 115,000
shares of Class A common stock with an aggregate exercise price of $273,750.
In February 1998, Steel Partners, an affiliate of Warren Lichtenstein,
purchased 275,000 shares of unregistered Class A common stock from Saratoga at a
purchase price of $2.25 per share. Steel Partners, an affiliate of Warren
Lichtenstein, is a private investment fund that invests in small-cap companies.
Carl T. Wolf 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 Saratoga at a purchase price of $2.25 per share. In connection with
his purchase, Mr. Wolf was issued an option to purchase 200,000 shares of Class
A common stock at an exercise price of $2.875 per share. Mr. Wolf resigned from
the board on April 17, 1998 for personal reasons and, on that date, Saratoga
repurchased 150,000 shares of unregistered Class A common stock at a price of
$2.25 per share. In connection with Mr. Wolf's resignation, the option was
amended to be exercisable for 75,000 shares and the expiration date of the
options was extended to February 3, 2003.
Saratoga also repurchased 100,000 shares of unregistered Class A common
stock for $1.62 per share in a private transaction from an unaffiliated
stockholder during the first quarter of 1998.
During the second quarter of 1998, 250,000 shares held in treasury were
retired.
In connection with the execution of the merger agreement, each of Robin
Prever, Anthony Malatino, Steven Bogen, Warren Lichtenstein, Steel Partners,
Pershing Securities Limited and Jurg Walker entered into voting agreements with
the Purchaser.
On October 13, 1998, Saratoga, Steven Bogen, Robin Prever and Anthony
Malatino entered in a stockholder agreement in which it was agreed to vote all
of their Saratoga securities to elect, re-elect and prevent any proposed removal
of, Mr. Bogen as a member of Saratoga's board. This stockholder agreement shall
expire on the earlier of the date (i) that Mr. Bogen directly owns less than
400,000 shares of Class A common stock, (ii) Mr. Bogen is convicted of a felony
or a misdemeanor involving moral turpitude, dishonesty, theft or unethical
business conduct, or (iii) Mr. Bogen breaches his fiduciary duties, in a
material fashion, to Saratoga or its stockholders. The stockholder agreement
will terminate upon the effective time of the merger.
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:
26
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a) Exhibits and Index
Exhibit No.
2.1(1) (P) Agreement and Plan of Merger
2.2(14) Stock Purchase Agreement and Agreement and Plan of Merger,
dated as of January 5, 2000, by and among Saratoga, NCP-SBG,
L.P. and NCP-SBG Recapitalization Corp.
3.1(1) (P) Restated Certificate of Incorporation of Saratoga
3.2(1) (P) By-Laws of Saratoga
3.3(10) Amendment to By-Laws of Saratoga
4.1(1) (P) Specimen of Class A Stock Certificate
5.1(12) Opinion of Swidler Berlin Shereff Friedman, LLP
9.1(11) Restated Voting, Standstill and Proxy Agreement dated as of
October 13, 1998
9.2(11) Stockholder Agreement dated October 13, 1998 by and among
Saratoga, Robin Prever, Anthony Malatino and Steven Bogen
10.1(2)+ (P) Employment Agreement entered into by the Registrant and
Robin Prever
10.2(1)+ (P) Form of the Saratoga Spring Water Company 1993 Stock
Option Plan
10.3(2)+ (P) Consulting Agreement entered into by Saratoga and Leonard
Toboroff
10.4(1) (P) Letter Agreement between Saratoga and Owens-Brockway Glass
Containers
10.5(2) (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 hereto
dated November 9, 1993
10.6(2) (P) Stock Agreement, dated July 21, 1993, by and between JNJ
Distributors, Inc. and Saratoga Spring Water Company
10.7(2) (P) Distribution Agreement, dated March 25, 1993, by and
between Joseph Victori Wines, Inc. and JNJ Distributors, Inc.
10.8(5) Termination Agreement dated as of January 31, 1997 between
Saratoga and Triarc
10.9(3) (P) Cott Co-pack Agreement dated as of June 8, 1995
10.10(4) Manufacturing and Distribution Agreement, dated as of July 23,
1996, by and between Saratoga and Mistic Brands, Inc.
10.11(6) Bottling Agreement, dated April 16, 1997, by and among
Saratoga, Hype Corporation, Hype Beverage Corporation, World
Wide Beverage Inc., Hype Water Company, Inc., Hyperholics
Inc., R.J. Barry Cox and Nigel Spiro
10.12(6)+ Line of Credit dated as of April 10, 1997 to Saratoga from
Robin Prever and Anthony Malatino
10.13(7) Saratoga Splash Agreement, dated as of June 30, 1997, by and
between Saratoga and Mistic Brands, Inc.
10.14(7) 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.
27
<PAGE>
10.15(8) 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
10.16(9)+ Securities Purchase Agreement dated February 12, 1998 between
Saratoga and Carl T. Wolf
10.17(9)+ Stock Option Agreement dated February 25, 1998 between
Saratoga and Steel Partners II, L.P.
10.18(9)+ Securities Purchase Agreement dated February 25, 1998 between
Saratoga and Carl T. Wolf
10.19(9) Option Agreement dated March 16, 1998 between Saratoga and
Steven Smith
10.20(9) Letter agreement dated March 29, 1998 between Saratoga and The
Fresh Juice Company, Inc.
10.21(9)+ Amended and Restated Stock Option Agreement dated April 17,
1998 between Saratoga and Carl T. Wolf
10.22(9) Letter agreement dated April 24, 1998 between Saratoga and The
Fresh Juice Company, Inc.
10.23(11)+ Form of the Saratoga Beverage Group, Inc. 1998 Stock Option
Plan
10.24(12) Commitment letter dated September 24, 1998 between Saratoga
and NationsBank, N.A.
10.25(11) Restated Agreement and Plan of Merger dated as of October 13,
1998 by and among Saratoga, Rowale Corp. and The Fresh Juice
Company, Inc.
10.26(11)+ Employment Agreement dated October 13, 1998 between Saratoga
and Jeffrey Heavirland
10.27(11) Letter agreement dated October 13, 1998 among Saratoga, Fresh
Juice and Steven Smith (amending the agreement set forth in
Exhibit 10.30 hereof)
10.28(12)+ Letter agreements dated December 2, 1998 among Saratoga, Fresh
Juice and Steven Bogen (amending the agreement set forth in
Exhibit 10.31 hereof)
10.29(12)+ Letter agreement dated December 2, 1998 among Saratoga, Fresh
Juice and Jeffrey Heavirland
10.30(12) Employment Agreement effective April 1, 1996 between The Fresh
Juice Company, Inc. and Steven Smith
10.31(12) Employment Agreement effective April 1, 1996 between The Fresh
Juice Company, Inc. and Steven M. Bogen
10.32(12) Supply Agreement dated March 31, 1996 between The Fresh Juice
Company, Inc. and Natural Juice Company, Inc.
10.33(12) Agreement of Lease dated November 24, 1997 between The Fresh
Juice Company of New York, Inc. and 280 Wilson Avenue
Associates, L.L.C. and guaranteed by The Fresh Juice Company,
Inc.
10.34(12) Industrial Real Estate Lease dated June 17, 1992 between
Hansen's Juices, Inc. and Pruco Life Insurance Company
10.35(14) Form of Voting Agreements, dated as of January 5, 2000, by and
between NCP- SBG, L.P. and each of the other parties thereto.
28
<PAGE>
10.36(14) Employment Agreement, dated as of January 5, 2000, by and
between Saratoga Beverage Group, Inc. and Robin Prever.
10.37(14) Non-Competition Agreement, dated as of January 5, 2000, by and
between Saratoga Beverage Group, Inc. and Robin Prever.
10.38(14) Stockholders Agreement, dated as of January 5, 2000, by and
among Saratoga Beverage Group, Inc. and the other parties
thereto.
10.39(14) Registration Rights Agreement, dated as of January 5, 2000, by
and among Saratoga Beverage Group, Inc. and the other parties
thereto.
10.40(14) Consulting Agreement, dated as of January 5, 2000, by and
between Saratoga Beverage Group, Inc. and North Castle
Partners, L.L.C.
10.41(13) Assignment and Agreement, dated September 22, 1999 by The
Fresh Juice Company, Inc. and Hansen Beverage Company.
21.1(11) Subsidiaries of Saratoga
25.1(13) Credit Agreement by and among Saratoga Beverage Group, Inc.,
as Borrower, NationsBank, National Association, as Agent and
Lender and The Lenders Party Thereto from time to time, dated
January 29, 1999
25.2(13) Robin Prever Employment Agreement dated January 28, 1999
27.0(15) Financial Data Schedule
- -------------
(1) Incorporated herein by reference to Saratoga's Registration
Statement on Form SB-2 filed with the SEC on June 16, 1993
(Registration No. 33-62038NY).
(2) Incorporated herein by reference to Saratoga's Form 10-KSB
filed with the SEC on March 30, 1994.
(3) Incorporated herein by reference to Saratoga's Form 10-KSB
filed with the SEC on March 29, 1996.
(4) Incorporated herein by reference to Saratoga's Form 10-QSB
filed with the SEC on November 12, 1996.
(5) Incorporated herein by reference to Saratoga's Form 10-KSB
filed with the SEC on April 15, 1997.
(6) Incorporated herein by reference to Saratoga's Form 10-QSB
filed with the SEC on May 13, 1997.
(7) Incorporated herein by reference to Saratoga's Form 10-QSB
filed with the SEC on August 8, 1997.
(8) Incorporated herein by reference to Saratoga's Form 10-KSB
filed with the SEC on March 20, 1998.
(9) Incorporated herein by reference to Saratoga's Form 10-QSB
filed with the SEC on May 11, 1998.
(10) Incorporated herein by reference to Saratoga's Form 10-QSB
filed with the SEC on August 5, 1998.
(11) Incorporated herein by reference to Saratoga's Form 10-QSB
filed with the SEC on November 5, 1998.
(12) Incorporated herein by reference to Saratoga's Registration
Statement on Form S-4 filed with the SEC on December 24, 1998
(Registration No. 33-369707).
29
<PAGE>
(13) Incorporated herein by reference to Saratoga's Form 10-KSB
filed with the SEC on March 31, 1999.
(14) Incorporated herein by reference to Saratoga's Schedule 13E-3
filed with the SEC on January 21, 2000.
(15) Filed herewith.
(+) Management agreement.
(P) Paper filing.
(b) Current Reports on From 8-K: Form 8-K with event dates of November 22, 1999
and January 6, 2000. The November 22, 1999 Form 8-K included audited financial
statements of Fresh Juice for the year ended November 30, 1998. The January 6,
2000 Form 8-K included a press release issued by the Company regarding the
execution of a Stock Purchase Agreement and Plan of Merger on January 5, 2000.
30
<PAGE>
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 27, 2000 SARATOGA BEVERAGE GROUP, INC.
By:/s/ Robin Prever
-----------------------------------
Robin Prever, President
By: /s/ Kim A. James
-----------------------------------
Kim A. James, Chief Financial
Officer
In accordance with the requirements of the Securities Exchange Act of
1934, the following persons on behalf of the registrant and in the capacities
and on the dates indicated have signed this report.
Signature Capacities Date
/s/ Robin Prever President, Chief Executive March 27, 2000
- -------------------------- Officer and Chairperson of the
Robin Prever Board of Directors
/s/ Kim A. James Chief Financial Officer March 27, 2000
- --------------------------
Kim A. James
/s/ Steven Bogen Director March 27, 2000
- --------------------------
Steven Bogen
/s/ William Colaianni Director March 27, 2000
- --------------------------
William Colaianni
Director March 27, 2000
- --------------------------
R. J. Barry Cox
/s/ Warren Lichtenstein Director March 27, 2000
- -----------------------
Warren Lichtenstein
/s/ Leonard Toboroff Director March 27, 2000
- --------------------------
Leonard Toboroff
31
<PAGE>
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, 1999 and 1998........................ F-3
Consolidated income statements for the years ended December 31, 1999 and 1998....... F-4
Consolidated statements of stockholders' equity for the years ended December 31, F-5
1999 and 1998.......................................................................
Consolidated statements of cash flows for the years ended December 31, 1999 and F-6
1998................................................................................
Notes to consolidated financial statements ......................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Saratoga Beverage Group, Inc. and Subsidiaries:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of Saratoga
Beverage Group Inc. and Subsidiaries at December 31, 1999 and 1998, and the
results of their operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States.
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 of these statements in accordance with
auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
March 3, 2000
Albany, New York
F-2
<PAGE>
SARATOGA BEVERAGE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------------- -----------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 473,796 $2,576,873
Accounts receivable, net of allowance for doubtful accounts of
$281,163 in 1999 and $12,955 in 1998 6,188,016 874,821
Inventories 6,182,611 473,265
Income taxes receivable 644,427 -
Prepaid expenses and other current assets 252,274 32,471
Current portion of notes receivable 143,750 -
------------------- -----------------
Total current assets 13,884,874 3,957,430
Property, plant and equipment, net 7,800,076 1,501,953
Deferred financing costs, net 741,525 911,607
Notes receivable, net of allowance of $0 and $400,000 in 1999 and 1998, 127,404 -
respectively
Deferred acquisition costs - 762,890
Goodwill, net 18,413,626 -
Other intangibles, net 247,272 -
Other assets, net 132,561 365,339
------------------- -----------------
TOTAL ASSETS $41,347,338 $7,499,219
=================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $5,209,181 $1,539,060
Short-term debt and current portion of obligation under
capital lease 172,952 15,533
Other current liabilities 18,309 -
------------------- -----------------
Total current liabilities 5,400,442 1,554,593
Long-term debt, net of current portion 21,941,773 54,556
5% subordinated convertible note 1,500,000 1,500,000
Other liabilities 514,962 -
------------------- -----------------
TOTAL LIABILITIES 29,357,177 3,109,149
------------------- -----------------
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; 5,004,692 and 2,676,139 shares issued in 1999 and
1998, respectively 50,047 26,761
Class B convertible common stock, $.01 par value; 2,000,000 shares
authorized; 522,955 shares issued and outstanding in
1999 and 1998 5,230 5,230
Paid-in capital 15,769,115 9,953,522
Accumulated deficit (3,834,231) (5,595,443)
------------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 11,990,161 4,390,070
------------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $41,347,338 $7,499,219
=================== =================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
SARATOGA BEVERAGE GROUP, INC.
CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
<S> <C> <C>
Total Revenue $50,740,691 $8,881,242
Cost of Goods Sold, exclusive of
depreciation, amortization, and
equipment lease expense shown
separately below 39,337,680 5,522,934
------------- -------------
Gross Profit 11,403,011 3,358,308
------------- -------------
Operating Expenses:
Selling, general and administrative 6,585,553 1,699,807
Depreciation, amortization, and
equipment lease expense 1,323,450 566,317
------------- -------------
7,909,003 2,266,124
------------- -------------
Operating Income 3,494,008 1,092,184
------------- -------------
Other Income (Expense):
Miscellaneous income 137,619 103,538
Interest income 55,766 169,331
Interest expense (1,835,477) (80,307)
Net gain on disposal of equipment 14,116 -
Provision for (loss) on note receivable - (400,000)
------------- -------------
Other Income (Expense), net (1,627,976) (207,438)
------------- -------------
Income before income taxes 1,866,032 884,746
Provision for income taxes 104,820 17,600
------------- -------------
Net Income $1,761,212 $867,146
============= =============
Per Share Information (Aggregate of
Class A and Class B shares):
Basic earnings per share $0.34 $0.27
Diluted earnings per share $0.32 $0.26
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
SARATOGA BEVERAGE GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
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, January 1, 1998 2,407,039 562,055 29,691 9,346,922 (6,462,589) - 2,914,024
Conversion of Class B into
Class A common stock 39,100 (39,100)
Purchase of treasury stock (499,500) (499,500)
Retirement of treasury stock (250,000) (2,500) (497,000) 499,500
Exercise of stock options 30,000 300 37,200 37,500
Issuance of Class A shares 450,000 4,500 1,008,000 1,012,500
Issuance of stock options in
connection with acquisition 58,400 58,400
Net Income 867,146 867,146
-----------------------------------------------------------------------------------------------
Balance, December 31, 1998 2,676,139 522,955 $31,991 $9,953,522 $(5,595,443) $ - $4,390,070
-----------------------------------------------------------------------------------------------
Exercise of stock options 195,000 1,950 503,050 505,000
Issuance of Class A shares in
connection with acquisition 2,133,553 21,336 5,312,543 5,333,879
Net Income 1,761,212 1,761,212
-----------------------------------------------------------------------------------------------
Balance, December 31, 1999 5,004,692 522,955 $55,277 $15,769,115 $(3,834,231) $ - $11,990,161
===============================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
SARATOGA BEVERAGE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $1,761,212 $867,146
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,379,530 435,564
Provision for loss on note receivable - 400,000
Provision for doubtful accounts 223,574 (47,971)
Gain on disposal of fixed assets (14,116) -
Changes in operating assets and liabilities:
Accounts receivable (922,853) (137,076)
Inventories (3,083,536) (112,595)
Prepaid expenses and other current assets 118,059 (2,478)
Accounts payable and accrued liabilities (2,907,127) (737,126)
---------------- -----------------
Net cash provided by (used in) operating activities (3,445,257) 665,464
---------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition, net of cash acquired (14,219,653) -
Proceeds from sale of trademark 343,750 -
Sale purchase of short term investments - 1,153,915
Proceeds received from notes receivable 200,280 -
Issuance of notes receivable - (100,000)
Purchase of property, plant and equipment (1,503,841) (328,350)
Deferred acquisition costs - (126,452)
Increase in intangibles and other assets (186,465) (347,290)
---------------- -----------------
Net cash provided by (used in) investing activities (15,365,929) 251,823
---------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowing 22,106,705 -
Payment of deferred financing costs - (448,000)
Principal payments on long term debt, excluding capital lease (5,617,976) -
obligations
Principal payments on capital lease obligations (11,870) (10,887)
Proceeds from issuance of common stock - 1,012,500
Proceeds from the exercise of stock options 231,250 37,500
Purchase of treasury stock - (499,500)
---------------- -----------------
Net cash provided by financing activities 16,708,109 91,613
---------------- -----------------
Increase (decrease) in cash and cash equivalents (2,103,077) 1,008,900
Cash and cash equivalents at beginning of period 2,576,873 1,567,973
---------------- -----------------
Cash and cash equivalents at end of period $ 473,796 $2,576,873
================ =================
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Income taxes paid $11,475 $29,161
================ =================
Interest paid $1,658,103 $77,380
================ =================
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Acquisition of equipment under capital lease and note - $73,070
================ =================
Stock options issued in connection with acquisition - $58,400
================ =================
Accrued acquisition and financing costs - $993,297
================ =================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
SARATOGA BEVERAGE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
COMPANY'S ACTIVITIES:
Saratoga Beverage Group, Inc. (the "Company") is primarily engaged in
the manufacturing, marketing, and distribution of fresh squeezed and frozen
fresh squeezed citrus juices, fresh fruit smoothies, which are blends of juices
and puree, and other non-carbonated beverages marketed under the labels "Fresh
Pik't," "The Fresh Juice Company," "Hansen's Juices," "The Ultimate Juice" and
"Just Pik't," and the production of sparkling and noncarbonated spring water
products including Saratoga Splash.
On January 29, 1999 the Company consummated the acquisition of The
Fresh Juice Company, Inc. ("Fresh Juice"). The 1999 financial statements include
the results of operations of the combined companies from that date. The 1998
financial statements include the Company and its wholly-owned subsidiary, Rowale
Corp., which was incorporated in the State of Delaware on March 2, 1998. All
significant inter-company balances and transactions have been eliminated.
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.
CASH EQUIVALENTS:
The Company considers all investments with original maturities of three
months or less to be cash equivalents. Cash equivalents include investments in
money market funds. These investments are stated at cost, which approximate
market value.
INVENTORIES:
Inventories are stated at the lower of cost or market with cost being
determined by the first-in, first-out method.
PROPERTY, PLANT, EQUIPMENT AND INTANGIBLE ASSETS:
Property, plant, equipment and intangible assets are carried at cost
less allowance for accumulated depreciation and amortization. The cost of
properties held under capital leases are
F-7
<PAGE>
equal to the lower of the net present value of the minimum lease payments or the
fair market value of the leased property at the inception of the lease.
Significant additions or improvements extending the assets' useful lives are
capitalized. Normal maintenance and repair costs are expensed as incurred. When
assets are sold, retired, or otherwise disposed of, the applicable costs and
accumulated depreciation are removed from the accounts and resulting gain or
loss is recognized.
Depreciation is computed by the straight-line method at rates based
upon the estimated service life of the various classes of assets (3 to 32
years).
INTANGIBLES:
Deferred financing costs related to the 5% subordinated convertible
note are being amortized over three years, the life of the Note. Also included
in deferred financing costs at December 31, 1999 are costs associated with
financing of the acquisition of Fresh Juice (see note 16). Goodwill is amortized
on a straight-line basis over 30 years.
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.
When intangible assets become fully amortized, the applicable costs and
accumulated amortization are removed from the accounts.
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 years ended December 31, 1999 and 1998, the Company offset
substantially all income taxes through the use of federal income tax loss
carryforwards. At December 31, 1999 and 1998 the Company has available
approximately $3,238,000 and $2,813,000, respectively, of federal income tax
loss carryforward 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 carryforward. As of December 31,
1999 the valuation allowance was $936,000, a decrease of $7,000 from the prior
year amount of $943,000.
PER SHARE DATA:
In accordance with Financial Accounting Standard No. 128 (FAS 128)
"Earnings Per Share," net income/(loss) per share is computed using the weighted
average number of shares of the aggregate 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
F-8
<PAGE>
share amounts for all periods presented have been computed in accordance with
this Standard.
STOCK-BASED COMPENSATION:
Under the provisions of Statement of Financial Accounting Standards No.
123 ("SFAS 123"), "Accounting for Stock-Based Compensation", 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
(see note 12).
RECLASSIFICATION:
Certain 1998 amounts have been reclassified to conform to the 1999
presentation.
NEW ACCOUNTING STANDARDS:
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The standard establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that a company recognize derivatives as assets or liabilities measured at fair
value. This standard is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. Adoption of this standard will have no material
impact on the financial statements of the Company.
2. EARNINGS PER SHARE
The calculation of aggregate Class A and Class B earnings per share is
as follows:
1999 1998
---- ----
Numerator
Net income $1,761,212 Basic $ 867,146 Basic
Impact of potential common shares:
Interest expense on 5%
subordinated convertible note 75,000 75,000
---------- ---------
$1,836,212 Diluted $ 942,146 Diluted
Denominator
Weighted-average
outstanding shares 5,175,114 Basic 3,166,327 Basic
F-9
<PAGE>
Impact of potential common shares:
Stock options 93,930 74,282
Convertible debt 428,571 428,571
--------- ---------
5,697,615 Diluted 3,669,190 Diluted
========= =========
Outstanding warrants and options for 153,988 and 230,158 shares of
stock in 1999 and 1998 respectively were not included in the calculation of
earnings per share because they were considered to be anti-dilutive.
3. INVENTORIES
Inventories consist of the following:
1999 1998
---- ----
Raw Materials $1,383,622 $152,459
Finished Goods 4,789,989 320,806
-------------- --------------
Total Inventories $6,182,611 $473,265
============== ==============
4. PROPERTY, PLANT, AND EQUIPMENT
Balances of major classes of assets and allowances for depreciation and
amortization are as follows:
1999 1998
---- ----
Land $333,892 $303,892
Building & improvements 3,432,913 718,265
Machinery & equipment 5,687,300 2,340,635
Computer equipment 242,879 71,946
Furniture & fixtures 186,027 121,198
Equipment under capital lease 62,814 62,814
Construction in progress 501,818 3,717
-------------- --------------
10,447,643 3,622,467
Less:
Accumulated depreciation (2,585,529) (2,110,450)
Accumulated amortization (62,038) (10,064)
-------------- --------------
$7,800,076 $1,501,953
============== ==============
Depreciation and amortization expense on property, plant and equipment
for the years
F-10
<PAGE>
ended December 31, 1999 and 1998 was $558,263 and $400,497 respectively.
5. NOTE RECEIVABLE
On December 23, 1997 the Company and Onyx Management Services, LLC
("Onyx") entered into a loan agreement whereby the Company agreed to loan Onyx
up to $800,000 (the "Loan") for working capital and general business purposes.
As of December 31, 1998 the Company had loaned and advanced to Onyx a sum of
$400,000. All assets of Onyx collateralize the Loan.
At December 31, 1998 the Company declared a default under the Loan and
recorded an allowance of $400,000 for the Loan receivable. On December 1, 1999,
the Company agreed to a settlement of $55,785 in four monthly installments.
Subsequent to year end, the $55,785 settlement was received.
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of:
1999 1998
Accounting payable, trade $4,132,139 $1,159,632
Accruals related to raw 548,594 __
materials purchases
Accrued 175,904 67,909
salaries/commissions
Other 352,544 311,519
--------------------------------------
$5,209,181 $1,539,060
======================================
7. INDEBTEDNESS
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
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 stock in the event that the closing price of Class A common stock
F-11
<PAGE>
exceeds $5.25 for three consecutive trading days.
As of January 10, 2000, the Note was converted into 428,571 shares of
Class A common stock under the mandatory conversion provision of the Note as the
Class A common stock price equaled or exceeded $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 have been deferred and are being amortized
over the life of the Note, three years.
In connection with the acquisition of Fresh Juice, the Company
consummated financing with NationsBank, N.A., which included an $8 million term
loan and a $14 million revolving credit facility. The financing constituted the
source of the funds for the acquisition. Availability under the revolving credit
facility shall be reduced in $750,000 amounts, the first such reduction
occurring on the last business day of the 27th month after January 29, 1999 and
each quarterly anniversary thereafter until the revolver maturity date. The
facility will terminate and all remaining amounts outstanding thereunder will be
due and payable five years following closing.
The term loan facility reduces with eight equal quarterly payments of
$1,000,000 the first such payment being due on the last business day of the 63rd
month following January 29, 1999 and subsequent payments due on each succeeding
quarterly anniversary. The term loan will terminate seven years following
closing.
The interest rate on the revolving credit facility may be elected from
two interest rate bases: floating rate (Federal Funds rate plus 50 basis points
or prime rate) or reserve-adjusted Eurodollar rate. The Eurodollar rate will be
determined by adding a margin of 100 basis points to the floating rate or 250
basis points to the Eurodollar rate, in both instances using a 360 day basis. At
all times the interest rate on the term loan will be calculated as the
Eurodollar rate plus 350 basis points, using a 360 day basis. Within one year
from January 29, 1999 the Company is required to enter into interest rate
hedging agreements to fix or limit its interest rate risk exposure on not less
than forty percent of the drawn amount of the facilities and for a term of not
less than 3 years. The debt agreement includes administrative and financial
covenants, including consolidated leverage ratio, consolidated fixed charge
ratio and consolidated interest charge ratio, all as defined.
The Company has also entered into three interest rate swaps that fix a
total of $7,400,000 of debt at interest rates ranging from 5.31% to 6.1925% and
have expiration dates ranging from March 1, 2001 through October 19, 2001. The
Company enters into these transactions pursuant to the credit agreement and to
protect the Company from variable interest rate exposure. The fair value of
these swaps is estimated to be approximately $84,000.
At December 31, 1999, debt consists primarily of $11,000,000 borrowed
under the revolving credit line using the 90-day reserve-adjusted Eurodollar
rate plus 250 basis points, ranging from 7.73% to 8.10%, $2,600,000 borrowed
under the revolving credit line based on
F-12
<PAGE>
prime plus 100 basis points at a rate of 9.25%, $8,000,000 term loan at a
Eurodollar rate plus 350 basis points at a rate of 8.98% and a 5% subordinated
convertible note.
Principal maturities of long-term debt, including capital leases, for the five
years subsequent to December 31, 1999 are as follows:
2000 $ 172,952
2001 3,044,845
2002 3,248,997
2003 3,012,976
2004 7,000,000
Thereafter 5,634,955
------------
$ 22,114,725
Less: current (172,952)
portion:
------------
Long term $ 21,941,773
debt, net of
current
portion
============
8. COMMITMENTS AND CONTINGENCIES
Future minimum rental commitments under capital leases and non-cancelable
operating leases at December 31,
Year Ended Operating Leases
2000 $ 925,852
2001 637,131
2002 565,865
2003 557,256
2004 463,750
Thereafter 693,862
----------------
$3,843,716
================
Rental expense for the years ended December 31, 1999 and December 31,
1998 was $1,080,385 and $130,754, respectively.
F-13
<PAGE>
In June 1993, the Company entered into an employment agreement with its
president and chief executive officer (the "Executive") providing for annual
compensation of $125,000. The agreement provided 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. On January
28, 1999, the Company entered into a new four-year employment agreement with its
president, chief executive officer and chairperson of the Board (and a
director), providing for annual compensation of $200,000. The compensation
committee of the Board of Directors of the Company shall set goals on an annual
basis for the Executive's performance as an officer of the Company, and shall
cause the Company to pay to an annual bonus in addition to the salary based on
the achievement by the Executive of such goals. Non-qualified stock options to
purchase 300,000 shares of Class A common stock were issued with an exercise
price of $2.438 per share as part of this agreement and shall vest over a three
year period from the date of grant at a rate of 33% per year, commencing with
the first anniversary of the date of grant. Executive's vested stock options
shall be exercisable for a period of ten (10) years from the date of issuance.
On December 22, 1999, lawsuits were filed in the Court of Chancery of
the State of Delaware by each of Moses Semel, Marian Lustig and Melvin Tepler on
their own behalf and as purported class actions on behalf of all security
holders of Saratoga, against Saratoga and its directors. The complaints in the
three lawsuits are materially identical, and each alleges, among other things,
that (1) the $6.00 per share price to be paid in the merger is "unfair and
inadequate consideration" because, among other things, (a) "the intrinsic value
of the stock of Saratoga is materially in excess of $6.00 per share, giving due
consideration to the prospects for growth and profitability of Saratoga in light
of its business, earnings and earnings power, present and future," and (b) "the
$6.00 per share price was fixed by [Robin Prever, unidentified members of
Saratoga management and an undisclosed financial sponsor (the "Buyout Group")]
to 'cap' artificially the market price of Saratoga's stock, as part of the plan
by the Buyout Group to obtain complete ownership of Saratoga's assets and
business at the lowest possible price"; (2) the members of Saratoga's board of
directors "suffer from material conflicts of interest" because they are
"significant participants in the Buyout Group"; and (3) the members of the
Buyout Group are using "superior knowledge" of Saratoga's finances and value "to
effectuate the [purchase of all of Saratoga's shares not already owned by the
Buyout Group for $6.00 per share] at the expense of the Company's public
shareholders." Saratoga and the members of its board of directors who have been
named as defendants believe that the lawsuits are without merit and intend to
defend the lawsuits vigorously. Counsel for the plaintiffs in the three actions
have indicated that they intend to seek an Order consolidating the three
lawsuits and have agreed to extend the time for the defendants to respond to the
complaints.
9. RELATED PARTY TRANSACTIONS
At December 31, 1999 and 1998, the Company's cash and cash equivalent
balance includes approximately $224,373 and $2,506,177 respectively in a money
market account and short term investments with Morgan Stanley Dean Witter. A
principal stockholder of the Company is an officer of Morgan Stanley Dean
Witter.
10. PREFERRED STOCK
F-14
<PAGE>
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.
11. 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, 1999, 522,955 shares of class A common stock are
reserved for issuance upon conversion of Class B shares.
12. STOCK OPTIONS AND WARRANTS
In June 1993, the Board of Directors of the Company approved the
adoption of the Saratoga Spring Water Company 1993 Stock Option Plan (the "1993
Stock Option Plan"). The 1993 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 1993 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 1993 Stock Option Plan increasing the number of shares
available for issuance from 466,000 to 616,000.
At the annual meeting of stockholders held on October 28, 1998 the
Saratoga Beverage Group, Inc. 1998 Stock Option Plan (the "1998 Stock Option
Plan") was approved. The 1998 Stock Option Plan provides for the issuance of
options covering up to 900,000 shares of Class A common stock or Class B common
stock (collectively "Shares") (subject to adjustments in the event of stock
splits, stock dividends and similar dilutive events). Options may be granted
under the 1998 Stock Option Plan to employees, officers or directors of the
Company. The 1998 Stock Option Plan will be administered by the Stock Option
Committee of the Board (the "Committee").
Options granted to employees may either be incentive stock options (as
defined in the Internal Revenue Code of 1986, as amended) ("ISOs") or
non-qualified stock options. The purchase price of the Shares made subject to an
option shall be determined by the Committee at the time of grant, provided that
the purchase price of incentive stock options may not be, and the price of
non-qualified options generally will not be, less than the fair market value of
the Class A
F-15
<PAGE>
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
Committee, which will generally provide that no option may be exercised after
ten years from the date of grant. 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 ISO, 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 ISO cannot exceed
five years from the date of grant.
Non-employee directors and key employees (defined as full-time
employees) of the Company or any future Subsidiary Corporation (as defined in
the 1998 Stock Option Plan) of the Company are eligible to participate in the
1998 Stock Option Plan; provided, however, that ISOs may only be granted to
employees of the Company or a Subsidiary Corporation. Each non-employee director
of the Company on January 1 of a year during the term of the 1998 Stock Option
Plan will automatically receive options to purchase 5,000 shares of Class A
common stock at the fair market value of the Class A common stock on the date of
grant.
The following relates to stock options outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
-------------------------------------------------------------------------------------
WEIGHTED WEIGHTED
WEIGHTED AVERAGE AVERAGE
EXERCISE NUMBER OF AVERAGE EXERCISE NUMBER OF EXERCISE
PRICE RANGE SHARES LIFE (A) PRICE SHARES PRICE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.94 -- 2.50 957,062 8.9 $2.39 356,398 $2.27
$2.51 -- 5.00 132,988 5.8 3.23 127,488 3.24
$7.51 -- 10.00 1,000 3.9 8.75 1,000 8.75
----- -----
Total 1,091,050 8.5 2.50 484,886 2.54
========= =======
</TABLE>
(a) Average remaining contractual life in years.
The following activity occurred during 1999 and 1998 with respect to
options granted under the Company's stock option plans:
<TABLE>
<CAPTION>
1999 1998
-----------------------------------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding on January 1 577,220 $2.59 359,839 $5.02
Granted at fair value 749,500 2.47 437,501 2.37
Exercised 195,000 2.45 30,000 1.25
Expired 40,670 2.69 190,120 6.74
-------------- --------------
Outstanding on December 31 1,091,050 2.50 577,220 2.59
============== ==============
Exercisable on December 31 484,886 2.54 406,220 2.74
==============
</TABLE>
F-16
<PAGE>
Shares available for grant were 144,606 and 853,436 at December 31,
1999 and December 31, 1998, respectively.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for the stock option plans. Accordingly, no compensation expense has
been recognized for employee option grants (SFAS No. 123). Had compensation cost
for the stock option plans 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:
YEAR ENDED DECEMBER 31 1999 1998
- ------------------------------------------------------------------------
Net income (loss)
As reported $1,761,212 $867,146
Pro forma $980,062 $465,148
Earnings per share
Basic EPS as reported $0.34 $0.27
Diluted EPS as reported $0.32 $0.26
Pro forma Basic EPS $0.19 $0.15
Pro forma Diluted EPS $0.18 $0.13
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 1999 and 1998, respectively; dividend
yields of 0 percent for both years; expected volatility of 90.5 percent for 1999
and 88.9 percent for 1998; risk-free interest rates of 4.8 and 5.6 percent for
1999 and 1998, respectively; and expected lives of five years for both years.
The weighted-average fair value of options granted was $2.44 and $2.36 for the
years ended December 31, 1999 and 1998, 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.
On January 5, 2000, the Company entered into a Stock Purchase Agreement
and Agreement and Plan of Merger by and among Saratoga, NCP-SBG, L.P., a
Delaware limited partnership (the "Purchaser"), and NCP-SBG Recapitalization
Corp., a Delaware corporation ("MergerCo"). The merger agreement provides,
subject to the approval of the stockholders of Saratoga at a special meeting and
subject to the satisfaction or waiver of certain other conditions, that:
o MergerCo will be merged with and into Saratoga, with Saratoga
continuing as the surviving corporation of the merger;
o each share of Class A common stock and Class B common stock that is
outstanding at the effective time of the merger, excluding:
o a minimum of 550,000 and a maximum of 700,000 shares of Class
A common stock held by certain other stockholders, including
the Chief Executive Officer, certain directors of Saratoga and
Anthony Malatino, who will convert a minimum of 550,000 and a
maximum of 700,000 of their shares of Class A common stock
into shares of
F-17
<PAGE>
common stock into shares of common stock of the surviving
corporation and will continue to be stockholders of Saratoga
(such continuing stockholders, the "Continuing Stockholders"
and the shares of such Continuing Stockholders that will not
be converted into the right to receive $6.00 per share in
cash, without interest, the "Rollover Stock"),
o shares held by Saratoga as treasury stock, and
o shares as to which dissenters' rights are perfected in
accordance with Delaware law,
will be converted into the right to receive $6.00 per share in cash, without
interest, subject to applicable back-up withholding taxes;
o each share of Rollover Stock will be converted into the right to
receive one share of common stock of Saratoga as the corporation
surviving the merger; and
o each existing option and warrant, whether vested or unvested, to
purchase shares of Class A common stock shall be canceled or
repurchased for an amount equal to the excess, if any, of $6.00 per
share of Class A common stock purchasable under each option and warrant
over the exercise price with respect to each share.
13. EMPLOYEE BENEFIT PLAN
On April 1, 1998 the Company adopted a 401(k) Profit Sharing Plan which
provides for an employee salary deferral contribution and Company contributions.
Employees are permitted to contribute a percentage of their compensation as
defined by the plan documents. The Company contributes for each participant a
matching contribution equal to 50% of the participant's "eligible
contributions." The Company may or may not contribute an additional amount of
matching contributions determined by the Company at its discretion.
Effective January 1, 1998, Fresh Juice instituted a 401(k) matching
program pursuant to which Fresh Juice matched twenty-five percent (25%) of each
eligible employee's contributions limited to a maximum match of two percent (2%)
of the employee's compensation but no greater than the maximum allowed by law.
Total Company (through the Company and Fresh Juice) contributions for
1999 and 1998 were $43,653 and $11,691, respectively. The Company's management
is in the process of combining the two plans.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value.
CASH, CASH EQUIVALENTS, AND SHORT TERM INVESTMENTS:
The carrying amount of cash and cash equivalents at December 31, 1999
and 1998 was
F-18
<PAGE>
$473,796 and $2,576,873, respectively, which approximates fair value because of
the short maturity of those financial instruments.
DEBT:
The carrying amount of long-term debt at December 31, 1999 and 1998 was
$23,956,735 and $1,554,556, respectively, which approximate fair value. The fair
value of these financial instruments was based on the Company's current
borrowing rates for similar types of borrowing arrangements.
15. 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, 1999 and 1998, approximately $212,876 and
$2,406,122, respectively, of cash was on deposit at financial institutions in
excess of Federal deposit insurance limits.
Subsequent to the acquisition of Fresh Juice, the Company sells to a
large number of customers, none of whom individually represent over 8% of sales.
Prior to 1999 revenue from the Company's largest distributor was 20% of revenue.
16. ACQUISITION OF THE FRESH JUICE COMPANY, INC. (Unaudited)
On January 29, 1999, the Company acquired Fresh Juice. Fresh Juice
produces, markets and sells fresh squeezed and frozen fresh squeezed orange
juice, grapefruit juice, fresh fruit smoothies and other non-carbonated
beverages nationally under the brand names "Just Pik't", "Fresh Pik't", "Florida
Pik't", "Ultimate" and "Hansen's". The majority of the juice produced by Fresh
Juice is fresh squeezed orange juice.
The transaction was accounted for as a purchase. The purchase price of
$21.7 million was comprised of cash of approximately $16.4 million and 2,133,553
shares of Class A common stock. The cash payment was financed through a credit
agreement consummated with NationsBank, N.A., which included an $8 million term
loan and a $14 million revolving credit facility. The excess purchase price over
fair values assigned to assets acquired (goodwill) $18,993,000, is being
amortized on a straight-line basis over 30 years.
The following summarized unaudited proforma financial information for
the years ended December 31, 1998 and 1997 assumes the acquisition had occurred
on January 1 of each year:
PRO FORMA INFORMATION (UNAUDITED)
(in millions, except per share data) 1999 1998
- ----------------------------------------------------------------------------
Net sales $ 53.0 $46.5
Net income (loss) 1.8 (0.8)
Earnings (loss) per share
Basic $ .34 $(.14)
Fully Diluted $ .31 $(.14)
- ----------------------------------------------------------------------------
F-19
<PAGE>
For 1998, these amounts include Fresh Juice's results for the year
ended November 30, 1998 and the Company's results for the year ended December
31, 1998, after giving effect to certain proforma adjustments. Proforma
information includes adjustments for interest expense that would have been
incurred to finance the acquisition, amortization of goodwill acquired in the
acquisition, increase in inventory and cost of goods sold to fair value, and
adjustments to record income taxes at the expected effective rate. For 1999,
these amounts include the actual results of Saratoga for the full year and 11
months actual and one month proforma for Fresh Juice. The proforma data is for
informational purposes only and may not necessarily reflect the results of
operations of the Company had the acquired business operated as part of the
Company for the entire years ended December 31, 1999 and 1998.
F-20
<PAGE>
ASSIGNMENT
AND
AGREEMENT
The Assignment and Agreement, made this 22nd day of September, 1999
(the "Effective Date"), by THE FRESH JUICE COMPANY OF CALIFORNIA, INC.
(hereinafter referred to as the "Assignor"), a Delaware corporation having its
principal offices at 875 West Eighth Street, Azusa, California, and HANSEN
BEVERAGE COMPANY (hereinafter referred to as the "Assignee"), a Delaware
corporation having its principal offices at 2380 Railroad Street, Suite 101,
Corona, California (each of the Assignor and Assignee being hereinafter referred
to individually as a "Party" and collectively as the "Parties");
INTRODUCTION AND RECITALS
WHEREAS, Assignor, as the sole successor and/or sole assignee of
HANSEN'S JUICES, INC. ("HJI"), owns, possesses and/or enjoys certain rights,
titles and interests, whether as owner, exclusive licensee, or otherwise: (i) as
a grantor and beneficiary under and pursuant to the terms of that certain
Agreement of Trust made as of July 27, 1992, as amended (hereinafter referred
to, together with its amendments, as the "Trust Agreement", annexed as Schedule
I hereto) by, between and among HJI and Assignee as grantors/beneficiaries and
Gary Hansen, Anthony Kane and Burton S. Rosky as trustees (said trustees
hereinafter referred to collectively as the "Former Trustees") and predecessors
of Rodney C. Sacks, the current trustee (the "Trustee") of a trust established
by the Trust Agreement for the benefit of HJI and the Assignee (hereinafter, the
"Trust"); and (ii) as exclusive Licensee pursuant to that certain Fresh Juices
License Agreement, as amended (hereinafter referred to, together with its
amendments, as the
1
<PAGE>
"Fresh Juices Agreement", annexed as Schedule 2 hereto) entered into on July 27,
1992 between HJI as Licensee and the Former Trustees on behalf of the Trust as
Licensor, and (iii) as a party entitled, inter alia, to procure certain Third
Party Licenses pursuant to that certain Royalty Sharing Agreement (hereinafter
referred to as the "Royalty Sharing Agreement", annexed as Schedule 3 hereto)
entered into on July 27, 1992 by, between and among the Former Trustees on
behalf of the Trust, HJI and the Assignee; and (iv) as a licensor or sublicensor
to Hansen's Juice Creations, Limited Liability Company ("Juice Creations") of
certain rights and licenses granted to HJI by the Fresh Juices Agreement and/or
the Royalty Sharing Agreement, said rights and licenses being licensed by HJI to
Juice Creations pursuant to the Royalty Agreement dated April 26, 1996 between
Juice Creations and HJI (the "Juices Royalty Agreement", annexed as Schedule 4
hereto), and a letter agreement dated May 14, 1996 (the "Letter Agreement",
annexed as Schedule 5 hereto), as amended by HJI and Juice Creations' subsequent
agreement to an amendment thereof dated May 9, 1997 (the "Juices Royalty
Amendment", annexed as Schedule 6 hereto), entered into together with the
Agreement of Purchase and Sale of Membership Interests and Amendment of Royalty
Agreement (the "Membership Purchase Agreement") dated May 9, 1997 (the Juices
Royalty Agreement, as amended by the Letter Agreement and the Juices Royalty
Amendment and all of the terms and conditions of the Membership Purchase
Agreement, and/or of such other agreement, as purport to govern Juice Creations'
right and license in the Trademarks and/or Trade Names, being hereinafter
referred to collectively as the "Fresh Juices Sublicense"); and (v) pursuant to
the foregoing agreements, or otherwise, as the owner, registrant, or possessor
of other rights, titles and/or interests in and to the common law and registered
trademark "HANSEN'S", alone or in conjunction with other words, and in various
2
<PAGE>
forms, variations, or composites thereof, together with all registrations and
applications for registration for said mark, including, without limitation, the
U.S. trademark registration No. 1,258,780 for "HANSEN'S" (hereinafter referred
to as the "Trademarks"), which are fully described in the annexed Schedule 7,
incorporated as a part hereof; and (vi) pursuant to the foregoing agreements, or
otherwise, as the owner, registrant, or possessor of rights, titles and/or
interests in and to the common law and registered designation "HANSEN'S", alone
or in conjunction with other words, and in various forms, variations or
composites thereof, as a service mark, trade name, commercial name, company
name, business name, corporate name or doing business name, together with all
registrations and applications for registration thereof (hereinafter referred to
as the "Trade Names"), each of which is fully described in the annexed Schedule
8, incorporated as a part hereof; (vii) pursuant to the foregoing agreements, or
otherwise, as the owner, registrant, or possessor of rights, titles and/or
interests in and to the trade dress and pictorial work herein entitled "HANSEN'S
GIRL"', depicted on the attached Schedule 9, and incorporated as a part hereof;
all of the foregoing rights, titles and interests of Assignor hereinabove set
forth in this paragraph being hereinafter referred to, collectively, as the
"Intellectual Property"; and
WHEREAS, the aforesaid rights, titles and interests of Assignor in the
Intellectual Property include, without limitation, the entire right, title and
interest of Assignor and HJI in and to the Trademarks and the Trade Names,
together with all registrations and applications for registration thereof; and
WHEREAS, Assignee is desirous of hereby acquiring the entire right,
title and interest of HJI and Assignor, HJI's sole successor and/or sole
assignee, in and to the Intellectual Property, in
3
<PAGE>
whole and in part, together with the goodwill of the business associated with
the Intellectual Property, including, without limitation, the entire right,
title and interest of HJI and Assignor: (i) as grantor and beneficiary under and
pursuant to the terms of the Trust Agreement; and (ii) as exclusive Licensee
under and pursuant to the terms of the Fresh Juices Agreement; and (iii) as a
party entitled, inter alia, to procure certain Third Party Licenses under and
pursuant to the terms of the Royalty Sharing Agreement; and (iv) as Licensor
under and pursuant to the terms of the Fresh Juices Sublicense; and
WHEREAS, it is the primary intention and purpose of this Assignment and
Agreement to transfer such rights, titles and interests to Assignee as will
enable Assignee to assume full ownership, possession and enjoyment of all right,
title and interest in and to the Trademarks and Trade Names, (including, without
limitation, the entire, valid and exclusive ownership and title therein and in
all registrations and applications for registration thereof, and all goodwill of
the businesses directly associated therewith), by, among other means, enabling
Assignee to cause the assignment and transfer by the Trust of all such right,
title and interest to Assignee or Assignee's designee;
NOW, THEREFORE, TO ALL WHOM IT MAY CONCERN, BE IT KNOWN,
that, in consideration of the foregoing premises; the mutual covenants,
agreements and understandings hereinafter contained; the sums set forth in
Section 2 below; and other good and valuable consideration the validity, receipt
and sufficiency of which Assignor does hereby acknowledge, the Parties
acknowledge and agree as follows:
Section 1: Assignment. The Assignor has sold, assigned, transferred,
set over and conveyed, and by this Assignment and Agreement does hereby sell,
assign, transfer, set over and
4
<PAGE>
convey, effective as of the Effective Date, unto the Assignee, Assignee's
successors, representatives and assigns, the Assignor's and HJI's entire right,
title and interest throughout the United States, world and universe in and to
the Intellectual Property, together with the goodwill of the business associated
therewith, including, without limitation, the Assignor's and HJI's entire right,
title and interest in and to each of the following licenses and agreements:
(A) the Fresh Juices Agreement;
(B) the Royalty Sharing Agreement;
(C) the Trust Agreement; and
(D) the Fresh Juices Sublicense,
provided and on condition, however, that the above assignment "(D)" of
Assignor's right, title and interest in and to the Fresh Juices Sublicense shall
not take effect unless and until Assignor finally resolves, pursuant to
settlement and release and/or non-appealable judicial or arbitral award, order
and/or judgment, its dispute with Juice Creations, the Fresh Smoothie Company,
Limited Liability Company ("FSC"), Harvey Laderman and Barry Lublin and any of
their purported agents, heirs, executors, successors or assigns, as set forth in
Assignor's Cross-Demand for Declaratory Relief, dated August 11, 1999, filed
with the American Arbitration Association and all claims, counterclaims or other
matters relating thereto (the "Fresh Juices Sublicense Dispute"), and further
provided, that the above assignments shall not include any goodwill of the
business of Assignor or HJI not directly associated with the Intellectual
Property and further provided, that the above assignments shall not include any
words, graphics, designs and/or other trade dress features that Assignor is
using as of the Effective Date other than the Trademarks, Trade Names and/or
HANSEN'S GIRL, all right, title and interest in and to which Trademarks,
5
<PAGE>
Trade Names and HANSEN'S GIRL are herein assigned to Assignee, and none of which
Trademarks, Trade Names and/or HANSEN'S GIRL shall henceforth be used by
Assignor, in any manner or medium, including, without limitation, in any
advertising, promotional, marketing, sales or other commercial materials, in,
on, as or in connection with any trademark, service mark, trade dress, trade
name, commercial name, corporate name, company name, business name or any other
designation of source, association, affiliation, sponsorship or origin, except
pursuant to such express written license as is herein, or as may hereafter be,
granted by Assignee.
The Assignor further irrevocably agrees to complete the aforementioned
assignment to Assignee, for the consideration herein stated, of the Fresh Juices
Sublicense and Assignor's rights thereunder forthwith upon the final resolution
of the Fresh Juices Sublicense Dispute pursuant to settlement and release and/or
non-appealable judicial or arbitral award, order and/or judgment, in the event
that the Fresh Juices Sublicense remains in force and effect, in whole or in
part, after final resolution of such Dispute; provided, however, that neither
the foregoing assignment, nor any other provision of this Assignment and
Agreement, shall transfer or assign, or in any way be construed as transferring
or assigning, to Assignee: (a) any rights to, or benefit of, the obligation or
duty of Juice Creations or FSC or either of their successors, representatives or
assigns (hereinafter all referred to collectively as "'HJCL") to purchase its
juice products or ingredients or any other products from Assignor; or (b) any
obligation or duty to supply HJCL with said juice products or ingredients or any
other products; or (c) or any obligation or duty to refrain from or observe any
restriction upon competition with HJCL; or (d) any obligation or duty not to
unreasonably or otherwise withhold consent to any request by HJCL to advertise,
promote, sell,
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manufacture or distribute any product in competition with any product
advertised, promoted, sold, manufactured or distributed by Assignee; and (e) any
obligations, duties or liabilities whatsoever that Assignor or HJI may at any
past, present or future time have or incur to or in favor of HJCL, whether in
terms of or pursuant to any sublicense between Assignor and HJCL, or HJI and
HJCL, or otherwise.
Section 2: Consideration. The monetary consideration payable by
Assignee to Assignor for the assignment herein of the Intellectual Property is
to be allocated as follows:
(A) the sum of $200,000 (TWO HUNDRED THOUSAND U.S. DOLLARS) for the
assignment set forth in Section 1(A);
(B) the sum of $175,000 (ONE HUNDRED SEVENTY-FIVE THOUSAND U.S.
DOLLARS) for the assignment set forth in Section 1(B);
(C) the sum of $400,000 (FOUR HUNDRED THOUSAND U.S. DOLLARS) for the
assignment set forth in Section 1(C); and
(D) the sum of $10 (TEN U.S. DOLLARS) for such assignment, if any, of
the Fresh Juices Sublicense as may hereafter be completed by Assignor to
Assignee pursuant to the terms and conditions of Assignor's assignment
obligation set forth in Section 1 above.
Section 3: Terms of Payment. The foregoing consideration shall be paid
by Assignee to Assignor as follows:
(A) $343,750 (THREE HUNDRED FORTY THREE THOUSAND SEVEN HUNDRED FIFTY
U.S. DOLLARS) on the date of signing this Assignment and Agreement;
(B) $143,750 (ONE HUNDRED FORTY THREE THOUSAND SEVEN HUNDRED FIFTY U.S.
DOLLARS) on each of the following dates:
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(i) August 1, 2000
(ii) August 1, 2001
(iii) August 1, 2002
Assignee may, at its option, prepay any of the amounts due pursuant to this
Section 3(B);
(C) $10 (TEN U.S. DOLLARS) within 30 (thirty) days after written
notification to Assignee by Assignor that there has been a final resolution of
the Fresh Juices Sublicense Dispute and that the Fresh Juices Sublicense remains
in force and effect, in whole or in part, after such final resolution,
which written notification Assignor hereby agrees to give to Assignee within
5 (five) days of such resolution; and
(D) In the event Assignor has not received payment within three (3)
business days of any due date set forth in Section 3(B) above, Assignor may give
written notice of non-receipt in accordance with Section 11(D) of this
Assignment and Agreement. Assignee shall then have thirty (30) days within which
to deliver the full amount of the overdue payment to Assignor. If Assignee fails
to deliver full payment within that period, Assignor may, at its option,
terminate this Agreement by giving written notice of termination in accordance
with the notice provisions set forth in Section 11(D) hereof.
Section 4: Non-Encumbrance. Upon the signing of this Assignment and
Agreement, except for its performance of the assignments and transfers to
Assignee set forth herein and the continuation of the pre-existing sublicense,
if any, to Juice Creations and/or its permitted assigns, if any, under the Fresh
Juices Sublicense, Assignor shall not cause or suffer any of the Intellectual
Property, including, without limitation, any of the licenses, agreements or
other subject matter set forth in Section 1(A) through 1(D) above, or any right,
title or interest in or to
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any of the Intellectual Property, to be made subject to any grant, sale,
assignment, transfer, set over, conveyance, license, sublicense, security
interest, mortgage, pledge, hypothecation, lien, exception, claim, charge,
imperfection in title, agreement, commitment, instrument, arrangement,
understanding, undertaking, indenture, duty, obligation, indemnification, or
encumbrance of any kind (hereinafter referred to collectively as "Impairments");
provided however, that in the event any of such Impairments is the result of an
involuntary lien or encumbrance created by attachment, execution or similar
levy, Assignor shall have the opportunity to remove or cure said Impairment
within thirty (30) days of the date on which Assignor receives notice thereof.
Section 5: Sublicense. Assignee shall, upon the effective date of the
assignment of the Fresh Juices Agreement set forth in Section 1 above, grant to
Assignor an exclusive, worldwide, royalty-free right and sublicense to use the
Trademarks and Trade Names in connection with the sale of "Licensed Goods" as
these are defined in the Fresh Juices Agreement, subject and pursuant to all the
terms and conditions of the Fresh Juices Agreement, including the provisions of
said Agreement regarding ownership and use of the "HANSEN'S" trademark and
quality of goods; except and provided that: (i) the term of the sublicense
granted by this Section 5 shall expire five (5) years from the Effective Date
hereof or two (2) years from the date of receipt of the final payment prescribed
by Section 3(B) (iii) above, whichever is later; (ii) Assignor shall not use any
of the Trademarks or Trade Names that it is not currently using that constitutes
a copy or colorable imitation of or is substantially or confusingly similar to
the Trademarks and Trade Names used by Assignee as of the Effective Date or used
first by Assignee thereafter, including, without limitation, HANSEN'S NATURAL;
(iii) Assignor shall not cause or suffer the Fresh Juices Agreement or any of
the other Intellectual Property, or any right, title or interest
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therein or thereto, to be made subject to any assignment, license, sublicense or
other Impairment, provided, however, that Assignor's continued role as Licensor
under the Fresh Juices Sublicense as contemplated by Section 1 above shall not
itself constitute an Impairment in violation of this Section, and further
provided, that, in the event such Impairment is the result of an involuntary
lien or encumbrance created by attachment execution or similar levy, Assignor
shall have the opportunity to remove or cure said Impairment within thirty (30)
days of the date on which Assignor receives notice thereof, as set forth in
Section 4 above; and (iv) Assignee shall, upon and after the Effective Date, be
entitled to the receipt of all royalties, fees and other amounts accrued or
accruing at any time in connection with any of the agreements listed in Sections
1A, 1B, 1C and 1D above, including, without limitation, the Fresh Juices
Sublicense
Section 6: Representation and Warranties of Assignor. Assignor hereby
represents and warrants to Assignee as follows:
(A) As of the date hereof and immediately prior to the transfers and
assignments to Assignee provided for by this Assignment and Agreement, Assignor
is and shall remain the sole and exclusive owner and possessor of all rights,
titles and interests in and to (including, without limitation all rights, titles
and interests relating to or deriving from) the status of:
(i) the sole and exclusive grantor and beneficiary (other
than Assignee) under and pursuant to the terms of the Trust Agreement;
(ii) the sole and exclusive party to the Royalty Sharing
Agreement (other than the Trust and Assignee) entitled under and pursuant to the
terms of said Agreement, inter alia, to procure Third Party Licenses;
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(iii) the sole and exclusive Licensor under and pursuant to
the terms of the Fresh Juices Sublicense; and
(iv) the sole and exclusive Licensee under and pursuant to the
terms of the Fresh Juices Agreement; including, without limitation, all such
rights, titles and interests in and to the Intellectual Property as are
expressly or impliedly acknowledged in or accorded to HJI or Assignor by any of
the agreements or sublicenses referred to in this Section 6(A), as well as the
entire right, title and interest in and to the goodwill of the business
associated with such Intellectual Property.
(B) Each of the rights, titles and interests of Assignor set forth in
Section 6(A), above, including, without limitation, each of Assignor's and HJI's
rights, titles and interests in and to the Intellectual Property and any
registration and registration applications relating thereto, with the sole
exception of the registrations listed on the annexed Schedule 10 hereto, is
valid and subsisting as of the date hereof, and will remain valid and subsisting
immediately prior to and upon the assignment of such rights, titles and
interests to Assignee pursuant to this Assignment and Agreement so as to vest
and inure fully and immediately in and to the exclusive ownership, benefit,
possession and enjoyment of the Assignee upon and after such assignment.
(C) Assignor has provided to Assignee a complete and accurate list of
all distributors of Assignor, a copy of which is annexed as Schedule 11 hereto.
Assignor agrees that it will provide Assignee complete and accurate copies of
all agreements Assignor or HJI entered into with such distributors, within two
(2) business days of demand by Assignee. Assignor hereby represents and warrants
that, other than the Trust Agreement, the Fresh Juices Agreement, the Royalty
Sharing Agreement, the Fresh Juices Sublicense and Assignor's or HJI's
agreements with
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the distributors listed in Schedule 12 hereto, it has not entered into any
sublicense or other agreement concerning the use of the Intellectual Property,
and that, other than the Fresh Juices Sublicense, Assignor has not entered into
any sublicense or other agreement concerning the use of the Intellectual
Property that is subject to the payment of any royalties or similar fees for the
license to use the Trademarks or Trade Names.
(D) Except for the Fresh Juices Sublicense and Assignor's agreements
with the distributors listed in the annexed Schedule 12, all of which
distributorship agreements shall at all times be subject to the provisions of
Section 10 below, the Intellectual Property, including, without limitation, the
licenses, agreements and/or other subject matter set forth in Section 1(A)
through 1(D) above is not as of the date hereof, and will not immediately prior
to or upon any assignment provided for by this Assignment and Agreement be,
subject to any license, sublicense or Impairments of any kind and shall not
thereafter be made subject to any license, sublicense or Impairments of any kind
resulting from any acts or omissions of Assignor, other than such duties and
obligations of the Parties as are created by and expressly set forth in this
Assignment and Agreement. None of the Intellectual Property, including, without
limitation, any of the subject matter set forth in Section 1(A) through 1(D)
above, is as of the date hereof, or will immediately prior to or upon any
assignment provided for by this Assignment and Agreement be, subject to any
other requirement, limitation or restriction that would be inconsistent with, or
that will impede, qualify or restrict, upon or after such assignment, the
Assignee's acquisition, ownership, possession, use, benefit, enjoyment or
disposition of HJI's and Assignor's entire right, title and interest therein and
thereto and shall not thereafter, as the result of any acts or omissions of
Assignor, be made subject to any other requirement, limitation or restriction
that would be
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inconsistent with, or that will impede, qualify or restrict, upon or after such
assignment, the Assignee's acquisition, ownership, possession, use, benefit,
enjoyment or disposition of HJI's and Assignor's entire right, title and
interest therein and thereto.
(E) Upon and after the Effective Date, Assignee shall possess and
enjoy, without limitation, the sole and exclusive right in and to all claims,
causes of action and rights to petition, sue or otherwise seek monetary,
injunctive, declaratory or any other recovery or relief for any infringement,
conversion, misappropriation or dilution of, or other injury, offense,
violation, breach of duty or wrong to or relating to, any of the Intellectual
Property (or any license, agreement or other matter relating thereto), which
right accrued, accrues or might accrue, and/or which infringement, conversion,
misappropriation, dilution, injury, offense, violation, breach of duty or wrong
occurred, occurs or might occur, at any time whatsoever prior to, upon or after
the Effective Date, provided however that Assignor shall have the right to
prosecute and defend claims and causes of action arising out of the Fresh Juices
Sublicense unless and until such time, if any, as the assignment of the Fresh
Juices Sublicense to Assignee is completed pursuant to the terms of this
Assignment and Agreement and further provided however that Assignor shall have
the right to prosecute and defend any non-released claims brought by parties to
the Arbitration (as defined in Section 7 below) other than Assignee or the
Trustee of the Trust concerning indemnification or payment of attorneys' fees
and/or costs incurred in connection with that proceeding.
(F) The Assignor is not aware of any third party contesting the
validity, enforceability, ownership, use, exercise or enjoyment of any of HJI's
or Assignor's right, title or interest in or to any of the Intellectual
Property, including, without limitation, any of the subject matter set forth
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in Sections 1(A) through 1(D) above. No third party has, or has claimed, any
right, title or interest in or to any of the Intellectual Property, including,
without limitation, any of the subject matter set forth above in Section 1(A)
through 1(D) that would be inconsistent with or impede, in any country or
jurisdiction whatsoever, the Assignee's sole, entire and exclusive title,
ownership, possession, use and enjoyment thereof. With the sole exception of the
Fresh Juices Sublicense Dispute, as of the date hereof there are no orders,
proceedings, suits or claims pending or threatened that relate to any of the
Intellectual Property, and Assignor is neither aware of nor has received any
notice alleging any infringement, conversion, misappropriation or dilution of,
or conflict with, any right, title or interest of any third party arising out
of, by reason of, or in connection with HJI's or Assignor's past, Assignor's
present or Assignee's herein contemplated, title, ownership, possession, use or
enjoyment of the Intellectual Property, or any of HJI's, Assignor's or
Assignee's right, title or interest therein or thereto. To Assignor's knowledge,
neither HJI nor Assignor has: (i) breached any agreement, commitment,
instrument, arrangement, contractual understanding, undertaking, indenture,
license, sublicense, assignment, indemnification or any legal, equitable or
other duty or obligation which relates to any of the Intellectual Property with
the sole exception the allegations in connection with the Fresh Juices
Sublicense Dispute, which Assignor expressly denies; or (ii) infringed,
converted, misappropriated, diluted or otherwise conflicted with any
intellectual property rights of any third party; or (iii) taken any action or
permitted or suffered any omission that would adversely affect any right, title
or interest of the Assignee in or to the Intellectual Property; nor is there any
infringement, conversion, misappropriation, dilution or conflict that will occur
as a result of the
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Assignee's use of the Intellectual Property or continued operation in accordance
with the terms of the agreements and licenses assigned to it pursuant to Section
1 hereof.
(G) The Assignor has the full authority, right and power to assign and
transfer to Assignee all right, title and interest of HJI and Assignor in and to
the Intellectual Property, including, without limitation, the subject matter set
forth in Section 1(A) through 1(D) above without need to obtain the
authorization, license or consent of any other person or entity.
(H) All necessary steps have been, or promptly can be and will be,
taken by the Assignor, at no cost or expense to Assignor other than Assignor's
payment of its own attorney's fees, to perfect, for the assignment to, and to
the benefit of, Assignee, all of HJI's and Assignor's right, title and interest
in and to the Intellectual Property, including, without limitation, all of the
subject matter set forth in Section 1(A) through 1(D) above, and the right to
enforce and to sue for the past, present and future misappropriation,
conversion, infringement or dilution thereof or other conflict therewith or
injury thereto.
(I) Assignor agrees that it will not directly or indirectly: (i)
contest, or voluntarily assist or aid others in contesting, any right, title or
interest of Assignee in or to any of the Intellectual Property, including,
without limitation, any of the subject matter set forth in Section 1(A) through
1(D) above, or the validity or enforceability of any thereof, in whole or in
part, in or with respect to any country or jurisdiction whatsoever, including,
without limitation, any country or jurisdiction in which the Assignee at any
time heretofore did, now does or hereafter seeks to, register, exercise or
assert any such right, title or interest (provided however that the foregoing
prohibitions set forth in this subparagraph 6(I)(i) shall not bar or restrict
Assignor from taking any action required by legal or governmental rules,
regulations or compulsory process); or (ii)
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use, or cause to be used, in any country or jurisdiction whatsoever, any
trademark, trade name or other intellectual property that dilutes or infringes
upon any of the Assignee's right, title or interest in or to any of the
Intellectual Property, or constitutes a copy or colorable imitation of any of
the Intellectual Property, or is substantially or confusingly similar thereto;
in particular, but without limitation, Assignor agrees that it shall not adopt
or use any word, name, symbol or device comprised of or incorporating stylized
letters arrayed in a design or form identical or substantially similar to the
stylized HANSEN'S trademark that was previously or is currently used by Assignor
and depicted on the attached Schedule 13, in the location and/or manner in which
it was previously or is currently used in Assignor's label and/or trade dress or
in any other manner, medium or location as is likely to cause consumer
confusion. Provided however, that this Section 6(I) shall not restrict the right
of Assignor to use the Trademarks and/or Trade Names in accordance with the
Sublicense set forth in Section 5 hereof.
(J) Assignor is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware. Assignor has the full
power and authority to own its property and carry on its business as now being
conducted. The execution and delivery of this Assignment and Agreement by
Assignor and the performance by Assignor of all of its obligations contemplated
hereby have been duly authorized by all requisite corporate action. This
Assignment and Agreement and all other agreements and written obligations
entered into and undertaken in connection with the transactions contemplated
hereby constitute the valid and legally binding obligations of Assignor
enforceable against Assignor in accordance with their respective terms except as
such enforceability is limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect relating to creditors'
rights
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generally or general principles of public policy. The execution and delivery of
this Assignment and Agreement, the consummation of the transactions provided for
herein, and the fulfillment of the terms hereof, will not result in the breach
of any of the terms and provisions of, or constitute a default under, or
conflict with, or cause any acceleration of any obligation of Assignor under:
(i) any agreement, indenture, or other instrument; (ii) the articles of
incorporation or by-laws of Assignor; (iii) any judgment, decree, order or award
of any court, governmental body or arbitrator; or (iv) any applicable rule,
regulation or law.
Section 7: Agreement to Settle Arbitration.
Contemporaneously with the execution of this Assignment and Agreement,
Assignor agrees to execute and cause to be delivered to Assignee and Assignee
agrees to execute and cause to be delivered to Assignor (a) an original of the
Settlement Agreement dated September __, 1999 between Assignee and Assignor in
connection with the arbitration commenced by Assignee and the Trustee of the
Trust against Assignor, Juice Creations, FSC and the Former Trustees, No. 72 Y
114 01292 98, pending before the American Arbitration Association in Los
Angeles, California (the "Arbitration"), and (b) the Stipulated Final Dismissal
of the Arbitration annexed to, and the Releases executed in connection with,
said Settlement Agreement. Contemporaneously with the execution of this
Assignment and Agreement, Assignor also agrees to execute, and cause to be
delivered to Assignee, Assignor's consent to and approval of the terms and
conditions of the Settlement Agreement dated September __, 1999 between
Assignee, the Trustee of the Trust and Juice Creations, FSC, Barry Lublin and
Harvey Laderman in connection with the Arbitration.
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Section 8: Cooperation.
(A) Assignor acknowledges and agrees that the Trust is the exclusive
owner of all right, title and interest in and to the Trademarks and Trade Names
and all goodwill of the businesses directly associated therewith, subject only
to such licenses to use the Trademarks and Trade Names as may properly have been
granted by the Trust. Assignor further acknowledges and agrees that it is the
primary intention and purpose of this Assignment and Agreement to transfer such
rights, titles and interests to Assignee as will enable Assignee to assume full
ownership, possession and enjoyment of all right, title and interest in and to
the Trademarks, Trade Names and HANSEN'S Girl (including, without limitation,
the entire, valid and exclusive ownership and title therein and in all
registrations and applications for registration thereof, and all goodwill of the
businesses symbolized thereby), by, among other means, enabling Assignee to
cause the assignment and transfer of all such right, title and interest by the
Trust to Assignee or Assignee's designee.
(B) Assignor, therefore, agrees that, upon and after the Parties' entry
into this Assignment and Agreement, Assignor will, at Assignee's expense,
provide such full and continuing cooperation and assistance to the Assignee as
may be necessary or desirable: (i) to effect the assignment and transfer to
Assignee or Assignee's designee, and their respective successors,
representatives and assigns, of all right, title and interest in and to the
Trademarks and other Intellectual Property and subject matter assigned to
Assignee pursuant to Section 1 hereof (including, without limitation, all right,
title and interest in and to the Trademarks and other Intellectual Property held
by the Trust), and all registrations and applications for registration thereof;
and (ii) to secure, validate, register, perfect, defend, protect and/or enforce
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Assignee's right, title and interest in and to the Trademarks, other
Intellectual Property and any subject matter assigned to Assignee pursuant to
Section I hereof. Provided, however that Assignor shall be responsible for
payment of its own attorneys' fees incurred in rendering such cooperation or
assistance.
(C) Such cooperation and assistance shall include, without limitation,
Assignor's receipt, preparation, execution and delivery to or on behalf of
Assignee or Assignee's designee all documents, instruments and materials
(including, but not limited to, all assignments, affidavits and powers), and
performance of all acts (including, but not limited to, the dissolution of the
Trust, amendment of the Trust Agreement and/or participation as a party or
witness to any action or proceeding), as may reasonably be requested by the
Assignee for the purposes of: (i) effecting any of the assignments referred to
in Section 8 (B), above; (ii) authorizing and requesting the Commissioner of
Patents and Trademarks of the United States of America and the appropriate
officers of all other jurisdictions in which the Trademarks are registered or in
which applications included among and for registration of the Trademarks are
pending, to record the title of Assignee or Assignee's designee, and their
respective successors, representatives and assigns, as owner of all right, title
and interest in and to the Trademarks, together with all good will of the
businesses directly associated with the Trademarks, and to issue the Certificate
of Registration resulting from any application for registration of the
Trademarks or renewal of any existing registration of any of the Trademarks to
Assignee or Assignee's designee and their respective successors, representatives
and assigns; (iii) obtaining any other applications, registrations, recordations
or other filings of or for any of the Trademarks and/or other Intellectual
Property or subject matter assigned to Assignee pursuant to Section 1 hereof;
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(iv) initiating, prosecuting, defending or participating in any action or
proceeding of or relating to any of the Trademarks and/or other Intellectual
Property or subject matter assigned to Assignee pursuant to Section 1 hereof; or
(v) establishing, evidencing or obtaining the validity, performance or
enforcement of any of the transactions, rights or obligations provided for by
this Assignment and Agreement.
Section 9: Confidentiality. The existence, nature and content of this
Assignment and Agreement and its terms and conditions shall remain confidential.
Other than the Press Release provided for in Section 11(O) below, there shall be
no publication, disclosure, dissemination, representation, or characterization
to any third party of or concerning: this Assignment and Agreement or the nature
and contents of this Assignment and Agreement, provided however, that nothing
herein shall be construed as to prohibit the Parties from disclosing the
foregoing information (a) to independent auditors or legal counsel, (b) when
required by legal or governmental rules, regulations or compulsory process, or
(c) when appropriate, to enforce, confirm or defend the disclosing Party's
intellectual property rights and/or this Assignment and Agreement.
Section 10: Assignor's Distribution Agreements. With the sole exception
of the Fresh Juices Sublicense, Assignor agrees that, effective upon or before
the expiration or earlier termination of the Sublicense provided for in Section
5 above, it shall modify, amend and supersede, and/or, if necessary, cancel,
terminate, rescind, nullify or void, all such provisions of any distribution,
license, sublicense or other agreement between Assignor or HJI and any other
person or entity as grant, permit or entail any express or implied rights,
titles or interests in or to any of the Trademarks or Trade Names (the
"Distribution Agreements") so as to eliminate,
20
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terminate, rescind, nullify or void all rights, titles and interests in and to
the Trademarks and Trade Names expressly or impliedly granted or created by, or
which may arise from, the Distribution Agreements. Nothing contained in this
Assignment and Agreement shall be construed (i) as a recognition or
acknowledgment by Assignee or the Trustee of the Trust that any third parties,
including, without limitation, any distributors of Assignor, have any rights,
titles or interests in and to the Intellectual Property and/or (ii) as a waiver
of any of Assignee's or the Trustee of the Trust's rights, titles or interests
in and to the Intellectual Property and/or as a waiver of their rights to seek
enforcement thereof.
Section 11: Miscellaneous.
(A) Binding Effect; Assignability. This Assignment and Agreement shall
inure to the benefit of and be binding upon Assignor and Assignee, and each of
their respective parents, subsidiaries and affiliated persons, companies and
entities, and each of the foregoing persons', companies' and entities'
respective officers, directors, shareholders, members, trustees, agents,
employees, attorneys and accountants, and the foregoing persons', companies' and
entities' heirs, successors, representatives, executors, administrators and
assigns. No assignment or delegation of this Assignment and Agreement or any
right, benefit or obligation hereunder shall relieve the assigning Party from
any obligation hereunder without the express written acknowledgment and
agreement of the other Party.
(B) Writing Required. Neither this Assignment and Agreement nor any of
the provisions hereof shall be binding upon the Parties unless and until the
instrument has been signed hereinbelow by or on behalf of each of the Parties by
persons who are duly authorized by the respective Parties to execute this
Assignment and Agreement and who warrant such
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authorization by signing hereinbelow. In such event this Agreement shall be
effective as of the date first above written.
(C) Interpretation; Captions. The captions of the various sections of
this Assignment and Agreement have been inserted only for the purposes of
convenience, and shall not be deemed in any manner to modify, define, enlarge or
restrict any of the provisions of this Assignment and Agreement. Insofar as both
Parties have been represented by able counsel in the negotiation of the terms of
this document, no Party shall be considered to be the drafter of this Assignment
and Agreement or any provision hereof for the purpose of any law or any rule of
interpretation or construction that would cause this Assignment and Agreement or
any provision hereof to be construed against the drafter. The Introduction and
Recitals are hereby incorporated as part of this Assignment and Agreement.
(D) Notices. Any notices or other communications required or permitted
hereunder shall be sufficiently given if delivered personally or three (3) days
after being sent by registered or certified mail, return receipt requested,
postage prepaid, or transmitted by fax with oral confirmation, addressed as
follows or to such other address of which the parties may be given notice in
accordance with this paragraph:
In the case of
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ASSIGNOR: Jeffrey Heavirland
Fresh Juice Company of California, Inc.
875 West 8th Street
Azusa, California 91702
Telecopy: (818) 812-6077
copy to: Lawrence J. Hilton, Esq.
O'Melveny & Myers LLP
Suite 1700
610 Newport Center Drive
Newport Beach, California 92660-6429
Telecopy: (714) 659-6994
In the case of
ASSIGNEE: Rodney C. Sacks
Hansen Beverage Company
2380 Railroad Street, Suite 101
Corona, California 91720
Telecopy: (909) 739-6210
copy to: Benjamin M. Polk, Esq.
Whitman Breed Abbott & Morgan LLP
200 Park Avenue
Now York, New York 10166
Telecopy: (212) 351-3131
(E) Remedies. The rights and remedies herein provided are cumulative
and not exclusive of any rights or remedies provided at equity or at law. In the
event of a breach or threatened breach by either Party of its obligations under
this Assignment and Agreement, each Party acknowledges that the other Party may
not have an adequate remedy at law and shall be entitled to seek specific
performance of this Assignment and Agreement and such preliminary, permanent and
mandatory equitable and injunctive relief as may be available to restrain the
other Party from any actual or threatened violation of the provisions hereof.
Accordingly, notwithstanding the Parties' agreement to submit to arbitration set
forth in Section 11(F), below,
23
<PAGE>
either party may apply to any court situate in Los Angeles County (the "Court")
to obtain any of the foregoing, or other, relief in connection with any dispute,
controversy or claim arising out of or relating to this Assignment and Agreement
in the event that the granting of any such relief is not within the
authorization, power or policy of any arbitral authority selected by the
Parties, or is not expressly denied by such arbitral authority but nevertheless
cannot be obtained from such authority in time to avoid imminent, irreparable
harm. The Parties hereby consent to the personal jurisdiction of the Court for
the purposes of hearing and deciding such application. The prevailing Party in
any action or proceeding seeking such relief shall be entitled to reimbursement
from the other Party of any costs or expenses (including, without limitation,
reasonable attorneys' fees) incurred in connection with such proceeding. Nothing
herein shall be construed as prohibiting either Party from pursuing any other
remedies available for such breach or threatened breach, including the recovery
of damages.
(F) Arbitration/Alternative Dispute Resolution. The Parties hereby
expressly agree that any dispute, controversy or claim arising out of, in
connection with, or relating to this Assignment and Agreement, or the entry
into, breach or termination hereof, shall be settled by binding arbitration
conducted by JAMS/Endispute ("JAMS") in accordance with JAMS Comprehensive
Arbitration Rules and Procedures (the "Rules"). The arbitration shall be heard
by one (1) arbitrator to be selected in accordance with the Rules, in Orange
County, California. Judgment upon any award rendered may be entered in any court
having jurisdiction thereof. Within seven (7) calendar days after appointment
the arbitrator shall set the hearing date, which shall be within ninety (90)
days after the filing date of the demand for arbitration unless a later date is
required for good cause shown and shall order a mutual exchange of what he/she
24
<PAGE>
determines to be relevant documents, identifications of witnesses and
information and the dates thereafter for the taking of up to a maximum of five
(5) depositions by each Party to last no more than two (2) days per deponent.
Both Parties waive the right, if any, to obtain any award for exemplary or
punitive damages or any other amount for the purpose of imposing a penalty from
the other in any arbitration or judicial proceedings or other adjudication
arising out of or with respect to this Assignment and Agreement, or any breach
hereof, including any claim that this Assignment and Agreement or any part
hereof, is invalid, illegal or otherwise voidable or void. In addition to all
other relief that may be granted in the arbitration, including, without
limitation, the relief set forth in Section 11(E) above, the arbitrator shall
award reasonable attorneys' fees to the prevailing Party. The arbitrator shall
make his or her award no later than seven (7) calendar days after the close of
evidence or the submission of final briefs, whichever occurs later. The
arbitration award shall be final and binding upon the parties and the parties
hereto agree that they will accept such decision and award as binding and
conclusive and will abide thereby. Service of any notice, process, motion or
other document in connection with such arbitration proceeding and arbitration
award may be made by personal service or by any means specified in Section 11(D)
hereof.
(G) Governing Law. This Assignment and Agreement, including, without
limitation, the formation, validity, interpretation, performance and enforcement
hereof, shall be governed by the laws of the State of California without giving
effect to the laws, rules or principles of that State with regard to conflicts
of law.
(H) Independent Agents. The parties hereto are independent contractors
and neither party is the agent, joint venturer, partner, or employee of the
other.
25
<PAGE>
(I) No Third Party Beneficiaries. No third party beneficiary rights or
interests are contemplated, intended or created by this Assignment and
Agreement.
(J) Modifications and Amendments. No amendment, modification,
rescission, or waiver of, or const to any departure from, this Assignment and
Agreement, in whole or in part, shall be valid or binding upon any of the
Parties unless made in writing and property signed by or on behalf of the party
to be charged therewith.
(K) Waivers. No failure or delay of any Party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. Any waiver of or consent to any departure from the terms of this
Assignment and Agreement, in whole or in part, shall be effective only in the
specific instance and for the specific purpose for which it is given.
(L) Severability. If any provision of this Assignment and Agreement or
the application thereof shall to any extent be held invalid, illegal or
unenforceable, the remainder of the Assignment and Agreement shall not be
affected or impaired thereby, and each provision hereof shall be construed and
enforced consistent with the intent of this Assignment and Agreement and shall
be valid and enforceable to the fullest extent permitted by law.
(M) Survival of Provisions. The assignments set forth in Section 1, the
representations, warranties and obligations set forth in Section 6, and the
rights and obligations set forth in Sections 7, 82, 9, 10, 11(A), 11(E), 11(F)
and 11(O) of this Assignment and Agreement, shall be of continuing duration and
shall survive the execution, termination,
26
<PAGE>
expiration, cancellation, repudiation and/or rescission of this Assignment and
Agreement for any reason.
(N) Entire Understanding. This Assignment and Agreement (including the
Introduction and Recitals and annexed Schedules, which are incorporated and made
a part hereof), sets forth the entire agreement and understanding between the
Parties relating to the subject matter set forth herein, and merges, cancels and
supersedes all prior and contemporaneous representations, discussions,
communications, assignments and agreements between them with respect to the
subject matter hereof.
(O) Press Release. The Parties recognize that the public announcement
of the assignments provided in this Assignment and Agreement may have a
significant effect with each of the Parties' respective customers. For that
reason, the Parties agree that the initial public announcement of the within
assignments shall be made through a joint press release in a form to be mutually
agreed upon by the Parties.
27
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Assignment and
Agreement to be executed by their duly authorized representatives as follows.
EXECUTED THIE 22ND DAY OF SEPTEMBER, 1999 AT
Assignor: The Fresh Juice Company of California, Inc.,
By:
------------------------------------------
Chief Executive Officer
EXECUTED THIS __ DAY OF SEPTEMBER, 1999 AT
Assignee: Hansen Beverage Company
By:
------------------------------------------
Chief Executive Officer
28
<PAGE>
ACKNOWLEDGMENTS
State of California
ss.:
County of Los Angeles
On this 22nd day of September, 1999, personally before me came Jeffrey
P. Heavirland, known to me, and known to me to be the Chief Executive Officer of
The Fresh Juice Company of California, Inc. and who signed the annexed
Assignment and Agreement, and being duly sworn, acknowledged that he executed
the same.
---------------------
Notary Public
State of California
ss.:
County of Riverside
On this 28th day of September, 1999, personally before me came Rodney
C. Sacks, known to me, and known to me to be the Chief Executive Officer of
Hansen Beverage Company and who signed the annexed Assignment and Agreement, and
being duly sworn, acknowledged that he executed the same.
---------------------
Notary Public
29
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
December 31, 1999 Financial Statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 473,796
<SECURITIES> 0
<RECEIVABLES> 6,612,929
<ALLOWANCES> 281,163
<INVENTORY> 6,182,611
<CURRENT-ASSETS> 13,884,874
<PP&E> 10,447,643
<DEPRECIATION> 2,647,567
<TOTAL-ASSETS> 41,347,338
<CURRENT-LIABILITIES> 5,400,692
<BONDS> 23,441,773
0
0
<COMMON> 55,277
<OTHER-SE> 11,990,161
<TOTAL-LIABILITY-AND-EQUITY> 41,347,338
<SALES> 50,740,691
<TOTAL-REVENUES> 50,740,691
<CGS> 39,337,680
<TOTAL-COSTS> 41,096,575
<OTHER-EXPENSES> 6,247,190
<LOSS-PROVISION> 281,163
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,866,032
<INCOME-TAX> 104,820
<INCOME-CONTINUING> 1,761,212
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,761,212
<EPS-BASIC> .34<F1>
<EPS-DILUTED> .32
<FN>
<F1> The amount is reported as EPS basic, not EPS primary.
</FN>
</TABLE>
