Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended September 30, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from _________ to _________
Commission File Number: 0-22614
Atlantic Beverage Company, Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-3761400
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
650 Dundee Road, Suite 370
Northbrook, Illinios 60062
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 480-4000
Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
As of September 30, 1996, there were outstanding 5,740,984 shares of Common
Stock, par value $.01 per share, of the Registrant.
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<PAGE>
ATLANTIC BEVERAGE COMPANY, INC.
INDEX
FORM 10-Q
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at
December 31, 1995 and September 30, 1996............... 3
Consolidated Statements of Operations for the nine months
ended September 30, 1996 and 1995, three months ended
September 30, 1996 and 1995 ........................... 4
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1996 and 1995...................... 5
Notes to Consolidated Financial Statements
(September 30, 1995 and 1994).......................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 10
PART II - OTHER INFORMATION
Item 1-6. ............................................. 15
SIGNATURES.................................................................. 16
INDEX TO EXHIBITS........................................................... 17
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<PAGE>
ATLANTIC BEVERAGE COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------ ------------
(Unaudited)
<S> <C>
ASSETS
CURRENT ASSETS:
Cash $ 1,141,787 $ -
Accounts receivable, net 6,136,979 798,385
Inventory 3,845,080 630,968
Prepaid expenses and other 662,420 171,467
---------- ---------
Total current assets 11,786,266 1,600,820
EQUIPMENT, net 3,154,944 706,518
NONCOMPETE AGREEMENTS, net 86,000 116,000
DEFERRED TAX ASSET 365,000 365,000
GOODWILL, net 11,063,869 30,666
OTHER ASSETS, net 430,540 102,143
---------- ---------
Total Assets $26,886,619 $ 2,921,147
========== ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft $ 2,034,230 $ 297,458
Line of credit 5,071,891 440,000
Accounts payable 5,238,175 855,846
Accrued expenses 1,006,696 42,528
Current portion of obligations under capital leases 30,342 -
Current portion of notes payable 1,761,606 788
Net current liabilities of discontinued operations 203,492 722,173
---------- ---------
Total current liabilities 15,346,432 2,358,793
NOTES PAYABLE, net of current portion 6,286,510 -
OBLIGATIONS UNDER CAPITAL LEASE, net of current portion 86,795 -
DEFERRED TAX LIABILITY 167,000 -
---------- ---------
Total Liabilities 21,886,737 2,358,793
---------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 5,000,000 shares
authorized; none issued - -
Common stock, $.01 par value; 30,000,000 shares authorized;
6,149,022 and 2,727,955 shares issued and outstanding
in 1996 and 1995, respectively 61,490 27,280
Series A nonvoting convertible preferred stock, $.01
par value; 1 share authorized, issued and outstanding - -
Treasury stock, at cost, 408,038 shares (427,070) (427,070)
Additional paid-in capital 8,772,702 5,041,252
Accumulated deficit (3,407,240) (4,079,108)
---------- ---------
Total Stockholders' Equity 4,999,882 562,354
---------- ---------
Total Liabilities and Stockholders' Equity $26,886,619 $ 2,921,147
========== =========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
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<PAGE>
ATLANTIC BEVERAGE COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
----------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C>
NET SALES $110,929,668 $16,838,094 $39,703,366 $6,042,909
COST OF GOODS SOLD 98,805,071 12,071,752 35,218,190 4,315,512
---------- ---------- ---------- ---------
Gross profit 12,124,597 4,766,342 4,485,176 1,727,397
---------- ---------- ---------- ---------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES:
Salaries and benefits 4,975,230 2,406,439 1,775,194 825,297
Other operating expenses 5,472,137 1,806,306 1,960,131 661,018
Depreciation and amortization 650,029 278,457 204,325 109,136
--------- --------- --------- ---------
Total selling, general and
administrative expenses 11,097,396 4,491,202 3,939,650 1,595,451
---------- --------- --------- ---------
Income from operations 1,027,201 275,140 545,526 131,946
INTEREST EXPENSE 814,255 13,688 273,769 4,864
INTEREST INCOME 18,318 11,553 4,987 2,742
OTHER INCOME 440,608 - 20,274 -
------- --------- --------- ---------
Income before income tax
provision 671,872 273,005 297,018 129,824
INCOME TAX PROVISION - - - -
------- --------- --------- ---------
Net income from continuing
operations after accretion of
certain preferred stock 671,872 273,005 297,018 129,824
------- ------- ------- -------
Loss from discontinued operations - (391,468) - (132,994)
------- ------- ------- -------
Net income (loss) $ 671,872 $ (118,463) $ 297,018 $ (3,170)
------- ------- ------- -------
INCOME (LOSS) PER COMMON SHARE
DATA:
Net income (loss) from continuing
operations $ .14 $ .11 $ .05 $ .06
======= ======== ======== ========
Loss from discontinued
operations $ - $ (.15) $ - $ (.06)
======= ======== ======== ========
Net income (loss) $ .14 $ (.05) $ .05 $ -
======= ======== ======== ========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 4,948,083 2,597,618 5,969,110 2,346,117
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
ATLANTIC BEVERAGE COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
---- ----
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 671,872 $ 273,005
Adjustments to reconcile net income to cash flows provided
by operating activities, net of non-cash items:
Depreciation and amortization 693,788 278,457
Writeoff of deferred financing costs 16,047 -
Decrease (increase) in accounts receivable, net 261,867 (107,750)
Increase in inventory (956,967) (162,375)
(Increase) decrease in prepaid expenses and other (367,881) 95,879
(Decrease) increase in accounts payable (822,256) 477,071
Increase (decrease) in accrued expenses 385,399 74,137
------- --------
Net cash flows from-
Continuing operations (118,131) 928,424
Discontinued operations (518,681) (610,220)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment (363,932) (356,629)
Cash paid for acquisition of Prefco and Carlton, net
of cash acquired (3,532,001) -
Cash paid for acquisition of Richard's (2,500,000) -
Cash paid for acquisition fees (708,704) -
Decrease in other assets 125,409 -
------- --------
Net cash flows from investing activities (6,979,228) (356,629)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of equipment notes payable - (61,278)
Cash paid for financing fees (420,343) -
Borrowings under line of credit 4,631,691 562,934
Borrowings under term loan 5,900,000 -
Repayment of capital lease obligation (33,948) -
Decrease in bank overdraft, net (1,346,927) -
Repayment of notes payable (2,755,031) -
Proceeds from private placement of common stock, net 2,782,384 -
Repurchase of common stock - (409,588)
---------- ---------
Net cash flows from financing activities 8,757,826 92,068
---------- ---------
NET INCREASE IN CASH 1,141,786 53,643
--------- ---------
CASH, beginning of period - 142,395
--------- ---------
CASH, end of period $ 1,141,786 196,038
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
ATLANTIC BEVERAGE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accompanying consolidated financial statements present the accounts
of Atlantic Beverage Company, Inc. (the "Company") and its wholly-owned
subsidiaries. The Company, together with its subsidiaries, is engaged in the
distribution of specialty beverages in the Baltimore and Washington, D.C.
metropolitan areas and, effective January 1, 1996, engaged in the manufacturing,
marketing and distribution of meat products in several markets including
Houston, Dallas, Austin and San Antonio (see Note 3).
The consolidated financial statements included herein for Atlantic
Beverage Company, Inc. have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
In management's opinion, the interim financial data presented includes all
adjustments (which include only normal recurring adjustments) necessary for a
fair presentation. Certain information and footnote disclosures normally
included in the consolidated financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations. However, the Company believes that the
disclosures are adequate to understand the information presented. The results of
operations for the three months and nine months ending September 30, 1996, are
not necessarily indicative of the operating results expected for the entire
year. It is suggested that these consolidated financial statements be read in
conjunction with the Company's December 31, 1995 consolidated financial
statements and notes thereto included in the Company's annual report on Form
10-K dated March 31, 1996.
Revenue Recognition
The Company records sales when product is delivered to the customers.
Discounts provided, principally volume, are accrued at the time of the sale.
Inventory
Inventory is stated at the lower of cost or market. It is comprised of
raw materials, finished goods and inventory supplies. Cost is determined using
the first-in, first-out method (FIFO). Inventory consisted of the following as
of:
September 30, December 31,
1996 1995
------------ ------------
Raw materials $ 187,398 $ -
Finished goods 3,454,135 630,968
Packaging supplies 203,547 -
--------- -------
Total purchase price $ 3,845,080 $ 630,968
========= =======
Equipment
Equipment consists of machinery and equipment, furniture and fixtures,
leasehold improvements and delivery vehicles and are stated at cost.
Depreciation is provided using the straight-line method over following useful
lives.
Machinery and equipment 5-10 years
Furniture and fixtures 5 years
Leasehold improvements 5 years
Vehicles 5-10 years
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<PAGE>
Other Assets
Other assets consist of costs associated with the acquisitions
described and includes distribution and license agreements and deferred
financing costs. Distribution and license agreements are being amortized over
2-3 years using the straight-line method, while the deferred financing costs are
being amortized over 5 years using the effective interest method.
Goodwill
Goodwill was recorded with the acquisitions of the Predecessor, Prefco,
Inc., Carlton Foods, Inc. and Richard's Cajun Country Food Processors (see Note
3) and is being amortized using the straight-line method over 5 to 40 years.
2. LINE OF CREDIT:
In March 1996, the Company entered into a new line of credit agreement
with a bank through March 2001. Under the terms of the agreement, the Company is
permitted to borrow up to $6,500,000, subject to advance formulas based on
accounts receivable and inventory. As of September 30, 1996, the Company had
outstanding under the the line of credit approximately $5.1 million. The line of
credit is subject to monthly payments of interest and quarterly payments of
principal with a final payment of interest and principal due March 2001. The
interest rate on the line of credit is variable.
3. ACQUISITION OF PREFCO AND RICHARD'S AND MERGER OF CARLTON FOODS:
As of January 1, 1996, a newly formed, wholly-owned subsidiary of the
Company acquired the outstanding common stock of Prefco, Inc. (Prefco). Also as
of January 1, 1996, Carlton Foods, Inc. (Carlton) was merged into another newly
formed, wholly-owned subsidiary of the Company. In addition, as of August 1,
1996, another newly formed, wholly-owned subsidiary of the Company acquired
certain of the assets of Richard's Cajun Country Food Processors (Richard's).
The acquisitions were accounted for using the purchase method of accounting,
whereby the purchase price is allocated to the assets acquired and liabilities
assumed based upon fair value. The resulting goodwill was determined as follows:
<TABLE>
<CAPTION>
Prefco Carlton Richard's
<S> <C>
Cash consideration provided at closing $6,000,000 $ - $2,500,000
Consideration paid through the issuance of note
to the Seller 1,400,000 - 865,454
Consideration paid through the issuance of the
Company's common stock 75,000 600,002 -
Debt assumed by the Company - 2,945,180 -
Acquisition costs 230,852 227,852 250,000
------- --------- ----------
Total purchase price $7,705,852 $3,773,034 $3,615,454
========= ========= =========
Cash $2,445,210 $ 22,959 $ -
Accounts receivable 5,037,027 464,445 98,989
Inventory 1,776,325 418,547 62,273
Prepaid expenses and other assets 152,059 1,400 14,192
Property, plant and equipment 222,450 1,301,062 1,000,000
------- --------- ---------
Total assets acquired 9,633,071 2,208,413 1,175,454
--------- --------- ---------
Bank overdrafts 2,821,156 262,543 -
Accounts payable 4,908,042 246,712 -
Accrued expenses 261,873 316,896 -
Deferred tax liability - 167,000 -
Obligations under capital lease - 151,085 -
--------- --------- ----------
Total liabilities assumed 7,991,071 1,144,236 -
--------- --------- ----------
Net assets acquired 1,642,000 1,064,177 1,175,454
--------- --------- ----------
Goodwill $6,063,852 $2,708,857 $2,440,000
========= ========= =========
</TABLE>
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<PAGE>
In connection with the Prefco and Carlton transactions, the Company
issued approximately 650,000 shares of common stock to the former stockholders
of Prefco and Carlton and issued at a price of $1.05 per share approximately
$2.7 million shares of common stock in a private placement to a limited number
of purchasers. In connection with the private placement, the Company incurred
costs of approximately $121,000. The Company also entered into a loan agreement
with a commercial bank which provided a $4.5 million term loan and a $6.5
million revolving line of credit (see Note 2). The Company also issued a
subordinated promissory note to the former shareholders of Prefco in the amount
of $1.4 million. The note bears interest at 9% per annum and is payable in
quarterly installments of interest, with a final payment of all outstanding
interest and principal on March 15, 2001.
In connection with the Richard's transaction, the Company paid cash in
the amount of $2,500,000 and issued a subordinated promissory note to the former
shareholder in the amount of $865,454. The note bears interest at 6.35% per
annum and is payable in quarterly installments, with a final payment of all
outstanding interest and principal on July 31, 2001. In addition, the former
shareholder signed an employment agreement with the Company for three years at a
salary of $50,000 per year. If, at the end of three years, the former
shareholder is still employed by the Company and Richard's meets certain
cumulative operating income targets, the Company will deliver a pre-determined
amount of shares to the former shareholder.
4. DISCONTINUATION OF THE FLYING FRUIT FANTASY DIVISION:
In December 1995, the Company adopted a plan to dispose of its Flying
Fruit Fantasy division. As a result, the Company recognized a one-time charge of
$2,410,200, in the fourth quarter of 1995. The net liabilities of the Flying
Fruit Fantasy division have been presented separately in the accompanying
December 31, 1995 and September 30, 1996, consolidated balance sheets. The
result of operations for the three months and nine months ended September 30,
1995, are presented separately in the statement of operations as a loss from
discontinued operations.
5. EMPLOYMENT AGREEMENT:
Effective March 15, 1996, the Company entered into a five-year
employment agreement with its new Chief Executive Officer which provides for
base compensation and an incentive bonus. In connection with the employment
agreement, the Company also issued 250,000 stock options with an exercise price
of $1.50, representing the fair market value at March 15, 1996.
6. TERMINATION SETTLEMENT:
During the first quarter of 1996, Atlantic Beverage and one of its
former suppliers agreed to terminate their distribution agreement. As part of
the settlement, the former supplier agreed to pay Atlantic Beverage $250,000 in
consideration. The consideration received is included in other income on the
consolidated statements of operations. During 1995, approximately 4% of the
total cases sold represented cases supplied by this former supplier.
7. CONTINGENCIES:
Lawsuits and claims are filed against the Company from time to time in
the ordinary course of business. These actions are in various preliminary stages
and no judgments or decisions have been rendered by hearing boards or courts.
Management, after reviewing developments to date with legal counsel, is of the
opinion that the outcome of such matters will not have a material adverse effect
on the Company's financial position or results of operations.
-8-
<PAGE>
8. SUBSEQUENT EVENT:
On October 1, 1996, the Company acquired the outstanding common stock
of Grogan's Farm, Inc. and the assets of Grogan's Sausage, Inc. (collectively
referred to as "Grogan's"). In addition, the Company also acquired certain real
property previously held by the shareholders of Grogan's. Grogan's, based in
Arlington, Kentucky, is engaged in the manufacturing, marketing and
distribution of pork sausage products. Its products are sold under the Grogan's
brand name in a region that includes six states. The combined purchase price
for the acquisition was approximately $3.8 million, including real estate. The
Company issued 573,810 shares of its common stock to the former shareholders,
paid approximately $1.9 million in cash and issued a subordinated promissory
note to the former shareholders in the amount of $200,000. The note is
effective October 1, 1998, bears interest at 8% per annum and is payable in
quarterly installments, with a final payment of all outstanding interest and
principal on September 30, 2001.
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<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
General
The Company completed its initial public offering of common stock (the
"Offering") in 1993. Following the Offering, the Company repaid approximately
$4.2 million in debt and recorded a net non-cash charge of approximately $1.3
million in connection with the repayment of debt and the write- off of certain
intangible assets.
On April 27, 1994, the Company entered into and consummated an
agreement to acquire certain assets and marketing rights from Flying Fruit
Fantasy, USA, Inc. for total consideration of approximately $1.2 million. Under
the terms of this agreement, the Company obtained worldwide marketing and
distribution rights to a frozen beverage served through automated dispensing
machines. In December 1995, the Company adopted a plan to discontinue this
division. As a result, in the fourth quarter of 1995, the Company recognized a
one-time charge of approximately $2.4 million which reflected the write-off of
$1.1 million in equipment and $0.9 million in intangible assets, and costs of
approximately $0.4 million associated with discontinuing the operation.
In the first quarter of 1996, a newly formed, wholly-owned subsidiary
of the Company acquired the outstanding common stock of Prefco, Inc. ("Prefco").
Prefco, based in Houston, Texas, markets and distributes its own branded meat
products as well as unbranded meat products to the retail grocery trade in
Texas. Also in the first quarter of 1996, Carlton Foods, Inc. ("Carlton") was
merged into another newly formed, wholly-owned subsidiary of the Company.
Carlton, based in New Braunfels, Texas, is a manufacturer of branded and private
label meat products. The combined purchase price for these entities was
approximately $11 million, which included approximately $3.0 million in Carlton
refinanced and assumed debt. In connection with these transactions and the
financing thereof, the Company incurred transaction costs of approximately $0.9
million, which were recorded as additional goodwill on the Company's balance
sheet.
In connection with such transactions, the Company (i) issued
approximately 650,000 shares of common stock to the former stockholders of
Prefco and Carlton, (ii) issued, at a price of $1.05 per share, approximately
2.7 million shares of common stock in a private placement to a limited number of
purchasers, (iii) entered into a loan agreement with LaSalle National Bank (the
"LaSalle Facility") which provided a $4.5 million term loan, which term loan is
due March 15, 2001, and a $6.5 million revolving line of credit, and (iv) issued
a subordinated promissory note to the former shareholders of Prefco in the
amount of $1.4 million (the "Prefco Note"). The Prefco Note bears interest at 9%
per annum and is payable in quarterly installments of interest only, with a
single principal payment due March 15, 2001. The Company incurred transaction
costs of approximately $0.1 million in connection with the private placement.
In August of 1996, a newly formed, wholly-owned subsidiary of the
Company acquired certain of the assets of Richard's Cajun Country Food
Processors ("Richard's"). Richard's, based in Church Point, Louisiana, is
engaged in the manufacturing, marketing and distribution of Cajun-style
processed meat and specialty food products. The consideration for these assets
was $2.5 million cash and a subordinated promissory note in the amount of $0.865
million (the "Richard's Note.) The Richard's Note is subject to quarterly
payments of interest only at the annual rate of 6.35%, with a single principal
payment due on July 31, 2001. In funding the cash portion of the Richard's
transaction, the Company used approximately $0.8 million of existing cash
balances and approximately $0.3 million of additional line of credit borrowings
under the LaSalle Facility (the line of credit portion of which was increased by
$0.5 million) and obtained additional term debt from LaSalle National Bank in
the amount of $1.4 million, which bears interest at a variable rate of LIBOR +
3% and is subject to monthly payments of interest and quarterly payments of
principal with a final payment of interest and principal due March 15, 2001. In
connection with these transactions and the financing thereof, the Company
incurred transaction costs of approximately $0.3 million, which were recorded as
additional goodwill on the Company's balance sheet.
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<PAGE>
In October of 1996, Grogan's Merger Corp. ("GMC"), a newly formed,
wholly-owned subsidiary of the Company, acquired and merged with the
distribution and manufacturing business of Grogan's Sausage, Inc. and Grogan's
Farm, Inc. respectively (collectively "Grogan's"), based in Arlington, Kentucky
for total consideration of approximately $3.8 million, consisting of $1.9
million cash, $0.2 million in a note (the "Grogan's Note") and 573,810 shares
(approximately $1.7 million) of common stock of the Company. GMC completed three
transactions: (i) GMC acquired certain assets of Grogan's Sausage, Inc. for
$509,000 cash; (ii) GMC acquired certain real estate from Mr. and Mrs. Grogan
for $1,000,000 cash; and (iii) Grogan's Farm, Inc. was merged with and into GMC
in consideration for $391,000 cash, the Grogan's Note, and 573,810 shares of
common stock of the Company. The Grogan's Note will bear no interest through
September 30, 1998, and, commencing October 1, 1998, will be subject to
quarterly payments of interest only at the annual rate of 8%, with a single
principal payment due on September 30, 2001. In funding the $1.9 million cash
portion of the Grogan's transactions, the Company used $0.35 million in
additional line of credit borrowings under the LaSalle Facility (the line of
credit portion of which was increased by $0.5 million) and obtained additional
term debt from LaSalle National Bank in the amount of $1.55 million, which bears
interest at a variable rate of LIBOR + 3% and is subject to monthly payments of
interest and quarterly payments of principal with a final payment of interest
and principal due March 15, 2001. In connection with these transactions and the
financing thereof, the Company incurred transaction costs of approximately $0.3
million, which will be reflected as additional goodwill on the Company's balance
sheet.
Results of Operations
Quarter Ended September 30, 1996 Compared to Quarter Ended September 30, 1995
Net Sales. Net sales increased by approximately $33.7 million or 557%
from approximately $6.0 million for the quarter ended September 30, 1995 to
approximately $39.7 million for the quarter ended September 30, 1996. This
increase reflects the acquisition of Carlton, Prefco and Richard's.
Gross Profit. Gross profit increased by approximately $2.8 million or
160% from approximately $1.7 million for the quarter ended September 30, 1995 to
approximately $4.5 million for the quarter ended September 30, 1996. This
increase reflects the acquisition of Carlton, Prefco and Richard's. Gross
profit as a percentage of net sales decreased from 28.6% to 11.3% reflecting the
lower gross profit margin associated with the Company's food operations. Gross
profit from beverage sales did increase, however, from 28.6% of sales to 29.3%
of sales reflecting lower product costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately $2.3 million or 147% from
approximately $1.6 million for the quarter ended September 30, 1995 to
approximately $3.9 million for the quarter ended September 30, 1996. This
increase reflects the acquisition of Carlton, Prefco and Richard's. As a
percentage of net sales, selling, general and administrative expenses decreased
from 26.4% to 9.9%. This decrease reflects the fact that expenses as a
percentage of sales are significantly lower in the Company's food operations
than in its beverage operations, in addition to the fact that the Company is
realizing economies through spreading certain administrative expenses over
several business units.
Income from Operations. Income from operations increased approximately
$0.4 million or 313% from approximately $0.1 million for the quarter ended
September 30, 1995 to approximately $0.5 million for the quarter ended September
30, 1996. This increase is attributable to income from the Company's newly
acquired food businesses as well as the improvement in gross margin in the
Company's beverage business.
Interest Expense. Interest expense increased approximately $0.3 million
from approximately $5,000 for the quarter ended September 30, 1995 to
approximately $0.3 million for the quarter ended September 30, 1996. This
increase was attributable to debt that the Company incurred in connection with
the acquisitions of Carlton, Prefco and Richard's, including bank term debt,
borrowings under the Company's line of credit, and amounts owed to former owners
of the acquired businesses.
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<PAGE>
Net Income from Continuing Operations. Net income from continuing
operations increased approximately $0.2 million or 129% from approximately $0.1
million for the quarter ended September 30, 1995 to approximately $0.3 million
for the quarter ended September 30, 1996. This increase reflects factors
discussed above in income from operations and interest expense.
Loss from Discontinued Operations. Loss from discontinued operations
decreased approximately $0.1 million from approximately $0.1 million for the
quarter ended September 30, 1995 to zero for the quarter ended September 30,
1996. The loss in 1995 represents the results of the Company's discontinued
frozen beverage division.
Net Income. Net income increased approximately $0.3 million from a
loss of approximately $3,000 for the quarter ended September 30, 1995 to income
of approximately $0.3 million for the quarter ended September 30, 1996.
Nine months Ended September 30, 1996 Compared to Nine months Ended September 30,
1995
Net Sales. Net sales increased by approximately $94.1 million or 559%
from approximately $16.8 million for the nine months ended September 30, 1995 to
approximately $110.9 million for the nine months ended September 30, 1996.
This increase reflects the acquisition of Carlton, Prefco and Richard's.
Gross Profit. Gross profit increased by approximately $7.3 million or
154% from approximately $4.8 million for the nine months ended September 30,
1995 to approximately $12.1 million for the nine months ended September 30,
1996. This increase reflects the acquisition of Carlton, Prefco and Richard's.
Gross profit as a percentage of net sales decreased from 28.3% to 10.9%
reflecting the lower gross profit margin associated with the Company's food
operations. Gross profit from beverage sales did increase, however, from 28.3%
of sales to 29.7% of sales reflecting lower product costs and higher selling
prices.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately $6.6 million or 147% from
approximately $4.5 million for the nine months ended September 30, 1995 to
approximately $11.1 million for the nine months ended September 30, 1996. This
increase reflects the acquisition of Carlton, Prefco and Richard's. As a
percentage of net sales, selling, general and administrative expenses decreased
from 26.7% to 10.0%. This decrease reflects the fact that expenses as a
percentage of sales are significantly lower in the Company's food operations
than in its beverage operations, in addition to the fact that the Company is
realizing economies through spreading certain administrative expenses over
several business units.
Income from Operations. Income from operations increased approximately
$0.8 million or 273% from approximately $0.3 million for the nine months ended
September 30, 1995 to approximately $1.0 million for the nine months ended
September 30, 1996. This increase is attributable to income from the Company's
newly acquired food businesses as well as to the improvement in gross margin in
the Company's beverage business.
Interest Expense. Interest expense increased approximately $0.8 million
from approximately $14,000 for the nine months ended September 30, 1995 to
approximately $0.8 million for the nine months ended September 30, 1996. This
increase was attributable to debt that the Company incurred in connection with
the acquisitions of Carlton, Prefco and Richard's, including bank term debt,
borrowings under the Company's line of credit, and amounts owed to former owners
of the acquired businesses.
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Other Income. Other income increased approximately $0.4 million from
zero for the nine months ended September 30, 1995 to approximately $0.4 million
for the nine months ended September 30, 1996. This increase was primarily the
result of a one-time settlement payment of $0.25 million that the Company
received from a former beverage supplier. Other amounts include approximately
$0.1 million of income generated by the Prefco subsidiary from product sold at
special events.
Net Income from Continuing Operations. Net income from continuing
operations increased approximately $0.4 million from approximately $0.3 million
for the nine months ended September 30, 1995 to approximately $0.7 million for
the nine months ended September 30, 1996. This increase reflects factors
discussed above in income from operations, interest expense, and other income.
Loss from Discontinued Operations. Loss from discontinued operations
decreased approximately $0.4 million from approximately $0.4 million for the
nine months ended September 30, 1995 to zero for the nine months ended September
30, 1996. The loss in 1995 represents the results of the Company's discontinued
frozen beverage division.
Net Income (Loss). Net income (loss) increased approximately $0.8
million from a loss of approximately $0.1 million for the nine months ended
September 30, 1995 to income of approximately $0.7 million for the nine months
ended September 30, 1996.
Liquidity and Capital Resources
Cash used in operating activities for the nine months ended September
30, 1996 was approximately $0.6 million. This amount was principally affected by
net income, the add-back of depreciation and amortization, reduction in net
liabilities of discontinued operations, decreases in accounts payable and
accounts receivable, and increases in inventory, prepaid expenses and accrued
expenses. Cash used in investing activities for the nine months ended September
30, 1996 was approximately $6.9 million and primarily reflected the acquisition
of Carlton, Prefco and Richard's. Cash provided by financing activities was
approximately $8.5 million and was principally affected by debt incurred and
equity raised in connection with the acquisition of Carlton, Prefco and
Richard's. Net cash increase during the period was approximately $1.1 million.
As of September 30, 1996, the Company had outstanding under the LaSalle
Facility approximately $5.1 million in line-of-credit borrowings and
approximately $5.4 million in term debt. These amounts are subject to monthly
payments of interest and quarterly payments of term debt principal with a final
payment of interest and principal due March 15, 2001. Interest rates under the
LaSalle Facility are variable, and for the most recent quarter averaged
approximately 8.8% on the line of credit and 9.3% on the term debt.
As of September 30, 1996 the Company had outstanding approximately $2.6
million of subordinated debt owed to former owners of Prefco, Carlton and
Richard's. Interest rates are fixed and range from 6.35% to 12% with an average
of approximately 8.5%. Principal of $0.3 million is due during 1997 with the
remaining approximately $2.3 million of principal due in 2001.
The Company believes that cash generated from operations and bank
borrowings will be sufficient to fund its debt service, working capital
requirements and capital expenditures as currently contemplated for the next
year. This is a forward-looking statement and is inherently uncertain. Actual
results may differ materially. The Company's ability to fund its working capital
requirements and capital expenditures will depend in large part on the Company's
compliance with covenants in the LaSalle Facility. No assurance can be given
that the Company will remain in compliance with such covenants throughout the
term of the LaSalle Facility.
The Company has recorded a tax asset of $365,000. A valuation allowance
exists as of September 30, 1996 because, based on the weight of all available
evidence, management believes it is more likely than not that the remaining
deferred tax asset will not be fully realized. To the extent that the Company
reports taxable income in future periods, or events occur which indicate that
the remaining deferred tax asset will more than likely not be realized, the
valuation allowance may be further adjusted resulting in a lower effective tax
rate in those periods.
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The Company, from time to time, reviews the possible acquisition of
other products or businesses. The Company's ability to expand successfully
through acquisition depends on many factors, including the successful
identification and acquisition of products or businesses and the Company's
ability to integrate and operate the acquired products or businesses
successfully. There can be no assurance that the Company will be successful in
acquiring or integrating any such products or businesses.
Seasonality
Consumer demand for beverage products distributed by the Company tends
to be greater during warmer months. Accordingly, the Company's beverage sales
and profits are generally highest in the second and third calendar quarters.
Management believes that this effect will be mitigated by the results of its
food operations which are less dependent on seasonal factors.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matter to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: The following are annexed as Exhibits:
Exhibit
Number Description
10.21 Employment Agreement between the
Company and Alan Sussna
11.2 Statement Regarding Computation of
Per Share Earnings for the three
months ended September 30, 1996
11.3 Statement Regarding Computation of
Per Share Earnings for the nine
months ended September 30, 1996
27.2 Financial Data Schedule
(b) Reports on Form 8-K:
Form 8-K filed November 1, 1996
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SIGNATURES
Pursuant to the requirements 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.
ATLANTIC BEVERAGE COMPANY, INC.
Date: November 14, 1996 By: /s/ John F. Izzo
------------
John F. Izzo,
Vice President-Finance
Controller and Treasurer (On
behalf of Registrant and as
Chief Accounting Officer)
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INDEX TO EXHIBITS
Exhibit Number Description Page
10.21 Employment Agreement between the Company and
Alan Sussna 1
11.2 Statement Regarding Computation of Per Share
Earnings for the three months ended September
30, 1996 13
11.3 Statement Regarding Computation of Per Share
Earnings for the nine months ended September
30, 1996 14
27.2 Financial Data Schedule 15
-17-
EXHIBIT 10.21
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is entered
into this 29th day of October, 1996, between Atlantic Beverage Company, Inc., a
Delaware corporation (the "Company") and Alan F. Sussna ("Executive").
RECITALS
WHEREAS, the Company is engaged in the business (the "Business") of
distributing, marketing and selling prepared food and beverage products and
related products and services;
WHEREAS, Executive is skilled and experienced in the Business;
WHEREAS, the Company desires to employ Executive and recognizes that
certain inducements must be offered to Executive in order for the Company to
retain Executive's services;
WHEREAS, Executive and the Company are desirous of entering into an
agreement providing for the employment by the Company of Executive on the terms
provided herein.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and the mutual
covenants, agreements and promises contained herein, the parties agree as
follows:
1 . Employment. The Company hereby agrees to employ Executive and
Executive hereby accepts employment by the Company, subject to the terms and
conditions set forth in this Agreement.
2. Term of Employment.
(a) Initial Term. The initial term of Executive's employment
hereunder (the "Initial Term") shall commence on March 15, 1996 (the "Effective
Date") and shall continue until March 15, 2001, unless sooner terminated in
accordance with the provisions hereof The period commencing on the Effective
Date and ending on the date this Agreement expires or is sooner terminated is
referred to as the "Employment Period."
(b) Automatic Renewal. The Initial Term shall be extended
automatically for additional one year periods commencing on the fifth
anniversary date of the Effective Date and each one-year anniversary thereafter,
unless, no later than six months prior to such date, either party gives notice
to the other party that he or it does not intend to renew this Agreement.
3 . Title and Duties. During the Employment Period, Executive's title
shall be President and Chief Executive Officer of the Company and he shall
possess such powers and duties as are normally incident to such positions, as
provided in the by-laws of the Company and in accordance with the Delaware
General Corporation Law. Executive shall justly and faithfully discharge his
duties and responsibilities in a diligent manner, devoting such time and
attention to the affairs of the Company as he shall reasonably determine to be
necessary and appropriate, and shall comply with the reasonable rules,
regulations and policies of the Company. During the Employment Period, Executive
shall report to Merrick Elfman and the Board of Directors of the Company.
4. Compensation. Subject to the following provisions of this
Agreement, during theEmployment Period, Executive shall be compensated for his
services as follows:
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(a) Base Amount. During the Employment Period, Executive shall
receive from the Company an annual salary, payable in accordance with the
regularly established payroll policy of the Company, in an amount equal to
$200,000, which amount shall increase annually to reflect normal cost-of-living
adjustments and may increase at such times and in such amounts as are determined
by the Compensation Committee of the Board of Directors (the "Base Amount"). The
Base Amount shall be subject to normal payroll deductions applicable to all
employees of the Company.
(b) Additional Salary. During the first year of the
Employment Period only, the Executive shall receive from the Company salary in
addition to the Base Amount (the "Additional Salary") in the amount of $30,000.
The Additional Salary shall be payable in accordance with the regularly
established payroll policy of the Company, subject to normal payroll deductions
applicable to all employees of the Company.
(c) Cash Flow Bonus. In addition to the Base Salary and the
Additional Salary, during the Employment Period, the Company shall pay to
Executive an annual lump sum bonus payment (the "Cash Flow Bonus") as provided
by this Section 4(c). The Cash Flow Bonus shall be determined as follows:
(Actual Cash Flow - Target Cash Flow) x .20 = Cash Flow Bonus
As used in this Section 4 and elsewhere in this Agreement:
"Company Earnings" means the earnings of the Company, consolidated with
all of the Company's subsidiaries, for an entire fiscal year, before taxes,
interest, depreciation, amortization and other non-cash items, management,
consulting and investment banking fees to related parties, and compensation and
expenses of the Board of Directors, and after capital expenditures.
"Target Cash Flow" means the amount of Company Earnings that are
targeted for an immediately proceeding fiscal year, as set forth in the Budget,
provided, however, that for fiscal year 1996, Target Cash Flow shall be
$3,600,000, and for fiscal year 1997, Target Cash Flow shall be $3,950,000, as
adjusted, in each event the Company acquires or divests (through the purchase or
sale of stock or assets, by merger or otherwise) a subsidiary, upward or
downward by the amount, pro rated on a daily basis, of the earnings of such
subsidiary (calculated on a basis consistent with the determination of Company
Earnings) for the most recent fiscal year.
"Actual Cash Flow" means the actual amount of Company Earnings for a
fiscal year, as determined by the Company's outside auditors in accordance with
generally accepted accounting principles.
"Budget" means the Company's budget for the fiscal years of the
Employment Period as prepared by Company management and approved by the Board of
Directors.
The Cash Flow Bonus shall be paid by the Company to the Executive on an annual
basis during the Employment Period, no later than 30 days after the Company has
completed its audit for an applicable fiscal year, but in no event later than
April 15 of each year for the preceding fiscal year, and shall be deemed accrued
as of December 31 of the year for which it is calculated. The Cash Flow Bonus
for 1996 shall be pro rated on a daily basis from March 15, 1996.
(d) Stock Option. Effective on March 15, 1996, the Company
shall grant to Executive the option (the "Option") to purchase 250,000 shares of
Common Stock (the "Option Shares"), at the exercise price of $1.50 per share,
pursuant to a Stock Option Agreement in the form of Exhibit A attached hereto
and the Company's Stock Option Plan. The Option shall vest and become
exercisable as follows:
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Vesting Dates Percentage of Option Shares Vesting
March 15, 1997 20%
March 15, 1998 20%
March 15, 1999 20%
March 15, 2000 20%
March 15, 2001 20%
provided, however, that to the extent it is not then vested and exercisable, the
Option shall vest and become exercisable in the following amounts upon the
occurrence of any of the following events:
i. On and after the last day of any continuous 10-day period
(excluding any days in which no shares of Common Stock are traded) during which
the average of the bid and asked closing prices at which one share of Common
Stock is traded on the over-the-counter market, as reported on NASDAQ, averages
(over such period):
Average Price Per Share During Period Percentage of Option Shares Vesting
$ 3.50 to $5.99 20%
$ 6.00 to $7.99 40%
$ 8.00 to $9.99 60%
$10.00 to $11.99 80%
$12.00 or higher 100%
the number of Option Shares corresponding to such percentages shall vest and
become exercisable. The parties acknowledge that, as of the date of this
Agreement, 20% of the Option Shares have vested and become exercisable pursuant
to this subsection (d)(i).
ii. At such time as 1.) the Sterling Group shall reduce its
aggregate beneficial ownership of Common Stock to less than 15% ("Sterling
Exit") and 2.) another shareholder with aggregate beneficial ownership of 5% or
more exists (other than by way of such shareholder selling his or her company)
and 3.) Employee has not been additionally designated Chairman of the Board,
100% of the Option Shares shall vest and become exercisable. For purposes of
this Agreement, the Sterling Group consists of Douglas Becker, Eric D. Becker,
Merrick M. Elfinan, Bruce Goldman, Rudolf Christopher Hoehn-Saric, and Steven M.
Taslitz, as well as their spouses and dependent children or trusts established
their benefit.
iii. Upon a Change in Control of the Company, where "Change of
Control" means the earlier of (a) the date on which any person or entity, or
person or entities acting in concert, shall acquire the beneficial ownership of
shares of capital stock or other securities having more than 50% of the voting
power (with respect to the election of directors) then outstanding or (b) the
date on which any person or entity, or persons or entities acting in concert,
shall first disclose any intent to commence an offer to tender for shares of
capital stock or other securities having more than 50% of the voting power, 100%
of the Option Shares shall vest and become exercisable.
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<PAGE>
Notwithstanding the foregoing, (a) in the event, and only to the extent, that
any of the Option Shares become vested and exercisable on an accelerated basis
as provided in subsections (i), (ii) and (iii) above, the annual March 15
vesting shall not occur, and (b)Executive shall forfeit all Option Shares
(whether or not then vested and exercisable) if he resigns without Good Reason
(as hereafter defined) before March 15, 1997 and without giving three months
prior written notice.
In no event later than March 15, 1997, the Company shall cause the Option
Shares to be registered (pursuant to a Form S-8 or any successor form) under the
Securities Act of 1933.
(e) Benefit Plans, Additional Benefit.
i. During the Employment Period, Executive shall be entitled to immediately and
fully participate in any profit sharing plan, retirement plan, group life
insurance plan or other insurance plan or medical expense plan maintained by the
Company or any subsidiary of the Company for its executive employees (the
"Benefit Plans"). Executive's participation in the medical Benefit Plans shall
include coverage for his spouse and dependents. Executive will apply the cash
allowance provided in Section 4(e)ii. to pay the necessary premiums of those
Benefit Plans that provide health, dental, disability or life insurance coverage
to Executive, his spouse and dependents. The Benefit Plans are subject to change
from time to time at the sole discretion of the board of directors of the
company maintaining such plans, provided that in any such event, the Company
shall provide a substitute plan or other form of compensation that provides
substantially the same or greater benefits as then enjoyed by Executive and his
spouse and dependents, as applicable.
ii. Every month during the Employment Period, the Company
shall pay to Executive a cash allowance of $1,500, which Executive may use to
pay expenses relating to his employment, including but not limited to benefits
premiums, accounting fees, financial advisory fees, car payments, and dues, as
determined in his sole discretion.
(f) Vacation. For each year of the Employment Period,
Executive shall be entitled to take not less than four weeks of vacation.
Executive's compensation shall be paid in full during such vacations. Each
vacation shall be taken by Executive at such times as are reasonably agreeable
to Executive and the Company.
(g) Expenses. The Company shall reimburse Executive for all
reasonable out of pocket expenses incurred by him in connection with the
performance of his duties hereunder which reimbursement shall be made upon the
presentation by Executive to the Company of proper receipts or other proof of
expenditure, and otherwise in accordance with the Company's standard practices
(applied prospectively only) for reimbursement of its senior executives as
determined by the Board of Directors.
(h) Other Benefits. Executive shall be entitled to such
additional perquisites as may be customarily granted by the Company to its
senior executives generally.
5. Termination. The Employment Period shall terminate
effective on the date of the earliest to occur of the following events:
(a) Just Cause. The Employment Period may be
terminated at the option of the Company for "Just Caus(as such term is
hereinafter defined), effective as of the date the Company gives written notice
to Executive setting forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination ("Notice of Termination"). As used
herein, the term "Just Cause" means:
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<PAGE>
i. Executive's conviction of or entry of a plea of
guilty or nolo contenders to a felony (unless the act giving rise thereto was
committed by Executive in the good faith belief that Executive's actions (A)
were in the best interest of the Company, and (B) would not violate criminal
law), or other criminal act involving moral turpitude;
ii. Executive's willful misconduct or gross negligence
resulting in a material breach of his duties hereunder (including fiduciary
duties and such other duties relating to his employment by the Company as are
imposed by applicable law), or any other willful and material breach by
Executive of this Agreement, except by reason of illness or accident, which
shall continue for a period of 15 days after the receipt of written notice from
the Company;
iii. A material conflict of interest that arises
because Executive is directly or indirectly a party to a transaction with the
Company, except for a material conflict of interest of which the Company has
been notified and the Company has agreed to allow;
iv. Executive's refusal, after receipt of written
notice from the Board of Directors, to perform specific directives of the Board
of Directors which are reasonably intended to cause the Company to comply with
applicable laws, rules, regulations, requests of government agencies, or the
like, provided that such directives are consistent with applicable law and the
scope and nature of Executive's duties as set forth herein, or to comply with
the written internal policies and procedures of the Company and its
subsidiaries; and
v. Executive's habitual drunkenness or illegal use of
controlled substances which interferes with the performance of his duties
hereunder.
(b) Operating Just Cause. The Employment Period may be
terminated at the option of the Company for "Operating Just Cause" (as such term
is hereinafter defined), effective as of the date the Company gives Notice of
Termination to Executive. As used herein, the term "Operating Just Cause" means
the Company's failure to achieve at least 70% of the operating income projected
for a fiscal year, as set forth in a Budget (as such term is defined in Section
4 above).
(c) Death or Disability . The Employment Period shall
terminate automatically, effective upon the death of Executive. If Executive is
unable to perform the essential functions of his employment position, due to a
disability of Executive that cannot be reasonably accommodated by the Company,
the Company may terminate Executive effective upon Notice of Termination.
(d) Voluntary resignation. Executive may resign his
employment at any time, effective upon written notice to the Company, provided,
however, that if Executive resigns before March 15, 1997, his resignation shall
be effective three months after the date of such written notice.
(e) Without Cause. The Company may terminate Executive at any
time, effective upon the date of Notice of Termination.
(f) Good Reason. The Employment Period may be terminated at
the option of the Executive for "Good Reason" (as such term is defined in
Section 6(d) below), effective upon written notice to the Company setting forth
in reasonable detail the facts and circumstances claimed to provide a basis for
such termination.
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6. Separation Benefits. Executive shall be entitled to receive
separation benefits in such events and in such amounts as are set forth in this
Section 6.
(a) Termination Without Just Cause or for Good Reason Before
First Anniversary. If, prior to the first anniversary of
the Effective Date, Executive resigns from employment with
the Company for Good Reason (as defined below in Section
6(d)) or is terminated by the Company without Just Cause,
he (or his surviving spouse, estate or personal
representative, as applicable) shall be entitled to
receive:
(i) an amount equal to one-fourth of both the Base Amount and
the Additional Salary (i.e., three months salary) if the Company is then in
default, beyond any applicable cure period, of any of the financial covenants
contained in the Company's loan agreement with its senior institutional lender,
or, if the Company is not then in default, then an amount equal to one-half of
both the Base Amount and the Additional Salary (i.e., six months salary),
without discount, payable in accordance with the regularly established payroll
policy of the Company;
(ii) a lump sum cash payment in an amount equal to the annual
Cash Flow Bonus payment to which Executive would have been entitled in
accordance with Section 4(c), without discount, had he continued in the employ
of the Company for the full fiscal year in which his employment is terminated,
pro rated on a daily basis through the actual date of termination, payable by
the Company in accordance with the terms of Section 4(c);
(iii) for the longest period of time as is permitted by COBRA
law, the Company shall permit, at the Company's expense, Executive, his spouse
and dependents, as applicable (the "Benefit Participants"), to participate in
all group medical and health insurance plans and employee benefit plans,
programs and arrangements now or hereafter made available to the senior
executive employees of the Company (the "Plans") (including but not limited to
such Plans in which Executive was entitled to participate, pursuant to Section
4(f), immediately prior to the date of termination), in the same manner provided
to its other senior executive employees; provided, however, that this Section
shall not apply in the event that (i) the Company shall hereafter terminate the
applicable Plan or (ii) the participation of the Benefit Participants in such
Plan is prohibited by law or, if applicable, would disqualify such Plan as a tax
qualified plan pursuant to the Code, or (iii) the participation of the Benefit
Participants violates the general terms and provisions of such applicable Plan.
In the event that any of the Benefit Participants' participation in such Plans
is prohibited by law or, if applicable, would disqualify the Plan as a tax
qualified plan, the Company shall permit the Benefit Participants to acquire
substantially comparable coverage or benefits, at the Company's expense, from a
source of Executive's or his spouse's choosing, notwithstanding the fact that
such coverage or benefit will result in a higher cost than if provided under a
Company Plan. However, in no event will the Benefit Participants receive from
the Company the coverage and benefits contemplated by this Section if the
Benefit Participants receive such coverage and benefits from any other source.
(b) Termination Without Just Cause or for Good Reason After
First Anniversary. If, on or after the first anniversary of the Effective Date,
Executive resigns from employment with the Company for Good Reason (as defined
below in Section 6(d)) or is terminated by the Company without Just Cause, he
(or his surviving spouse, estate or personal representative, as applicable)
shall be entitled to receive:
(i) an amount equal to (x) one-half of the Base Amount (i.e.,
six months salary), without discount, if Executive's employment is terminated on
or after the first anniversary and before the second anniversary of the
Effective Date, or (y) the Base Amount, without discount, if Executive's
employment is terminated on or after the second anniversary of the Effective
Date, payable in accordance with the regularly established payroll policy of the
Company;
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(ii) a lump sum cash payment in an amount equal to the annual
Cash Flow Bonus payment to which Executive would have been entitled in
accordance with Section 4(c), without discount, had he continued in the employ
of the Company for the full fiscal year in which his employment is terminated,
pro rated on a daily basis through the actual date of termination, payable by
the Company in accordance with the terms of Section 4(c);
(iii) for the longest period of time as is permitted by COBRA
law, the Company shall permit, at the Company's expense, Executive, his spouse
and dependents, as applicable (the "Benefit Participants"), to participate in
all group medical and health insurance plans and employee benefit plans,
programs and arrangements now or hereafter made available to the senior
executive employees of the Company (the "Plans") (including but not limited to
such Plans in which Executive was entitled to participate, pursuant to Section
4(f), immediately prior to the date of termination), in the same manner provided
to its other senior executive employees; provided, however, that this Section
shall not apply in the event that (i) the Company shall hereafter terminate the
applicable Plan or (ii) the participation of the Benefit Participants in such
Plan is prohibited by law or, if applicable, would disqualify such Plan as a tax
qualified plan pursuant to the Code, or (iii) the participation of the Benefit
Participants violates the general terms and provisions of such applicable Plan.
In the event that any of the Benefit Participants' participation in such Plans
is prohibited by law or, if applicable, would disqualify the Plan as a tax
qualified plan, the Company shall permit the Benefit Participants to acquire
substantially comparable coverage or benefits, at the Company's expense, from a
source of Executive's or his spouse's choosing, notwithstanding the fact that
such coverage or benefit will result in a higher cost than if provided under a
Company Plan. However, in no event will the Benefit Participants receive from
the Company the coverage and benefits contemplated by this Section if the
Benefit Participants receive such coverage and benefits from any other source.
(c) Other Termination Events. In the event that
Executive's employment is terminated by the Company with Just Cause, by
Executive without Good Reason, or upon the death of Executive, then Executive
thereupon shall forfeit his right to any compensation, perquisites and benefits
under this Agreement, provided, however, that the Company shall pay to Executive
(or if he shall have died, his surviving spouse, or if he leaves no spouse, his
personal representative, as successor in interest) the value of any accrued
salary and other compensation due to Executive pursuant to Section 4 above
through the date of termination.
(d) Good Reason Defined. For purposes of this Agreement,
"Good Reason" means: (i) a reduction in Executive's title, duties, or working
conditions without Executive's consent; or (ii) a decrease in the Base Amount;
or (iii) the relocation of Executive's office to premises located outside of the
Greater Chicago, Illinois Metropolitan Area; or (iv) a failure by the Company to
comply with any material provision of this Agreement which has not been cured
within 15 days after written notice of such noncompliance has been given by
Executive to the Company; or (v) a Sterling Exit (as defined in Section
4(d)(ii)); or (vi) a Change of Control of the Company (as defined in Section
4(d)(iii)).
(e) Effect of Termination. Notwithstanding anything to
the contrary contained herein, should Executive's employment with the Company be
terminated for any reason whatsoever:
(i) Anti-Disparagement, Etc. The Company (on behalf of itself
and its directors, officers, employees and agents) and the Executive agree that
they will not, under any circumstances, disparage, criticize or denigrate the
talents, skills, prospects, abilities, integrity or character of the Executive,
the Company, its management, directors, employees, agents or representatives
(including those of the Company's affiliates). They further agree that they will
not, at any time after the date hereof and without the other's written consent,
contact any past, present or prospective customer, supplier, employee, employer
or agent or representative of the Company or the Executive with the intent or
purpose of injuring the reputation, business or business relationships of the
Company or the Executive. The provisions of this Section shall survive the
execution and termination hereof, irrespective of the reason for such
termination.
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(ii) Offices, Etc. Executive will no longer have an office at
the Company's places of business, and except as previously agreed in writing by
the Company, will not visit such places. In addition, Executive will resign
from all offices or directorships held at the time of termination.
7. Restrictive Covenants. Executive hereby agrees:
(a) Nondisclosure. Executive acknowledges that he has been and
will be entrusted with trade secrets, marketing, operating and strategic plans,
customer and supplier lists, proprietary information and other confidential or
specialized data and/or information relative to the business of the Company and
its predecessors and subsidiaries (for purposes of this Section 7, the "Company"
shall include its predecessors and subsidiaries), whether now existing or to be
developed or created after the date of this Agreement (collectively, "Trade
Secrets"). Executive shall at all times during the Employment Period and
thereafter hold in strictest confidence any and all Trade Secrets that may have
come or may come into his possession or within his knowledge concerning the
products, services, processes, businesses, suppliers, customers and clients of
the company or its affiliates and their predecessors. Executive agrees that
neither he nor any person or enterprise controlled by him will for any reason
directly or indirectly, for himself or for the benefit of any other person, use,
copy, divulge or otherwise disseminate or disclose any of the Trade Secrets
owned or used by, or licensed to, the Company or any of its affiliates or
otherwise relating to the Company or its business, provided that Executive may
disclose Trade Secrets pursuant to an order by a court of competent
jurisdiction, provided, further, that Executive shall give the Company notice of
such order and any court pleading requesting such disclosure, in order to
provide the Company with an opportunity to prevent such disclosure or procure an
appropriate protective order.
(b) Customers. Executive acknowledges that customer
accounts of the Company and its predecessors are and will at all times be the
sole and separate property of the Company, in which Executive has no rights
whatsoever, and all activities of or work performed by Executive pursuant hereto
or as an employee of the Company or its predecessors have been and in the future
will be performed for the benefit of the Company and the goodwill resulting from
Executive's efforts is and at all times will be the sole and separate property
of the Company, which goodwill is intended to be protected, in part, by this
Section.
(c) Non-Solicitation. Executive agrees that from the
commencement date of the Employment Period and continuing for a period of three
years following the termination of the Employment Period for whatever reason,
neither he nor any person or enterprise controlled by him will solicit or hire
or contract with, for employment, consulting or any other reason, any director,
officer, shareholder, department head, salesman and each of their assistants who
was employed by the Company or its predecessors at any time within one year
prior to the time of the act of solicitation or hire. Provided, however, that
this non-solicitation provision shall not extend past the Employment Period in
the event that this Agreement is terminated by the Company without Just Cause.
(d) Non-Competition. Executive agrees that from the
commencement date of the Employment Period and continuing for a period of two
years following the termination of the Employment Period for whatever reason,
neither he or any person or enterprise controlled by him will become a
-8-
<PAGE>
stockholder, director, officer, agent, employee or representative of or
consultant to a corporation or member of a partnership, engage as a sole
proprietor in any business, act as a consultant to any of the foregoing or
otherwise engage directly or indirectly in any enterprise which competes with
the Company in any business in which the Company is engaged (whether or not such
business is subsequently carried on by the Company) in any geographic territory
in which the Company does business on the date the Employment Period ends;
provided, however, that the foregoing shall not prohibit the ownership of less
than two percent (2%) of the outstanding shares of the stock of any company
engaged in any business, which shares are regularly traded on a national
securities exchange or in any over-the-counter market. Provided further, that
this non-competition provision shall not extend past the Employment Period in
the event that this Agreement is terminated by the Company without Just Cause.
(e) Survival. The provisions of this Section shall survive
the termination of this Agreement and Executive's employment with the Company,
irrespective of the reason therefor.
8. Remedies. If, at any time, Executive violates or threatens to
violate to any material extent the covenants set forth in Section 7, the Company
shall have the right to seek injunctive relief or any other appropriate
equitable remedy, without any bond or other security being required, in any
federal or state court sitting in the City of Chicago, Illinois, notwithstanding
the arbitration obligations set forth in Section 16, below, provided, however,
that the applicable time periods set forth in Sections 7(c) and (d) will be
tolled pending the final resolution of any such action that is actually filed by
the Company. Executive acknowledges that the Company would be irreparably
injured by a violation of Section 7.
9. Inventions. Executive hereby assigns to the Company all of his
rights, title and interest in and to all inventions, discoveries, processes,
designs, marketing strategies, and other intellectual property (hereinafter
referred to collectively as the "Inventions"), and all improvements on existing
Inventions made or discovered by Executive during the Employment Period.
Promptly upon the development or making of any such Invention or improvement
thereon, Executive shall disclose the same to the Company and shall execute and
deliver to the Company such reasonable documents as it may request to confirm
the assignment of Executive's rights therein and, if requested by the Company,
shall assist the Company in applying for and prosecuting any patents which may
be available in respect thereof. The Company acknowledges and hereby notifies
Executive that this Section 9 does not apply to an Invention for which no
equipment, supplies, facility or trade secret information of the Company was
used and which was developed entirely on Executive's own time, unless (a) the
Invention relates to (i) the business of the Company, or (ii) the Company's
actual or demonstrably anticipated research or development, or (b) the Invention
results from any work performed by Executive for the Company.
10. Amendment and Termination. This Agreement may not be amended or
otherwise modified, except in a definitive writing signed by the parties hereto.
11. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if given in writing and personally delivered or
sent by registered or certified mail, return receipt requested, or by facsimile,
telegram or telex followed by a confirmation letter sent by registered or
certified mail, return receipt requested, addressed as follows:
If to the Company: Atlantic Beverage Company, Inc.
650 Dundee Road, Suite 370
Northbrook, Illinois 60062
Attn: Merrick Elfman
Facsimile: (847) 480-0199
-9-
<PAGE>
If to Executive: Alan F. Sussna
1293 Westmoor Trail
Winnetka, Illinois 60093
With a copy to: Freebom & Peters
311 S. Wacker, 30th Floor
Chicago, Illinois 60606
Attn: Peter I. Mason
12. Nonassignment. The interests of Executive under this Agreement are
unique and of a personal service nature, are not subject to the claims of his
creditors and may not be voluntarily or involuntarily assigned, alienated or
encumbered.
13. Successors. This Agreement shall be binding upon, and inure to the
benefit of, the Company and its successors and assigns and upon any person
acquiring, whether by merger, consolidation, purchase of assets or otherwise,
all or substantially all of the Company's assets and business.
14. Severability. If any provision of this Agreement is held invalid or
unenforceable, either in its entirety or by virtue of its scope or application
to given circumstances, such provision shall thereupon be deemed modified only
to the extent necessary to render same valid, or not applicable to given
circumstances, or excised from this Agreement, as the situation may require, and
this Agreement shall be construed and enforced as if such provision had been
included herein as so modified in scope or application, or had not been included
herein, as the case may be. Should this Agreement, or any one or more of its
provisions hereof, be held to be invalid, illegal or unenforceable within any
governmental jurisdiction or subdivision thereof, the Agreement or any such
provision or provisions shall not as a consequence thereof be deemed to be
invalid, illegal or unenforceable in any other governmental jurisdiction or
subdivision thereof.
15. Entire Agreement; Cancellation. This Agreement contains the entire
agreement and understanding of the parties and supersedes all prior
discussions, agreements, and understandings between the parties relating to the
subject matter hereof.
16. Resolution of Disputes. Except as provided in Section 8 above, any
dispute arising out of, connected with, related or incidental to this Agreement
and the documents or instruments delivered in connection herewith, shall be
submitted to arbitration in accordance with the terms of this Section. The party
who is alleging that a dispute exists (the "Complainant") shall send a notice of
such dispute to the other party (the "Respondent"), which notice shall set forth
in detail the dispute, the parties involved and the position of the Complainant
with respect thereto. The notice shall also include a list of five retired
judges selected through JAMS-Endispute, Inc. ("JAMS"), 70 West Madison, Chicago,
Illinois. Within seven days of receiving such notice, the Respondent shall
either accept one of the judges on the list and so inform the Complainant or
deliver via facsimile to the Complainant a list of five judges selected by the
Respondent from the panel at JAMS. If the Respondent rejects the judges on the
Complainant's list and delivers to Complainant its own list of judges,
Complainant, within seven days of receiving Respondent's list, shall inform
Respondent as to whether it will accept one of the judges on Respondent's list.
Should the parties be unable to agree on an arbitrator, then
Complainant shall request that JAMS furnish a list of ten names of available
judges to each party. Within seven days of JAMS's mailing of the list, the
parties shall meet telephonically to designate an arbitrator. Respondent shall
first strike one name from the list and then Complainant shall strike one name.
Thereafter, Respondent and Complainant shall alternately strike names from the
list until one name remains. The last remaining judge on the list shall be
designated as the arbitrator for this action.
-10-
<PAGE>
The arbitrator so selected shall schedule a hearing in Chicago on the
disputed issues within 45 days after his appointment, and the arbitrator shall
render his decision after the hearing, in writing, as expeditiously as is
possible, and shall be delivered to the parties. The arbitrator shall render his
decision based on written materials supplied by the parties to the arbitrator as
well as the respective oral presentations of the parties at the hearing, and no
party shall be entitled to discovery in such matter, except for a single request
for documents to be made within ten days after the request for arbitration,
which if not made within such time period shall be deemed waived. Each party
shall supply a copy of any written materials to be submitted to the arbitrator
at least ten days prior to the scheduled hearing. The parties agree that the
arbitrator shall not have any power or authority to award punitive damages. A
default judgment may be entered against any party who fails to appear at the
arbitration hearing. Such decision and determination shall be final and
unappealable and shall be filed as a judgment of record in any jurisdiction
designated by the successful party. All charges and fees charged by JAMS and/or
the arbitrator (whether demanded in advance or at completion of the proceedings)
shall be shared equally by each side. However, all such charges and fees, as
well as any other taxable costs, may be allocated between the respective sides
by the arbitrator as a part of any award herein. The parties hereto agree that
this paragraph has been included to rapidly and inexpensively resolve any
disputes between them with respect to the matters described above, and that this
paragraph shall be grounds for dismissal of any court action commenced by any
party with respect to a dispute arising out of such matters. The parties agree
that any arbitration shall be governed by and pursuant to the Illinois Uniform
Arbitration Act, as amended, and the rules and regulations promulgated
thereunder.
17. Insurance. The Company may, at its election and for its benefit,
insure Executive against disability, accidental loss or death and Executive
shall submit to such physical examinations and supply such information as may be
required in connection therewith.
18. No Conflicting Agreements. Executive represents and warrants that
he is not a party to any agreement, contract or understanding, of any kind, that
would in any way restrict or prohibit him from undertaking or performing
employment in accordance with the terms and conditions hereof.
19. Counterparts. This Agreement may be executed in counterparts, all
of which taken together shall constitute one and the same original agreement of
the parties hereto.
20. Governing Law. This Agreement, and all matters or disputes
relating to the validity, construction, performance or enforcement hereof, shall
be governed, construed and controlled by and under the laws of the State of
Illinois without regard to principles of conflicts of law.
21. Consent to Jurisdiction. The parties hereto hereby irrevocably
submit themselves to the exclusive jurisdiction of the courts of the State of
Illinois located in the City of Chicago and to the jurisdiction of the United
States District Court for the Northem District of Illinois for the purpose of
bringing any action that may be brought in connection with the provisions hereof
and shall not assert any claim that they are not subject to the jurisdiction of
such courts, that the venue is improper, that the forum is inconvenient or any
similar objection, claim or argument. Service of process on any of the parties
hereto with regard to any such action may be made by mailing the process to such
party by regular or certified mail to the address of such party set forth herein
or to any subsequent address to which notices shall be sent.
-11-
<PAGE>
IN WITNESS WHEREOF, Executive has set his hand to this Employment
Agreement, and the Company has caused these presents to be executed in its name
and on its behalf, all as of the day and year first above written.
ATLANTIC BEVERAGE COMPANY, INC.
By: _____________________
Its: _____________________
- ----------
Alan F. Sussna
-12-
EXHIBIT 11.2
ATLANTIC BEVERAGE COMPANY, INC.
COMPUTATION OF EARNINGS PER SHARE
Three Months
Ended
September 30,
1996
-------------
NET INCOME $ 297,017
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 5,969,110
----------
NET INCOME PER COMMON SHARE $ .05
==========
COMPUTATION OF WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING:
Shares outstanding as of June 30, 1996 6,149,022
Less - Treasury stock (408,038)
Impact of dilutive stock options as of September 30, 1996 228,126
----------
5,969,110
----------
-13-
EXHIBIT 11.3
ATLANTIC BEVERAGE COMPANY, INC.
COMPUTATION OF EARNINGS PER SHARE
Nine Months
Ended
September 30,
1996
-------------
NET INCOME $ 671,871
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,948,083
----------
NET INCOME PER COMMON SHARE $ 14
----------
COMPUTATION OF WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING:
Shares outstanding as of December 31, 1995 $ 2,727,955
Less - Treasury stock (408,038)
Add - 2,765,549 shares issued in private placement
on March 15, 1996, outstanding 199 out of
274 days 2,008,556
Add - 50,000 shares issued to sellers of Prefco, Inc.
on March 15, 1996, outstanding 199 out of
274 days 36,314
Add - 400,001 shares issued to sellers of Carlton
Foods, Inc. on March 15, 1996, outstanding
199 out of 274 days 290,512
Add - 205,517 shares issued to Carlton noteholders
on March 15, 1996, outstanding 199 out of
274 days 149,262
Impact of dilutive stock options as of September 30, 1996 143,522
---------
4,948,083
---------
-14-
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,141,787
<SECURITIES> 0
<RECEIVABLES> 6,201,129
<ALLOWANCES> 64,150
<INVENTORY> 3,845,080
<CURRENT-ASSETS> 11,786,266
<PP&E> 4,256,428
<ACCUMULATED DEPRECIATION> 1,101,484
<TOTAL-ASSETS> 26,886,619
<CURRENT-LIABILITIES> 15,346,432
<BONDS> 6,373,305
0
0
<COMMON> 61,490
<OTHER-SE> 4,938,392
<TOTAL-LIABILITY-AND-EQUITY> 26,886,619
<SALES> 39,703,366
<TOTAL-REVENUES> 39,703,366
<CGS> 35,218,190
<TOTAL-COSTS> 3,939,650
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 273,769
<INCOME-PRETAX> 297,018
<INCOME-TAX> 0
<INCOME-CONTINUING> 297,018
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 297,018
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
