FORM 10-KSB
(Mark One)
[X] Annual Report under Section 13 or 15(d) of the Securities Exchange Act of
1934 (Fee required)
For the fiscal year ended: June 28, 1997
[ ] Transition Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 (No fee required)
For the transition period from ___________ to ___________.
Commission file number: 0-22638
STARLOG FRANCHISE CORPORATION
(Exact name of Small Business Issuer in Its charter)
New Jersey 22-32210281
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
945 Brighton Street, Union, New Jersey 07083
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (908) 964-2813
Securities registered under section 12(b) of the Act: None
Securities registered under section 12(g) of the Act: Common Stock, $.001 Par
Value
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 past 90 days.
YES ___ NO _X_
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $2,367,722
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the closing sale price of such stock,
as of May 1, 1997 is $359,927.
Check whether issuer has filed all documents and reports required to be filed by
Section 12, 13, 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by the Court. Yes No X .
As of May 15, 1998, the Issuer had 24,237,636 shares of Common Stock, $.001 par
value, outstanding.
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ITEM 1. BUSINESS
Overview
The Company is a specialty retailer of bulk candy, gifts, science fiction and
fantasy memorabilia and collectibles. The Company's recently acquired candy
stores are also starting to market science fiction, supernatural and gaming
cards. The Company's merchandise includes products licensed under the names Star
Trek(R), Star Wars(R), Batman(R), Marvel(R), and DC Comics(R), X-Files, Babylon
5 and Godzilla among many other highly recognizable titles. In addition, the
Company's distribution division is an international wholesale distributor of
sports cards, comics, science fiction, movie and television trading cards,
gaming cards, hobby supplies and collectibles.
Background / History
The Company was started with one Starlog store in 1992 by Norman Jacobs, the
founder of the Starlog Group, publisher of several science fiction and horror
magazines. Its original goal was to capitalize on the steadily growing niche
market for science fiction and fantasy literature, apparel and collectibles
through a network of stores. In November 1993 the Company raised $5.5 million
through its initial public offering. Following the offering, the Company's then
management rapidly expanded its operations, opening nine stores in 15 months.
Lacking experience in retail chain operations the original management made, what
can now be seen, as several critical errors. First, the Company expanded rapidly
based on experience with only one store and without adequate research to
determine proper store size, inventory levels, occupancy factors and start-up
costs. As a result, stores opened during the first year proved to be too large,
with high start-up costs and annual rent commitments which were too high to
permit profitable operation. Additionally, these original stores were found to
be too geographically dispersed for efficient management control. As a result,
during their first fiscal year as a public company, losses were suffered
totaling $3.2 million and were continuing at a rate of approximately $800,000 a
quarter.
Shortly after Mr. John Fitzgerald joined the Company he recognized these
problems and started taking steps to reorganize the Company. In June 1995 Mr.
Fitzgerald was appointed President and Chief Operating Officer. In November
1995, the Company filed a voluntary petition for Chapter 11 Bankruptcy. While in
Bankruptcy the Company was able to rid itself of its most expensive leases. In
an effort to salvage some of the start-up expenses invested in the stores and to
determine if they could be profitable with more favorable lease terms, the
Company renegotiated much more favorable terms for the leases of eight of the
stores and attempted to operate them. The Company emerged from Chapter 11 in
August 1996 and secured working capital from Hope Associates, LLC. ("Hope
Associates"), which in exchange, owned at that time approximately 90% of the
Company's outstanding Common Stock.
Subsequently, in November 1996 the Company's original executive management and
Board of Directors resigned and were replaced by a new Board formed by Hope
Associates' principals and Mr. Fitzgerald. Additionally, the founder of the
Company turned in substantially all of his stock in the Company.
After a successful Chapter 11 reorganization, the Company has been able to
acquire two promising and profitable businesses, KCK Corporation, in October
1997 (See "BUSINESS-KCK/Candico" below) and, and Goal Post Distributors, Inc. in
June 1997 (See "BUSINESS-Goal Post" below).
Since emerging from bankruptcy, the Company closely monitored the operating
results of the remaining eight Starlog Stores to determine whether, with their
re-negotiated leases, they could operate profitably. The Company
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concluded that they could not. All but one of the Starlog stores have been
closed and the last store is slated for closing June 30, 1998. (See
"BUSINESS-Elimination of Unprofitable Starlog Stores" below).
Elimination of Unprofitable Starlog Stores.
After reviewing the results of the last six Starlog Stores, the Company
determined in April 1998 that theses stores could not operate profitably, even
with the more favorably re-negotiated terms. During the period from October 1997
through January 1998, these six stores had been suffering operating losses of
more than $25,000 a month, greatly offsetting the operating profits of the
Company's other divisions.
As a result, the Company closed five of six of these unprofitable stores. The
last store is scheduled to close on June 30, 1998. The leases for four of these
six stores were expired and the Company will have no on-going liability
resulting from such closings. In the case of the store in Glendale, Arizona, and
in Sacramento, California, the leases do not terminate until December 31, 1998
and September 1, 2002, respectively, and the Company is required to negotiate
settlements of the outstanding balances of approximately $43,000 over eight
months in the case of the Arizona store, and approximately $240,000 over 4 1/2
years in the case of the Sacramento store. Although these stores were not
successful for the Company's purposes, the malls in which they are located are
relatively successful and the Company believes that the liability under these
two leases will be substantially mitigated or eliminated when current
negotiations with the landlords are concluded.
Headquarters Cost Cutting Measures
During the beginning of 1998, the Company took various steps to reduce its
corporate overhead, including the lay-off of a number of personnel. Much of this
staff reduction related to personnel involved in the management of the Starlog
stores which the Company closed. The Company estimates that these steps reduced
annual corporate overhead by $300,000.
KCK/Candico
Acquisition
In October 1997, the Company acquired KCK Corporation, which at that time was in
Chapter 11 Reorganization. The Company took over operational control of KCK,
subject to the Bankruptcy court's supervision in October of 1997 and KCK was
discharged from bankruptcy in March 1998. KCK was basically a profitable
operation but was in Reorganization because of lack of operating capital. In
1991, Mr. Fitzgerald had done consulting work with Candy Candy, Inc., the prior
operator of the KCK stores. He ultimately became the company's COO and was the
key force in the development of Candy Candy! concept. As a result of Mr.
Fitzgerald's familiarity with the KCK stores and the candy industry, and the
recruitment of an experienced candy buyer, Frank Crescebene, the Company was
able to take steps to improve KCK's buying practices and increase gross margin
by almost 8%.
Candico Business
KCK is a retail candy company currently operating 13 stores trading under the
name Candy Candy! or Candico (the "Candico Stores"). Several of these stores
have been successfully operating for more than 10 years.
The typical Candico store is between 600 and 800 square feet and is located in a
high traffic enclosed shopping mall. The Candico stores create visual excitement
with an array of colorful candy-filled towers. Candy is an impulse purchase and
this bright contemporary look creates a consumer magnetism. The stores are
professionally designed and utilize creative lighting effects and proprietary
acrylic fixtures to create an upbeat buying atmosphere. In-store sound systems
with continuous programmed music are also an integral part of the formula.
Because sales are directly proportional to mall foot traffice, prime retail
locations are critical.
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The Candico stores sell 300 bulk candy items, displayed in acrylic bins designed
to ensure freshness and cleanliness. Bulk candy is sold with a singular pricing
strategy at $7.76 per pound in most stores. This pricing formula enables the
stores to enjoy a high gross margin targeted at almost 70%. The one-price
concept also allows the customer to randomly shop the store and fill his bag
with a wide variety of his favorite candies, promoting higher average sales per
customer.
There is no typical customer as the appeal of the Candico stores and product is
universal. Children and teens comprise the largest segment of customer profile;
however, adults of all ages frequent the stores. A wide selection of sugar-free
candies promotes destination shopping for health conscious and diabetic
customers.
In additon to the bulk candy items, the Candico stores stock approximately 125
"count goods" (individual wrapped novelties such as Pop Rocks, Pez and
Warheads). The typical layout includes two fixtures selling hand-made, specialty
lollipops (such as Mickey Mouse pops selling for several dollars each), two
fixtures selling gift and seasonal items, and a checkout counter offering a
large display of non-sports gaming and trading cards.
The Candico stores average about 100,000 transactions a year with the average
transaction averaging approximately $3.50. The stores are open 7 days a week (72
hours). A typical store is staffed by a manager, a lead, full time sales person,
working 30 hours a week and three part time workers who, among the three,
average an additional 32 hours a week. Additional staffing is required during
busy times such as Christmas and Easter. Generally there are two sales persons
at the store. The cost of a Candico store can range from $50,000 - $175,000 for
lease improvements and equipment. Initial inventories average between $12,000
and $15,000.
There are approximately 15 major distributors of bulk candy from whom the
Company can obtain product. The Company typically concentrates its purchases
between two suppliers to ensure good pricing.
Competition
The candy industry is a multi billion dollar industry with most retail sales
taking place in the mass markets. Specialty candy retailing is very fragmented.
It is basically divided into two segments: specialty chocolates and bulk
candies.
The chocolate retail segment is very regional with such names as See's (West
Coast) and Fannie Mae (Chicago, Philadelphia and Baltimore). Godiva Chocolatier,
a division of Campbell Soup, with its upscale specialty chocolates and elegant
packaging, operates a chain of company-owned stores located primarily in
regional malls. Escalating occupancy cost and wages have rendered the full
service chocolate business marginally profitable except in high traffic and high
volume locations.
The bulk self-service candy segment is even more fragmented than the chocolate
segment. The dominant mall retailer of bulk candy is Sweet Factory
(approximately 240 stores) headquartered in San Diego. Other active companies in
this field are Candy Express and Candy Headquarters. Candy Barrel, a similar
concept headquartered in Reno, NV, merchandises its product in wooden barrels,
rather than acrylic bins and consequently sells only wrapped and prepackaged
candies.
Plans for Expansion of Candico
The Company intends to expand its successful bulk candy operation and add to its
profitability by adding selected, fast-moving items from its science
fiction/fantasy/ memborabilia product line to the candy stores. The Company also
intends to develop Candy Carousels which will involve, small, relatively
inexpensive, easy to assemble and transport, candy kiosks. These 400 square foot
octagonal "carousels" will be located in enclosed shopping malls and are
designed to allow the Company to expand its operations at a far lower per site
cost than traditional stores.
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Shuttlecarts/Leased Departments - More Cost Effective Alternatives
While the high overhead expense for the Starlog stores (including start-up
costs, rent and personnel expenses) prevented them from being profitable, they
did demonstrate the existence of a niche market and consumer demand for the
Company's products. The Company intends to apply its merchandising strategy to
freestanding kiosks called "Shuttlecart(R)," which will be located in the center
court of malls. The Company believes that this will allow it to combine its
knowledge of science fiction and fantasy products for which there is a niche
market demand, with a much lower overhead than possible with stores.
The Company believes that each Shuttlecart will cost approximately $15,000 to
build and $20,000 for merchandise. This compares to between approximately
$223,000 and $450,00 to build a traditional store. There is a great demand from
malls for viable center-court kiosks. Although lease terms vary, typically,
malls request a fixed monthly rent (as low as $1,500 and as high as $4,000 in
the most successful malls, with $2,500 being common) plus a percentage of sales
over a base amount of sales, such as $150,000 per annum. Although leases to
place kiosks in a mall may have a lengthy term (5-10 years) they typically have
a "kick-out" clause allowing the tenant to leave without further obligation at
the end of any year where the kiosk's sales do not meet minimum levels. The
Company believes that, Shuttlecart kiosks, with their lower rental and personnel
costs will be able to break even with less than $10,000 in monthly sales. This
compares favorably with a traditional store format, like the stores which the
Company recently closed and which the Company estimates would require over
$20,000 of sales to break even.
The Company has run one three month test of its Shuttle-Cart concept in a
shopping mall in Jacksonville Florida during the three month period from July
through September 1997. During those three months the stores sales were: $9,100
for July, $10,857 for August and $6,732 for September. This test was financed by
a third party who was interested in the possibility of running one or more
Shuttlecarts for the Company on a franchise or joint venture basis, but who
chose not to proceed. During the last month of test period, the mall moved the
Shuttlecart to a less desirable location, and as expected by the Company, the
sales dropped to unprofitable levels. The Company considered the sales achieved
during this short test to be satisfactory, especially bearing in mind that July
through September is not an optimal sales period in Florida. However, given the
short duration of this initial test and the fact that it has not yet been
repeated at other locations, this test is of limited value in predicting whether
future Shuttlecarts will produce satisfactory results. The Company intends to
install two more Shuttlecarts in June and July of 1998. The first will open in
Monmouth Mall in Eatontown, New Jersey and substantive negotiations are underway
for a second metropolitan New York location.
The Company has also developed a "leased department" concept which it will
market to larger department stores and specialty retail store. The Company will
build an 800+ square foot department in an existing stores that will be owned
and operated by the Company. There will be a revenue sharing arrangement with
the host store. Developing leased departments will enable the Company to market
Company merchandise in major department and specialty stores.
Goal Post
Goal Post Distributors, Inc. ("Goal Post") is an international wholesale
distributor of sports, comics, science fiction, movie & television trading
cards, gaming cards, hobby supplies, collectibles and other toys. It also
produces a catalog that is mailed to over 8,500 accounts worldwide.
Goal Post was founded in 1991 to service the growing market of card, comics, and
collectibles shops and small to medium specialty store chains. Rapidly
expanding, first reaching $1,000,000 in annual sales in 1993, Goal Post grew to
service over 4,000 existing customers and $5,000,000 in sales by 1996. Goal Post
was acquired by the Company at the end of June 1997.
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Company Stores
In October, 1997, The Company acquired 14 KCK Stores ("Candico") of which 1
store (Princeton Market) was closed in December, 1997. The remaining 13 KCK
Stores are located throughout the Eastern U.S. in Connecticut, New Jersey,
Maryland, Virginia, Georgia and Florida. (See Item 2 "Properties" below for a
listing of these locations and certain lease terms).
The Company at various times has opened 15 Starlog Stores and 6 Sumon/Halogram
Stores, all of which have been closed, except for one Starlog store which is to
be closed by June 30, 1998
Franchise Agreements
The Company has entered into a number of franchise agreements with respect to
the Starlog Stores, all of which have been terminated. The Company has no
present plans to enter any franchise agreements.
The Company is party to an agreement with the Starlog Group, whereby the Company
was licensed to use the "Starlog" name, registered trademark, service mark and
logos and in return agrees to pay the Starlog Group 3% of its gross income, less
costs of goods and services. The term of the agreement is the term of the
trademarks, which is ten years subject to renewal if in use. To date, based on
the Company's interpretation of this Agreement, no such license fees have been
paid or accrued. However no assurance can be given that the Company's
interpretation would prevail if it were litigated.
The ongoing operations of the Company is contingent on the Company's ability to
continue as a going concern, which should be appraised in conjunction with the
Company's history of operating losses and lack of working capital. See Item 6
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS". The Company filed a voluntary petition for relief under Chapter 11
of the United States Bankruptcy Code on November 13, 1995 and emerged from
bankruptcy on August 28, 1996. See Item 3 "LEGAL PROCEEDINGS".
Norman Jacobs, the Company's former Chairman of the Board, had been the Chairman
of the Board of Starlog Group, Inc. ("Starlog Group"), since 1976. Starlog Group
publishes and distributes more than 20 magazines, certain of which have been
sold in Starlog Stores, and also sold elsewhere on terms no more favorable than
available to Starlog Stores. The Company has licensed the use of the trademark
"Starlog" from Starlog Group in exchange for an ongoing license fee, but has no
other agreements with such related party. All Starlog Stores, either franchised
or Company Stores were opened under the trademark, logos and service marks
licensed from Starlog Group. All such stores have been or are slated to be
closed. The Company's board of directors and the requisite percentage of the
Company's shareholders have agreed to amend the Company's Certificate of
Incorporation so as, among other things, to change its name to "Retail
Entertainment Group, Inc.".
(b) Financial Information about Industry Segments
From inception through the Period ended June 28, 1998, the Company and its
subsidiaries have operated in the same industry segment.
Employees
As of May 1, 1998, the Company had 74 employees. This includes the Company's
President, an MIS Manager, 1 Operations Manager, 2 warehouse assistants, 1 MIS
assistant, 2 merchandising managers/buyers, 1 staff accountant, and 65 retail
store employees; of which 27 employees are full time and 47 employees are part
time. In addition the Company has 1 temporary employee working in the Corporate
Headquarters.
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ITEM 2. PROPERTIES
The Company's executive offices and distribution center were relocated in April,
1995, from 2 separate facilities in New Jersey to a single facility in,
Clearwater, Florida. By mutual agreement the lease for the Clearwater facility
was terminated September 30, 1996. Effective September 30, 1996 the Company's
executive offices and distribution center were relocated from Florida to a
facility at 945 Brighton Street, Union, New Jersey. This facility consists of
approximately 6,500 square feet leased at a monthly rental of $3,000. This lease
will end on January 31, 1999. The Goal Post division's facilities are located in
a 3,000 square foot rented building at 13949-9 W. Hillsborough Ave. in Tampa,
Florida. This lease is for a month-to-month term and the monthly rental is
$2,600.
Candico Stores
The following table sets forth the locations of the 13 KCK stores where the
Company or a subsidiary currently holds a leasehold interest.
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<CAPTION>
Location Retail Square Lease Termination Minimum Monthly
Footage Rent
<S> <C> <C> <C>
Harbor Place, Baltimore, MD 742 04/30/04 $5,874(1)
Crystal Mall, Waterford, CT 646 01/31/04 $4,166-4,583(2)
Bayside Marketplace, Miami, FL 742 09/10/01 $5,874(3)
Bridgewater Commons, Bridgewater, NJ 836 12/31/03 $6,667(4)
Tampa Bay Center, Tampa, FL 913 04/30/01 $1,140 (5)
Rockaway Town Sq. Rockaway, NJ 535 10/31/06 $4,458-$4904(6)
Jacksonville Landing, Jacksonville, FL 563 02/28/00 $1,072.92(7)
Woodbridge Center, Woodbridge, NJ 889 03/31/99 $3,333.75(8)
Macon Mall, Macon, GA 662 02/14/03 $2,917(9)
Pembroke Lakes Mall, Pembroke, FL 700 01/31/06 $4,000(10)
Coolsprings Galleria, Franklin, TN 893 03/15/02 $3,333(11)
Coliseum Mall, Hampton, VA 630 06/30/00 $1,837(12
The Avenues Mall, Jacksonville, FL 821 03/09/02 $3,417(13)
</TABLE>
(1) Plus 10% of annual Gross Sales over $704,900, plus an annual Merchant's
Association Contribution of $4,080.
(2) Plus 10% of annual Gross Sales over $500,000 for the period ending 1/31/99
and $550,000 for the balance of the lease term.
(3) Plus 8% of annual Gross Sales over a "breakpoint" which is $596,250 for
the last three years of the lease ending 9/10/99.
(4) Plus 8% of annual Gross Revenues over $1,000,000.
(5) Plus 8% of annual Gross Sale over $200,000.
(6) Plus 10% of annual Gross revenue, a $4,253.25 environment charge, subject
to adjustment.
(7) Plus 8% of annual Gross Sales in excess of $175,937, plus a Merchants'
Association Contribution Rate equal to the greater of 1% of Gross Sales or
$1,689 per annum.
(8) Plus 10% of annual Gross Sales over $333,375.
(9) Plus 8% of annual Gross Sales in excess of $437,500, plus tenant's pro
rata share of real estate taxes, Common Area Maintenance, Insurance, and
Merchant association advertising.
(10) Plus 8% of annual Gross Sales over $600,000.
(11) Plus 8% of annual Gross Sales in excess of $500,000 per annum
(12) Plus 10% of annual gross receipts, plus tenants pro-rata share of Common
Area Charges and Insurance charges.
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(13) Plus 8% of annual Gross Sales in excess of $468,750. Plus Merchants
Association Marketing Fund, Media Fund and General Promotional charges of
approximately $900 per month, subject to escalation .
At various times, the Company had 15 Starlog Stores and 6 Hologram store, all of
which have been closed, except for one Starlog Store which is being closed at
the end of June 1998. Leases for all but 8 of the 15 Starlog Stores were
rejected when the Company was in Chapter 11 (See Item 3 "LEGAL PROCEEDINGS").
All but two of the remaining 8 leases expired pursuant to their terms. In the
case of the stores in Glendale Arizona, and in Sacramento, California, the
leases do not terminate until December 31, 1998 and September 1, 2002
respectively, and the Company is negotiating settlements of the outstanding
balances of approximately $43,000 over eight months in the case of the Arizona
store, and approximately $240,000 over 4 1/2 years in the case of the Sacramento
store. Although these stores were not successful for the Company's purposes, the
malls in which they are located are relatively successful and the Company
believes that in the absence of reaching a reasonable settlement with the
landlord, the Company will be able to sublease these stores and avoid much of
this expense.
In the case of the various Sumon-Halogram Store, all the leases were rejected
pursuant a Chapter 11 bankruptcy petition (See Item 3 "LEGAL PROCEEDING")
ITEM 3. LEGAL PROCEEDINGS
On November 13, 1995, Starlog Franchise Corporation and its subsidiaries filed
petitions for voluntary reorganization under Chapter 11 of the United States
Bankruptcy code. The petitions were filed in the Bankruptcy Division of the
District Court of the United States for the Middle District of Florida. The Plan
of Reorganization was filed on February 29, 1996, and subsequently amended on
May 28, 1996. In July 1996 the Plan was submitted to creditors and stockholders
for their vote of approval. The Company was a party to various lawsuits in
connection with claims in Bankruptcy court. All of these lawsuits and claims
previously outstanding were settled as unsecured claims. Approval was granted by
a sufficient number of creditors and stockholders. On August 28, 1996 the Plan
was confirmed by the Court and the Company emerged from bankruptcy. The major
provisions of the Plan are as follows:
Hope Associates, the secured lender, reduced its secured claims against
the Company by $200,000 (leaving it a secured claim of $500,000, all of
which was post-petition financing) in exchange for 18,000,000 shares of
the Common Stock of the Company. The 1,676,000 shares of Common Stock of
the Company whose voting rights had been assigned to the Company in care
of Jack Fitzgerald by the Company's founder and Chairman of the Board, his
son and former President of the Company and the former Chairman as Trustee
for his daughter as inducement for the secured lender, was canceled.
General unsecured claims received newly issued new warrants to purchase
shares of the Company's Common Stock at the rate of $0.25 per share, which
were distributed at the rate of one warrant for each $0.70 of claim. The
remaining 30 percent of the claims of unsecured creditors (totaling
$390,000) is to be paid in equal monthly installments over 60 months. Such
payments are expected to commence during the third fiscal quarter of 1998.
Common stock equity owners retained their stock but it was significantly
diluted. Hope Associates, the secured lender, owned approximately 90% of
the Company's outstanding stock before exercise of the creditor warrants
and 86% if such warrants were exercised. The equity ownership of the "old
stockholders" of the Company was diluted down, after the Chapter 11, to
slightly over 9.3%. Such amount was further diluted by the shares issued
to the owner of Goal Post Distributors in consideration of the Company's
acquisition of that business in June 1997.
In July, 1996 the Company entered into a verbal agreement with the Master
Franchisee in England, Famous Franchises, PLC, whereby the Company will convert
accounts receivable of approximately $150,000, which had
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been previously written off, into a 50% equity holding of Famous Franchises. The
original debt arose primarily from merchandise sales by the Company to the
initial franchisee in Surrey, England and the franchisee in Cardiff, Wales, both
of which were affiliates of Famous Franchises. Subsequently, Famous Franchises
went into bankruptcy and the Company became the owner of the entire inventory
and fixtures and equipment of the Cardiff store and became the Master Franchisee
for the United Kingdom. Subsequently, all United Kingdom stores were closed or
ceased being a Starlog franchise.
During 1996, the Company and Hope Associates engaged in negotiations with
Charles Huttoe ("Huttoe") to provide financing to the Company and acquire the
ownership of the shares of the Company's Common Stock owned by Hope. In
September, 1996, Huttoe, Hope Associates and its members entered into an
agreement (the "Sales Agreement") pursuant to which, Huttoe was to make payments
to Hope's bank and purchase the membership interests in Hope from its members,
thus indirectly obtaining Hope's shares in the Company. In September, 1996
Huttoe provided working capital to the Company aggregating $650,000 prior to
completion of any written agreement, and subsequently an individual who had been
acting as the attorney for Huttoe, David Goldstein, stated that the agreement
had been assigned to him. On October l7, 1996, a bank loan to Hope Associates in
the amount of $500,000 was paid in full from an account of Goldstein's in
alleged compliance with the Sales Agreement. In addition, the sum of $200,000
was deposited from Goldstein's account into escrow with an attorney for Hope for
payment to the members of Hope to acquire their membership interests. However,
Hope members did not transfer their membership interests in Hope to Goldstein
pending receipt of evidence of the purported assignment to Goldstein of the
Sales Agreement.
On November 7, 1996, the SEC filed a complaint in the U.S. District Court for
the District of Columbia (the "Court") against Huttoe and others, but not
including Goldstein, alleging unregistered distribution of the stock of Systems
of Excellence, Inc. and manipulation of its stock price. In November 1996, the
Court issued a temporary restraining order temporarily freezing assets and
accounts of Huttoe and various third party accounts into which payments were
made from allegedly Huttoe-controlled accounts. The order specifically covered
the Company's account which received the $650,000 as well as the attorney escrow
account holding the $200,000. On December 12, 1996, the SEC amended its
complaint to include as "relief defendants" the Company, Hope Associates and
Hope's members. The amended complaint sought to recover from the relief
defendants the sums advanced by Huttoe as working capital to the Company
($650,000), the bank loan to Hope ($500,000) and the escrowed fund ($200,000).
The SEC made no allegations of wrongdoing as to the Company, Hope Associates or
Hope's owners. After negotiations with the SEC an agreement was reached and
approved by the Company whereby the Company agreed to repay $500,000 of the
$650,000 received from Huttoe (plus interest computed at the rate of 5.55% per
annum) in four annual installments, the first three of which to be in the amount
of $114,916, and the fourth to comprise the remaining balance of principal and
interest. The first such annual installment was paid in April 1998. Hope
Associate's members have also agreed to personally guarantee $250,000 of the
$500,000 owed by the Company to the SEC.
The Company acquired SUMON, LLC, doing business as the Hologram Company and
Lazer Wizardry, on December 31, 1996 for a combination of cash and assumption of
liabilities valued at $50,000 and options to purchase common stock of the
Company. The operations acquired consisted of a six store specialty retailer of
holographic artwork and gifts and a wholesale distributor of holographic artwork
and gifts. On February 3, 1997, the purchase price was adjusted down to zero
because of certain matters that were not disclosed by the seller and SUMON, LLC
filed for Chapter XI Reorganization in the Bankruptcy Court for the Middle
District of Florida. Subsequently, the bankruptcy was dismissed and the company
was basically liquidated. The only asset remaining was a store in Orlando, FL
which has been closed.
In October 1997, the Company acquired KCK Corporation. Prior to the acquisition
KCK Corporation filed a Chapter XI Bankruptcy Petition in the Federal Bankruptcy
Court for the Western District of North Carolina. KCK is a retailer which owns
and operated 14 candy stores under the trade name Candy Candy and Candico. The
Plan of Reorganization was approved by the Court on March 19, 1998.
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<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders during the
fourth quarter of the fiscal year ended June 28, 1997. The Plan of
Reorganization was submitted to the stockholders in July 1996 and subsequently
approved on August 28, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS
The Common Stock of the Company had previously been quoted on the NASDAQ Small
Cap Market under the symbol "SIFI." The stock was removed from their listing
upon the Company's filing for bankruptcy.
The following table sets forth the high and low closing bid prices of the
Company's Common Stock from for the last two fiscal periods, as reported by
NASDAQ. Bid quotations represent high and low prices quoted between dealers, do
not reflect retail markup, markdown or commission, and do not necessarily
represent actual transactions.
Sales Prices
----------------------
High Low
-------- -------
Fiscal Year 1996
Quarter ended September 30, 1995 ................... $ 1 3/16 $ 11/16
Quarter ended December 31, 1995 .................... $11/16 $3/8
Quarter ended March 31, 1996 ....................... $ 3/8 $3/8
Quarter ended June 29, 1996 ........................ $3/8 $3/8
Fiscal Year 1997
Quarter ended September 30, 1996 ................... $ 15/16 $ .05
Quarter ended December 31, 1996 .................... $ 9/16 $ 1/8
Quarter ended March 31, 1997 ....................... $3/8 $1/8
Quarter ended June 28, 1997 ........................ $ .58 $ .13
On May 1 1998, the closing price of the Company's Common Stock was $.19 per
share.
On May 15, 1998, the Company reasonably believed it had approximately 460
beneficial holders of its Common Stock.
The Company has not paid any cash dividends on its Common Stock to date and does
not anticipate paying any in the foreseeable future. The Board of Directors
intends to retain earnings, if any, to support the growth of the Company's
business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Report.
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<PAGE>
Results of Operations
The Fiscal Year (52 Weeks) ended June 28, 1997("1997"), compared to the Fiscal
Year (52 Weeks) ended June 29, 1996 ("1996") and Fiscal Year (52 Weeks) ended
July 1, 1995 ("1995") follow:
The Company's revenues for 1997, 1996 and 1995 were earned from three sources:
retail sales for its Company owned Starlog and Hologram Stores, franchise fees
and royalties and sales of merchandise to its franchisees. During 1997, the
Company owned and operated six Starlog Stores (after opening three and closing
three) and acquired six Hologram stores in January 1997, compared to eight
Starlog stores in 1996 and seven Starlog stores in 1995.
Total revenues for 1997 increased by 10% to $2,367,722 from $2,144,316 for 1996
and compared to $3,511,106 in 1995. Sales increased in 1997, from 1996, and
decreased in 1996 from 1995 despite the operation of eight Company stores (after
opening and closing 3 Company stores) during the same periods. This is partially
attributable to operating smaller but more efficient stores and the Company's
ability to acquire its core inventory products in 1997 sufficiently in advance
of the holiday season and its inability to do so in 1996 due to negative cash
flow and lack of working capital. Financing activities did provide working
capital during 1997 and 1996 periods, but came too late in 1996 to take full
advantage of the holiday shopping season. The Company store in Atlanta, Georgia
was closed in late December 1995. The Company store at the corporate facilities
in Clearwater was in operation for only eighteen weeks in the 1996 period before
it was closed in early January 1996. In addition, the Company owned store in
Ridgewood, New Jersey was closed in mid January 1996. There were five new
Company stores opened, six Hologram stores acquired while eleven Company stores
closed in 1997. In 1996 four Company stores opened and four Company stores were
closed. In 1995 five Company stores opened and three Company stores were closed.
There were sales of merchandise to four franchisees in 1997 and three
franchisees in 1996 and 1995. Net sales for the Hologram stores totaled $288,274
since they were acquired on December 31, 1996. All of the Hologram stores have
been subsequently closed.
Franchise fees and royalties earned from franchisees for 1997, 1996 and 1995
were $58,945, $61,859 and $135,199, respectively. 1997 includes fees received
from franchise openings in Belfast, Northern Ireland and Oxford, England (now
closed). 1996 includes fees received from the Master Franchise sold to the
initial franchisee in England and fees received from the franchise in Cardiff,
Wales and Bromley, England (now closed). 1995 includes $90,000 in franchise fees
for the opening of Starlog franchised stores at the Arden Fair Mall, Sacramento,
California ("Arden Fair"), and the Cary Towne Center, Cary, North Carolina
("Cary") and for the Surrey, England, franchise (now closed).
Consolidated Cost of sales as a percentage of sales decreased to 41% in 1997
compared with 62% for 1996 and 65% for 1995. The gross profit margin increase
for 1997 is a direct result of increased margins on sales of merchandise to
franchisees, ample product for sale during the holiday season and positive
physical inventory counts as a direct result of selling inventory that
previously had been fully reserved due to anticipated obsolescence, but never
materialized. The decrease in cost of sales was offset by a $200,000 inventory
reserve recorded in the fourth quarter of Fiscal 1995.
Consolidated selling, general and administrative expenses increased in 1997 to
$2,913,502 from $2,784,256 for 1996 compared to $4,569,091 for 1995. There was
included in 1997 $471,917 of additional S.G. & A. attributable to the
SUMON/Hologram stores acquired on December 31, 1996. The decrease applicable to
the Starlog stores was due to a conscientious effort to reduce costs in the
1997, 1996 and late 1995 periods, including the relocation of corporate offices
and distribution center in April, 1995 from Paramus, New Jersey to Clearwater,
Florida to reduce occupancy cost, the closing of two Company stores and the
renegotiation of leases in all other Company stores. 1995 also included a full
year's operating cost on the four company stores opened in 1994, operating cost
of two new stores and an increase in the reserve for bad debts of approximately
$280,000. Also contributing to the 1995 costs was the operation of a 23,500
square foot distribution facility for three quarters in 1995. The Company's
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<PAGE>
selling, general and administrative expenses for 1997, 1996 and 1995 consisted
primarily of salaries, rent, franchise related selling expenses, travel,
telephone and utilities, professional fees, insurance, depreciation and
amortization, and the selling, general and administrative expenses of the retail
Starlog Stores. Consistent with its planned expansion the Company hired
management personnel in several significant functional areas during 1995 and
1994 including Operations, Merchandising, Accounting/Finance, Franchise
Development, and Distribution that were then cut-back in 1997 and 1996.
The Company showed a reduced consolidated loss of $1,286,771 (of which $6,865 in
profits (after forgiveness of a debt of $250,000) was applicable to the period
up to emergence from bankruptcy) for the 1997 period compared to loss of
$2,360,493 for 1996 and a loss of $3,623,977 for 1995. The Company recorded a
loss of $1,293,636 for the period subsequent to the emergence from bankruptcy
from August 28, 1996 to June 28, 1997.
The 1997 period reflects draw-downs in it's previously established valuation
reserves of $50,000 applicable to inventory, $428,886 applicable to usage of
lease renegotiation and bankruptcy contingency reserves. This was partially
offset by additions of $62,112 to the allowance for bad debts required by the
bankruptcy of two franchisees in the United Kingdom. The net loss for 1996
includes a loss on disposal of property and equipment of approximately $133,000
due to the closing of two company stores and an increase of $76,000 in the
provision for inventory shortages. The net loss for 1995 includes an increase in
the reserve for bad debts of $280,000, an inventory valuation reserve of
approximately $200,000 and a provision for lease renegotiations of $180,000.
Concurrent with the move to Florida in the fourth quarter of 1995, Management
made a decision to reduce expenses in all areas, including a reduction of
personnel in corporate headquarters consisting of Management, Operations,
Merchandising, Accounting and Finance, MIS, Franchise Development and
distribution. Personnel in these areas decreased to nine employees at the end of
1996 from seventeen in 1995. Although remaining steady for most of 1997, the
number of employees in these areas have increased to seventeen during the
holidays and number nine at the end of fiscal year 1997.
Liquidity and Capital Resources
The Company had a working capital deficit at June 28, 1997, of $972,488 compared
to working capital deficit of $1,132,401 at June 29, 1996. The current ratio
increased to .51 to 1 from .40 to 1 at June 29, 1996.
During Fiscal 1997, the Company had net cash used in operations of $1,506,541.
This resulted primarily from a net loss of $1,286,771 less approximately
$550,000 in non-cash expenses, including depreciation and amortization,
recording of Reorganization Value in Excess of Assets Allocated, less
write-downs of Trade and other Claims from the emergence from bankruptcy.
Increases in inventories and decreases in accounts payable and accruals added to
the decrease in cash. Net cash used in operating activities for the Fiscal 1996
period was $604,632 resulting primarily from a net loss of $2,360,493 offset by
positive operating activities. The Company's expenditures for property and
equipment for Fiscal 1997 were $149,378 (mainly net assets acquired of SUMON)
compared to $45,694 for Fiscal 1996. On November 13, 1995, the Company (Debtor)
filed petitions for relief under Chapter 11 of the federal bankruptcy laws in
the United States Bankruptcy Court for the Middle District of Florida. Under
Chapter 11, certain claims against the Debtor in existence prior to filing of
the petitions for relief under the federal bankruptcy laws are stayed while the
Debtor continues business operations as Debtor-in-possession. These claims are
reflected in the June 29, 1996 consolidated balance sheet as "liabilities
subject to compromise." The debtor received approval from the Bankruptcy Court
to pay certain of its pre-petition obligations, including employee wages.
In November 1995, prior to filing petitions for relief under Chapter 11, the
Company issued a $100,000 Secured Convertible Debenture with interest at 12% to
Hope Associates, LLC (Hope). This debenture is secured by substantially all
assets of the Company and is due on demand.
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<PAGE>
In November 1995, subsequent to filing, the Company was granted the right to
obtain post-petition financing in the form of a $350,000 Secured Debenture from
Hope.
In June 1996, the Secured Debenture was amended and increased to $600,000 as
authorized by the Court. The amended Secured Debenture bears interest at 12%, is
secured by substantially all assets of the Company and is due on demand after
January 31, 1997. At June 29, 1996, $535,000 was outstanding under this amended
Secured Debenture.
The United States Bankruptcy Court for the District of Florida, confirmed the
Company's Plan of Reorganization (the Plan) on August 28, 1996 (the
"Confirmation Date"), allowing the Company to emerge from Chapter 11 bankruptcy
effective September 7, 1996 (the "Effective Date"). The Company operated under
the protection of Chapter 11 following a voluntary petition for reorganization
filed February 28, 1996 and amended May 29, 1996. Under the Plan, ownership of
the Company is transferred largely to Hope Associates, LLC, Holders of the
Company's secured debentures. The Plan provided for the issuance of 18,000,000
shares (subsequently reduced by the return of 2,000,000 shares to the Company)
of common stock, distributions and new warrants to major creditors and
shareholders as follows:
Hope Associates, LLC reduced its secured claim against the Company by
$200,000 in exchange for 18,000,000 shares of the Company's common stock,
effectively 90 percent of the then issued and outstanding shares. After
the return to the Company of 2,000,000 shares in October, 1997 Hope held
16,000,000 shares which at that time represented approximately 90% of the
outstanding shares.
Holders of allowed general unsecured claims are to be paid $390,000 (30
percent of the allowed claims) in 60 equal monthly cash installments. To
date, the Company has not made cash payments on these allowed unsecured
claims.
Holders of allowed general unsecured claims received warrants to purchase
shares of the Company's common stock at the rate of $0.25 per share. These
new warrants were distributed at the rate of one warrant for each $0.70 of
claim amounting to 940,107 shares. The remaining 30 percent of each claim
is to be paid in cash as set forth above.
Holders of the Company's old Common stock retained their stock but it was
diluted by the issuance of the Company's Common stock to its secured
creditor and by the potential future exercise of the new warrants, both as
set forth above.
The distribution of warrants to purchase 940,107 shares of the common stock took
place in October, 1997. The cash distribution is expected to commence in the
third quarter of Fiscal 1998.
Additionally, upon the Effective Date of the Plan, the 1,676,000 shares of the
Company's common stock, whose voting rights had been assigned to the Company's
current President by it's former Chairman of the Board, were canceled.
The Chapter 11 filing was necessitated by the Company's inability to comply with
payment obligations of its stores as they existed before filing the Chapter 11
petition and other obligations.
As of the Confirmation Date, the Company adopted Fresh Start Reporting in
accordance with the American Institute of Certified Public Accountants Statement
of Position 90-7 (SOP 90-7) -- "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code." Fresh Start Reporting resulted in
material changes to the consolidated balance sheet, including valuations of
assets and liabilities at fair market value and valuation of equity based on the
appraised reorganization value of the ongoing business.
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<PAGE>
The Reorganization Value (the approximate fair value) of the Company is based on
the consideration of many factors and various valuation methods, including
discounted cash flows and price/earnings and other applicable ratios and
valuation techniques believed by management and its financial advisors to be
representative of the Company's business and industry. The excess of the
Reorganization Value over the fair value of net assets and liabilities is
reported as excess Reorganization Value and is amortized over a 15 year period
at an approximate rate of $38,000 per year.
The Company acquired SUMON, LLC, doing business as the Hologram Company and
Lazer Wizardry, on December 31, 1996 for a combination of cash and assumption of
liabilities valued at $50,000 and options to purchase common stock. The
operations acquired consisted of a six store specialty retailer of holographic
artwork and gifts and a wholesale distributor of holographic artwork and gifts.
On February 3, 1997, the purchase price was adjusted down to zero because of
certain matters that were not disclosed by the seller and SUMON, LLC filed for
Chapter XI Reorganization in the Bankruptcy Court for the Middle District of
Florida. Subsequently, the bankruptcy was dismissed and the company was
basically liquidated.
The Company acquired Goal Post Distributing, Inc. on June 29, 1997, a wholesale
distributor of trading cards and collectibles for 4,300,000 shares of common
stock of the Company included in the outstanding shares at June 28, 1997. The
former owner of Goal Post Distributing purchased 2,000,000 shares of common
stock of the Company for $250,000 in October, 1997 in a private placement.
KCK Corporation is a retailer which owns and operated 14 candy stores under the
trade name Candy Candy and Candico. The Company acquired KCK Corporation, in
October, 1997, in exchange for warrants to purchase 500,000 shares of common
stock (400,000 shares at a strike price of $.25 per share if exercised by
September 28, 1998 or for $.40 per share if exercised thereafter and 100,000
shares at a strike price of $0.50 a share). All warrants expire after October 1,
1999. Prior to this acquisition by the Company, KCK Corporation filed a Chapter
XI Bankruptcy Petition in the Federal Bankruptcy Court for the Western District
of North Carolina. KCK emerged from Bankruptcy in April 1998.
The Independent Auditors Report, which accompanies and is part of the Company's
audited financial statements as of June 28, 1997 and June 29, 1996 which are
included as part of this Annual Report is qualified by the following statement:
"The accompanying consolidated financial statements have been prepared assuming
that Starlog Franchise Corporation and Subsidiaries will continue as a going
concern. As discussed in Note 11 to the consolidated financial statements, the
Company has incurred recurring losses from operations. Although the Company's
Plan of Reorganization was confirmed, the Company has not yet shown the ability
to generate cash from operations. As such, this raises substantial doubt about
the entity's ability to continue as a going concern. The consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of reported asset amounts or the amounts and classification of
liabilities that might result from the outcome of these uncertainties."
ITEM 7. FINANCIAL STATEMENTS
This information appears in a separate section of this Report following Part
III.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
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<PAGE>
PART III
ITEM 9. DIRECTORS AND OFFICERS OF THE REGISTRANT
The Directors and officers of the Company are as follows:
Name Age Position
- --------------------------------------------------------------------------------
Herman Rush 68 Co-Chairman of Board of Directors
Michael Michaelson 74 Co-Chairman of Board of Directors
John (Jack) Fitzgerald 56 President, CEO and Director
John Savel 44 Director
Ray Markman 69 Director
Kevin M. VanderKelen 30 Director
Allan R. Lyons 57 Director
Herman Rush was appointed Chairman of the Board in November of 1995. Mr. Rush,
former Chairman and Chief Executive Officer of Coca-Cola Telecommunications,
Inc., Senior Vice President of the Entertainment Business Sector of the
Coca-Cola Company and a member of the Board of Directors of Columbia Pictures
Industries, Inc. and past Chief Operating Officer of Columbia Pictures
Television Group, has more than thirty years experience in executive, production
and marketing positions. In 1992, Mr. Rush formed Katz- Rush Entertainment whose
credits includes "The Montel William's Show" and "The Susan Powter Show." Mr.
Rush began his television career in 1951. Mr. Rush was instrumental in the
television packaging and network placement of such programs as "Voyage to the
Bottom of the Sea", "Lost in Space", "Time Tunnel" and "Land of the Giants".
Michael Michaelson was appointed to the Board of Directors in November of 1995.
Earning a BS degree at New York University in 1948, Mr. Michaelson's career has
been spent in magazine publishing and direct marketing. Mr. Michaelson currently
serves as a member of the Board of Directors for Metrol Tel Corporation, a
publicly held company in the telecommunications field, Allied Devices Inc., a
privately held precision tool company and Theater Craft Associates, a magazine
publisher. Mr. Michaelson began his career with Look Magazine. He then joined
Ziff-Davis where he was Vice President, Circulation Director and a member of the
Board. In 1961 he became President of Franklin Square Subscription Agency, where
he created the first college student multi-magazine subscription card, becoming
the official agency of the National Association of College Stores under the name
of Campus Subscriptions. In 1970 Mr. Michaelson sold Campus Subscriptions to
Publishers Clearing House where he became Senior Vice President, Marketing. He
left there in 1980 to found GAMES MAGAZINES RAINWATER ENTERPRISES, a consulting
firm which has served such clients as Rodale Press, Hearst Magazines, Fairchild
Publications, Meredith Publishing and the Smithsonian. From 1986 to 1989 Mr.
Michaelson was Chairman of the Council on Economic Priorities. He served in the
U.S. Army, 35th Infantry, 25th Division in the South Pacific as a Company
Commander from 1942 to 1946, receiving a Bronze Star and Purple Heart. Mr.
Michaelson earned a Bachelor of Science degree from New York University in 1948.
From 1986 to 1989, Mr. Michaelson is President and owner of Rainwater
Enterprises, LTD., providing publishing management and marketing consultation
services. Clients have included many major publishers and communications
companies, some of whom are: Rodale Press, Warner Publisher Services, Hearst
Magazine, Esquire, Reed Schuster, Fairchild Publications, Meredith and the
Smithsonian.
John (Jack) Fitzgerald was appointed President and Chief Operating Officer of
the Company effective June 1, 1995. Previously, Mr. Fitzgerald served as Vice
President and General Manager of the Company since July 1994. Prior thereto,
from 1990, he owned a consulting firm which developed and implemented retail
concepts such as Candy Candy Inc., The Candy Store in Baton Rouge, LA and
Shop-N-Stop (Sweet 99), the bulk candy concept for K-Mart Stores. Prior thereto,
from 1989, he was Chief Operating Officer and President of Candico Stores, a
bulk candy specialty concept. From 1984 to 1989 he was Executive Vice President
and Chief Operating Officer for J & D Brauner Butcher Block Stores. From 1974 to
1984 he was Vice President of Store Operations for Lechters.
Ray Markman was appointed to the Board of Directors of the Company in November
1995. Mr. Markman is a multi-faceted entrepreneur with a degree in journalism,
advertising and economics at the University of Missouri with post graduate work
at the University of Chicago. Mr. Markman has lectured at the N.Y.U. School of
Management and the Kellogg Executive MBA Program at Northwestern University on
Strategic Planning. He was Executive Vice President at Encyclopaedia Britannica
and a senior executive at the Leo Burnett and McCann-Erickson (Division of
Interpublic Group of Companies) advertising agencies. Mr. Markman was a founder
of two companies that pioneered the distribution of pre-recorded video
cassettes. to mass market outlets for such companies as Disney, Hanna/Barbera
and the original Jane Fonda aerobic tapes. He is a member and lecturer at the
Direct Marketing Association and Chairman of the Echo Awards Committee (creative
marketing awards) and a contributing author for a book on direct marketing. Mr.
Markman founded FIND (Foundation for Inventions and New Developments), founded
FACT, an organization devoted to public economic education. He was a Director of
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Chicago City Bank, founder and Director of Mayflower Life Insurance Co. and
Seago Real Estate Co., which companies he helped to take public. He is currently
President and founder of Life Planning Company which provides financial planning
services for high net worth individuals, corporations and pension plans.
Mark Savel was appointed to the Board of Directors in November of 1995. Mr.
Savel has been Director of Franchise Development since July 1994. Mr. Savel was
responsible for sales training and the marketing and sales of franchises,
nationally and internationally, for Starlog Franchise Corporation. Since 1978,
Mr. Savel, through his development company, Majic Development Corp., (later
Majic Franchise Development, LLC) was and is an area developer and franchise
sales consultant for a major automotive after market franchiser. Mr. Savel has
held the positions of operations manager, sales trainer, franchise area
development agent and franchise sales consultant. Mr. Savel is currently a
consultant to Lee Myles Associates Corporation, markets franchises for Lee Myles
Transmissions in the Arizona market. Mr. Savel owns (2) Lee Myles Franchises in
Arizona.
Kevin M. VanderKelen earned a BA degree in marketing and finance in 2 1/2 years
from the University of Wisconsin. He started his career founding a screen
printing business Body Wraps, Inc. and selling it to employees. He worked for
Metropolitan Life, MetLife Securities, Inc. and VanderKelen Investment Company.
He started a position as a corresponding pricing analyst for several collectible
price guide magazines and includes several nationally published magazine
articles to his credit. He founded Goal Post Distributing in 1991 and developed
a wholesale distribution concept to service retail trading card, comic, and
collectible stores. Goal Post publishes a monthly wholesale catalog and services
an international base in excess of 8,000 customers that achieved sales of
approximately $5,000,000.
Allan R. Lyons had been a director of the Company from August 1993 until his
resignation on November 15, 1995. Mr. Lyons was reelected to serve as a director
by the Board of Directors effective May 15, 1998. Allan R. Lyons, CPA, is a
senior member of the firm Piaker & Lyons in Vestal New York, which he joined in
1964. Mr. Lyons is an active investor and has served on a number of Boards. He
is currently a member of the Board of Directors of Franklin Credit Management
Corporation, Organic Food Products, Inc., M.D. Labs and Scoreboard, Inc.
Scoreboard, Inc. filed for Chapter XI bankruptcy in March 1998. Mr. Lyons is a
member of the American Institute of CPAs, the New York State Society of CPA's
and the International Association for Financial Planning. Mr. Lyons was the
Comptroller and Finance Director of the Town of Vestal from 1970 to 1997 and is
on the Board of Advisor-School of Management -Binghamton University, Treasurer
and Trustee of United Health Services and a member of the Endowment Committee of
the United Jewish Appeal of Broome County, New York.
All directors hold office until the next annual meeting of shareholders and the
election and qualification of their successors. No fees have been paid or
accrued to directors as compensation for their acting in such capacity. The
Company has established an Audit Committee consisting of Allan Lyons and Michael
Michaelson and a Compensation Committees, consisting of Michaelson, Rush &
Lyons. Officers are elected annually by the Board of Directors and serve at the
discretion of the Board.
Norman Jacobs served as Chairman of the Board of the Company since its inception
in January 1993 until November 15, 1995 at which time he resigned. Steven Jacobs
had served as President and Chief Operating Officer from May 1, 1992 (the
inception of the Company) until March 6, 1995, at which point he resigned his
position at the request of the Board of Directors. Mr. Jacobs subsequently
resigned as a director of the Company on October 26, 1995. Daniel J. Simon was a
director of the Company since September 1993 until his resignation on November
15, 1995.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
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The following table sets forth all compensation awarded to, earned by, or paid
for all services rendered to the Company during Fiscal 1997, Fiscal 1996 and
Fiscal 1995 by the Company's Executive Officer but does not include information
regarding Executive Officers with annual compensation under $100,000, except
current Chief Executive Officer.
Annual Compensation
Name and Principal Other Annual
Compensation Year Salary $ Bonus $ Comp.$
- --------------------------------------------------------------------------------
John (Jack) Fitzgerald 1995 $82,496 -0- (1)
President CEO, Director 1996 $90,525 -0- (1)
1997 $100,000 -0- (1)
(1) Does not include the cost to the Company of the use of automobiles leased by
the Company, or the cost to the Company of benefits, including premiums for life
and health insurance and any other personal benefits provided by the Company to
such persons in connection with the Company's business since such amounts total
less than (i) $50,000 or (ii) 10% of the Executive Officer's disclosed
compensation.
Mr. Steven Jacobs served as President and Chief Operating Officer until his
resignation on March 6, 1995. Mr. Norman Jacobs served as Chief Executive
Officer until his resignation during 1995. On March 10, 1995, Mr. Fitzgerald,
Vice President and General Manager, was appointed Chief Operating Officer. On
June 1, 1995, Mr. Fitzgerald was appointed President of the Company.
Contingent Stock Options Granted in Last Fiscal Year:
Option/SAR Grants in Last Fiscal Year-Individual Grant
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
% of Total Options
Number of Securities /SARs Granted to
Underlying Options Employees in Fiscal Exercise or Base Expiration
Name /SARs Granted (#) Year Price ($/Sh) Date
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
John (Jack) Fitzgerald
President-CEO 3,000,000(1) 75% $0.06 03/31/03
</TABLE>
(1) On April 1, 1997, the Company granted Mr. Fitzgerald, President and CEO of
the Company an option to acquire 3,000,000 shares of the Company's common
stock until March 31, 2003. The option to acquire 1,000,000 of such shares
is currently exercisable. The option to acquire the second 1,000,000
shares is exercisable only if and after the Company has $500,000 of annual
net profits, before interest, taxes, depreciation and amortization
("EBITDA") and the option to acquire the remaining 1,000,000 shares will
be exercisable only if and after the Company has $1,000,000 of annual net
profits EBITDA. (Such number of shares and the exercise price are before
adjustment in connection with a proposed 1 for 10 reverse stock split)
This option was in replacement of other options previously granted to Mr.
Fitzgerald.
Mr. Kevin VanderKelen, Vice President of the Company and founder of Goal
Post Distributing, Inc., acquired by the Company, has been granted an option to
purchase up to 1,000,000 shares for prices ranging from $.50 to $.90 on a
sliding scale over the next five years provided that certain annual gross sale
projections from $5,000,000 to $9,000,000 are met. (Such number of shares and
the exercise price are before adjustment in connection with a proposed 1 for 10
reverse stock split)
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<PAGE>
None of the Company's outstanding options or warrants were exercised during the
Fiscal Year ended June 29, 1997 or since then, through May 15, 1998, by any of
the name Executive Officers or any other parties. The Company has no long-term
incentive plans.
No fees no have been paid or accrued to any directors in consideration for them
acting as such.
Employment Agreements
The Company originally entered into an employment agreement with Jack Fitzgerald
commencing July 11, 1994. This agreement was subsequently amended as of August
15, 1996. As amended the agreement provides for a five year term, and a salary
of $100,000 per year, increasing by $10,000 a year up to $140,000, plus other
benefits and a monthly car allowance of $500. In addition Mr. Fitzgerald is
eligible for a discretionary bonus of up to 50% of his base salary. Under the
1996 Agreement, Mr. Fitzgerald was to receive an option to purchase, for $.06
per share, such number of shares as equals 5% of the issued and outstanding
shares, each year for three years, subject to certain limitations. At the April
1, 1997 Board meeting, it was agreed to amend Mr. Fitzgerald's employment
agreement as follows. Mr. Fitzgerald's base salary will be increased from
$100,000 to $150,000 when the Company raises $500,000 or more in a currently
proposed private placement. Mr. Fitzgerald's previously granted stock option is
replaced with an option to purchase a total of 3,000,000 shares of the Company's
common stock at $0.06 per shares for a period of five years, ending March 31,
2003. Under this option, 1,000,000 of such shares are immediately exercisable.
The right to exercise the option with respect to the second 1,000,000 shares
will be exercisable only if and after the Company achieves annual pre-tax
profits of $500,000 before interest, depreciation, taxes, and amortization
("EBITDA") and the right to exercise the option with respect to the last
1,000,000 shares will be exercisable only if and after the Company achieves
annual pre-tax profits of $1,000,000 EBITDA. The foregoing share number and
exercise prices are without giving effect to a proposed 1 for 10 reverse stock
split.
In connection with the acquisition of Goal Post, the Company entered into an
employment agreement with its President, Mr. Kevin VanderKelen, dated June 29,
1997. This agreement had a term of five years and provides for annual base
salary of $100,000 for the first two years, $115,000 for year 3, $120,000 for
year 4 and $125,000 for year 5. This agreement also granted Mr. VanderKelen with
an option to purchase a total of up to 1,000,000 shares of the Company's Common
stock as follows. Mr. VanderKelen's options vest 200,000 shares per year,
subject to the Goal Post division reaching gross sales of $5,000,000 for the 1st
measurement year ending June 29, 1998, $6,000,000 for the 2nd measurement year
ending June 29, 1999, $7,000,000 for the 3rd measurement year ending June 29
2000, $8,000,000 for the 4th measurement year ending June 29, 2001 and
$9,000,000 for the 5th measurement year ending June 29, 2002. The option price
is $.50 per share for the 200,000 shares which will vest if Mr. VanderKelen
meets the criteria for the 1st measurement year; $0.60 for the 200,000 shares
which will vest if Mr. VanderKelen meets the criteria for the 2nd measurement
year; $0.70 for the 200,000 shares which will vest if Mr. VanderKelen meets the
criteria for the 3rd measurement year; $0.80 for the 200,000 shares which will
vest if Mr. VanderKelen meets the criteria for the 4th measurement year; and
$0.90 for the 200,000 shares which will vest if Mr. VanderKelen meets the
criteria for the 5th measurement year. All such share amounts and exercise
prices are before adjustment for a proposed 1 for 10 reverse stock split.
At the April 1, 1998 board meeting, at which Mr. VanderKelen attended, it was
agreed to modify Mr. VanderKelen's agreement as follows. Mr. VanderKelen's
annual salary would be reduced to $60,000 in light of the Goal Post division's
achieving lower than anticipated profitability over the last year. Should the
division achieve a target of annual profit of $200,000 before taxes, Mr.
VanderKelen's salary will be restored to $100,000 and Mr. VanderKelen would
receive a bonus of 20% of any profit above $200,000 per annum of pre-tax profit.
Additionally, Mr. VanderKelen agreed that should the division not attain the
$200,000 of profit by December 31, 1998, at the Company's request, he would buy
the division back for the 4,300,00 shares of the Company's stock
-18-
<PAGE>
issued by the Company in such acquisition, provided that the Company also
repurchase the additional 2,000,000 shares that he bought from the Company for
the $250,000 that he paid for such shares.
The Company entered into an employment agreement with Steven Jacobs commencing
as of July 1, 1993 and ending on December 31, 1996. Steven Jacobs was employed
as President and Chief Operating Officer and devoted all of his business time to
the Company's affairs. Mr. Jacobs resigned his position on March 6, 1995. Mr.
Jacobs began receiving a salary of $80,000 per year commencing upon the
completion of the Company's July 1993 Private Placement, which increased to
$120,000 per annum in November 1993, following the completion of the Company's
public offering. The Company entered into an employment agreement with Norman
Jacobs, Steven Jacobs' father, commencing as of July 1, 1993 and ending on
December 31, 1996. Norman Jacobs was employed as Chairman of the Board and Chief
Executive Officer under an employment agreement which provides that he would
devote at least 20% of his business time to the Company's affairs, although he
devoted significantly more time to the Company. Mr. Jacobs began receiving a
salary of $40,000 per year commencing upon the completion of the Company's July
1993 Private Placement, which increased to $60,000 per annum in November 1993,
following the completion of the Company's public offering. Due to the Company's
financial problems, Mr. Jacobs waived payment of his salary from February, 1995
and resigned November 15, 1995.
Stock Option Plan
In July 1993, the Board of Directors and stockholders of the Company adopted the
1993 Employee Stock Option Plan (the "Option Plan") providing for the grant of
stock options to employees (including officers) of the Company, its
subsidiaries, independent contractors, consultants and other individuals, to
purchase an aggregate of 200,000 Common Shares. In October, 1993 the Board of
Directors and stockholders of the Company adopted the Directors Option Plan (the
"Directors Plan") providing for the grant of stock options to Directors of the
Company to purchase an aggregate of 60,000 Common Shares. The Company granted
options to purchase a total of 140,000 shares under the Option Plan at prices
ranging from $4.00 to $5.50, and options to purchase 22,500 shares under the
Directors plan for $5.50 a share.
Pursuant to the Plan of Reorganization the 1993 Stock Option Plan, the Directors
Stock Option Plan and options outstanding thereunder were canceled. The options
granted to Mr. Fitzgerald and Mr. VanderKelen since the reorganization are not
pursuant to any plan.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables sets forth certain information regarding the beneficial
ownership of the Company's common stock as of May 1, 1998 by (i) each person
known by the Company to own beneficially 5% or more of any class of the
Company's voting stock, (ii) each director and executive officer of the Company,
and (iii) all directors and executive officers of the Company as a group. All
percentages in this section were calculated on the basis of outstanding
securities plus securities deemed outstanding under Rule 13d-3 of the Exchange
Act.
Name and Address of Shares of Common Percentage of
Beneficial Owner Stock Held Shares Held
--------------------------------------------------------------------------
Hope Associates, LLC(1)(2) 16,000,000(2) 66.01%
c/o Michael Michaelson
135 E. 71st St., Apt. 3A
New York, NY 10021
Kevin VanderKelen(1)(3) 6,558,000 27.06%
Goal Post Distributing, Inc.
13949-9 W. Hillsborough
Tampa, FL 33634
-19-
<PAGE>
(1) Shares outstanding are calculated without giving effect to a proposed 1
for 10 reverse stock split.
(2) Hope Associates LLC is a limited liability company owned and controlled by
the following Directors of the Company: Michael Michaelson and Herman Rush
each own approximately 25.833% of Hope Associates; Ray Markman and Mark
Savel each own approximately 17.222% of Hope Associates; and Allen Lyons
owns the remaining 13.89% of Hope. This does not include a Warrant to be
granted to Hope Associates, in consideration for Hope Associates assuming
$2,000,000 of the Company's debt, which Warrant will allow Hope Associates
to purchase 500,000 shares (after the reverse stock split) for $1.25 per
share. (See Item 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS") If
such Warrant were included, Hope Associates' percentage would be 71.82%.
(3) Includes 153,000 shares owned by Mr. VanderKelen's wife. Does not include
1,000,000 shares reserved for issuance upon the exercise of options to
purchase Common Stock at a price of $0.50-$0.90 per share granted to Mr.
VanderKelen pursuant to his employment agreement with the Company. All of
such options are subject to the Goal Post division achieving levels of
revenues substantially above current levels.
DIRECTORS AND EXECUTIVE OFFICERS
Shares of Common Percentage of
Name of Director or Executive Officer Stock Held Shares Held
- --------------------------------------------------------------------------------
Jack Fitzgerald(1)(2)
President, CEO, Director 1,000,000 3.96%
Kevin M. VanderKelen(1)(3)
President Goal Post, Director 6,558,000 27.06%
Mark Savel(1)(4)(9)
Director of Franchise Development
and Director 2,755,557 11.37%
Herman Rush(1)(5) (9)
Co-Chairman of the Board 4,133,334 17.05%
Michael Michaelson(1)(6) (9)
Co-Chairman of the Board 4,133,334 17.05%
Ray Markman(1)(7) (9)
Director 2,755,557 11.37%
Allan R Lyons
Director 2,222,218 9.17%
ALL DIRECTORS AND OFFICERS AS A GROUP
(SIX PERSONS) (9) 23,558,000 92.04%
- --------------------------------------------------------------------------------
(1) All shares expressed without giving effect to a proposed 1 for 10 Reverse
Stock Split. Based on a total number of outstanding shares of 24,237,636,
prior to reverse stock split and 1,000,000 shares subject to options which
-20-
<PAGE>
were exercisable on May 1, 1998. Does not include a Warrant issued to Hope
Associates, in consideration of Hope's assumption of $2,000,000 of the
Company's liability , to purchase 500,000 shares (after giving effect to
the proposed reverse stock split) at $1.25. (See Item 12 "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS").
(2) Includes 1,000,000 shares pursuant to currently exercisable options.
(3) Includes 4,300,000 shares received in June 1997 in connection with the
sale to the Company of the assets of Goal Post Distributors, Inc.,
2,000,000 shares purchased by Mr. VanderKelen from the Company for
$250,000, 105,000 shares purchased by Mr. VanderKelen and 153,000 shares
purchased by Mr. VanderKelen's wife in the open market, Does not include
1,000,000 shares reserved for issuance upon the exercise of options to
purchase Common Stock at a price of $0.50-$0.90 per share granted to Mr.
VanderKelen pursuant to his employment agreement with the Company. All of
such options are subject to the Goal Post division achieving levels of
revenues substantially above current levels.
(4) Based on Mr. Savel's approximately 17.222% interest in Hope Associates
which owns 16,000,000 shares
(5) Based on Mr. Rush's approximately 25.833% interest in Hope Associates
which owns 16,000,000 shares
(6) Based on Mr. Michaelson's approximately 25.833% interest in Hope
Associates which owns 16,000,000 shares.
(7) Based on Mr. Markmam's approximately 25.833% interest in Hope Associates
which owns 16,000,000 shares.
(8) Based on shares held by Mr. VanderKelen, a currently exercisable option
held by Mr. Fitzgerald and the shares held by Hope Associates. If the
warrant to purchase 500,000 shares (after the proposed reverse stock
split) were included the percentage held by all Officers and Directors as
a group, as of May 1, 1998 would be 96.45%.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's founder and former Chairman of the Board, his son and former
President of the Company and the former Chairman, as Trustee for his daughter,
assigned the voting rights for 1,676,000 shares of the Company's Common Stock to
the Company in care of Jack Fitzgerald, the current President of the Company.
These shares were subsequently canceled as of the Effective Date of the
Reorganization Plan.
In connection with the bankruptcy reorganization of the Company, 18,000,000
shares of Common Stock were issued to Hope, resulting in the beneficial
ownership of a majority of the Company's Common Stock by certain present
officers and directors. Hope subsequently surrendered 2,000,000 of its shares to
the Company reducing its holdings to 16,000,000 shares.
In connection with the acquisition of the assets of Goal Post Distributing Inc.
in June 1997, 4,300,000 shares of Common Stock were issued to Kevin VanderKelen,
and in connection with an employment agreement with Mr. VanderKelen the Company
granted Mr. VanderKelen an option to acquire up to 1,000,000 additional shares,
subject to the Goal Post Division reaching certain revenue goals (See Item 11
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT"). Additionally,
Mr. VanderKelen acquired an additional 2,000,000 of the Company's shares from
the Company at about the time of the Goal Post acquisition for $250,000. At
about the same time, Mr. Vanderkelen acquired 105,00 shares, and his wife
acquired 153,000 shares of the Company's stock in the open market.
-21-
<PAGE>
The members of Hope Associates had personally guaranteed a line of credit from
BSB Bank & Trust Co. to the Company in the amount of $2,000,000. Hope Associates
LLC has agreed to and is in the process of causing its members to assume the
total obligation for the $2,000,000 BSB loan, thus removing it from the balance
sheet of the Company. After this assumption, the Company will not be a party to
the loan nor will it have any guarantee or liability. In consideration for such
assumption, the Company will pay a monthly fee to Hope Associates in the amount
of the monthly interest (approximately $20,000 a month) that is payable to the
bank on the loan and grant the members of Hope Associates Warrants to purchase,
until May 3, 2003, 500,000 shares of the Company's common stock (after giving
effect to a proposed reverse stock split) for $1.25 per share.
In April 1998, various of the Directors have made the Company bridge loans
totaling $146,266 as follows: Mr. Rush $39,974, Mr. Michaelson $39,974, Mr.
Lyons $21,492, Mr. Markman $26,650, Mr. VanderKelen, $18,000. Such loans are
evidenced by demand notes and bear 10% interest. It is intended that such loans
be repaid from the proceeds of a proposed private placement of the Company's
Common Stock. Additionally, Mr. Rush loaned the Company $100,000 in March 1997
which is still outstanding. Rainwater Enterprises Ltd., a company owned by Mr.
Michaelson, loaned the Company $100,000 in February 1997, which has been repaid.
From time to time the Members of Hope Associates, LLC have made direct loans to
the Company or have personally guaranteed working capital loans by outside
banking facilities to the Company on terms no less favorable to the Company than
could have been obtained from unrelated third parties, if such funds would have
been available at all considering the Company's financial circumstances.
Compliance with 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Officers, Directors and persons who own more than ten percent of a registered
class of the Company's equity securities, to filed reports of ownership and
changes in ownership with the Securities and Exchange Commission. Officers,
Directors and ten percent shareholders are required by regulation to furnish the
Company with copies of all Section 16(a) forms that they file. Based solely on
the Company's copies of such forms received or written representations from
certain reporting persons that no Form 5's were required for those persons, the
Company believes that, during the time period November 10, 1993 to June 28,
1997, all filing requirements applicable to its Officers, Directors and greater
than ten percent beneficial owners were complied with.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Exhibits
The following is a complete list of exhibits which are incorporated herein or
filed herewith as part of this Report.
Filed Herewith (X)
or Incorporated By
No. Exhibit Reference
- --------------------------------------------------------------------------------
3.1 Certificate of Incorporation of the Registrant. (1)
3.2 By-Laws of the Registrant, as amended. (1)
3.3 Certificate of Incorporation of SF Stores, Inc. (1)
3.4 By-Laws of SF Stores, Inc. (1)
4.1 Form of Representative's Warrants. (1)
4.2 Form of Representative's Consulting Agreement. (1)
4.3 Form of 10% Convertible Subordinated Promissory Note (1)
due July 2000 to private investors.
-22-
<PAGE>
4.4 Form of lock-up agreement between the Company's (1)
shareholders and the Underwriter.
10.1 Registrant's 1993 Employee Stock Option Plan, as (1)
amended.
10.2 Employment Agreement dated as of June 22, 1993, between (1)
the Registrant and Steven Jacobs, as amended.
10.3 Employment Agreement dated as of June 22, 1993, between (1)
the Registrant and Norman Jacobs, as amended.
10.4 Lease Agreement between the Registrant and Paramus (2)
Investment Venture for the Registrant's executive
offices in Paramus, New Jersey.
10.5 Master Franchise Agreement between the Registrant and (3)
Famous Franchises, PLC dated as of August 23, 1995.
10.6 Lease Agreement between SF Stores, Inc. and Jane (1)
Milanos for the Company Store at 181 E. Ridgewood
Avenue, Ridgewood, New Jersey.
10.7 Form of Franchise Agreement of Registrant. (1)
10.8 Lease Agreement between the Registrant and James T. (3)
Paul for office, distribution, and retail space at
10855 US Highway 19 North, Clearwater, Florida 34624.
10.9 Agreement to Modify Lease between SF Stores, Inc. and (3)
Jane Milanos for the Company Store at 181 E. Ridgewood
Avenue, Ridgewood, New Jersey.
10.10 Employment Agreement dated as of July 1, 1994 between (3)
the Registrant and Jack Fitzgerald.
10.11 Trademark License Agreement dated July 1, 1992 between (1)
Starlog Group International, Inc. and SF Stores, Inc.
10.12 Trademark License Agreement dated as of August 1, 1993 (1)
as amended, between Starlog Group International, Inc.
and Starlog Franchise Corp.
10.13 Contribution Agreement dated as of August 1, 1993 (1)
between the Shareholders of SF Stores, Inc. and the
Registrant.
10.14 Promissory Note of the Registrant in the principal (1)
amount of $150,000 payable to Norman Jacobs.
10.15 Debtors' First Amended Disclosure Statement Pursuant to (3)
Section 1125 of the Bankruptcy Code date May 29, 1996
by Registrant.
10.16 Letter Agreement dated January 31, 1996 between Starlog (3)
Of Arlington, Inc. and Parks At Arlington, L.P. for The
Parks at Arlington.
10.17 Lease dated October 14, 1993 for Garden State Plaza. (1)
10.18 Directors Stock Option Plan. (1)
10.19 Lease dated March 1994 between Hollywood Associates (2)
L.P. and the Registrant for warehouse facilities at
Hollywood Park, Fairfield, New Jersey.
10.20 Lease between Starlog of Minneapolis, Inc. and Mall of (2)
America Company for the Mall of America.
10.21 Lease between Starlog of UAtlanta, Inc. and Underground (2)
Festival, Inc. for Underground Atlanta.
10.22 Lease between Starlog of Arrowhead Phoenix, Inc. and (2)
New River Associates for Arrowhead Town Center.
10.23 Lease between Starlog of Fox Valley, Chicago, Inc. and (2)
LaSalle National Trust, N.A. for Fox Valley Center.
10.24 Lease between Starlog of Arlington, Inc. and Parks at (2)
Arlington, L.P. for The Parks at Arlington.
10.25 Lease Amendment dated February, 1996 between Starlog Of (3)
Fox Valley, Inc. and LaSalle National Trust, N.A. for
Fox Valley Center.
10.26 Lease Amendment dated May 7, 1996 between Starlog of (3)
Minneapolis, Inc. and Mall of America Company for the
Mall of America.
-23-
<PAGE>
10.27 Lease dated June 4, 1996 between Starlog Franchise (3)
Corporation, Inc. and Sheila Robbins, Trustee, for
office and warehouse facilities in Union, New Jersey.
10.28 Second Amendment to Lease dated July 19, 1996 between (3)
Starlog of Arrowhead Phoenix, Inc. and New River
Associates for Arrowhead Town Center.
10.29 Lease Agreement dated March 1, 1996 Between Starlog (3)
Franchise Corporation, Inc. and Arden Fair Associates,
L.P. for Arden Fair.
10.30 Agreement dated March 31, 1996 between the Registrant (3)
and Famous Franchises
10.31 Agreement dated July 15, 1996 between the Registrant (3)
and Famous Franchises, PLC
10.32 Secured Debenture dated November 27, 1996 for $350,000 (3)
between the Registrant. and The Hope Group.
10.33 Notice of Confirmation of Plan of Reorganization dated (3)
August 28, 1996.
10.34 Notices of Commencement of Case Under Chapter 11 of the (3)
Bankruptcy Code dated November 13, 1995.
10.35 Agreement of Asset Acquisition and Corporate X
Reorganization dated June 28, 1997 between the
Registrant and Goal Post Distributing, Inc.
10.36 Employment Agreement made as of June 29, 1997 between X
the Registrant and Kevin M. VanderKelen
10.37 Employment Agreement made as of August 15, 1998 between X
the Registrant and John (Jack) J. Fitzgerald.
10.38 Purchase of Corporation Through Stock Purchase dated X
September 28, 1997 between the registrant and KCK
Corporation
10.39 Orders dated November 26, 1997 of United States X
District Court for the District of Columbia,
incorporating agreements relating to repayment of sums
received from Charles O. Huttoe
22.1 Subsidiaries of Registrant X
(1) Incorporated by reference from the Company's Registration Statement on
Form SB-2 for November 10, 1993 (No. 33-68692-NY).
(2) Incorporated by reference from the Company's Annual Report on Form 10K- SB
for the Fiscal year ended June 30, 1994.
(3) Incorporated by reference from the company's Annual Report on Form 10K-SB
for the Fiscal year ended June 29, 1996.
Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the period ended June
28, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: May 29, 1998
STARLOG FRANCHISE CORPORATION
BY: /s/John Fitzgerald May 29, 1997
------------------------------- ---------------------------
John (Jack) Fitzgerald Date
President, CEO & CFO
-24-
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
/s/John Fitzgerald President, Chief Executive Date: May 29, 1998
- -------------------------- Officer and Director
John (Jack) Fitzgerald
/s/ Michael Michaelson Director Date: May 29, 1998
- --------------------------
Michael Michaelson
/s/ Herman Rush Director Date: May 29, 1998
- --------------------------
Herman Rush
/s/ Ray Markman Director Date: May 29, 1998
- --------------------------
Ray Markman
/s/ Mark Savel Director Date: May 29, 1998
- --------------------------
Mark Savel
/s/ Kevin VanderKelen Director Date: May 29, 1998
- --------------------------
Kevin VanderKelen
/s/ Allan R. Lyons Director Date: May 29, 1998
- --------------------------
Allan R. Lyons
<PAGE>
STARLOG FRANCHISE CORPORATION
AND SUBSIDIARIES
Consolidated Financial Statements
June 28, 1997 and June 29, 1996
(With Independent Auditors' Report Thereon)
<PAGE>
Independent Auditors' Report
The Board of Directors
Starlog Franchise Corporation:
We have audited the accompanying consolidated balance sheet of Starlog Franchise
Corporation and Subsidiaries as of June 28, 1997 and June 29, 1996, and the
related consolidated statements of operations, stockholders' deficit, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 2, Starlog Franchise Corporation's (Company) Plan of
Reorganization was confirmed on August 28, 1996, and became effective on
September 7, 1996. The Company implemented the guidance as to the accounting for
entities emerging from Chapter 11 as set forth in Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code"
("Fresh Start Reporting") as of September 7, 1996. The impact of this Fresh
Start Reporting is presented in Note 2. The implementation of Fresh Start
Reporting as a result of the Company's emergence from Chapter 11 materially
changes the amounts reported in the consolidated financial statements of the
Company as of and for the period ending subsequent to August 28, 1996. As a
result of the reorganization and the implementation of Fresh Start Reporting,
assets and liabilities were recorded at fair values and outstanding obligations
relating to the claims of creditors were discharged primarily in exchange for
cash and equity. The accompanying consolidated financial statements as of June
29, 1996 and for the year then ended does not give effect to the adjustments
that were made as a result of the Company's subsequent reorganization and
emergence from Chapter 11.
<PAGE>
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Starlog
Franchise Corporation and Subsidiaries at June 28, 1997 and June 29, 1996, and
the results of its operations and cash flows for the years then ended in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that Starlog Franchise Corporation and Subsidiaries will continue as a going
concern. As discussed in Note 11 to the consolidated financial statements, the
Company has incurred recurring losses from operations. Although the Company's
Plan of Reorganization was confirmed, the Company has not yet shown the ability
to generate cash from operations. As such, this raises substantial doubt about
the entity's ability to continue as a going concern. The consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of reported asset amounts or the amounts and classification of
liabilities that might result from the outcome of these uncertainties.
May 5, 1998
<PAGE>
STARLOG FRANCHISE CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
June 28, 1997 and June 29, 1996
ASSETS
June 28, 1997 June 29, 1996
------------- -------------
(Debtor-in-
Possession)
Current assets:
Cash $131,720 305,527
Accounts receivable, net of
allowance for doubtful accounts
of $7,000 and $2,000 for 1997
and 1996, respectively 50,461 21
Inventories, net of reserves of
$420,000 and $203,000 for 1997
and 1996, respectively 793,417 419,436
Prepaid expenses and other
current assets 17,632 21,629
----------- ---------
Total current assets 993,230 746,613
Property and equipment, net 690,528 833,808
Organization costs, less accumulated
amortization of $45,000 for 1996 -- 22,740
Reorganizational value in excess of
amounts allocated to identifiable
assets, net 543,986 --
Other assets 13,875 10,987
----------- ---------
$ 2,241,619 1,614,148
=========== =========
<PAGE>
LIABILITIES AND STOCKHOLDERS' DEFICIT
June 28, 1997 June 29, 1996
------------- -------------
(Debtor-in-
Possession)
Liabilities not subject to compromise:
Current liabilities:
Note payable to bank $ 500,000 --
Notes payable - affiliates 510,000 625,000
Current portion of long-term debt 152,820 --
Accounts payable and accrued expenses 596,466 752,102
Other liabilities, including
restructuring reserves 206,432 501,912
----------- ----------
Total current liabilities 1,965,718 1,879,014
Long-term liabilities:
Long-term debt 653,180 --
Other -- 15,683
Liabilities subject to compromise:
Unsecured notes payable to stockholder -- 153,000
Trade and other miscellaneous claims 316,507 1,147,000
----------- ----------
Total liabilities 2,935,405 3,194,697
----------- ----------
Stockholders' deficit:
Common stock, $.001 par value; authorized
40,000,000 shares, issued and outstanding
24,237,636 and 3,613,636 shares for 1997
and 1996, respectively 24,238 3,614
Additional paid-in capital 575,612 7,636,711
Accumulated deficit (1,293,636) (9,220,874)
----------- ----------
Net stockholders' deficit (693,786) (1,580,549)
----------- ----------
$ 2,241,619 1,614,148
=========== ==========
See accompanying notes to consolidated financial statements.
<PAGE>
STARLOG FRANCHISE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended June 28, 1997 and June 29, 1996
June 28, 1997 June 29, 1996
------------- -------------
(Debtor-in-
Possession)
Net sales $ 1,895,106 1,725,668
Franchise fees and royalty revenue 58,945 61,859
Sales to franchisees 413,671 356,789
------------ ----------
Total revenues 2,367,722 2,144,316
Cost of sales 970,394 1,324,195
Selling, general and administrative 2,913,502 2,784,256
------------ ----------
Loss from operations (1,516,174) (1,964,135)
Other income (expense):
Interest and other income 13,691 1,841
Interest expense (70,125) (40,329)
Loss on asset disposal (114,163) --
Provision for lease renegotiations -- (74,954)
------------ ----------
Loss before reorganization
items and extraordinary
item (1,686,771) (2,077,577)
Reorganization items 250,000 (282,916)
------------ ----------
Loss before extraordinary
item (1,436,771) (2,360,493)
Gain on extinguishment of debt 150,000 --
------------ ----------
Net loss $ (1,286,771) (2,360,493)
============ ==========
Portion of income applicable to
period up to emergence from
bankruptcy $ 6,865 --
Portion of loss applicable to
period subsequent to emergence
from bankruptcy $ (1,293,636) --
Basic net loss per common share $ (.05) (.65)
============ ==========
Basic weighted number of common
shares outstanding 24,237,636 3,613,636
============ ==========
Diluted net loss per common share $ (.05) (.65)
============ ==========
Diluted weighted number of common
shares outstanding 24,237,636 3,613,636
============ ==========
See accompanying notes to consolidated financial statements.
<PAGE>
STARLOG FRANCHISE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Deficit
Years Ended June 28, 1997 and June 29, 1996
<TABLE>
<CAPTION>
Common Stock
------------
Par Additional Net
Number of Value Paid-In Accumulated Stockholders'
Shares Amount Capital Deficit Deficit
--------- -------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balances at July 1, 1995 3,613,636 $ 3,614 7,636,711 (6,860,381) 779,944
Net loss -- -- -- (2,360,493) (2,360,493)
----------- -------- ---------- ---------- ----------
Balances at June 29, 1996
(Debtor-in-Possession) 3,613,636 3,614 7,636,711 (9,220,874) (1,580,549)
Cancellation of founders' stock (1,676,000) (1,676) (4,606) -- (6,282)
Conversion of debt into stock 18,000,000 18,000 182,000 -- 200,000
Net income prior to emergence
from bankruptcy -- -- -- 6,865 6,865
Recapitalization at date of
emergence from bankruptcy -- -- (7,609,883) 9,214,009 1,604,126
Issuance of common stock at
$.09/share for Goal Post
Distributing, Inc.
acquisition 4,300,000 4,300 371,390 -- 375,690
Net loss subsequent to emergence
from bankruptcy -- -- -- (1,293,636) (1,293,636)
----------- -------- ---------- ---------- ----------
Balances at June 28, 1997 24,237,636 $ 24,238 575,612 (1,293,636) (693,786)
=========== ======== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
STARLOG FRANCHISE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended June 28, 1997 and June 29, 1996
June 28, 1997 June 29, 1996
------------- -------------
(Debtor-in-
Possession)
Cash flows from operating activities:
Net loss $(1,286,771) (2,360,493)
Adjustments to reconcile net
loss to net cash from
operating activities:
Depreciation and amortization 443,093 239,627
Increase in provision for losses
on accounts receivable 5,000 (387,941)
Increase in provision for
inventory shortages 216,541 76,361
(Gain) loss on disposal of
property and equipment (114,163) 132,944
Changes in operating assets
and liabilities:
(Increase) decrease in
accounts receivable (55,440) 411,760
(Increase) decrease in
inventories (590,522) 569,610
Decrease (increase) in
prepaid expenses
and other current assets 3,997 (11,050)
(Decrease) increase in accounts
payable and accrued expenses (149,303) 489,623
Decrease in deferred rent -- (86,985)
(Decrease) increase in other
liabilities (295,480) 321,912
Increase in trade and other
miscellaneous claims 316,507 --
----------- ----------
Net cash used in
operating activities (1,506,541) (604,632)
----------- ----------
Cash flows from investing activities:
Purchases of property and equipment (149,378) (45,694)
Decrease in restricted cash -- 10,000
(Increase) decrease in other assets (2,888) 6,728
----------- ----------
Net cash used in
investing activities (152,266) (28,966)
----------- ----------
Cash flows from financing activities:
Proceeds from issuance of notes
payable - Pre-petition -- 100,000
Proceeds from issuance of
notes payable - Post-petition 75,000 525,000
Proceeds from Huttoe financing 650,000 --
Proceeds from note payable - bank 500,000
Proceeds from notes payable -
affiliates 260,000 --
----------- ----------
Net cash provided by
financing activities $ 1,485,000 625,000
----------- ----------
(continued)
See accompanying notes to consolidated financial statements.
<PAGE>
STARLOG FRANCHISE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows - Continued
Years Ended June 28, 1997 and June 29, 1996
June 28, 1997 June 29, 1996
------------- -------------
(Debtor-in-
Possession)
Decrease in cash $(173,807) (8,598)
Cash at beginning of year 305,527 314,125
--------- --------
Cash at end of year $ 131,720 305,527
========= ========
Supplemental schedule of non-cash financing activities:
During 1997, $200,000 of debt was converted into 18,000,000 shares of common
stock.
During 1997, 1,676,000 shares of the Company's common stock assigned to the
Company's current President from its former Chairman of the Board was canceled.
The Company's recapitalization upon emergence from bankruptcy resulted in the
write-off of certain assets and liabilities, the establishment of certain assets
and liabilities and the reduction of additional paid-in capital and accumulated
deficit under "Fresh Start Reporting" (Note 2).
On June 28, 1997, the Company issued 4,300,000 shares of common stock at
$.09/share for the acquisition of Goal Post Distributing, Inc.
Interest paid was approximately $73,000 and $22,400 for the years ended June 28,
1997 and June 29, 1996, respectively.
<PAGE>
STARLOG FRANCHISE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 28, 1997 and June 29, 1996
(1) Principal Business Activity and Summary of Significant Accounting Policies
(a) Principal Business Activity
The principal business activities of Starlog Franchise Corporation
and its wholly-owned subsidiaries (Company) are the franchising and
owning of retail stores under the Starlog/Hologram banner, wholesale
and retail distribution of novelty gift items, trading cards and
collectibles. The retail Starlog/Hologram stores sell a variety of
holographic artwork, science fiction and related merchandise.
(b) Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries, Sumon,
LLC (Sumon) and Goal Post Distributing, Inc. (Goal Post). All
significant intercompany transactions and balances have been
eliminated in consolidation.
(c) Acquisitions
The Company acquired Sumon on December 31, 1996, for an immaterial
amount of cash, assumption of liabilities and options to purchase
common stock of the Company. The operations acquired consisted of a
six store specialty retailer of holographic artwork and gifts and a
wholesale distributor of holographic artwork and gifts. On February
3, 1997, the purchase price was adjusted downward due to certain
matters that were not disclosed by the seller which resulted in the
filing of Reorganization under Chapter 11 of the United States
Bankruptcy Code (Note 2).
On June 28, 1997, the Company acquired substantially all of the
assets and certain assumed liabilities of Goal Post for 4,300,000
shares of common stock valued at approximately $.09 per share (fair
market value at the date of acquisition).
Both acquisitions were accounted for under the purchase method and
the results of operations of Sumon have been included in the
Consolidated Statements of Operations since the date of acquisition.
(d) Inventories
Inventories, consisting of finished goods, are stated at the lower
of cost, determined by the first-in, first-out method, or market.
(continued)
<PAGE>
STARLOG FRANCHISE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(e) Depreciation and Amortization
Depreciation and amortization of property and equipment is provided
for by the straight-line method over the estimated useful lives of
the related assets or life of the lease, whichever is shorter.
(f) Organization Costs
Organization costs are amortized over a period of 60 months using
the straight-line method. The balance of organization costs were
written off during the year ended June 28, 1997 when the Company
emerged from bankruptcy.
(g) Revenue Recognition
Franchise fee revenue is recognized by the Company upon the
commencement of operations by the franchisees. Royalty revenue is
based upon a percentage of sales of franchisees. Revenue is
generally recognized by the Company when sales are made by the
franchisees. Revenue from the sale of products is recognized on the
date the merchandise is purchased by the customer. The Company does
not anticipate any franchise revenue in the future.
(h) Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results may differ from those
estimates.
(i) Fair Value of Financial Instruments
At June 28, 1997 and June 29, 1996, the carrying value of all
financial instruments approximated their fair values.
(j) Seasonality
The Company's sales are seasonal in nature based, in part, on gift
buying during holiday periods such as Halloween and Christmas.
(k) Franchise Laws and Regulations
The Company's franchise operations are subject to various franchise
laws and regulations, violations of which could have an adverse
effect on the Company, and are subject to risks associated with
individual franchisees, including but not limited to potential
significant indirect liability. The Company does not plan to have
any more franchise operations in the future.
(continued)
<PAGE>
STARLOG FRANCHISE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(l) Reclassifications
Certain amounts in the 1996 consolidated financial statements have
been reclassified to conform with the 1997 presentation. Such
reclassifications had no effect on reported net income.
(m) Earnings Per Share
In the fourth quarter of fiscal 1997, the Company adopted Statement
of Financial Accounting Standards No. 128, Earnings per Share (SFAS
128). Under SFAS 128, basic net loss per share of common stock is
computed by dividing income available to common stockholders by the
weighted average number of common shares actually outstanding during
the period. Diluted net loss per share of common stock presents
income attributable to common shares actually outstanding plus
dilutive potential common shares outstanding during the period. The
Company's options and warrants were not included in computing
dilutive net loss per common stock because their effects were
anti-dilutive.
(2) Petition for Relief Under Chapter 11 and Emergence
(a) Petition for Relief
On November 13, 1995, the Company (Debtor) filed petitions for
relief under Chapter 11 of the federal bankruptcy laws in the United
States Bankruptcy Court (Bankruptcy Court) for the Middle District
of Florida. Under Chapter 11, certain claims against the Debtor in
existence prior to the filing of the petitions for relief under the
federal bankruptcy laws are stayed while the Debtor continues
business operations as Debtor-in-possession. These claims are
reflected in the June 29, 1996 consolidated balance sheet as
"liabilities subject to compromise." Additional claims (liabilities
subject to compromise) may arise subsequent to the filing date
resulting from rejection of executory contracts, including leases
and from the determination by the Court (or agreed to by parties in
interest) of allowed claims for contingencies and other disputed
amounts. Claims secured against the Debtor's assets (secured claims)
also are stayed although the holders of such claims have the right
to move the court for relief from the stay. Secured claims are
secured by liens on the Debtor's tangible assets. The debtor
received approval from the Bankruptcy Court to pay certain of its
pre-petition obligations, including employee wages.
On February 3, 1997, Sumon filed petitions for relief under Chapter
11 of the federal bankruptcy laws in the United States Bankruptcy
Court for the Middle District of Florida. Under Chapter 11, certain
claims against the Debtor in existence prior to the filing of the
petitions for relief under the federal bankruptcy laws are stayed
while the Debtor continues business operations as
Debtor-in-possession. These claims are reflected in the June 28,
1997 consolidated balance sheet as "liabilities subject to
compromise."
(continued)
<PAGE>
STARLOG FRANCHISE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(b) Emergence
The United States Bankruptcy Court for the District of Florida,
confirmed the Company's Plan of Reorganization (the Plan) on August
28, 1996 (the Confirmation Date), allowing the Company to emerge
from Chapter 11 Bankruptcy effective September 7, 1996 (the
Effective Date). The Company operated under the protection of
Chapter 11 following a voluntary petition for reorganization filed
February 28, 1996 and amended on May 29, 1996. Under the Plan,
ownership of the Company was transferred largely to Hope Associates,
LLC, (Hope) holders of the Company's secured debentures. The Plan
provided for the issuance of 18,000,000 shares of common stock,
distributions and new warrants to major creditors and stockholders
as follows:
1. Hope reduced its secured claim against the Company by $200,000
in exchange for 18,000,000 shares of the Company's common
stock, effectively 90 percent of issued and outstanding
shares.
2. Holders of allowed general unsecured claims will be paid the
lesser of $390,000 or 30 percent of the allowed claims in 60
equal monthly cash installments.
3. Holders of allowed general unsecured claims received newly
issued new warrants to purchase shares of the Company's common
stock at the rate of $0.25 per share. Such new warrants were
distributed at the rate of one warrant for each $0.70 of
claim. The remaining 30 percent of each dollar claim is to be
paid in cash as set forth in 2.
4. Holders of the Company's old Common stock retained their stock
but were diluted by the issuance of the Company's Common stock
to its secured creditor as set forth in 1. above and by the
exercise of the new warrants in 3.
Additionally, on the effective date of the Plan, 1,676,000 shares of
the Company's common stock assigned to the Company's current
President from its former Chairman of the Board was canceled.
The Chapter 11 filing was necessitated by the Company's inability to
comply with payment obligations as they existed before filing the
Chapter 11 petition. During the prior year, the Company sought to
renegotiate all of its store leases and attract additional equity
investment or debt financing which might have allowed the Company to
pay its unsecured creditors in full and provide value for existing
equity holders. However, the Company was unable prior to its Chapter
11 filing to renegotiate a sufficient number of its store leases or
obtain any new equity investment. The inability to meet respective
payment obligations resulted in a need to restructure debt and
thereby created the proximate cause of the Chapter 11 filing.
(continued)
<PAGE>
STARLOG FRANCHISE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Fresh Start Reporting
As of the Confirmation Date, the Company adopted Fresh Start
Reporting in accordance with the American Institute of Certified
Public Accountants Statement of Position 90-7 (SOP 90-7) --
"Financial Reporting by Entities in Reorganization under the
Bankruptcy Code." Fresh Start Reporting resulted in material changes
to the consolidated balance sheet, including valuation of assets and
liabilities at fair market value and valuation of equity based on
the appraised reorganization value of the ongoing business.
The Reorganization Value (the approximate fair value) of the Company
was based on the consideration of many factors and various valuation
methods, including discounted cash flows and price/earnings and
other applicable ratios and valuation techniques believed by
management and its financial advisors to be representative of the
Company's business and industry. The excess of the Reorganization
Value over the fair value of net assets and liabilities are reported
as excess Reorganization Value and will be amortized over a fifteen
year period. The approximate balance of such assets at the date of
emergence from bankruptcy was $578,000.
June 28, 1997
-------------
New unsecured notes $ 306,000
Accumulated deficit up to September 7, 1996 9,214,000
-----------
9,520,000
Less:
Trade and miscellaneous claims canceled 1,147,000
Unsecured notes payable to stockholder 153,000
Reduction in additional paid-in-capital 7,610,000
Other miscellaneous items 32,000
-----------
Total reorganization value in excess of
amounts allocated to identifiable assets 578,000
Less accumulated amortization (34,000)
-----------
Balance at June 28, 1997 $ 544,000
===========
The following balance sheet as of September 7, 1996 (effective date
of emergence) includes approximate restructuring adjustments as well
as fresh start adjustments made by the Company.
(continued)
<PAGE>
STARLOG FRANCHISE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Adjustments to Record
Confirmation of Plan
-------------------------- Reorganized
Pre- Restructuring Fresh Balance
Confirmation Adjustments Start Sheet
------------ ------------- ----- -----------
<S> <C> <C> <C> <C>
Assets:
Current assets:
Cash $ 17,516 -- -- 17,516
Accounts receivable, net 42,094 -- -- 42,094
Due from affiliates 75,920 -- -- 75,920
Inventories, net 284,396 -- -- 284,396
Prepaid expenses and other current assets 11,885 -- -- 11,885
----------- ---------- ---------- ---------
Total current assets 431,811 -- -- 431,811
Property and equipment, net 799,806 -- -- 799,806
Organization costs, less accumulated
amortization 20,482 -- (20,482) --
Reorganizational value in excess of amounts
allocated to identifiable assets -- -- 578,000 578,000
Other assets 54,865 -- -- 54,865
----------- ---------- ---------- ---------
$ 1,306,964 -- 557,518 1,864,482
=========== ========== ========== =========
Liabilities and Stockholders' Deficit:
Liabilities not subject to compromise:
Current liabilities:
Current maturities of unsecured notes
payable $ -- 49,000 -- 49,000
Accounts payable and accrued expenses 463,043 -- (10,145) 452,898
Other liabilities, including restructuring
reserves 331,424 -- -- 331,424
Notes payable - secured 450,000 (200,000) -- 250,000
----------- ---------- ---------- ---------
Total current liabilities 1,244,467 (151,000) (10,145) 1,083,322
Long-term liabilities:
Unsecured notes payable 300,000 257,000 -- 557,000
Liabilities subject to compromise:
Unsecured notes payable to stockholder 153,000 (153,000) -- --
Trade and other miscellaneous claims 1,183,181 (1,183,181) -- --
----------- ---------- ---------- ---------
Total liabilities 2,880,648 (1,230,181) (10,145) 1,640,322
----------- ---------- ---------- ---------
Stockholders' deficit:
Common stock 3,614 16,324 -- 19,938
Additional paid-in-capital 7,636,711 199,616 (7,632,105) 204,222
Accumulated deficit (9,214,009) -- 9,214,009 --
----------- ---------- ---------- ---------
Total stockholders' deficit (1,573,684) 215,940 1,581,904 224,160
----------- ---------- ---------- ---------
$ 1,306,964 (1,014,241) 1,571,759 1,864,482
=========== ========== ========== =========
</TABLE>
(continued)
<PAGE>
STARLOG FRANCHISE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Restructuring Adjustments
Reflects settlement of liabilities subject to compromise, as
provided by the Plan:
- Establish new unsecured notes payable at estimated present
value and classify between currently payable and long-term, as
appropriate
- Record new common stock (18,000,000 shares at $.001) and
additional paid-in capital.
- Retire 1,676,000 outstanding shares of existing common stock.
Fresh Start Adjustments
- Reduce existing organization costs and record reorganizational
value in excess of amounts allocable to identifiable assets
and liabilities.
- Eliminate accumulated deficit balance and additional paid-in
capital.
(3) Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
Estimated
June 28, 1997 June 29, 1996 Useful Life
------------- ------------- -----------
(Debtor-in-
Possession)
<S> <C> <C> <C>
Trade show exhibition displays $ 45,207 45,051 3 years
Computer equipment and software 245,126 188,416 3-5 years
Furniture, fixtures and equipment 943,991 534,490 3-7 years
Leasehold improvements 328,251 531,100 Life of lease
--------- --------- or 10 years
1,562,575 1,299,057
Less accumulated depreciation
and amortization 872,047 465,249
--------- ---------
$ 690,528 833,808
========= =========
</TABLE>
Depreciation and amortization totaled approximately $443,000 and $240,000
for the years ended June 28, 1997 and June 29, 1996, respectively.
(continued)
<PAGE>
STARLOG FRANCHISE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
June 28, 1997 June 29, 1996
------------- -------------
(Debtor-in-
Possession)
Accounts payable $ 494,919 539,612
Accrued professional fees 44,000 77,219
Accrued payroll 43,798 27,002
Accrued taxes 8,685 36,406
Deferred revenue -- 30,000
Other 5,064 41,863
--------- -------
$ 596,466 752,102
========= =======
(5) Notes Payable - Affiliates
In November 1995, prior to filing of petitions for relief under Chapter
11, the Company issued a $100,000 secured convertible debenture with
interest to Hope Associates, LLC (Hope). This debenture was secured by
substantially all assets of the Company and was due on demand.
In November 1995, subsequent to filing, the Company was granted the right
to obtain post-petition financing in the form of a $350,000 secured
debenture from Hope. During June 1996, the secured debenture was amended
and increased to $600,000, as authorized by the Court. The amended secured
debenture bears interest at 12%, secured by substantially all assets of
the Company and was due on demand after January 31, 1997. During 1997,
$100,000 of the secured debenture was converted into a secured convertible
debenture. During the year ended June 28, 1997, the $200,000 of secured
convertible debentures were converted into 18,000,000 shares of common
stock in accordance with the approved plan of reorganization (Note 2).
At June 28, 1997, $310,000 was outstanding to Hope under notes payable.
During 1997, certain members of Hope provided $200,000 working capital
financing to the Company. All amounts funded during 1997 were repaid
subsequent to June 28, 1997.
(6) Note Payable to Bank
In December 1996, the Company obtained a $500,000 note payable from a
bank. The note bears interest at 10.5% and was due December 1997. The note
was subsequently renewed for six months. The note is secured by
substantially all assets of the Company and is guaranteed by Hope and its
members.
(continued)
<PAGE>
STARLOG FRANCHISE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Long-Term Debt
Amounts due to unrelated entities at June 28, 1997 and June 29, 1996
consists of the following:
June 28, 1997 June 29, 1996
------------- -------------
(Debtor-in-
Possession)
Note payable to Securities
Exchange Commission due in annual
installments through January 2002,
with interest payable annually at 5.5% $500,000 --
Notes payable to unsecured creditors
due in monthly installments through
June 2002 with interest payable
monthly at 12% (net of imputed interest
of $84,000) 306,000 --
-------- ----
Total 806,000 --
Less current installments of
long-term debt 152,820 --
-------- ----
Long-term debt, excluding current
installments $653,180 --
======== ====
The annual schedule of future maturities of long-term debt are as
follows:
Fiscal Year Ending June:
------------------------
1999 $ 152,820
2000 145,905
2001 157,954
2002 171,164
2003 178,157
Thereafter --
---------
$ 806,000
=========
(8) Income Taxes
The Plan of Reorganization, approved by the United States Bankruptcy Court
(Note 2), provided for the issuance of new common stock to satisfy the
Company's indebtedness and resulted in an "ownership change" under Section
382 of the United States Tax Code. As a result, total usage of the
Company's net operating loss carryforwards (which occurred prior to
emergence from bankruptcy), noted below, will be limited to approximately
$20,000 annually or $300,000 over the next 15 years. In addition, deferred
deductions, described below, that become deductible for tax purposes
during the five year period following the effective date of the bankruptcy
are also subject to the annual limitation. Net operating carryforwards
(NOL) and future deductions exceeding the annual limitation will expire
unutilized. NOL's which resulted subsequent to emergence from bankruptcy
will not be fully available for future utilization.
(continued)
<PAGE>
STARLOG FRANCHISE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company accounts for income taxes pursuant to the Statement of
Financial Accounting Standards No. 109. The approximate amounts of
deferred assets at June 28, 1997 and June 29, 1996, respectively,
resulting from temporary differences and carryforwards were as follows:
June 28, 1997 June 29, 1996
------------- -------------
(Debtor-in-
Possession)
Net operating loss carryforwards $ 7,900,000 6,600,000
Expenses recognized for financial
reporting purposes not yet
deductible:
Provision for inventory
shortage 400,000 200,000
Other 200,000 300,000
----------- ----------
8,550,000 7,100,000
Effective federal and state
tax rate 40% 40%
----------- ----------
Total deferred tax asset 3,400,000 2,840,000
Valuation allowance for deferred
tax asset (3,400,000) (2,840,000)
----------- ----------
Net deferred tax asset $ -- --
=========== ==========
(9) Commitments and Contingencies
The Company has entered into various non-cancelable operating leases for
office, warehouse and retail store space and equipment expiring at various
dates through 2003. Certain of the leases provide for minimum annual
rentals plus additional rental payments based upon sales volume.
At June 28, 1997, aggregate approximate future minimum rental payments
required under operating leases are as follows:
Fiscal Year Ending June:
------------------------
1998 $ 420,000
1999 54,000
2000 58,000
2001 60,000
2002 70,000
Thereafter 18,000
---------
$ 680,000
=========
Rent expense charged to operations for the years ended June 28, 1997 and
June 29, 1996 amounts to approximately $721,000 and $900,000,
respectively.
(continued)
<PAGE>
STARLOG FRANCHISE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company has entered into a trademark license agreement with Starlog
Communications International, Inc. (SCI), an entity related by common
ownership for the exclusive right to use the name, registered trademark
and logos "Starlog" and "Starlog: The Cosmic and Science Fiction Universe"
in connection with the Company's worldwide franchising business. The
agreement is for the term of the trademark, which is 10 years, and is
renewable upon application provided the trademark is being used. The
agreement calls for the Company to pay SCI 3% of the Company's gross
income, as defined in the agreement. As of June 28, 1997, no amounts are
due under the terms of this agreement.
An employment agreement between the Company's President, the Company and
Hope was entered into during 1997. The terms of the agreement is for a
period of five years, commencing on April 1, 1996, but can be terminated
at any time by either party. The agreement provides the President annual
compensation of $80,000 with a $10,000 increase upon confirmation of the
Company's Plan of Reorganization and $10,000 increases annually commencing
on January 1, 1997, not to exceed $140,000 in total base compensation. The
agreement also provides for an annual bonus based upon certain Company
financial performance as well as certain other benefits. Additionally, the
agreement provides annual options to purchase 5% of the Company's common
stock, subject to certain provisions.
The Vice President of the Company and founder of Goal Post may earn
options to purchase up to 1,000,000 shares at prices ranging from $.50 to
$.90 on a sliding scale over the next five years provided that certain
gross sales amounts are met.
(10) Stockholders' Equity
Prior to the issuance of the secured convertible debenture (Note 5) and as
an inducement to Hope, the Company's founder and former Chairman of the
Board, his son and former President of the Company and the former
Chairman, as Trustee for his daughter, assigned 1,676,000 shares and their
voting rights (surrendered shares) of the Company's common stock to the
Company in care of its current President. Upon confirmation of the Plan of
Reorganization, the surrendered shares were retired and options issued
pursuant to the 1993 Employee and Director Stock Option Plan were
canceled. No options to the purchase the Company's common were ever
issued.
Pursuant to the Company's acquisition of Goal Post, the Company issued
4,300,000 shares of its common stock valued at approximately $.09/share.
Accounting for Stock-Based Compensation
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" (SFAS 123). Accordingly, no compensation cost has been
recognized for the Company's granted stock options and warrants. Had
compensation and other cost for the Company's granted stock options and
warrants been determined based on the fair value at the grant date or
issuance for awards in 1997 consistent with the provisions of SFAS 123,
the impact on net loss would have been immaterial.
(continued)
<PAGE>
STARLOG FRANCHISE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Aggregate Stock Option Activity
The following table summarizes information about the aggregate stock
option and warrant activity for the year ended June 28, 1997:
Weighted-
average
Number exercise
of shares price
Outstanding, beginning of year -- $ --
Granted 1,940,107 .15
Exercised -- --
Forfeited -- --
--------- ------
Outstanding, end of year 1,940,107 $ .15
========= ======
Options and warrants vested, end of year 1,940,107 $ .15
========= ======
The following table summarizes information about stock options and
warrants at June 28, 1997:
<TABLE>
<CAPTION>
Options and Warrants Outstanding Options and Warrants Exercisable
-------------------------------- --------------------------------
Weighted-
Weighted- average Weighted-
average remaining average
Number exercise contractual Number exercise
Exercise Price outstanding price life (years) exercisable price
- -------------- ----------- --------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
$.06 1,000,000 $ .06 6 1,000,000 $ .06
.25 940,107 .25 4 940,107 .25
--------- ----- --- --------- -----
1,940,107 $ .15 5 1,940,107 $ .15
========= ===== === ========= =====
</TABLE>
These tables do not include options and warrants in which certain events
or contingencies must be met prior to grant.
The effect of options and warrants outstanding has not been included in
weighted average common and common equivalent shares outstanding in the
accompanying statements of operations and accumulated deficit, as these
options would have an antidilutive effect on net loss per weighted average
common and common equivalent share.
(continued)
<PAGE>
STARLOG FRANCHISE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Going Concern
As shown in the accompanying consolidated financial statements, the
Company has incurred recurring losses from operations. These losses have
contributed to the Company's working capital deficiency and resulting cash
flow problems. Although the Company's cash flows during the holiday
season, it has not been profitable on a year round basis. The Company has
raised cash through various debt financing from affiliates, however, its
ability to continue as a going concern will require the attainment of
profitable operations for extended periods, conversion of debt into
permanent equity or obtaining additional permanent equity. The Company is
currently pursuing various debt and equity opportunities.
(12) Huttoe Financing
During the confirmation process, the Company and Hope engaged in
discussions with Charles Huttoe (Huttoe) to provide post confirmation
financing to the Company and to acquire the ownership of the 18,000,000
shares of the Company's common stock owned by Hope. In September, 1996,
Huttoe, Hope and its members, but not the Company, entered into an
agreement (Sales Agreement) pursuant to which, Huttoe was to make certain
payments to Hope's bank and to Hope's members and was to purchase the
membership interests in Hope from its members, thus indirectly obtaining
Hope's 18,000,000 shares into the Company. The position of the Company,
Hope and the members of Hope is that the purchase of the Hope membership
interests has not been consummated.
In September, 1996, Huttoe provided working capital to the Company
aggregating $650,000. There was no written agreement between the Company
and Huttoe regarding these funds. Subsequent to the above, David Goldstein
(Goldstein), who had been acting as the attorney for Huttoe with respect
to these matters, announced that the Sale Agreement had been assigned to
him. However, it is the position of Starlog, Hope and its members that
this purported assignment is legally ineffective. In October 1996, a bank
loan to Hope was paid in full from an account of Goldstein's in alleged
compliance with the Sale Agreement. In addition, the sum of $200,000 has
been deposited from Goldstein's account into escrow with an attorney for
Hope for payment to the members of Hope to acquire their membership
interests in alleged compliance with the Sale Agreement.
In November 1996, the Securities and Exchange Commission (SEC) filed a
complaint in the U.S. District Court for the District of Columbia (Court)
against Huttoe and others, but not including Goldstein, alleging "massive
unregistered distribution" of the "stock of Systems of Excellence, Inc.
(SOE) and manipulation of the SOE stock price." In November 1996, the
Court issued a temporary restraining order temporarily freezing assets and
accounts of Huttoe and various third party accounts into which payments
were made from allegedly "Huttoe controlled" accounts. The order
specifically covered the Company's account which received the $650,000 as
well as the attorney escrow account holding the aforementioned $200,000.
The $200,000 has not been paid to the members of Hope and the transfer of
membership interest from Hope has not occurred.
(continued)
<PAGE>
STARLOG FRANCHISE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Subsequent to June 28, 1997, the Company and the SEC reached agreement for
the repayment of $500,000 of the $650,000 of funds provided by Huttoe. The
Company will repay this amount over five years with interest (Note 7). The
$150,000 difference between the amount funded by Huttoe and the amount to
be repaid to the SEC is reflected in the Consolidated Statements of
Operations as gain on extinguishment of debt.
(13) Subsequent Events
In October 1997, the Company acquired KCK Corporation (KCK) for certain
assumed liabilities and warrants to purchase the Company's common stock.
The Company issued 500,000 warrants to purchase common stock at between
$.25 - $.50 per share. (100,000 warrants at $.50 per share expire October
1, 1999; 400,000 warrants at $.25 per share if exercised by October 1,
1998 and $.40 per share through expiration on October 1, 1999). Prior to
the acquisition, KCK had filed a Chapter 11 Bankruptcy Petition in the
United States Bankruptcy Court for the Western District of North Carolina.
KCK is a retailer which owns and operates 14 candy stores under the trade
name Candy Candy and Candico. The plan of reorganization was approved by
the Court on March 19, 1998.
In November 1997, the SEC settled their claim with the Company regarding
the proceeds of the Huttoe financing as follows: $500,000 payable over a
five year period with interest at 5.55%.
In May 1998, the Company entered into an agreement with the intent to
acquire certain assets of a company who sells and distributes candy. This
potential acquisition is subject to various items, including financing.
In May 1998, the Company's Board of Directors approved the closing of
substantially all of their "Starlog" retail stores.
AGREEMENT OF ASSET ACQUISITION AND
CORPORATE REORGANIZATION
This Agreement of Asset Acquisition and Corporate Reorganization (the
"Agreement") dated June 28, 1997, by and between Starlog Franchise Corporation,
a New Jersey corporation with its principal offices located at 945 Brighton
Street, Union, New Jersey 07083, ("Transferee") and Goal Post Distributing,
Inc., a Florida corporation with its principal offices located at 13949-9 W.
Hillsborough Ave. Tampa, FL 33634, ("Transferor") and Kevin M. Vander Kelen,
("Owner").
RECITALS
WHEREAS, Transferee desires to acquire all of the assets of Transferor,
all as more particularly set forth herein in a transaction intended to qualify
as a reorganization pursuant to Section 368(a)(1)(C) of the Internal Revenue
Code of 1986, as amended (the "Acquisition"); and
WHEREAS, the Acquisition shall be consummated pursuant to and in
accordance with the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
set forth herein, the parties agree as follows:
SECTION 1. Transfer and Acquisition of the Assets and Assignment of Agreements
of Transferor.
1.1 Acquisition of Assets. Subject to the terms and conditions of this
Agreement, Transferor agrees to sell, convey, transfer, assign and deliver
to Transferee, and Transferee agrees to transfer all of Transferor's
right, title and interest in its assets, real, personal and mixed,
tangible and intangible, employed in the operations of Transferor,
including, without limitation, the following items (collectively, the
"Assets") but excluding the items listed in Section 1.2 below: (i) all
equipment, vehicles, furniture and furnishings, including, without
limitation, those taken into consideration in any depreciation schedule of
Transferor; (ii) any and all recorded or unrecorded leasehold interests to
the real property location(s) used in connection with the Business
together with all improvements and fixtures located thereon or therein;
(iii) all usable supplied, forms, brochures, and inventory; (iv) any
intangible assets, goodwill, and intellectual property, including any
service and/or trademarks or names and logos (including specifically the
name "Goal Post Distributing, Inc."); (v) copies of all employment
applications and other personnel records of key employees as selected by
Transferee; (vi) all interests in commitments, contracts, leases, and
agreements relating to the Business and Assets; (vii) all files, lists,
and records relating to all clients, customers, accounts, prospects and
referral sources of Transferor; (viii) rights to telephone and fax numbers
used by Transferor; (ix) all computer, other data processing equipment,
and related software; and (x) all prepaid expenses, and miscellaneous
deposits of Transferor. Transferor shall convey good and marketable title
to the Assets and all parts thereof to Transferee free
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and clear of all liabilities, claims, assessments, security interests
liens, restrictions and encumbrances, except as expressly provided herein
to the contrary.
1.2 Excluded Assets. The Assets shall not include and Transferee shall not
acquire from Transferor the following items ("Excluded Assets"): cash and
cash equivalents.
1.3 Excluded Liabilities. Except as expressly provided in the assignment and
assumption of contracts referenced in paragraph 2.2 and 2.3, Transferee
shall not be obligated to pay or assume, and none of the Assets shall be
or become liable for or subject to, any liability of Transferor,
including, without limitation, the following, whether fixed or contingent,
recorded or unrecorded, known or unknown (collectively, the "Excluded
Liabilities"): (i) long, or short term indebtedness, liabilities and other
obligations or guarantees of Transferor; (ii) federal, state or local tax
liabilities or liabilities of Transferor relating to the operations of
Transferor for the period prior to the Closing Date or resulting from the
consummation of the transactions contemplated herein, including, without
limitation, any income or acquisitions, tax, any franchise tax, and any
other such tax; (iii) obligation or liability for any and all claims by or
on behalf of any employee of Transferor relating to periods prior to
Closing; (iv) any liability, obligation, interest, sanctions, or penalties
arising out of or in connection with any claim or violation under the
Employee Retirement Income Security Act of 1974; and (v) any liability or
obligation arising out of or in connection with any act or omission
relating to the ownership or operations of the Business by Transferor or
the Assets which occurred prior to Closing, including any breach by
Transferor at any time of any contract or commitment.
1.4 Transfer Price. The total transfer price payable by Transferee to
Transferor for the Assets ("Transfer Price"), shall be 4,300,000
previously unissued shares of the common stock of Transferee (the
"Shares") valued at $0.15 per share, which value is hereby specifically
agreed to by Transferor and Transferee. As an accommodation to Owner,
Transferee shall issue such shares in the name of Owner. The Certificate
or Certificates evidencing such shares shall bear the following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended and may not
be sold, transferred, pledged, hypothecated or otherwise disposed of
in the absence of (i) an effective registration statement for such
securities under said act or (ii) an opinion of company counsel that
such registration is not required.
1.5 Additional Restrictions on Transfer. Transferor agrees to execute a
lock-up agreement upon terms customary in the industry which restricts the
transfer of the securities received from Transferor hereunder on the same
terms and conditions as agreed to by Hope Associates, L.L.C. and its
Members, or as agreed by any control person, affiliate or other group
agreeing to a lock-up to facilitate financing or any public offering of
Transferor's common stock provided that such lock-up shall not exceed
twelve (12) mouths in duration. Transferor further agrees, that an
additional appropriate legend shall be placed on the securities and a
transfer stop-order restricting transfer of the securities may be imposed
with respect to all securities
2
<PAGE>
which are subject to the provisions of this paragraph. Transferee shall
remove such legend and stop-order upon the expiration of such lock-up.
Transferor agrees that damages for a breach of this paragraph would be
inadequate and that Transferee, Transferor and Owner would be entitled to
injunctive relief.
1.6 Instruments of Conveyance and Transfer. At the Closing, Transferor shall
deliver to Transferee such deeds, bills of acquisition, endorsements,
assignments, and other good and sufficient instruments of transfer,
conveyance, and assignment satisfactory to Transferee and its counsel as
shall be effective to vest in and warrant to Transferee good and
marketable title to the Assets, free and clear of all mortgages, security
agreements, pledges, charges, claims, liens, and encumbrances and to
transfer to Transferee all of Transferor's rights and obligations under
the Assumed Contracts. Simultaneously with such delivery, Transferor shall
take all steps as may be required to put Transferee in actual possession
and operating control of the Assets and the Business.
1.7 Further Assurances. Transferor shall from time to time at the request of
Transferee and without further consideration, execute and deliver such
instruments of transfer, conveyance, and assignment in addition to those
delivered pursuant to Section 1.5 and take such other action as Transferee
may reasonable request to more effectively transfer, convey, and assign to
and vest in Transferee, and to put Transferee in possession of, all or any
portion of the Assets. In the event that any consent is required to
transfer any contracts to be assumed by Transferee has not been received
by the Closing, and Transferee waives such nonreceipt and proceeds to
Closing, Transferor shall be obligated without further consideration to
use its best efforts to secure for the Transferee the benefits of such
contracts.
1.8 Affirmative Statement of Intent to Qualify Acquisition Pursuant to Section
368(a)(l)(C). The parties herein agree that the acquisition is intended to
qualify as a reorganization pursuant to Section 368(a)(l)(C) of the
Internal Revenue Code of 1986, as amended, and shall be treated as such
for all tax and financial purposes by each of the parties, and neither
party, either directly or indirectly, shall take any position or action
inconsistent with such intent. Further, the parties agree that either
party shall execute any additional documents required by the Internal
Revenue Service in order to document or preserve the intended tax
treatment of the Aquisition. Transferor shall make available to
Transferee any books, records or other documentation maintained by it
which is required by Transferee to properly account for the basis of the
Assets subsequent to the Acquisition.
SECTION 2. Closing.
2.1 Time and Place. Subject to the terms and conditions of this Agreement, the
closing (the "Closing") shall take place at 10:00 a.m., on June 29, 1997,
at the offices of Evans & Donica, P.A. 201 E. Kennedy Blvd., Suite 1500,
Tampa, FL 33602, or at such other time, date, and/or place as the parties
may mutually agree. The date on which the Closing occurs is referred to as
the "Closing Date." In the event actual closing should take place at a
later date, the parties agree Closing shall be effective as of June 29,
1997.
3
<PAGE>
2.2 Actions of Transferor at Closing. At Closing and unless otherwise waived
in writing by Transferee, Transferor shall deliver to Transferee the
following:
(i) Assignments executed by Transferor assigning to Transferee the
leasehold title to any leased real property, and evidencing the
consents of the respective landlords thereto;
(ii) A General Bill of Acquisition and Agreement, fully executed by
Transferor, conveying to Transferee good and marketable title to all
tangible and intangible assets which are a part of the Assets, free
and clear of all liabilities, claims, liens, security interests and
restrictions;
(iii) An Assignment and Assumption of Contracts, executed by Transferor,
conveying to Transferee, Transferor's interests in such Contracts;
(iv) Copy of resolutions duly adopted by the board of directors and the
shareholders of Transferor authorizing and approving Transferor's
execution, delivery and performance of this Agreement and the
transactions contemplated hereby, certified as true and of full
force as of Closing, by an appropriate officer of Transferor;
(v) Certificate of a duly authorized officer of Transferor certifying
that each covenant and agreement of Transferor to be performed prior
to Closing pursuant to this Agreement has been performed in all
material respects;
(vi) Certificate of a duly authorized officer of Transferor certifying
that each representation and warranty of Transferor is true and
complete as of the date of this Agreement and as of the Closing
date;
(vii) Certificate of incumbency for the officer(s) of Transferor executing
this Agreement or making certifications for Closing dated as of
Closing;
(viii)Certificate of existence and good standing of Transferor from the
State of Florida, dated the most recent practical date prior to
Closing; and
(ix) Such other instruments and documents required under this Agreement
or as Transferee reasonably deems necessary to effect the
transactions contemplated hereby and to otherwise consummate the
transactions described herein.
2.3 Actions of Transferee at Closing. At the closing and unless otherwise
waived in writing by Transferor, Transferee shall deliver to Transferor
the following:
(i) An Assignment and Assumption of Contracts executed by Transferee,
pursuant to which Transferee shall assume the future payment and
performance of the Contracts as herein provided;
(ii) Copy of the resolutions duly adopted by the board of directors of
Transferee, authorizing and approving Transferee's execution,
delivery and performance of this Agreement and the transactions
contemplated hereby, certified as true and in full force as of
Closing by an appropriate officer of Transferee;
(iii) Certificate of a duly authorized officer of Transferee certifying
that each covenant and agreement of Transferee to be performed prior
to Closing pursuant to this Agreement has been performed in all
material respects;
4
<PAGE>
(iv) Certificate of a duly authorized officer of Transferee certifying
that each representation and warranty of Transferee as set forth
herein is true and complete as of the date of the Agreement and as
of the Closing Date;
(v) Delivery of Transferee's common stock certificate in the name of
Owner evidencing transfer of 4,300,000 shares of Transferee's
previously unissued common stock. In the event that a stock
certificate countersigned by Transferee's transfer agent is not
available at the closing, Transferee shall deliver to Transferor a
stock certificate without such countersignature and shall as soon as
practicable but not later than 30 days after the Closing, deliver to
Owner a certificate bearing such countersignature in substitution
for the certificates delivered at Closing; and
(vi) Certificate of Good Standing of Transferee from the State of New
Jersey
SECTION 3. Representations and Warranties of Transferor and Owner.
3.1 Transferor's and Owner's Representations and Warranties. Transferor and
Owner jointly and severally represent and warrant to Transferee as
follows:
3.1.1 Ownership. Owner is the legal and beneficial owner of 100% of the
issued and outstanding voting securities of Transferor.
3.1.2 Transferors Representations and Warranties. Transferor and Owner
have received Transferee's Forms 10-K and l0-Q on file with the
Securities and Exchange Commission and such further information as
they have desired to review and inspect, that they have met with
management of Transferee, and are fully familiar with all such
information, financial or otherwise, that they deem necessary or
appropriate to acquire the stock of Transferee pursuant to this
Agreement.
3.1.3 Financial Condition and Statements.
(a) For the 24 month period ending June 29, 1997, the gross
revenues generated by Transferor is greater or equal to
$6,993,857.00 and the pre-tax income related thereto is
greater or equal to $603,178.00.
(b) Transferor has delivered to Transferee copies of the following
financia1 statements relating to Transferor's business (the
"Financial Statements"): (i) unaudited Income Statement of
Transferor for the 12 month period ended on and Balance Sheet
as of June 29, 1997 (the "Financial Statement Date"); (ii)
unaudited Balance Sheet as of June 29, 1997, attached hereto
as Schedule 3.1.3; (iii) a depreciation schedule and a current
list of fixed assets used or useful in connection with
Transferor and attached to Schedule 3.13; and (iv) unaudited
Income Statement of Transferor for the fiscal years ended on
December 31, 1994, 1995, 1996 and for the last 6 months. Such
Financial Statements have been prepared on an accrual basis,
in conformance with generally accepted accounting principles
and practices consistently applied, and present fairly the
results of the operations of Transferor for the periods
indicated thereon.
5
<PAGE>
(c) Other than disclosed in the Financial Statements identified in
Section 3.1.3, Transferor has no liabilities which are of the
kind and character required to be disclosed in financial
statements prepared in accordance with generally accepted
accounting principles and which are incurred other than in the
ordinary course of business, whether accrued, absolute,
contingent or otherwise.
3.1.4 Organization and Good Standing. Transferor is duly qualified as a
Florida corporation and is in good standing in any jurisdiction in
which the conduct of its business or the ownership of its assets
requires such qualification except where such non-qualification has
not had a material adverse effect on Transferor.
Transferor has no subsidiaries.
3.1.5 Authorization; Validity. The execution, delivery, and performance of
this Agreement by Transferor has been duly and validly authorized by
all requisite corporate action. This Agreement has been duly and
validly executed and delivered by Transferor, and is the legal,
valid, and binding obligation of Transferor, enforceable in
accordance with its terms, except as limited by bankruptcy,
insolvency, moratorium, reorganization, and other laws of general
application affecting the enforcement of creditors' rights and by
the availability of equitable remedies.
3.1.6 Consents, etc. Other than as set forth on Schedule 3.1.5, no
approval, consent, waiver, or authorization of or filing or
registration with any governmental authority or third party is
required for the execution, delivery, or performance by Transferor
of the transactions contemplated by this Agreement
3.1.7 Violations. The execution, delivery, or performance of this
Agreement does not and will not (i) with or without the giving of
notice or the passage of time, or both, constitute a default, result
in a breach of, result in the termination, of, result in the
acceleration of performance of, require any consent, approval, or
waiver (other than those identified on Schedule 3.1.5), or result in
the imposition of any lien or other encumbrance upon any property or
assets of Transferor, under any agreement, lease, or other
instrument to which Transferor is a party or by which any of the
property or assets of Transferor is bound; (ii) violate any permit
license, or approval required by Transferor to own its Assets and
operate its business; (iii) violate any law, statute, or regulation
or any judgment, order, ruling, or other decision of any
governmental authority, court, or arbitrator; or (iv) violate any
provision of Transferor's Articles of Incorporation or Bylaws.
3.2 Survival of Representations and Warranties. Each of the representations
and warranties in Section 3.1 and Section 4 shall be deemed renewed and
made again by Transferor at the Closing as if made as at that time, and
shall survive the Closing until the expiration of all applicable statute
of limitation periods.
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SECTION 4. Representations and Warranties of Transferee.
As of the date hereof and as of the Closing Date, Transferee represents
and warrants to Transferor the following:
4.1 Corporate Capacity. Transferee is a for-profit corporation duly organized
and validly existing in good standing under the laws of the State of New
Jersey. Transferee has the requisite power and authority to enter into
this Agreement, perform its obligations hereunder and to conduct its
business as now being conducted.
4.2 Corporate Powers; Consents; Absence of Conflicts With Other
Agreements, Etc. The execution, delivery and performance of this Agreement
by Transferee and all other agreements referenced herein or ancillary
hereto to which Transferee is a party and the consummation of the
transactions contemplated herein by Transferee: (i) are within
Transferee's authority and powers, are not in contravention of law or of
the terms of Transferee's Articles of Incorporation, By-laws or any
amendments thereto and have been duly authorized by all appropriate
corporate action; (ii) do not require any approval or consent of, or
filing with, any governmental agency or authority bearing on the validity
of this Agreement which is required by law or the regulations of any such
agency or authority; (iii) will neither conflict with nor result in any
material breach or contravention of, or the creation of any lien under,
any indenture, agreement, lease, instrument or understanding to which
Transferee is a party or by which Transferee is bound; (iv) will not
violate any statue, law, rule or regulation of any governmental authority
to which Transferee may be subject; and (v) will not violate any judgment,
order or decree of any court or governmental authority to which Transferee
may be subject.
4.3 Binding Agreement. This Agreement and all other agreements to which
Transferee will become a party hereunder are and will constitute the valid
and legally binding obligations of Transferee and are and will be
enforceable against Transferee in accordance with the respective terms
hereof and thereof, except as enforceability against Transferee may be
restricted, limited or delayed by applicable bankruptcy or other laws
affecting creditors' rights generally and except as enforceability may be
subject to general principles of equity.
4.4 Full Disclosure. The representations and warranties of Transferee herein
do not and will not include any untrue statement of a material fact or
omit to state any material fact necessary to make the statements made and
to be made not misleading.
4.5 Capitalization. The authorized equity securities of Transferee consists of
40,000,000 shares of common stock, par value $.001 per share, of which
19,937,636 shares are issued and outstanding. The Shares are duly
authorized and validly issued and are fully paid and non-assessable. No
person holds any option or right to acquire equity securities of
Transferee.
4.6 Financial Information. As of December 28, 1996, Transferee's (i) total
liabilities are $2,629,536.00, (ii) cash balances are $434,779.00, (iii)
receivables arc $355,360.00 and
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inventory (which is salable in the ordinary course of its business) is
$440,098.00, which amounts are calculated on a basis consistent with
Transferee's audited financial statements.
4.7 No Material Adverse Change. Since the date of Transferee's last audited
balance sheet, which has been delivered to Transferor, there has not been
any material adverse change in the business, operations, properties,
prospects, assets, or condition of the Company, and no event has occurred
or circumstance exists that may result in such a material change.
SECTION 5. Covenants of the Parties.
5.1 Except as may otherwise be consented to or approved in writing by
Transferee, Transferor agrees that from the date of this Agreement and
until the Closing:
5.1.l Conduct Pending Closing. (i) The business of Transferor shall be
conducted only in the ordinary course consistent with past
practices; (ii) the Transferor shall not declare any dividends,
enter into any mergers, and shall not engage in any borrowing, or
hiring of new personnel.
5.1.2 Access to Records. Transferor shall provide Transferee and its
representatives access to all records of Transferor that they may
reasonable request and provide access to the properties of
Transferor.
5.1.3 Solicitation. Transferor agrees that it will not solicit, consider,
or negotiate any offers to acquire the share or assets of
Transferor, or to provide any information or to make available any
management personnel to third parties for such purposes.
5.1.4 Obligations of Transferor to Its Creditors. (i) Transferor shall
furnish Transferee, upon execution of this Agreement, with a list of
its existing creditors. This list shall be signed an sworn to or
affirmed by Transferor and shall contain the names and business
addresses of all of Transferor's creditors, with the amounts, when
known, and the names of all persons who are known to Transferor to
assert claims against it, even though such claims are disputed; (ii)
Transferor shall pay all undisputed claims and settle or litigate
all disputed claims and hold Transferee harmless from all of
Transferee's creditors.
5.1.5 Non-Competition and Non-Solicitation. Transferor and Owner shall
enter into a non-competition agreement with Transferee in the form
attached as Exhibit 2.
5.1.6 Employment Agreement. Transferee and Owner shall enter into an
Employment Agreement in the form attached as Exhibit 2.
5.1.7 Enforcement of Agreements. For a period of twelve (12) months
following the Closing Date, Transferor shall , upon Transferee's
request, cooperate with Transferee to provide for Transferee the
benefits under any contract or agreement, including any
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agreement with employees, including, without limitation, enforcement
of any and all rights against the other party or parties.
5.1.8 Proration of Taxes and Other Amounts. All applicable taxes and
rental payments under any contract, assumed by Transferee, and other
expenses shall be prorated as of Closing.
5.1.9 Employee Payments. Transferor shall pay all employee compensation,
benefits, vacations, sick time, and all other payments due to its
employees for the period up to and including the Closing Date.
SECTION 6 Conditions Precedent to Obligations of Transferee.
6.1 Conditions Precedent. Unless, at the Closing, each of the following
conditions is either satisfied or waived by Transferee in writing,
Transferee shall not be obligated to effect the transactions contemplated
by this Agreement:
6.1.1.Representations and Warranties. The representations and warranties
of Transferor in this Agreement are true and correct at the date of
this Agreement and shall be true and correct as of the Closing as if
each were made again at that time.
6.1.2.Performance of Covenants. Transferor shall have performed and
complied in all respects with the covenants and agreements required
by this Agreement.
6.1.3.Items to be Delivered at Closing. Transferor shall have tendered
for delivery to Transferee the following:
(i) Consents, etc. Consents for each item listed on Schedule
3.1.5.
(ii) Good Standing Certificate. A certificate of the Florida
Department of State, dated within ten days of the Closing,
showing that Transferor is in good standing.
(iii) Corporate Action. A certified copy of the corporate action of
Transferor authorizing and approving this Agreement and the
transactions contemplated by it.
(iv) Certificate of Incumbency. A certificate of incumbency duly
executed by Transferor's Secretary or assistant Secretary.
(v) Transfer Documents. Deeds, bills of acquisition, assignments,
consents to assignments, and other instruments of transfer and
consent necessary to transfer to Transferee good and
marketable title in and to all of the Assets and Assumed
Contracts, free and clear of all liens, except as set forth in
this Agreement.
6.1.4.Proceedings and Instruments Satisfactory. All proceedings, corporate
or other, to be taken in connection with the transactions
contemplated by this Agreement, and all
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documents incident thereto, shall be satisfactory in form and
substance to Transferee and Transferee's counsel, whose approval
shall not be unreasonable withheld.
6.1.5.Certificate. There shall be delivered to Transferee an officer's
certificate, signed by Transferor, to the effect that all of the
representations and warranties of Transferor set forth in this
Agreement are true and complete in all material respects as of the
Closing Date, and that Transferor has complied in all material
respects with its covenants and agreements required to be complied
with by the Closing.
6.1.6.No Adverse Change. There shall not have been a material adverse
change in the financial condition of Transferor or the Business,
whether or not covered by insurance; nor shall any lawsuit be
pending that seeks to set aside the Agreement or the transactions
contemplated by it.
SECTION 7. Conditions Precedent to Obligations of Transferor.
7.1 Conditions Precedent. Unless, at the Closing, each of the following
conditions is either satisfied or waived by Transferor in writing,
Transferor shall not be obligated to effect the transactions contemplated
by this Agreement.
7.1.1.Representations and Warranties. The representations and warranties
of Transferee in this Agreement are true and correct at the date of
this Agreement and as of the Closing as if each were made again at
that time.
7.1.2.Items to be Delivered at Closing. Transferee shall have tendered
for delivery to Transferor the following:
(i) Good Standing Certificate. A Certificate of the New Jersey
Department of State showing that Transferee is in good
standing.
(ii) Corporate Action. A certified copy of the corporate action of
Transferee authorizing and approving this Agreement and the
transactions contemplated by it.
(iii) Certificate of Incumbency. A certificate of incumbency duly
executed by Transferee's Secretary or Assistant Secretary.
(iv) Stock Certificate. The stock certificate required under
Section 2.3 (v).
7.1.3.Performance of Covenants. Transferee shall have performed and
complied in all respects with the covenants and agreements
required by this Agreement.
SECTION 8. NOTICES.
Any notice, request, demand, or communication required or permitted to be
given to any provision of this Agreement shall be deemed to have been delivered,
given, and received for all purposes if written and (i) if delivered personally,
by facsimile, or by courier or delivery service, at the time of such delivery or
(ii) if directed by registered or certified United States mail,
10
<PAGE>
postage and charges prepaid, addressed to the intended recipient, at the address
specified below, two business days after such delivery to the United States
Postal Service.
If to Transferee: Starlog Franchise Corporation
945 Brighton Street
Union, New Jersey 07083
With a copy to: Noel K. Evans, Esq.
Evans & Donica, P.A.
201 E. Kennedy Blvd., Suite 1500
Tampa, FL 33602
If to Transferor: Goal Post Distributing Inc.
13949-9 W. Hillsborough Ave.
Tampa, FL 33634
If to Owner: Kevin M. Vander Kelen
13949-9 W. Hillsborough Ave.
Tampa, FL 33634
With a copy to: Philip M. Shasteen, Esq.
100 N. Tampa Street, Suite 1800
Tampa, FL 33602
Any party may change the address to which notices are to be mailed by giving
notice as provided herein to all other parties.
SECTION 9. MISCELLANEOUS.
9.1 Entire Agreement. This Agreement, the Exhibits, and the Schedules, contain
all of the terms and conditions agreed upon by the parties with reference
to the subject matter and superseded any and all previous agreements,
representations, and communications between the parties, whether written
or oral. This Agreement, including its Exhibits and Schedules, may not be
modified or changed except by written instrument signed by all of the
parties, or their respective successors or assigns.
9.2 Assignment. This Agreement shall not be assigned or assignable by
Transferor or Transferee without the express written consent of the other
party. This Agreement shall inure to the benefit of and be binding upon
the parties and their respective successors and assigns.
9.3 Captions. All section, schedule, and exhibit headings are inserted for the
convenience of the parties and shall not he used in any way to modify,
limit, construe, or otherwise affect this Agreement.
11
<PAGE>
9.4 Counterparts; Facsimile Signatures. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an original and
which together shall constitute one and the same instrument. Facsimile
signatures shall be of the same legal effect as if signed originally.
9.5 Waiver. Each of the parties may, by written notice to the other, (i)
extend the time for the performance of any of the obligations or other
actions of the other party; (ii) waive any inaccuracies in the
representations or warranties of the other party contained in this
Agreement or in any document delivered pursuant to this Agreement; (iii)
waive compliance with any of the covenants of the other party contained in
this Agreement; or (iv) waive, in whole or in part, performance of any of
the obligations of the other party. No action taken pursuant to this
Agreement, including, but not limited to, the consummation of the Closing
or any knowledge of or investigation by or on behalf of any party, shall
be deemed to constitute a waiver by the party taking such action,
possessing such knowledge, or performing such investigation or compliance
with the representations, warranties, covenants, and agreements contained
herein. The waiver by any party of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent
or similar breach.
9.6 Controlling Law. This Agreement has been entered into the State of Florida
and shall be governed by and construed and enforced in accordance with the
laws of Florida.
9.7 Gender. Whenever in this Agreement the context so requires, references to
the masculine shall be deemed to include the feminine and the neuter,
references to the neuter shall be deemed to include the masculine and the
feminine, and references to the plural shall be deemed to include the
singular and the singular to include the plural.
9.8 Further Assurances. Each of the parties shall use all reasonable efforts
to bring about the transactions contemplated by this Agreement as soon as
practicable, including the execution and delivery of all instruments,
assignments, and assurances, and shall take or cause to be taken such
reasonable further or other actions necessary or desirable in order to
carry out the intent and purposes of this Agreement.
9.9 Attorneys' Fees. In the event a lawsuit is brought to enforce or interpret
any part of this Agreement or the rights or obligations of any party to
this Agreement, the prevailing party shall be entitled to recover such
party's costs of suit and reasonable attorney's fees, through all appeals.
9.10 References to Agreement. The words "hereof," "herein," "hereunder," and
other similar compounds of the word "here" shall mean and refer to the
entire Agreement and not to any particular section, article, provision,
annex, exhibit, schedule, or paragraph unless so required by the context.
9.11 Schedule and Exhibits. Schedules and Exhibits to this Agreement (and any
references to any part or parts of them) shall, in each instance, include
the Schedules or Exhibits (as the case may be) attached hereto as well as
any amendments thereto (in each such case). All
12
<PAGE>
such Schedules and Exhibits shall be deemed an integral part hereof and
are incorporated herein by reference.
9.12 Venue. Any litigation arising hereunder shall be instituted only in
Hillsborough County, Florida, the place where this Agreement was
executed. All parties agree that venue shall be proper in that county for
all such legal or equitable proceedings.
9.13 Severability. Each section, subsection and lesser section of this
Agreement constitutes a separate and distinct undertaking, covenant,
and/or provision. In the event that any provision of this Agreement shall
finally be determined to be unlawful, such provision shall be deemed
severed from this Agreement, but every other provision of this Agreement
shall remain in full force and effect.
9.14 Rights in Third Parties. Except as otherwise specifically provided,
nothing expressed or implied in this Agreement is intended, or shall be
construed, to confer upon or give any person, firm, or corporation, other
than the parties and their respective stockholders or shareholders, any
rights or remedies under or by reason of this Agreement.
9.15 Expenses. Each party shall pay its own expenses in connection with the
negotiation and consummation of the transactions contemplated by this
Agreement.
IN WITNESS WHEREOF, then parties have executed this Agreement as of the
date first written above.
Starlog Franchise Corporation
a New Jersey corporation
/s/ Jordan Hembrough By: /s/ Jack Fitzgerald
- ---------------------------- ------------------------------------
Witness Jack Fitzgerald, President
Goal Post Distributing Inc.
a Florida corporation
/s/ Kevin M. Vander Kelen By: /s/ Kevin M. Vander Kelen
- ---------------------------- ------------------------------------
Witness Kevin M. Vander Kelen, President
/s/ Kevin M. Vander Kelen By: /s/ Kevin M. Vander Kelen
- ---------------------------- ------------------------------------
Witness Kevin M. Vander Kelen, Owner
13
<PAGE>
SCHEDULE 3.1.5
Approval of the sole shareholder of Transferor as reflected in the Joint Action
by Written Consent of the Sole Shareholder of Transferor dated July 2, 1997.
Approval of Transferor's landlord.
<PAGE>
BILL OF ACQUISITION AND AGREEMENT
For valuable consideration, GOAL POST DISTRIBUTING, INC., a Florida
corporation ("Transferor") by this instrument does grant, assign, transfer, set
over and convey to STARLOG FRANCHISE CORPORATION ("Transferee"), a New Jersey
corporation, all of Transferee's right, title and interest in the following
personal property:
All of Transferor's assets, real, personal and mixed, tangible and
intangible, employed in the operations of Transferor, including, without
limitation, the following items (collectively, the "Assets") but excluding the
items listed below: (i) all equipment, vehicles, furniture and furnishings,
including, without limitation, those taken into consideration in any
depreciation schedule of Transferor; (ii) any and all recorded or unrecorded
leasehold interests to the real property location(s) used in connection with the
business together with all improvements and fixtures located thereon or therein;
(iii) all usable supplies, forms, brochures, and inventory; (iv) any intangible
assets, goodwill, and intellectual property, including any service and/or
trademarks or names and logos (including specifically the name "Goal Post
Distributing, Inc."); (v) copies of all employment applications and other
personnel records of key employees as selected by Transferee; (vi) all interests
in commitments, contracts, leases, and agreements relating to Transferor's
business and Assets; (vii) all files, lists and records relating to all clients,
customers, accounts, prospects and referral sources of Transferor; (viii) rights
to telephone and fax numbers used by Transferor; (ix) all computers, other data
processing equipment, and related software; and (x) all prepaid expenses, and
miscellaneous deposits of Transferor.
The Assets shall not include and Transferee shall not acquire from
Transferor cash and cash equivalents of the Transferor.
This transaction intended to qualify as a reorganization pursuant to
Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended (the
"Acquisition").
IN WITNESS WHEREOF, the Transferor has executed this instrument as of the
29th day of June, 1997.
GOAL POST DISTRIBUTING, INC.
a Florida corporation
By: /s/ Kevin M. Vander Kelen
------------------------------------
Kevin M. Vander Kelen, President
<PAGE>
FIRST ADDENDUM TO PURCHASE OF CORPORATION THROUGH STOCK PURCHASES AND SIGNATURE
PAGE OF NICK TRICARICO
1. Nick Tricarico warrants and represents that he is the owner, free and clear
of all liens, pledges and encumbrances, of 100 shares of KCK Corporation stock.
Nick Tricarico makes no further representations or warranties with regard to his
stock or KCK Corporation in connection with the sale of such stock to Starlog
Franchise Corporation.
2. Nick Tricarico will receive from Starlog in exchange for his stock Starlog
stock warrants as follows:
a. 50,000 warrants at $0.50 per share to be exercised prior to
September 30, 1999; and
b. 50,000 warrants at $0.25 per share if exercised prior to September
30, 1998; or at
$0.40 per share is exercised prior to September 30, 1999.
3. Thomas W. Gray will receive from Starlog the following warrants:
a. 50,000 warrants at $0.50 per share to be exercised prior to
September 30, 1999; and
b. 150,000 warrants at $0.25 per share if exercised prior to September
30, 1998; or at
$0.40 per share is exercised prior to September 30, 1999.
In Witness Whereof, this First Addendum is executed as of October 1, 1997.
/s/ Nick Tricarico
----------------------------------
NICK TRICARICO
/s/ Thomas W. Gray
----------------------------------
THOMAS W. GRAY
STARLOG FRANCHISE CORPORATION
/s/ Jack Fitzgerald
----------------------------------
BY: AUTHORIZED OFFICER
EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of this 29th day of June 1997, by and between
STARLOG FRANCHISE CORPORATION, a New Jersey corporation having its office in
Union, New Jersey, hereinafter referred to as "Employer" and KEVIN M. VANDER
KELEN, hereinafter referred to as "Employee," entered into in the city of Tampa,
County of Hillsborough, State of Florida.
The parties recite that:
A. Employer is engaged in the business of retail sales of personal
property bearing licensed logos throughout the United States and internationally
and maintains business premises at Union, New Jersey.
B. Employee is willing to be employed by Employer, and Employer is willing
to employ Employee on the terms and conditions hereinafter set forth.
For the reasons set forth above, and in consideration of the mutual covenants
and promises of the parties, the sufficiency of which the parties hereby
acknowledge, Employer and Employee covenant and agree as follows:
1. Agreement to Employ.
Employer hereby employs Employee for the position of President,
Distribution Division, and Employee hereby accepts and agrees to such
employment.
2. Description of Employee's Duties.
Subject to the supervision and pursuant to the orders, advice, and
direction of Employer, Employee shall perform the following duties:
a. Supervise and direct all administrative aspects and be responsible for
the operation of Employer's Distribution Division including Employer's sales and
marketing programs for such division; and
b. Perform such other duties as are customarily performed by one holding
such position in other business or enterprises of the same or similar nature as
that engaged in by Employer and such other executive management services as are
designated by Employer from time to time.
3. Manner of Performance of Employee's Duties.
Employee shall at all times faithfully, industriously, and to the best of
his ability, experience and talent perform all duties that may be required of
and from him pursuant to the express and implicit terms hereof, to the
reasonable satisfaction of Employer. Such duties shall be
<PAGE>
rendered at the above mentioned premises and at such other place or places as
Employer shall in good faith require or as the interest, needs, business and
opportunities of Employer shall require or make advisable.
4. Compensation.
Employee acknowledges and agrees that the only compensation and/or
benefits that Employee is to receive from Employer are as follows:
a. Employee shall receive a base annual salary to be paid in accordance
with Employer's customary payroll practice. The initial amount of Employee's
base annual salary shall be $100,000.00 for each of the first and second years
of this Agreement. This amount shall be increased to the annual salary amounts
as follows for the third, fourth and fifth years of the term of this Agreement:
Year Base Salary
---- -----------
3 $115,000
4 $120,000
5 $125,000
b. Employee shall be eligible to receive a performance incentive in the
form of stock options each year during the term of this Agreement. In the event
that the Employer meets or exceeds the "Gross Sales Projection" as set forth
below at the end of each year (a "Measurement Year"), then Employer shall,
within 30 days after the end of such year, grant and deliver to Employee an
option (dated and effective as of the first day of the year after the
Measurement Year) to purchase from the Employer 200,000 shares of the common
stock of the Employee at the designated "Option Exercise Price," as follows:
Year Gross Sales Projection Option Exercise Price
---- ---------------------- ---------------------
1 $5,000,000 $0.50
2 $6,000,000 $0.60
3 $7,000,000 $0.70
4 $8,000,000 $0.80
5 $9,000,000 $0.90
For the purposes of this subsection (b):
(i) Year one (1) shall be deemed to be the period ending twelve (12)
months after the execution of this Agreement. Each subsequent year shall
end on the anniversary date of this Agreement.
(ii) The Annual Gross Sales Projection shall have been met if the
gross sales of the "Distribution Division" as determined for financial
accounting and SEC reporting
2
<PAGE>
purposes equal or exceed such amount. The "Distribution Division" shall
consist of the business operations formerly known as Goal Post
Distribution, Inc. combined with the distribution business operations of
Sumon, L.L.C, a wholly owned subsidiary of the Employer.
(iii) The aggregate number of shares of stock subject to this Option
and the Option Price will be appropriately adjusted for any increase or
decrease in the number of issued shares of Employer's common stock
resulting from a recapitalization, the subdivision or consolidation of
shares, stock splits or forward stock splits (but not reverse stock
splits, or consolidation of shares in which case the Option Price shall
not be adjusted but the number of shares shall be adjusted), or the
payment of a stock dividend after the date the option is granted.
(iv) Each such option shall be immediately exercisable and shall
expire at the end of the ten years after its grant; provided, however, if
a person or entity providing financing to Employer is of the opinion that
such financing cannot be accomplished without shortening the exercise
period of such options, Employee agrees to shorten such exercise period,
but to not less than five years after grant.
(v) Shares of stock purchased upon exercise of any option shall at
the time of purchase be paid for in full in cash or as otherwise permitted
by Employer. Options may be exercised in whole or in part from time to
time by written notice to Employer stating the full number of shares of
stock with respect to which the option is being exercised and the time of
delivery thereof, which shall be at least 15 days after the giving of such
notice unless an earlier date shall have been mutually agreed upon,
accompanied by full payment for the shares of stock.
(vi) Within nine months after the date hereof, Employer shall cause
to be prepared in accordance with applicable rules and regulations and
filed with the U.S. Securities and Exchange Commission ("SEC") a
registration statement of Form S-8 (or such other form as is appropriate
for the registration of employee options) covering 1,000,000 shares of
Employer common stock underlying the options which may be granted to
Employee hereunder and shall cause use its best efforts to cause such
registration statement to be declared effective by the SEC and to be
current at all times during the period of time that options granted to
Employee hereunder may remain outstanding.
(vii) Commencing on the date hereof, Employer shall advise Employee,
by written notice at least 30 days prior to the filing of any registration
statement under the Securities Act of 1933, as amended (the "Act")
covering any securities of Employer for its own account or for the account
of others, and will for the period beginning on the date hereof and ending
five (5) years thereafter, and upon the request of Employee and (i)
subject to the consent of any underwriter, if applicable, and (ii) the
availability under the form of registration statement selected by the
Employer in its sole discretion include in any such registration statement
such information as may be required to permit a public distribution
(within the meaning of the Act) of any of the Common Stock or options (and
the Common Stock underlying such options) thereon acquired by Employee
hereunder (the "Registrable Securities"). Employer shall supply a
reasonable number of prospectuses in order to facilitate the public sale
or other disposition of the Registrable Securities, use its best efforts
to register and qualify any of the Registrable Securities for sale in such
states as Employee shall reasonably designate, the cost to qualify of
which is to be
3
<PAGE>
born by Employer (the number of states shall be limited to those states in
which Employer's original registration statement was qualified). Employee
shall furnish information reasonably requested by Employer in connection
with such registration statement including his intentions with respect
thereto, shall promptly pay the pro rata portion of the SEC registration
fee incurred by Employer as the percentage of the Registration Securities
relates to all securities included in the registration statement and
Employer and Employee shall furnish to each other indemnification in a
form acceptable to Employer and Employee and customary and reasonable for
such transactions. Employer shall continue to advise Employee of its
intention to file a registration statement pursuant to this subparagraph
until the earlier of five years after the date hereof, or such time as all
of the Registrable Securities have been registered under the Act.
c. Employer shall provide health insurance coverage for Employee and
Employee's spouse in accordance with Employer's customary health insurance
coverage for its employees.
5. Duration and Termination of Employment.
The term of this Agreement is for a period of five (5) years, commencing
upon July 1, 1997. The employment relationship may be terminated at any time by
either party with or without cause. In the even Employee's employment is
terminated without Cause, the performance incentive set forth in paragraph 4.b.
above shall remain in effect for the remaining term of this Agreement and
Employee (or Employee's personal representative or heirs in the case of death)
shall continue to receive grants of options under paragraph 4.b. the same as if
Employee had continued in the employ of Employer throughout the period of time
set forth in paragraph 4.b. hereof. In addition to the foregoing, in the event
Employee terminates this Agreement, he shall give Employer at least two weeks
prior notice and in the event that Employer terminates this Agreement without
cause, Employer shall pay Employee six months severance pay, which shall be paid
in six (6) equal monthly installments commencing on the first day of the month
following such termination.
6. Employee's Loyalty to Employer's Interest.
Employee shall devote his best efforts and all of his full business time,
attention, knowledge and skill solely and exclusively to the business and
interest of Employer, and Employee shall be entitled to all benefits,
emoluments, profits or other issues arising from or incident to any and all
work, services and advice of Employee. Employee expressly agrees that during the
term hereof he will not be interested, directly or indirectly, in any form,
fashion or manner as partner, officer, director, stockholder, advisor, Employee,
or in any other form or capacity in any other business similar to Employer's
business.
7. Nondisclosure of Information Concerning Business.
Employee will not at any time, in any fashion, form or manner directly or
indirectly divulge, disclose or communicate to any person, firm or corporation
in any manner whatsoever any of the confidential business information of
Employer. For purposes of this Agreement the term "confidential business
information" shall include any information (a) of value or significance
4
<PAGE>
to Employer and (b) nor intended by Employer for general dissemination,
including without limitation the names of any of its customers, the price at
which it places its advertising or any other confidential information concerning
the business of Employer, its manner of operation or its plans, processes or
other confidential data of any kind, nature or description. It shall be a
defense to any action by Employer hereunder that such information is generally
known to competitors of Employer.
The parties hereby stipulate that, as between them, the foregoing matters
are important, material and confidential and gravely affect the effective and
successful conduct of the business of Employer and its goodwill, and that any
breach of the terms of this section is a material breach of this Agreement.
8. Trade Secrets.
Employee shall keep and hold as confidential all confidential business
information or trade secrets relating to the business which accrued to him
during his course of employment with Employer. Employee agrees not to divulge
any trade secrets or any other confidential information pertaining to the
business of Employer, including but not limited to, names and addresses of
Employer's past or present clients. Employee will not, during or after the term
of his employment, furnish to any individual, firm or corporation other than
with Employer's written permission any list of clients, suppliers, employees or
any other confidential business information related to Employer's business. For
purposes of this paragraph 8, the term "confidential business information" shall
have the same meaning as in paragraph 7.
It is understood that "trade secret" as used in this Agreement is deemed
to include lists of clients, customers, contracts, lists of suppliers, employees
software compilations, operating procedures, licenses, or any other proprietary
information of whatever nature which gives Employer an opportunity to obtain an
advantage over its competitors who do not have access or know or use it.
Employee agrees that, upon separation from Employer, he will return all company
property including all copies of any company trade secrets that have been in his
possession during the term of his employment. Employee will not make copies of
these documents for personal use at any time. After termination of Employee's
employment all mail addressed to Employee will be opened by Employer's
secretary. Personal mail not relating to Employer's business will be promptly
forwarded to Employee. Similarly, all mail received by Employee relating to the
company business will be immediately forwarded to Employer.
9. Covenant Not to Compete.
Employee agrees that in the event his employment with Employer is
terminated in accordance with the provisions of this Agreement, that he will not
for a period of two years after the date of such termination, directly or
indirectly, engage in any business which is competitive with the business
engaged in by Employer, either for Employee's own benefit or for the benefit of
any other person, partnership, firm or corporation whatsoever within the United
States or Canada. In the event of dismissal or discharge the employment of
Employee shall cease, but this Agreement shall remain in full force and effect
and neither direct nor indirect dismissal, diminution in salary or compensation,
nor condition and status of Employee's employment with Employer
5
<PAGE>
shall be any defense to any causes of action brought under this Agreement to
enforce this covenant not to compete. Employee hereby consents and agrees that
for any violation of any of the provisions of the Agreement, a temporary and/or
permanent restraining order or injunction may be issued against him. This right
shall be in addition to any other rights which Employer may have, including but
not limited to seeking damages from Employee.
10. Proprietary Rights.
All ideas, marketing systems, computer programs, configurations, systems
or procedures, programs or methods, formulae, inventions, discoveries,
improvements, secrets or processes whether or not patentable or copyrightable,
made or developed by the Employee during the term of this Agreement relating to
the business of the Employer shall be the exclusive property of the Employer,
whether or not any claim of the Employee to compensation has been or will be
satisfied, and the Employee agrees to provide the Employer at its request and
expenses such instruments and evidence as it may reasonably request to perfect,
enforce and maintain the Employer's rights to such property.
11. Termination.
a. Options previously granted by Employer to Employee shall not be
affected by any termination (with or without Cause) of the employment of
Employee. If Employee's employment is terminated during the course of a year and
Employee would have been entitled to receive the grant of an option at the end
of such year under the provisions of paragraph 4 hereof, Employee shall
nevertheless be entitled to receive such grant for such year the same as if
Employee had been employed by Employer throughout the entire year, but shall not
be entitled to receive any additional options from Employer. Except for the
foregoing, if Employee is terminated for Cause, he shall not be entitled to any
further compensation after the date of termination.
b. For purposes of this Agreement, Employer shall have "Cause" to
terminate Employee's employment hereunder upon (i) the failure by Employee to
substantially perform his duties hereunder (other than any such failure
resulting from Employee's incapacity due to physical or mental illness), after
demand for substantial performance is delivered by Employer that specifically
identifies the manner in which Employer believes Employee has not substantially
performed his duties, or (ii) the willful engaging by Employee in misconduct
which is materially injurious to the Employer, monetarily or otherwise, or (iii)
the material breach by Employee of any of the material provisions of this
Agreement. Notwithstanding the foregoing, Employee shall not be terminated
without (i) reasonable notice to Employee setting forth the specific reasons for
Employer's intention to terminate for Cause and the specific paragraphs of this
Agreement that are alleged to be breached by Employee, (ii) a reasonable
opportunity has been given to Employee to cure such breach, and (iii) delivery
to Employee of a Notice of Termination as defined in subparagraph (c) hereof.
c. Any termination of Employee's employment by Employer for Cause shall
be communicated by written Notice of Termination to Employee. For purposes of
this Agreement, a "Notice of Termination" shall mean a notice which shall
indicate the specific
6
<PAGE>
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Employee's employment under the provision so indicated.
12. Non-Transferability of Agreement or Option Rights.
This Agreement and the options granted hereunder shall not be assignable
or transferable otherwise than by will or by the laws of descent and
distribution. During the lifetime of Employee, the options granted hereunder
shall be exercisable only by Employee or, in the case of Employee's death, by
Employee's Personal Representative.
13. Interpretation, Venue and Waiver
This Agreement shall be interpreted and governed under the laws of the
State of Florida. Employee consents to the jurisdiction of any court, state or
federal, within Hillsborough County, Florida and agree that all litigation
regarding this Agreement shall be brought only in Hillsborough County, Florida
and further by execution of this Agreement the undersigned waives his privilege
of venue in suits brought by Employer or against Employer in connection with
this Agreement, and the undersigned further waives any and all right he may have
in the selection of venue and to trial by jury of this matter.
14. Descriptive Expressions.
All pronouns used in any gender shall include all genders and all words
used in singular number shall include the plural and vice versa wherever the
context so permits.
15. Severability.
The provisions of this Agreement are severable. If any judgment or court
order shall declare any provision of the provisions of this Agreement too broad
or unenforceable because of its breadth, the Court shall determine a smaller
area or time period which is enforceable and such enforceable limitation or
provision shall be enforced and the other provisions shall not be affected
thereby and shall remain in full force and effect.
16. Entirety.
Employee and Employer agree that this is the entire understanding by both
parties and that this Agreement supersedes all prior negotiations and/or written
agreements between the parties and that such Agreement may not be amended or
modified except in writing signed by Employee or Employer.
7
<PAGE>
17. Counterparts; Facsimile Signatures.
This Agreement may be executed in several counterparts, each of which
shall be deemed to be an original and which together shall constitute one and
the same instrument. Facsimile signatures shall be of the same 1egal effect as
if signed originally.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written in Tampa, Hillsborough County, Florida.
EMPLOYER:
ATTEST STARLOG FRANCHISE CORPORATION
/s/ Noel K. Evans, By: /s/ Jack J. Fitzgerald
- ------------------------ --------------------------
Noel K. Evans, Secretary Jack J. Fitzgerald, President
WITNESS: EMPLOYEE:
/s/ Laurie A. Vander Kellen /s/ Kevin M. Vander Kelen
--------------------------- -------------------------
/s/ [ILLEGIBLE] Kevin M. Vander Kelen
---------------------------
This Agreement shall be executed in duplicate; one copy to be retained by
Employee and one copy to be retained by Employer.
8
EMPLOYMENT AGREEMENT
THIS AGREEMENT made this 15 day of August l996, by and between STARLOG
FRANCHISE CORPORATION, a New Jersey corporation having its office in Clearwater,
Florida, hereinafter referred to as "Employer", JACK J. FITZGERALD, hereinafter
referred to as "Employee", and HOPE ASSOCIATES, LLC, a New Jersey limited
liability company, hereinafter referred to as "Hope", entered into in the City
of Clearwater, County of Pinellas, State of Florida.
The parties recite that:
A. Employer is engaged in the business of retail sales of personal
property bearing licensed logos throughout the United States and
internationally and maintains business premises at Clearwater,
Florida.
B. Employee is willing to be employed by Employer, and Employer is
willing to employ or continue employment of Employee, on the terms
and conditions hereinafter set forth.
C. Hope has provided financing to Employer and, being desirous of
obtaining Employee's continued employment is willing to provide the
common stock of Employer to Employee called for in this Agreement.
For the reasons set forth above, and in consideration of the mutual covenants
and promises of the parties, the sufficiency of which the parties hereby
acknowledge, Employer, Employee, and Hope covenant and agree as follows:
1. Agreement to Employ or to Continue Employment; Term of Agreement.
Employer hereby employs Employee for the position of President, and
Employee hereby accepts and agrees to such employment and both parties
hereby cancel any prior Employment Agreement between parties.
2. Description of Employee's Duties.
Subject to the supervision and pursuant to the orders, advice, and
direction of Employer, Employee shall perform such duties as are
customarily performed by one holding such position in other businesses or
enterprises of the same or similar nature as that engaged in by Employer.
Employee shall additionally render such other and unrelated services and
duties as may be assigned to his from time to time by Employer.
3. Manner of Performance of Employee's Duties
Employee shall at all times faithfully, industriously, and to the best of
his ability, experience and talent perform all duties that may be required
of and from him pursuant
1
<PAGE>
to the express and implicit terms hereof, to the reasonable satisfaction
of Employer. Such duties shall be rendered at the above mentioned premises
and at such other place or places as Employer shall in good faith require
or as the interest, needs, business and opportunities of Employer shall
require or make advisable.
4. Compensation
Employee acknowledges and agrees that the only compensation and/or
benefits that Employee is to receive from Employer are as follows:
(a) Employee shall receive a base annual salary to be paid in accordance
with Employer's customary payro1l practice. The initial amount of
Employee's base annual salary shall be EIGHTY THOUSAND DOLLARS
($80,000.00) for the first year of this Agreement, and shall be increased
by the amount of TEN THOUSAND DOLLARS ($10,000.00) upon confirmation of
the Employer's Chapter 11 Plan. In addition, as of January 1 of each year
during the term of this Agreement commencing on January 1, 1997, such base
annual salary shall likewise be increased by such amount. Such increases
shall not exceed salary of ONE HUNDRED FORTY THOUSAND DOLLARS ($140,000)
per annum.
(b) Employee shall receive a performance bonus for each year during the
term of this Agreement. Such bonus shall be equal to an amount which bears
the same ratio to Employee's base annual salary for such year as
Employer's "net income before taxes" bears to Employer's "gross sales" for
such year not to exceed, however, fifty percent (50%) of Employees' base
annual salary. Employer's net income before taxes and gross sales shall be
equal to those amounts determined by Employer's certified public
accountants and reported in Employer's Form 10-K filed with the Securities
and Exchange Commission.
(c) Employee shall receive an automobile allowance of FIVE HUNDRED DOLLARS
($500.00) per month, payable in accordance with Employer's customary
payroll practices.
(d) Employer shall provide health insurance coverage for Employee and
Employee's spouse in accordance with Employer's customary health insurance
coverage for its employees.
5. Stock Option
Employee shall have the option, exercisable annually for three consecutive
one-year periods beginning thirty (30) days after confirmation of
Employer's Chapter 11 Plan of Reorganization upon ten day's (10) prior
notice to Employer, to acquire at a cost of $.06 per share, five percent
(5%) per year (up to a total of 15%) of the then issued and outstanding
common stock of Employer. Employer and Hope Associates, LLC agree to do
whatever is necessary, including the issuance of previously unissued
shares and purchasing shares on the open market, to carry out the terms of
this paragraph. Failure to exercise such option in any year, except the
third year, shall not deprive Employee of the right to exercise the option
in a subsequent year. Notwithstanding the foregoing,
2
<PAGE>
Employee's total stock ownership as a result of the exercise of the
options granted in this paragraph shall not exceed the percentage of stock
Employee would own as if he were a member of Hope Associates, LLC
calculated by deriving the total stock of Employer owned by the members
plus the stock owned by Employee and dividing the sum by the number of
members plus one (1). Employee agrees to adjust his ownership of
Employer's stock upon request of Hope Associates, LLC from time to time to
comply with this provision.
6. Duration and Termination of Employment
The term of this Agreement is for a period of five (5) years, commencing
upon April 1, 1996. The employment relationship may be terminated at any
time by either party with or without cause. In the event that this
Agreement is terminated by Employer without cause, then until the sooner
of a period of one year (1) subsequent to such termination, or until
Employee obtains other employment, Employer shall continue to pay
Employee's base annual compensation, determined upon the date of such
termination, and shall continue to provide health insurance coverage to
Employee and Employee's spouse upon terms identical to that prior to the
termination of this Agreement. Termination without cause will not
terminate Employee's stock options hereunder. This paragraph shall survive
termination of this agreement.
7. Employee's Loyalty to Employer's Interest
Employee shall devote his best efforts and all of his full business time,
attention, knowledge and skill solely and exclusively to the business and
interest of Employer, and Employee shall be entitled to all benefits,
emoluments, profits or other issues arising from or incident to any and
all work, services and advice of Employee. Employee expressly agrees that
during the term hereof he will not be interested, directly or indirectly,
in any form, fashion or manner as partner, officer, director, stockholder,
advisor, Employee, or in any other form or capacity in any other business
similar to Employer's business or any allied trade.
8. Nondisclosure of Information Concerning Business
Employee will not at any time, in any fashion, form or manner directly or
indirectly divulge, disclose or communicate to any person, firm or
corporation in any manner whatsoever any information of any kind, nature
or description concerning any matters affecting or relating to the
business of Employer, including without limitation, the names of any of
it's customers, the price at which it places it's advertising, or any
other information concerning the business of Employer, its manner of
operation or its plans, processes or other data of any kind, nature or
description without regard to whether any or all of the foregoing matters
would be deemed confidential, material or important, except within those
perimeters dealing with usual operating procedures in the promotion of
business services.
The parties hereby stipulate that, as between them, the foregoing matters
are important, material and confidential and gravely affect the effective
and successful conduct of the
3
<PAGE>
business of Employer and it's goodwill, and that any breach of the terms
of this section is a material breach of this agreement.
9. Trade Secrets
Employee agrees during the period of his employment by Employer and for a
one year period following the termination, for whatever reason, of his
employment with Employer and Employee shall keep and hold as confidential
all information or trade secrets relating to the business which accrued to
him during his course of employment with Employer. Employee agrees not to
divulge any trade secrets or any other confidential information pertaining
to the business of Employer, including but not limited to, names and
addresses of Employer's past or present clients. Employee will not, during
or after the term of his employment, furnish to any individual, firm or
corporation other than with Employer's written permission any list of
clients, suppliers, employees or any other information related to
Employer's business.
It is understood that "trade secrets" as used in this Agreement is deemed
to include lists of clients, customers, contracts, lists of suppliers,
employees software compilations, operating procedures, licenses, or any
other information of whatever nature which gives Employer an opportunity
to obtain an advantage over it's competitors who do not have access or
know or use it. Employee agrees that, upon separation from Employer, he
will return all company property including all copies of any company trade
secrets that have been in his possession during the term of his
employment. Employee will not make copies of these documents for personal
use at any time. After termination of Employee's employment all mail
addressed to Employee will be opened by Employer's secretary. Personal
mail not relating to Employer's business will be promptly forwarded to
Employee. Similarly, all mail received by Employee relating to the company
business will be immediately forwarded to Employer.
10. Covenant not to Compete
Employee agrees that in the event his employment with Employer is
terminated for whatever reason that he will nor for a period of one year
from the date of such termination, directly or indirectly engage in any
business which is similar to or directly competitive with the business
engaged in by Employer, either for Employee's own benefit or for the
benefit or any other person, partnership, firm or corporation whatsoever
within the United States or internationally. In the event of dismissal or
discharge the employment of Employee shall cease, but this Agreement shall
remain in full force and effect and neither direct nor indirect dismissal,
diminution in salary or compensation, nor condition and status of
Employee's employment with Employer shall be any defense to any causes of
action brought under this Agreement to enforce this covenant not to
compete. Employee hereby consents and agrees that for any violation of any
of the provisions of the Agreement, a temporary and/or permanent
restraining order or injunction may be issued against him without notice
and without the posting of a bond. This right shall be in addition to any
other rights which Employer may have, including but not limited to seeking
damages from Employee. This paragraph shall survive termination of this
agreement.
4
<PAGE>
11. Interpretation, Venue and Waiver
This agreement shall be interpreted and governed under the laws of the
State of Florida. Employee consents to the jurisdiction of any court,
State or Federal, within Pinellas County, Florida and agrees that all
litigation regarding this Agreement shall be brought only in Pinellas
County, Florida and further by execution of this agreement the undersigned
waives his privilege of venue in suits brought by Employer or against
Employer in connection with this Agreement, and the undersigned further
waives any and all right he may have in the selection of venue and to
trial by jury of this matter.
12. Descriptive Expressions
All pronouns used in any gender shall include all genders and all words
used in singular number shall include the plural and vice versa wherever
the context so permits.
13. Severability
The provisions of this Agreement are severable. If any judgment or court
order shall declare any provision of the provisions of this Agreement too
broad or unenforceable because of its breadth, the court shall determine a
smaller area or time period which is enforceable and such enforceable
limitation or provision shall be enforced and the other provisions shall
not be affected thereby and shall remain in full force and effect.
14. Entirety
Employee and Employer agree that this is the entire understanding by both
parties and that this Agreement supersedes all prior negotiations and/or
written agreements between the parties and that such Agreement may not be
amended or modified except in writing signed by Employee or Employer.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written in Clearwater, Pinellas County, Florida.
Witnesses:
________________________ STARLOG FRANCHISE CORPORATION
BY: /s/ Michael Michaelson
-------------------------
Its
/s/ Veronica C. Hughes BY: /s/ Jack Fitzgerald
- ---------------------- -----------------------
Employee
This Agreement shall be executed in duplicate; one copy to be retained by
Employee and one copy to be retained by Employer.
5
PURCHASE OF CORPORATION
THROUGH STOCK PURCHASES
THIS STOCK PURCHASE AGREEMENT, made and entered into this 28th day of
September, 1997, by and between Thomas W. Gray, Sidney A. Crawley, Alan
Kleinmaier and Nick Tricarico, all of the Shareholders of KCK Corporation
(hereinafter collectively called "Sellers" and each hereinafter called
"Seller"), and Starlog Franchise Corporation, a corporation duly organized and
existing under and by virtue of the laws of the State of New Jersey (hereinafter
called "Purchaser");
WITNESSETH:
WHEREAS, Sellers are the owners of all of the issued and outstanding
shares of KCK Corporation, a North Carolina corporation (hereinafter called "the
Company"); and
WHEREAS, Sellers desire to sell and transfer to Purchaser, and Purchaser
desires to purchase and receive from Sellers, shares of common stock of the
Companies referred to herein for the consideration and upon the terms and
conditions hereinafter set forth;
NOW THEREFORE, for and in consideration of the mutual agreements
hereinafter set forth, the parties hereto agree as follows:
Section 1. Sale of Stock.
Upon and subject to the terms and subject to the conditions set forth in
this Agreement, each Seller hereby agrees to sell to Purchaser on the closing
date, free and clear of all liens, pledges and encumbrances of every kind,
character and description whatsoever, and Purchaser agrees to purchase from each
Seller on the said date the number of shares of common stock of the Company set
opposite their respective names below, to-wit:
<PAGE>
Name of Number of Shares
Seller of Common Stock Of
- ------ ------------------
Thomas W. Gray 300
Sidney A. Crawley, Trustee 400
Alan R. Kleinmaier 200
Nick Tricarico 100
TOTAL SHARES 1,000
Section 2. Closing Date.
2.1 The sale and purchase provided for in this Agreement shall be
consummated at a closing to be held at the offices of Purchaser in Tampa,
Florida at 10:00 o'clock A.M., E.S.T., on the 1st day of October, 1997, or at
such other place, time and date as the parties hereto shall mutually agree upon.
The date and event of such sale and purchase are, respectively, hererinafter
referred to as the "Closing Date" and the "Closing."
2.2 On the Closing Date, Sellers shall deliver to Purchaser certificates
evidencing and representing all of the issued and outstanding capital stock of
the Company, all of which is being sold hereunder, duly endorsed in blank or
accompanied by stock powers duly executed in blank in proper form for transfer.
Section 3. Consideration.
3.1 The consideration to be paid by purchaser to each Seller shall be $.01
Dollar for each share of the issued and outstanding capital stock of KCK
Corporation (for a total cash purchase price of $10.00 Dollars), the stock
warrants described in paragraph 12.8, and the other convenants set forth in this
Agreement. Such purchase price shall be paid to each Seller at closing.
Section 4. Transfer of Stock.
4.1 Sellers agree to cause the stock of KCK Corporation being sold
hereunder to be immediately transferred to and reissued in the name of
Purchaser.
2
<PAGE>
4.2 At the Closing, Sellers shall cause to be delivered to Purchaser
written resignations of all of the directors and officers of the Companies.
Sellers agree to cause meetings of the Board of Directors of the Companies to be
held upon due notice thereof or waiver thereof on the Closing Date, at which the
resignation of the respective officers and directors of the Companies shall be
accepted effective immediately and the vacancies created by such resignations
thereupon shall be filled by the persons designated by Purchaser.
Section 5. Access to Properties and Records of the Companies.
Sellers have previously allowed the officers, attorneys, accountants, and
other authorized representatives of Purchaser, free and full access to the
stores, properties, books, and records of the Company in order that Purchaser
may have full opportunity to make such investigation as it shall desire to make
of the affairs of the Company. Purchaser has not conducted an audit, valued
inventory or reviewed the accounts receivable.
Section 6. Representations as to Stocks.
Sellers jointly and severally represent and warrant to Purchaser that as
of the date hereof they are and on the Closing Date they will be, the owner of
the number of shares of common stock of the Company set opposite their name in
Section 1 hereof, and have good and marketable title thereto and the absolute
right to sell, assign, and transfer the same to Purchaser free and clear of all
liens, pledges, and encumbrances of any kind.
Section 7. Representations and Warranties of Sellers as to KCK
Corporation.
Sellers, jointly and severally, represent and warrant to Purchaser that:
7.1 KCK Corporation is a corporation duly organized and existing in good
standing under the laws of the State of North Carolina. The Company has the
corporate power to own their properties and assets and to carry on their
business as now being conducted.
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<PAGE>
7.2 The Company has no subsidiaries.
7.3 Attached hereto, marked Exhibit A, and hereby made a part hereof, are
the balance sheets of the Company as of September 3, 1997, and income statements
for the period ending on such date (hereinafter collectively called the
"Financial Statements"). To the best of the knowledge of Sellers, the Financial
Statements present fairly the financial condition of the Company as of the date
thereof and the results of operations for the periods covered thereby, provided
however, it is acknowledged that the "Notes Payable-FUNB" is actually a
shareholder loan due Sidney A. Crawley, and that the "Other Notes Payable" is
actually shareholder loans from Thomas W. Gray and Sidney A. Crawley which have
a current balance of approximately $590,000. To the extent it is determined that
the shareholder loans and accrued interest from Thomas W. Gray and Sidney A.
Crowley is greater than $590,000, the shareholder loans shall be adjusted upward
to no more than $600,000. Therefore, the unsecured shareholder loans will be no
more than $235,000 following conformance with paragraph 12.3 of this Agreement.
If it is determined that the shareholder loans and accrued interest is less than
$590,000, the unsecured shareholder loan will be reduced downward from $225,000
following conformance with paragraph 12.3 of this Agreement to reflect the
actual balance of the shareholder loans.
7.4 There are no loans or other obligations payable to officers,
directors, employees or stockholders of the Company, except salaries and
reimbursements of expenses incurred and accrued in the ordinary course of
business, and except as disclosed in the Financial Statements.
7.5 Other than as indicated in the Financial Statements and the exhibits
attached hereto, the Company has not, and from the date hereof to and including
the Closing Date the Company will not have
4
<PAGE>
(1) issued, authorized the issuance of, or sold or granted any option,
warrant, or right to purchase any of its stock, bonds, or other corporate
securities;
(2) incurred any obligation or liability, whether absolute or contingent,
except in the ordinary course of business;
(3) discharged or satisfied any lien or encumbrance or paid any obligation
or liability, whether absolute or contingent, other than in the ordinary course
of business;
Section 8. Representations and Warranties of Purchaser.
Purchaser represents and warrants unto Sellers that:
8.1 Purchaser is a corporation duly organized and existing and in good
standing under the laws of the State of New Jersey.
8.2 Purchaser has full power, in accordance with law, to execute and
perform this Agreement, and such execution and performance does not conflict
with any charter or by-law provision of Purchaser. The Board of Directors of
Purchaser has authorized, or before the Closing will have authorized, this
Agreement, the transactions contemplated herein, and the execution and delivery
hereof by Purchaser.
Section 9. Survival of Representations and Warranties.
The representations and warranties set forth in Section 6, Section 7 and
Section 8 hereof shall survive the Closing Date and shall not be affected by any
investigation, verification, or approval by any party hereto or by any one on
behalf of any of such parties.
Section 10. Conditions to Obligations of Purchaser.
The obligations of Purchaser under this Agreement are, at the option of
Purchaser, subject to the condition that, at or prior to the Closing Date:
5
<PAGE>
10.1 This Agreement shall have been signed by Sellers obligating and
committing Sellers to sell to Purchaser all of the issued and outstanding stock
of the Company, and all of Sellers shall at Closing on the Closing Date deliver
to Purchaser all of the shares of common stock of the Company to be sold by them
and all of Sellers shall in addition fully comply with the terms and provisions
hereof, it being understood and agreed that the obligation of Purchaser to
purchase shares of stock of the Company is conditioned upon performance
hereunder by all of Sellers.
10.2 All of the terms, covenants, and conditions of this Agreement to be
complied with or performed by Sellers at or before the Closing Date shall have
been duly complied with and performed.
10.3 The representations and warranties of Sellers hereof shall be true on
and as of the Closing Date with the same force and effect as if such
representations and warranties had been made on and as of the Closing Date. The
provisions of this subparagraph 10.3 shall be self-executing and each Seller, by
having closed the sale of his stock hereunder, shall be deemed conclusively to
have certified at Closing that all such representations and warranties were true
on and as of the Closing Date.
10.4 The business, properties, and operations of KCK Corporation shall not
have been materially adversely affected as a result of any fire, accident, or
other casualty or any Act of God or the public enemy unless they shall have been
protected by insurance and the resultant loss shall be fully covered by such
insurance.
10.5 There shall have been no changes in the business, properties,
operations, or financial condition of the Companies since the date of the
Financial Statements, other than changes in the ordinary course of business
which do not have a materially adverse affect on the value of the Company's
business.
6
<PAGE>
10.6 The usable merchandise inventory of the Companies as set forth in the
Financial Statements shall have been inspected by Purchaser or Purchaser's
agents and such inventory shall have been accepted by Purchaser, which
acceptance shall not be unreasonably withheld.
10.9 All legal proceedings in connection with the consummation of the
transactions contemplated by this Agreement, including the forms of all
documents of transfer and assignment, other documents, legal matters, opinions,
and procedure in connection therewith, shall have been approved in form and
substance by counsel for Purchaser, which approval shall not be unreasonably
withheld.
Section 11. Conditions to Obligations of Sellers.
The obligations of Sellers under this Agreement are, as the option of
Sellers, subject to the condition that, at or before the Closing Date, all the
terms, conditions, and covenants of this Agreement to be complied with and
performed by Purchaser at or before the Closing Date shall have been duly
complied with and performed.
Section 12. Additional Provisions.
The parties further agree to the following provisions which shall be
deemed inducements and additional consideration for the execution of this
Agreement:
12.1 Purchaser agrees to loan the Company an amount for operating
expenses, subject to any required approval from the Bankruptcy Court. Thomas W.
Gray and Sidney A. Crawley agree to subordinate their secured shareholder loan
to this new loan up to an amount of $350,000. Written confirmation of such loan
shall be provided to Thomas W. Gray and Sidney A. Crawley.
12.2 Thomas W. Gray and Sidney A. Crawley agree to exchange approximately
$240,000 of their secured debt for a KCK receivable due Broadway Squeeze, Inc.
in the amount of approximately $240,000, subject to Bankruptcy Court approval.
7
<PAGE>
12.3 The parties agree that Thomas W. Gray and Sidney A. Crawley shall
have a secured claim in the bankruptcy proceeding of $125,000, and an unsecured
claim of approximately $225,000. The secured loan to Thomas W. Gray and Sidney
A. Crawley shall be paid by KCK commencing November 1, 1997 with interest at ten
percent per annum, amortized over a sixty month period with the remaining unpaid
balance of principal and interest due October 1, 2002. Payment shall be made
each month in the amount of $2,655.89.
12.4 All parties agree to vote in favor of a bankruptcy plan of
reorganization that adopts the provisions of this Agreement, and agree not to
contest the valuations and interests as described in this Agreement.
12.5 Starlog agrees that in the event of a sale of substantially all of
the assets of KCK Corporation, Starlog will pay in full the then current balance
due all secured creditors.
12.6 Starlog shall commence management of the retail stores of KCK
Corporation upon execution of this Agreement.
12.7 Johnson County Bank and Nations Bank will remain secured creditors
and retain priority of their liens against the assets of KCK Corporation.
Starlog will cause the Company as soon as practicable following closing to
commence adequate protection payments to Johnson County Bank and Nations Bank.
Starlog agrees to cause the Company to to refinance the Johnson County and
Nations Banks loans prior to October 1, 2000. If both such loans have not been
refinanced on that date, the Company shall pay to the loan guarantors a penalty
provision in an amount $100 per day until refinancing has occured.
12.8 Starlog shall issue stock warrants upon the following terms and
conditions:
100,000 warrants to Nick Tricarico at $.50 each to be exercised within two
years; and
8
<PAGE>
200,000 warrants to Thomas W. Gray and 200,000 warrants to Sidney A.
Crawley to be exercised at $.25 each if exercised within one year of
closing or at $.40 each if exercised within two years of closing. All such
warrants shall expire at the end of two years from the date of closing.
Starlog agrees to register the warrants issued pursuant to this agreement
in the same manner as all other stock, securities and warrants being
registered by Starlog under any Federal and State securities registration
provisions.
Section 13. Miscellaneous.
13.1 Sellers and Purchasers, at any time and from time to time after the
Closing Date, upon request of the other, will do, execute, acknowledge, and
deliver all such further acts, deeds, assignments, transfers, conveyances,
powers of attorney, and assurances as may be required to convey and transfer to
and vest in Purchaser and to protect the right, title, and interest in and
enjoyment of, the common stock of the Company intended to be assigned,
transferred, and conveyed pursuant to this Agreement.
13.2 Subject to the terms and conditions hereof, this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, executors, administrators, successors and assigns.
13.3 Any notice, request, instruction, or other document to be given
hereunder to any party shall be in writing delivered personally or sent by
Registered Mail or Certified United States Air Mail, postage prepaid, or
telegram, as follows:
If to any of Sellers: % Thomas W. Gray
9829 Lee Circle
9
<PAGE>
Leawood, Kansas 66206
If to Purchaser: % President
Starlog Franchise Corporation
945 Brighton Street
Union, New Jersey 07083
Any party may change its address for purposes of this paragraph by giving notice
of such change of address to the other party in the manner herein provided for
giving notice.
13.4 This instrument contains the entire agreement between the parties
hereto with respect to the transaction contemplated hereby and shall not be
changed or terminated except by written amendment signed by the parties hereto.
13.5 This Agreement is declared to have been made under the laws of the
State of North Carolina.
13.6 This Agreement may be executed in a number of counterparts by
facsimile by different Sellers and Purchaser and all of such counterparts
executed by Purchaser and by such Sellers, together, shall constitute one and
the same agreement, and it shall not be necessary for Purchaser and all of
Sellers to execute the same counterpart hereof. Fax transmissions, with receipt
for sending shall be deemed originals.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
SELLERS:
Signatures of the Parties:
10
<PAGE>
/s/ Thomas W. Gray
---------------------------------
Thomas W. Gray
/s/ Sidney A. Crawley
---------------------------------
Sidney A. Crawley
/s/ Alan R. Kleinmaier
---------------------------------
Alan R. Kleinmaier
---------------------------------
Nick Tricarico
PURCHASER:
ATTEST: Starlog Franchise Corporation
[ILLEGIBLE] By /s/ Jack Fitzgerald
- ------------------------------ -------------------------------
SECRETARY Title: President
---------------------------
(Corporate Seal)
11
FILED
NOV 26 1997
NANCY MAYER-WHITTINGTON, CLERK
U.S. DISTRICT COURT
UNITED STATES DISTRICT COURT
for the
DISTRICT OF COLUMBIA
- --------------------------------------------
SECURITIES AND EXCHANGE COMMISSION,
Plantiff,
v. 96 Civ. 2543 GK
CHARLES O. HUTTOE, et al.,
Defendants and Relief Defendants.
- --------------------------------------------
FINAL JUDGMENT AS TO RELIEF DEFENDANTS HOPE ASSOCIATES,
L.L.C., MICHAEL MICHAELSON, RAYMOND J. MARKMAN,
HERMAN RUSH, MARK SAVEL, AND GEORGE HOLSTEN
WHEREAS,
1. Plaintiff Securities and Exchange Commission ("SEC") filed a Second
Amended Complaint ("Complaint") in this action.
2. Relief Defendants Michael Michaelson, Raymond J. Markman, Herman Rush,
Mark Savel, and George Holsten (collectively, "Hope Associates' members") and
Hope Associates, L.L.C. ("Hope Associates"), in their Consent and Undertakings
("Consent") and other documents filed in this action entered a general
appearance; consented to the jurisdiction of this Court over them and admitted
the jurisdiction of this Court over the subject matter of this action; waived
the entry of findings of fact and conclusions of law pursuant to Rule 52 of the
Federal Rules of Civil Procedure; waived any right they might have to appeal
from the entry of this Final Judgment; and without admitting or denying the
<PAGE>
allegations of the Complaint, except as to jurisdiction consented to the entry
of this Final Judgment.
3. This Court has jurisdiction over Hope Associates and Hope Associates'
members and the subject matter hereof.
I.
IT IS ORDERED, ADJUDGED AND DECREED that Hope Associates and Hope
Associates' members pay, jointly and severally, into the Registry of this Court
disgorgement in the amount of $450,000.00, representing funds the SEC contends
are subject to a constructive trust on behalf of investors in Systems of
Excellence, Inc. ("SOE") or to which investors in SOE are entitled based on
other legal principles. Hope Associates and Hope Associates' members shall pay
this $450,000.00 in accordance with the provisions of paragraphs II and III
below. This disgorgement amount is based on, among other things, Hope
Associates' and Hope Associates' members sworn statement describing all funds,
benefits, and items of value that they have received directly or indirectly from
Charles O. Huttoe or any of the defendants in this action. If at any time
following the entry of the Final Judgment, the SEC or any official that the
Court appoints to administer the disgorgement fund in this case
("Court-appointed Receiver"), obtains information indicating that any of the
representations in this sworn statement was fraudulent, misleading, innaccurate,
or incomplete in any material respect as of the time when such representation
was made, the SEC or the Court-appointed Receiver may, at their discretion,
petition the Court for an order requiring Hope Associates or Hope Associates'
members to pay, in addition to the full amount of payment set forth in paragraph
I of the Final Judgment, such other monies and assets that can
-2-
<PAGE>
be shown to have been received by or paid for the benefit of Hope Associates or
Hope Associates' members, together with prejudgment interest thereon. In any
such petition, the SEC or the Court-appointed Receiver may move the Court to
consider any and all available remedies, including, but not limited to, ordering
Hope Associates or Hope Associates' members to pay funds or assets, directing
the forfeiture of any assets, or sanctions for contempt of the Court's Final
Judgment, and the SEC or the Court-appointed Receiver also may request
additional discovery from Hope Associates or Hope Associates' members. Hope
Associates or Hope Associates' members may not, by way of defense to such
petition, challenge the validity of their Consent or the Final Judgment, or
contest the allegations in the Complaint filed by the SEC.
II.
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that Hope Associates and Hope
Associates' members shall make payment pursuant to paragraph I above by
delivering a certified check or money order in the amount of $250,000.00, within
ten (10) days of entry of this Final Judgment, to the Registry of the Court,
U.S. District Court for the District of Columbia, 333 Constitution Avenue, NW,
Washington, DC 20001. The check or money order shall be made payable to the
"CLERK, U.S. DISTRICT COURT FOR THE DISTRICT OF COLUMBIA" and bear on its face
the caption "SECURITIES AND EXCHANGE COMMISSION v. CHARLES O. HUTTOE, ET AL.".
Hope Associates and Hope Associates' members shall notify the SEC of the payment
they make pursuant to this paragraph by sending a copy of the check or money
order delivered to the Registry of the Court to: Erich T. Schwartz, Division of
Enforcement, Securities and Exchange
-3-
<PAGE>
Commission, 450 Fifth Street, N.W., Mail Stop 5-4, Washington, D.C. 20549. Such
payment shall thereafter be distributed pursuant to a plan for disposition of
disgorgement funds, to be filed by the SEC with the Court, but in no event shall
any of the funds paid into the Registry of the Court be returned to Hope
Associates or Hope Associates memebers.
III.
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that effective immediately
upon entry of this Final Judgment, the freeze currently in effect as to
$200,000.00 in Bank of Tampa account number 21900639 of Evans & Donica, P.A., is
lifted for the sole purpose of allowing those funds to be transferred to the
Registry of the Court. Within three (3) days of entry of this Final Judgment,
Hope Associates' members shall direct that such $200,000 be paid by certified
check or money order to the Registry of the Court, U.S. District Court for the
District of Columbia, 333 Constitution Avenue, NW, Washington, DC 20001. The
check or money shall be made payable to the "CLERK, U.S. DISTRICT COURT FOR THE
DISTRICT OF COLUMBIA" and bear on its face the caption "SECURITIES AND EXCHANGE
COMMISSION v. CHARLES O. HUTTOE, ET AL." Hope Associates and Hope Associates'
members shall notify the SEC of the payment made pursuant to this paragraph by
sending a copy of the check or money order delivered to Registry of the Court
to: Erich T. Schwartz, Division of Enforcement, Securities and Exchange
Commission, 450 Fifth Street, N.W., Mail Stop 5-4, Washington, D.C. 20549. Such
payment shall thereafter be distributed pursuant to a plan for disposition of
disgorgement funds, to be filed by the SEC with the Court, but in no event shall
any of the
-4-
<PAGE>
funds paid into the Registry of the Court be returned to Hope Associates Hope
Associates' members.
IV.
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the Hope Associates'
members shall, in addition to their payment obligations pursuant to paragraphs
I, II, and III above, personally guarantee, jointly and severally, payment of
$250,000.00 of the amount that Relief Defendant Starlog Franchise Corporation
("Starlog") is ordered to pay pursuant to Relief Defendant Starlog's Consent and
Undertakings and the Final Judgment as to Relief Defendant Starlog in this case.
The Hope Associates' members' personal guarantees shall be substantially in the
form attached as Exhibit A to the Consent and Undertakings, an shall remain in
effect until Starlog has made payment in full of all of its obligations pursuant
to Relief Defendant Starlog's Consent and Undertakings and the Final Judgment as
to Relief Defendant Starlog.
V.
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the Consent is
incorporated herein with the same force and effects as if fully set forth
herein.
VI.
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that Hope Associates and Hope
Associates' members shall fully comply with the undertakings set forth in the
Consent.
-5-
<PAGE>
VII.
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that this Court shall retain
jurisdiction of this matter for purposes of enforcing this Final Judgment.
VIII.
There being no just reason for delay, the Clerk of the Court is hereby
directed, pursuant to Rule 54(b) of the Federal Rules of Civil Procedure to
enter this Final Judgment forthwith and without further notice.
/s/ Gladys Kessler
------------------------------
GLADYS KESSLER
UNITED STATES DISTRICT JUDGE
Dated: Nov 26, 1997
Washington, D.C.
-6-
<PAGE>
FILED
NOV 26 1997
NANCY MAYER-WHITTINGTON, CLERK
U.S. DISTRICT COURT
UNITED STATES DISTRICT COURT
for the
DISTRICT OF COLUMBIA
- ------------------------------------------
SECURITIES AND EXCHANGE COMMISSION,
Plantiff,
v. 96 Civ. 2543 GK
CHARLES O. HUTTOE, et al.,
Defendants and Relief Defendants.
- ------------------------------------------
FINAL JUDGMENT AS TO RELIEF DEFENDANT
STARLOG FRANCHISE CORPORATION
WHEREAS,
1. Plaintiff Securities and Exchange Commission ("SEC") filed a Second
Amended Complaint ("Complaint") in this action.
2. Relief Defendant Starlog Franchise Corporation ("Starlog"), in its
Consent and Undertakings ("Consent") and other documents filed in this action,
entered a general appearance; consented to the jurisdiction of this Court over
it and admitted the jurisdiction of this Court over the subject matter of this
action; waived the entry of findings of fact and conclusions of law pursuant to
Rule 52 of the Federal Rules of Civil Procedure; waived any right it might have
to appeal from the entry of this Final Judgment; and without admitting or
denying the allegations of the Complaint, except as to jurisdiction, consented
to the entry of this Final Judgment.
<PAGE>
3. This Court has jurisdiction over Starlog Franchise Corporation and the
subject matter hereof.
I.
IT IS ORDERED, ADJUDGED AND DECREED that Starlog pay into the Registry of
this Court disgorgement in the amount of $500,000.00, together with
post-judgment interest at the rate of 5.55 percent (computed daily from June 16,
1997 and compounded annually). This disgorgement amount is based on, among other
things, Starlog's sworn statement describing all funds, benefits, and items of
value that it has received directly or indirectly from defendant Charles O.
Huttoe or any of the defendants in this action. If at any time following the
entry of the Final Judgment, the SEC or any official that the Court appoints to
administer the disgorgement fund in this case ("Court-appointed Receiver"),
obtains information indicating that any of the representations in such sworn
statement was fraudulent, misleading, inaccurate, or incomplete in any material
respect as of the time when such representation was made, the SEC or the
Court-appointed Receiver may, at their discretion, petition the Court for an
order requiring Starlog to pay, in addition to the full amount of payment set
forth in paragraph I of the Final Judgment, such other monies and assets that
can be shown to have been received by or paid for the benefit of Starlog,
together with prejudgment interest thereon. In any such petition, the SEC or the
Court-appointed Receiver may move the Court to consider any and all available
remedies, including, but not limited to, ordering Starlog to pay funds or
assets, directing the forfeiture of any assets, or sanctions for contempt of the
Court's Final Judgment, and the SEC or the Court-appointed Receiver also may
request additional discovery from Starlog. Starlog may not, by way of
-2-
<PAGE>
defense to such petition, challenge the validity of its Consent or the Final
Judgment, or contest the allegations in the Complaint filed by the SEC.
II.
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the payment of
$500,000.00 plus post-judgment interest ordered in paragraph I, above, shall be
made in four annual installments, based on a five-year amortization schedule.
Each payment shall be made on or before January 31, with the first payment made
by January 31, 1998. The first three payments shall be in the amount of
$114,916.00, with all of the remaining principal and accrued interest to be paid
in the fourth payment;
Provided however, that payment of all outstanding amounts may be required
at any time after the Receiver has recovered all or substantially all of the
funds anticipated to be recovered from the fraud committed by defendant Charles
O. Huttoe and a plan of distribution for the recovered funds has been approved
by the Court. Such payment shall be made within 90 days after notice to Starlog
by the Commission or by any agent that may be appointed by the Court to carry
out such distribution that the funds are required for such distribution. Notice
to Starlog may be made by delivering a copy of such notice to: Philip L. Stern,
Esq., Freeman, Freeman & Salzman, P.C., Suite 3200, 401 North Michigan Avenue,
Chicago, Illinois 60611-4207.
III.
IT IS FURTHER ORDERED, ADJJDGED AND DECREED that the payment of the
$500,000.00 plus post-judgment interest pursuant to paragraphs I and II, above,
shall be made by delivering certified checks or money orders in the required
amounts to the Registry
-3-
<PAGE>
of the Court, U.S. District Court for the District of Columbia, 333 Constitution
Avenue, NW, Washington, DC 20001. The checks shall be made payable to the
"CLERK, U.S. DISTRICT COURT FOR THE DISTRICT OF COLUMBIA" and bear on its face
the caption "SECURITIES AND EXCHANGE COMMISSION v. CHARLES O. HUTTOE, ET AL.".
Starlog shall notify the SEC of each payment it makes pursuant to this Final
Judgment by sending a copy of each check delivered to the Registry of the Court
to: Erich T. Schwartz. Division of Enforcement, Securities and Exchange
Commission, 450 Fifth Street, N.W., Mail Stop 54, Washington, D.C. 20549. Such
payments shall thereafter be distributed pursuant to a plan for disposition of
disgorgement funds, to be filed by the SEC with the Court, but in no event shall
any of the funds paid into the Registry of the Court be returned to Starlog.
IV.
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the Consent is
incorporated herein with the same force and effect as if fully set forth herein.
V.
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that Starlog shall fully
comply with the undertakings set forth in the Consent.
VI.
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that this Court shall retain
jurisdiction of this matter for purposes of enforcing this Final Judgment.
VII.
There being no just reason for delay, the Clerk of the Court is hereby
directed,
-4-
<PAGE>
pursuant to Rule 54(b) of the Federal Rules of Civil Procedure to enter this
Final Judgment forthwith and without further notice.
/s/ Gladys Kessler
---------------------------
GLADYS KESSLER
UNITED STATES DISTRICT JUDGE
Dated: Nov 26, 1997
Washington, D.C.
-5-
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