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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
Form 10-KSB
(Mark One)
[ X ] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1997
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 0-22431
MIKE'S ORIGINAL, INC.
(Name of Small Business Issuer in its Charter)
Delaware 11-3214529
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
350 Theodore Fremd Avenue, Rye, New York 10580
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number, including area code: (914) 925-3485
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes [ x ] No [ ]
Check if there is no disclosure of delinquent filers pursuant 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 [x]
Issuer's revenue for its most recent fiscal year: $384,348
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of March 31, 1998 based on the average price
on that date was $6,871,511. At March 31, 1998, the number of shares
outstanding of the issuer's common stock was 3,265,429.
DOCUMENTS INCORPORATED BY REFERENCE
None
Transitional Small Business Disclosure Format Yes [ ] No [ x ]
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
The Company markets, sells and distributes Mike's Original Cheesecake Ice
Cream, an innovative all natural blend of super-premium ice cream with
cheesecake ingredients. This product line is offered in a variety of flavors
mainly to supermarkets and grocery stores and also, to a lesser extent, to
convenience stores and food service outlets. The Company's products are
presently sold in approximately five (5) states, including New York, California,
Pennsylvania and New Jersey, with sales concentrated on the east and west coasts
of the United States.
In October 1995, the Company entered into an agreement with Kraft Foods,
Inc. for the exclusive distribution of the Company's products for the
northeastern and western regions of the United States. In September 1997, Kraft
Foods, Inc. terminated this agreement, which ended their distribution
responsibilities by mid-November 1997. Since that time, the Company has entered
into a new distribution agreement with Mattus Ice Cream on the east coast and
West Pico Foods on the west coast. Mattus Ice Cream is the manufacturer and
distributor of premium low fat ice cream as well as other frozen products. West
Pico Foods is a major independent distributor of ice cream as well as other
frozen food products on the west coast of the United States.
Management's plan is to change the emphasis of the Company's operations
from marketing and distributing super-premium ice cream products to marketing
and distributing frozen desserts that will include a line or lines of
super-premium ice cream products to include the Company's products as well as
other lines of super premium ice cream products. Management intends to
accomplish this plan through the strategic acquisition of distribution
companies, concentrated in large metropolitan areas, which will provide new
brands and customers, distribution expertise and an operations center that can
absorb future acquisitions. The Company is engaged in discussions with
nationally known companies to obtain licenses to market and distribute products
bearing the name of the licensor. These acquisitions and distribution licenses
are intended to be financed from an additional offering of securities planned
for 1998, though there are no assurances that such offering can be successfully
consummated. See "Description of Business - Recent Developments" and Notes 2, 13
and 14 of Notes to Financial Statements.
The Company was incorporated in New York in March 1993 and reincorporated
in Delaware in May 1994. It maintains its principal offices at 350 Theodore
Fremd Avenue, Suite 300, Rye, New York 10580 and its telephone number is (914)
925-3485.
<PAGE>
Present and Future Products
According to the International Ice Cream Association, ice cream was part of
a $10.5 billion nationwide frozen dessert industry in 1995 and has wide appeal,
with over 93% of households in the United States consuming these products.
Super-premium ice cream is generally characterized by a greater richness and
density than other kinds of ice cream with a butter fat content of at least 14%.
This category of ice cream was created in 1959 by Ruben Mattus, founder of
Haagen-Dazs, and expanded by Ben & Jerry's.
The Company competes in the packaged ice cream category with three flavors
of pints. The three flavors of cheesecake ice cream offered in pints are Graham
Cracker Delight , Strawberry Fantasy and Chocolate Tidbits . The Company also
competes in the novelty category of premium ice cream bars and ice cream
sandwiches. Its premium ice cream bar products are all cheesecake ice cream with
either a graham cracker crunch coating or strawberry sorbet coating, using high
quality California strawberries. The Company's other product is a sandwich
version trademarked GRAMWICH , which is cheesecake ice cream surrounded by two
specially made graham cracker wafers.
In this regard, the Company also manufactures a line of pint products under
the tradename "Sorbet Blends." The "Sorbet Blends" consist of a nearly equal
mixture of sorbet and cheesecake ice cream in two flavors, "Raspberry Romance"
and "Lemon Lace". These products have approximately half the calories and fat
content of the Company's other pint varieties.
Manufacturing Agreement
The Company's products are presently manufactured by Fieldbrook Farms, an
independent FDA approved facility located in Buffalo, New York, under a two-year
exclusive manufacturing agreement expiring in March 1999. The manufacturing
agreement, dated as of March 20, 1997, provides that Fieldbrook shall be the
exclusive supplier of all products manufactured by Fieldbrook and distributed by
the Company east of the Mississippi River for a period of two years. If
Fieldbrook were to suspend the manufacturing of the Company's products, the
Company's operating markets may be adversely affected.
Distribution and Marketing
The Company, through its officers, consultants and other representatives,
currently markets the Company's products to supermarkets and grocery stores and
also, to a lesser extent, to convenience stores and food service outlets. The
Company has incurred substantial promotional expenses for freezer space in
connection with entering new markets, maintaining existing markets, entering new
retailers and maintaining shelf space in existing retailers. The Company
receives no assurance that these retailers will continue to allocate freezer
space for the Company's products even after the payment of these fees and, in
fact, certain supermarkets have discontinued selling the Company's products.
Once the Company obtains authorization from retailers and satisfies the
substantial initial promotional expenses, the Company then directs its
distributors to distribute the Company's products to the appropriate authorized
retailers.
The Company has entered into agreements with distributors on the east and
west coasts of the United states. Mattus Ice Cream, a manufacturer and
distributor of premium low fat ice cream and other frozen desserts distributes
Mike's original products to authorized accounts on the east coast. West Pico
Foods, a major independent distributor of ice cream and related frozen products
is the distributor for the authorized accounts on the west coast.
<PAGE>
The Company promotes its products through trade and consumer advertising,
trade show participation, in-store demonstrations, circular advertisements and
special event sampling/couponing. Print advertising and shelf price discounts
are the primary vehicles used by the Company with its initial approach being to
target regional areas of distribution.
Competition
The super-premium ice cream market is highly competitive and the Company
faces substantial competition in connection with the marketing and sales of its
products. Among its competitors are Haagen-Dazs owned by The Pillsbury Company,
Ben & Jerry's and numerous other regional ice cream companies. Many of these
competitors are well established and have substantially greater financial and
other resources than the Company. Additionally, Haagen-Dazs and Ben & Jerry's
manufacture their own ice cream. In the ice cream novelty segment, the Company
competes with several well-known brands including Haagen-Dazs and Dove Bars ,
manufactured by a division of Mars, Inc.
Achieving wide distribution in the ice cream business is difficult due to
the substantial expense of a national marketing program and the limitations on
available space in the freezer compartments of retailers. The Company's products
also may be considered in competition with all ice cream and other frozen
desserts for discretionary food dollars.
The ability of the Company to increase its market share will be dependent
upon several factors, among which are consumer acceptance of the products, the
quality and price of its products, advertising and the availability of
sufficient capital for product expansion.
Government Regulation
The Company is subject to regulation by various governmental agencies
regarding the distribution and sale of food products, including the FDA and
various state agencies. The Company believes that its marketing and distributing
operations comply with all existing applicable laws and regulations.
<PAGE>
The Company cannot predict the impact of possible changes that may be
required in response to future legislation, rules or inquiries made from time to
time by governmental agencies. FDA regulations may, in certain circumstances,
affect the ability of the Company, as well as others in the industry, to develop
and market new products. However, the Company does not presently believe that
existing applicable legislative and administrative rules and regulations will
have a significant impact on its operations.
Trademarks and Patents
The Company owns registered trademarks and service marks under the names
"Mike's Original ", "GRAMWICH " and "Graham Cracker Delight ". The Company has
common law trademarks for "Strawberry Fantasy ", "Chocolate Tidbits ", Sorbet
Blends , Raspberry Romance and Lemon Lace . It also has filed a patent
application on its formulated process to manufacture cheesecake ice cream.
Insurance
The Company's business exposes it to potential liability which is inherent
in the marketing and distribution of food products. The Company currently
maintains $2,000,000 of product liability insurance. The Company also maintains
$1,000,000 of general and personal injury insurance per occurrence and
$5,000,000 in the aggregate. If any product liability claim is made and
sustained against the Company and is not covered by insurance, the Company's
business and prospects could be materially adversely affected.
Employees
The Company employs four persons, all of whom are located in the Company's
Rye, New York headquarters and serve in selling and administrative capacities.
None of the Company's employees are represented by a labor union. The Company
considers its relationships with its employees to be satisfactory.
Seasonality
The ice cream industry generally experiences its highest volume during the
spring and summer months and the lowest volume in the winter months. In this
regard, according to statistics published by the International Ice Cream
Association, 35.5% of sales of novelty ice cream products and 29.5% of sales of
packaged ice cream products were made during the third quarter (July -
September) of calendar 1996 while only 18.0% of sales of novelty ice cream
products and 22.4% of sales of packaged ice cream were made during the first
quarter (January - March) of calendar 1996.
Recent Developments
1. On December 18, 1997, the Company entered into agreements to acquire
companies engaged in the full service distribution of ice cream in the New York
Metropolitan area through its wholly-owned subsidiary New York Frozen Desserts,
Inc. In exchange for all the assets of New Yorker Ice Cream Corp., the Company
will pay $465,000 at closing, $800,000 over three years with interest at 8% and
assume certain obligations. In exchange for all the assets of Jerry's Ice Cream
Co., Inc., the Company will pay $245,000 at closing, and $220,000 over three
years with interest at 8%. The Company intends to finance these acquisitions
from an additional offering of securities planned for 1998, though there are no
assurances that such offering can be successfully consummated.
New Yorker Ice Cream Co.
New Yorker Ice Cream Co. ("New Yorker") is a family run distribution
business specializing in the ice cream category. The company is owned by Ted
Ketsoglou, a third generation family member. Originally founded as a
manufacturer of ice cream products, New Yorker has evolved into a full service
distributor concentrating in the metro New York City area handling retail and
foodservice accounts. These locations include retail stores, restaurants,
deli's, institutional sales, supermarkets, vending, parks and beaches as well as
airports and travel facilities.
New Yorker operates truck routes in its distribution area and services
these accounts on a regular basis up to several times per week per account.
These routes are secured via New Yorker's own ice cream cabinet program whereby
each account is supplied with a late model freezer dedicated to New Yorker's
carefully planned ice cream product selection. New Yorker Ice Cream highlights
major regional and national brands such as Haagen-Dazs, Baskin Robbins, Good
Humor, Marino Italian Ices, Friendly's, as well as other major brands including
New Yorker's own private label products.
<PAGE>
New Yorker staffs its own in-house refrigeration and service department to
insure the Company and its customers a high degree of satisfaction and support
in the maintenance and repair of equipment. In addition, New Yorker has a highly
trained and dedicated staff of sales executives who have extensive knowledge and
experience in the frozen dessert and ice cream category. The Company also
employs a quality control program that guarantees the freshest possible product
properly handled at all times. This includes inventory controls whereby product
is brought in on a regular basis to the warehouse and rotated for freshness.
Jerry's Ice Cream Co.
Jerry's Ice Cream Co. ("Jerry's") is owned and operated by Jerry Schneider,
and services accounts in the metro New York and Westchester region. Jerry's
trucks supply ice cream products to its accounts on a regular basis. Jerry's
also supplies freezer cabinets to accounts that are personally secured by Jerry.
The accounts are then provided with leading brand names such as Haagen-Dazs,
Friendly's, Baskin Robbins, Good Humor and others. Jerry takes a "hands on"
approach to the business, visiting his current accounts on a weekly basis.
Jerry's utilizes the maintenance and repair facilities of New Yorker Ice
Cream to keep his accounts and their equipment in proper operating condition.
Jerry's Ice Cream supplies these freezers and products to both retail businesses
as well as various food service accounts.
2. On March 4, 1998, the Company, through its wholly-owned subsidiary,
signed a license agreement to sell and distribute frozen juice bars under the
name of a nationally known licensor. This agreement is for a limited territory
in the Eastern part of the country for a period of two years. The Company has
the option to obtaining two sublicensees to operate under the main agreement on
its behalf.
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
On February 15, 1998, the Company signed a lease for a three-month term,
renewable monthly, for office space in Rye, New York. This office will serve as
the corporate office of the Company until such time as the Company and the
planned acquisitions can be relocated to an appropriate facility. The lease in
Jericho, New York expired without any additional costs.
ITEM 3. LEGAL PROCEEDINGS
Darigold, Inc. v. Mike's Original, Inc. Index No. 97-023870
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On August 19, 1997, Dairgold commenced an action against the Company
seeking damages in the amount of $27,683.40, plus accrued interest and counsel
fees arising from the Company's purported breach of the terms of a promissory
note delivered by the Company to Darigold, Inc. In addition, the complaint seeks
damages in the amount of $59,379.00, arising from the Company's alleged failure
to accept return of certain inventory that was in Darigold's stock. The Company
has filed an answer denying the allegations of the complaint. On January 12,
1998, Darigold filed a motion for partial summary judgment with respect to the
Company's purported breach of the promissory note.
On April 1, 1998, the Company entered into a partial settlement of this
action with Darigold. In accordance with the terms of the partial settlement,
the Company agreed to pay Darigold $10,000 immediately, and monthly payments of
$4,125.45 through September 1, 1998. In return, Darigold has withdrawn its
motion for partial summary judgment with respect to the Company's purported
breach of the promissory note and has dismissed, with prejudice, the cause of
action in the complaint relating to the promissory note.
Kelley-Clarke, Inc. v. Mike's Original, Inc. Index No. 97-034292
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On December 11, 1997, Kelley-Clarke commenced an action against the Company
seeking damages in the amount of $25,996.00 arising from certain alleged
commissions that Kelley-Clarke claims are due to it from the Company. The
Company has filed an answer asserting affirmative defenses and intends to defend
this action vigorously.
J.W. Messner, Inc. v. Mike's Original, Inc., Index No. 96 Civ. 4716
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On May 22, 1997, the parties entered into a Stipulation of Settlement,
wherein the Company agreed to pay J. W. Messner the sum of $125,935.82, in three
installments as follows: $40,000 on June 30, 1997; $42,967.91, plus accrued
interest, on or before June 30, 1998; and $42,967.91, plus accrued interest, on
or before December 31, 1998.
<PAGE>
Universal Folding Box Co., Inc. v. Mike Original, Inc., et al
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On April 2, 1998, the Company was served with a summons and complaint in an
action known as Universal Folding Box Co., Inc. v Mike's Original, Inc., et al.
This action is pending in the Superior Court of New Jersey, Hudson County,
Docket No. HUD-L-1585-98. The complaint seeks damages in the amount of
$82,036.67, arising from the sale of various supplies and services for which
plaintiff claims it was not paid. The Company intends to file an answer in this
action denying the allegations of the complaint.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock and Warrants were listed and commenced trading
on the OTC Bulletin Board under the symbols MIKS and MIKSW on July 31, 1997. The
following table sets forth, for the quarters indicated, the quarterly high and
low closing bid prices for the Common Stock and Warrants as reported by the OTC
Bulletin Board.
<TABLE>
<CAPTION>
Common Stock Warrants
High Bid Low Bid High Bid Low Bid
-------- ------- -------- -------
<S> <C> <C> <C> <C>
1997
Third Quarter . . . . . . . . . . 10 5 5 1.375
Fourth Quarter. . . . . . . . . . 5.125 2.5625 2.125 1
1998
First Quarter . . . . . . . . . . 4.375 2.125 1.375 .50
Second Quarter (through April 7, 1998) 2.50 2 .875 .875
</TABLE>
The bid prices set forth above reflect inter-dealer prices, without retail
mark-up, mark-down, or commission, and may not represent actual transactions. As
of March 31, 1998, there were approximately 200 stockholders of record of the
Common Stock.
The Company has not paid any dividends on its Common Stock and does not
presently intend to do so. Future dividend policy will be determined by its
Board of Directors on the basis of the Company's earnings, capital requirements,
financial condition and other factors deemed relevant.
The transfer agent and registrar of the Company's Common Stock is American
Stock Transfer and Trust Co., 40 Wall Street, New York, New York 10005.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
Years Ended December 31, 1997 and December 31, 1996
The Company's net sales for the years ended December 31, 1997 and 1996 were
$384,348 and $2,392,259, respectively, a decrease of 84%. This decrease resulted
from the initial fill of product into the distributor pipeline which occurred
early in 1996, as well as the Company's limited capital in 1997, which limited
capital has adversely impacted its ability to purchase product from its
manufacturer to fill existing customer orders and has limited its ability to
engage in marketing and advertising programs to promote additional sales. Net
sales for 1997 were also adversely affected by the determination by Kraft to
terminate its distributorship agreement with the Company. Net sales for 1997 was
further reduced by approximately $129,000, representing net returns from this
distributor.
Gross profit (loss) for the years ended December 31, 1997 and 1996 declined
107% and 5%, respectively, ($66,850) and $952,624, taking into account the
return of product previously described. Gross profit as a percentage of sales
(before the effect of the sales returns) for the year ended December 31, 1997
declined to a deficit of 17.4% of net sales compared to 39.8% for the year ended
December 31, 1996. The decrease in gross profit dollars is primarily
attributable to the decline in net sales and gross profit percentage. Gross
profit as a percentage of net sales declined partly as a result of higher raw
material costs associated with the manufacture of the Company's ice cream
products, reduced selling prices to certain area retailers and the very limited
volume.
General and administrative expenses (G&A) for the years ended December 31,
1997 and December 31, 1996 were approximately $2,178,000 and $2,194,000
respectively. The major components of these expenses for the years ended
December 31, 1997 and December 31, 1996 were payroll and related taxes of
$399,000 and $361,000, respectively, legal and accounting fees of $597,000 and
$413,000, respectively (of which $450,000 was paid in Common Stock during
calendar year 1997) and consulting fees of $948,000 and $1,178,000, respectively
(of which $855,000 and $180,000, respectively was paid in Common Stock). The
shares issued during the year ended December 31, 1997, though restricted
securities, were valued by the Company at $1,311,000, based upon 25% discounts
from the initial public offering ("IPO") price on transactions occurring prior
to the IPO and the closing bid price on the date authorized for transactions
occurring after the IPO.
Selling and shipping expenses for the years ended December 31, 1997 and
December 31, 1996 were approximately $724,000 and $2,596,000 respectively. The
decline for the 1997 period was primarily from decreases in retail introductory
programs from $602,000 to $131,000 and store and media price reduction coupons
and media events from $983,000 to $314,000, as well as decreases in advertising
programs with store chains from $305,000 to $64,000.
Research and development costs for the year ended December 31, 1997 was
$28,594 as compared to $70,632 for the year ended December 31, 1996. This
decrease of $42,038 or 60% is a direct result of the limited capital available
for such expenditures.
<PAGE>
Interest expense, net of interest income for the years ended December 31,
1997 and December 31, 1996 were $1,506,000 and $142,,000 respectively. $169,000
of the net interest cost for the year ended December 31, 1997 was attributable
to the conversion of open accounts payable into interest-bearing accounts, and
additional borrowings from related parties and other creditors. These additions
to interest-bearing obligations began in mid 1996 and continued in 1997 until
completion of the Company's IPO. The remainder of interest charges for the years
December 31, 1997 and 1996 resulted from non-cash imputed interest charges of
$1,327,000 and $34,000, respectively, primarily in connection with the issuance
of Common Stock to the Company's manufacturer, and the issuance of convertible
debt and/or warrants to lenders, including vendors. The imputed interest charges
attributable to the shares issued and issuable to these various creditors in
1997 were charged to operations in the period the shares or convertible
securities were initially issued. The shares, though restricted securities, were
valued by the Company based upon a 25% discount from the IPO price.
Net loss for the years December 31, 1997 and 1996 amounted to $4,503,000
and $4,051,000, respectively. The primary reason for the net loss in 1997 was
the lack of sales volume, the lack of cash flow through the date of the IPO and
the high interest costs associated with the high debt levels prior to the IPO.
The 1996 net loss was attributable to the high selling, general and
administrative expenses combined with lower gross profits.
Liquidity and Capital Resources
The Company's cash requirements have been significantly exceeding its
resources due to the substantial promotional expenses incurred in connection
with the entry by the Company into new markets and expansion into new locations
in existing markets, which to date have not resulted in sales sufficient to
offset these expenditures. As a result of the Company's limited operating
resources, the Company also has been unable to participate in certain programs
which may have increased sales. In August 1997, the Company received net
proceeds of $3,342,000 from its IPO. This offering was an integral part of the
Company's plans to meet its cash requirements. The Company believes that based
upon its current plans, its resources, including the proceeds of this offering,
will be sufficient to meet its cash requirements through June 30, 1998. The
Company also believes that certain long-term indebtedness due on December 31,
1997 and December 31, 1998 (approximately $206,000 and $362,000 respectively
plus accrued interest thereon) will be payable from internally generated funds,
if any, or debt financing or from the sale of additional debt or equity
securities. The amounts due on December 31, 1997 were not paid and the Company
is currently negotiating new terms and due dates for this debt. Other than its
IPO, the Company has no commitments or arrangements for any future financing and
there can be no assurance that future financing can otherwise be obtained on
satisfactory terms, if at all.
The Company has historically raised capital through the private equity
markets, and through debt financing and short-term loans, and will continue to
pursue these opportunities, if necessary. Prior transactions have involved
officers, directors, stockholders and affiliates of the Company, as may future
transactions.
Based upon the above circumstances, the Company has received a going
concern opinion for the year ended December 31, 1997 from its independent
auditors. Management's plan is to change the emphasis of the Company's
operations from marketing and distributing super-premium ice cream products to
marketing and distributing frozen desserts that will include a line or lines of
super-premium ice cream products. Management intends to accomplish this plan
through the strategic acquisition of distribution companies, concentrated in
large metropolitan areas, which will provide new brands and customers,
<PAGE>
distribution expertise and an operations center that can absorb future
acquisitions. The Company is engaged in discussions with nationally known
companies to obtain licenses to market and distribute product bearing the name
of the licensor. These acquisitions and distribution licenses would be financed
from an additional offering of securities planned for 1998, though there are no
assurances that such offering can be successfully consummated. See Notes 2, 13
and 14 of Notes to Financial Statements.
Except for historical information contained in this Report, the matters
discussed are forward-looking statements that involve risks and uncertainties.
Among the factors that could cause actual results to differ materially are the
following: the effect of business and economic conditions; the impact of
competitive products and pricing; capacity and supply constraints or
difficulties; product development, commercialization or technological
difficulties; and the regulatory and trade environment.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The following selected financial data has been derived from the audited
financial statements of the Company and should be read in conjunction with, the
financial statements and related notes appearing elsewhere in this Form 10-KSB.
Statement of Operations Data:
<TABLE>
<CAPTION>
Fiscal Year Ended December 31,
Nine Months
ended
December 31,
1995 1996 1997
------------ ---- ----
<S> <C> <C> <C>
Net sales. . . . . . . . . . . . . $2,312,144 $2,392,258 $384,348
Net loss from operations . . . . . (1,614,858) (4,050,547) (4,502,645)
Basic loss per common share. . . . $(1.23) $(2.54) $(1.69)
Weighted average number of
shares outstanding. . . . . . . 1,311,398 1,592,106 2,662,013
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data:
December 31, 1997
-----------------
<S> <C>
Working capital (deficit). . . . . . . . . . . ($1,062,651)
Total assets . . . . . . . . . . . . . . . . . 623,674
Stockholders' equity (deficit) . . . . . . . . (1,051,056)
</TABLE>
The financial statements listed in Item 7 are included in this Report beginning
on page F-1.
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
(a) Information previously reported in Report on Form 8-K dated January 15,
1998.
<PAGE>
PART III
ITEM 9: DIRECTORS AND EXECUTIVE OFFICERS, COMPLIANCE WITH SECTION
16(A) OF THE EXCHANGE ACT
The Company's directors and executive officers as of March 31, 1998 were as
follows:
Name Age Position(s) with the Company
---- --- ----------------------------
Michael Rosen 39 Chairman of the Board, Chief
Executive Officer, President and Director
Michael Mitchell 57 Vice-President -Marketing and Sales
Frederic D. Heller 60 Director
Rachelle Rosen 38 Secretary and Treasurer
Martin Pilossoph 67 Director
Arthur G. Rosenberg 60 Director
Myron Levy 56 Director
Michael Rosen has been the Chief Executive Officer of the Company and a
director since its inception in March 1993 and President since September 1996.
For six years prior to the formation of the Company, Mr. Rosen was President and
sole shareholder of Progressive Personnel, Inc., a career search firm in New
York City. Mr. Rosen graduated from the State University of New York, Brockport
with a Bachelor of Science degree in Business and Sports Administration. Mr.
Rosen is the husband of Rachelle Rosen and the son-in-law of Martin Pilossoph.
Michael Mitchell has been Vice President-Marketing and Sales since August
1997. From 1989 to August 1997, Mr. Mitchell was an independent consultant under
the name Mitchell Associates. From 1986 to 1989, Mr. Mitchell was Vice President
of Dunkirk Ice Cream in Dunkirk, New York. From 1980 to 1985, he served in
various capacities for Atlantic Processing, including Sales and Operations
Manager of their ice cream division. From 1979 to 1980, Mr. Mitchell was Vice
President-Sales and Marketing for Schraffts Ice Cream. Mr. Mitchell has over
thirty years experience in the ice cream industry and has specialized in
successfully developing troublesome operations.
Frederic D. Heller was Vice President of Finance and director of the
Company from January 1997 until November 14, 1997 when he resigned as an officer
of the Company. Since November 1997, Mr. Heller has been Chief Financial Officer
of J & W Management Corp., a commercial real estate management company. Mr.
Heller is a CPA licensed in the State of New York for over the last ten years.
Prior to joining the Company, from November 1994 through January 1997, he
practiced as an independent financial consultant including rendering such
services to the Company in that capacity from August 1996 to January 1997. From
September 1992 through October 1994, Mr. Heller was Vice President of Finance
and director of Vasomedical, Inc., formerly Future Medical Products, Inc., a
publicly owned business involved in the merchandising of certain medical
technology. From October 1990 through September 1992, Mr. Heller was president
and chief operating officer of FDH Enterprises, Inc., a company rendering
financial consulting services to business clients.
<PAGE>
Martin Pilossoph has been a director of the Company since September 1995.
For the past five years, Mr. Pilossoph has been a Senior Sales Executive of the
Ingram Companies, a national video wholesaler. Mr. Pilossoph is the father of
Rachelle Rosen and the father-in-law of Michael Rosen.
Arthur G. Rosenberg has been a director of the Company since September
1995. Mr. Rosenberg has been a practicing attorney for more than the past ten
years. Since June 1, 1987, he has been Vice President of Acquisitions of The
Associated Companies, a residential land and commercial developer located in
Bethesda, Maryland.
Myron Levy has been a director of the Company since July 1997. Since June
1993, Mr. Levy has been President of Herley Industries, Inc., a publicly owned
designer and manufacturer of flight instrumentation products. From May 1991 to
June 1993, Mr. Levy served as Executive Vice President and Treasurer of Herley
Industries, Inc. Mr. Levy also has been a director of Herley since 1992.
Rachelle Rosen has been Secretary and Treasurer of the Company since its
formation in 1993. Ms. Rosen served as a director of the Company from 1993 until
January 1997. It was Ms. Rosen's cheesecake that gave her husband, Mike, the
idea and concept for Mike's Original Cheesecake Ice Cream. She received a
Bachelor of Science degree from Queens College. Ms. Rosen is the daughter of
Martin Pilossoph and the wife of Michael Rosen.
The Company's Board of Directors is classified into three classes. The
directors in each class serve for three-year terms. Arthur Rosenberg is a member
of Class I which serves until the Company's 1997 Annual Meeting of Stockholders.
Martin Pilossoph is a member of Class II which serves until the Company's 1998
Annual Meeting of Stockholders and Myron Levy has been elected to serve as a
member of Class II which serves until the Company's 1998 Annual Meeting of
Stockholders. Michael Rosen and Frederic D. Heller are members of Class III
which serves until the Company's 1999 Annual Meeting of Stockholders. Directors
who are not employees of the Company, of which there are presently two, and upon
consummation of this offering will be three, receive no cash compensation for
their services to the Company as directors, but are reimbursed for expenses
actually incurred in connection with attending meetings of the Board of
Directors. All members of the Board of Directors are eligible to participate in
the Company's stock option plans. Each director attended or participated in at
least 75% of the meetings of the Board of Directors during his or her tenure in
fiscal 1997.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the cash and other compensation paid or
accrued by the Company during the year ended December 31, 1997 and 1996 and the
nine months ended December 31, 1995 to the Company's Chief Executive Officer. No
other executive officer earned over $100,000 in any fiscal year.
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
------------------------------------------ ------------
Securities
Name and Other Annual Underlying All Other
Principal Position Year Salary Bonus Compensation(2) Options Compensation
- ------------------- ---- ------ ----- --------------- ------------ ------------
<S> <C> <C> <C>
Michael Rosen 1997 $98,083 - - 50,000(3) -
Chairman of the Board, 1996 112,250(1) - - 200,000(3) -
President, Chief 9/30/95(4) 81,000(1) - - - -
Executive Officer
___________
<FN>
(1) Does not include an aggregate of $89,565 of salary which was accrued and
not paid to Mr. Rosen during the period from inception through September
30, 1996, to which Mr. Rosen has waived all rights.
(2) The value of all perquisites provided to the Company's officers did not exceed the lesser of $50,000 or
10% of the officer's salary and bonus.
(3) Represents ten-year options granted in May 1996 and September 1996 pursuant to the Company's 1995
Long Term Incentive Plan.
(4) Represents the nine month period ended December 31,1995.
</FN>
</TABLE>
<PAGE>
Option/SAR Grants in Last Fiscal Year
The following table sets forth all stock options granted to the executive
officers named in the Executive Compensation table during the fiscal year ended
December 31, 1997 and 1996.
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------------
Number of % of Total
Securities Options/SARS
Underlying Granted to
Options/SARS Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
- ---- ------------ ------------- ----------------- ----------
<S> <C> <C> <C> <C>
Michael Rosen 33,333 12.5% $3.00 May 31, 2006 (1)
166,667 62.5% $1.50 September 11, 2006 (2)
50,000 42.9% $1.50 May 1, 2007(3)
- ------
<FN>
(1) Represents ten year options granted in May 1996, pursuant to the Company's 1995 Long Term Incentive
Plan. Options became fully vested on November 30, 1996.
(2) Represents ten year options granted in September 1996, pursuant to the Company's 1995 Long Term
Incentive Plan. Options beneficial vested on March 12, 1997.
(3) Represents ten year options granted in May 1997 pursuant to the Company's 1995 Long Term Incentive
Plan. Options vested on November 1, 1997.
</FN>
</TABLE>
Employment Agreements
Michael Rosen
The Company has entered into an employment agreement with Michael Rosen
pursuant to which Mr. Rosen has agreed to serve as Chairman of the Board and
Chief Executive Officer of the Company, at an annual base salary of $100,000 for
the first year of the agreement and an annual base salary of $125,000 for each
of the remaining five years of the agreement. Mr. Rosen is also entitled to a
$50,000 bonus for each of the third through sixth years of the Agreement in the
event the Company's pretax income for such year exceeds $1,000,000. Mr. Rosen's
employment agreement is for six years, which commenced on June 1, 1995. The
employment agreement provides that Mr. Rosen may be terminated only for a
material breach of the terms of the agreement which is not cured after he
receives five (5) days written notice.
Mr. Rosen's employment agreement restricts him from engaging in competition
with the Company for the term thereof and contains provisions protecting the
Company's proprietary rights and information, including the use of the name
"Mike's Original ". The agreement also provides for the payment to Mr. Rosen of
three times his previous year's total compensation, less $1.00, upon the
termination of his employment in the event of a change in control of the
Company. For those purposes, a change in control is defined to mean (a) change
in control as such term is defined on Regulation 240.12b-2 of the Securities
Exchange Act of 1934, as amended or (b) if during the term of the agreement,
individuals who at the beginning of such agreement constitute the board of
directors of the Company cease for any reason to constitute at least a majority
thereof, unless the election of each director who is not a director at the
beginning of such period has been approved in advance by the directors
representing at least two-thirds (2/3) of the directors then in office who were
directors at the beginning of the term of the agreement.
<PAGE>
Michael Mitchell
The Company also has entered into an employment agreement with Michael
Mitchell. This agreement provides that Mr. Mitchell will serve as Vice President
of the Company, and will receive as compensation therefor an annual base salary
of $115,000 per year, p to $25,000 in travel expenses, plus an incentive bonus
equal to 3% of the Company's pre-tax income, as defined. This agreement is for
an initial term which terminates one year from the effective date of the initial
public offering, July 31, 1997, and provides that if Mr. Mitchell is terminated
after the initial term other than for "cause" (as defined"), or dies or becomes
permanently disabled, the Company will pay to him certain severance. This
agreement contains the same change of control provision as set forth in Mr.
Rosen's employment agreement and also restricts Mr. Mitchell from engaging in
competition with the Company for the term thereof and for one year thereafter
and contains provisions protecting the Company's proprietary rights and
information.
Consulting Agreements
The Company has entered into a consulting agreement with Alma Management
Corp. ("Alma"), as of November 1, 1996. Under this agreement, which is for a
term ending October 31, 1998, Alma has agreed to cause its two principals (the
"Principals"), to provide sales and marketing advisory and consulting services
to the Company. Alma receives an annual consulting fee of $50,000 payable at the
Company's option in either cash or Common Stock. In addition, Alma has received
30,000 shares of Common Stock and options to purchase 133,333 shares of Common
Stock at an exercise price of $1.50 per share. One-third of the options vest on
May 1, 1997, one-third six months thereafter and the balance vest on May 1,
1998. The Company may terminate the services of either Principal under the
consulting agreement with Alma if such Principal cannot adequately perform his
duties thereunder because of mental or physical disability, death or for "Just
Cause" (as defined). The consulting agreement provides that if one of the
Principals is terminated by the Company, the consulting fee paid to Alma will be
reduced by one half and if both Principals are terminated by the Company, no
further compensation will be paid to Alma. The consulting agreement restricts
Alma and the Principals from engaging in competition with the Company for the
term thereof and for one year thereafter and contains provisions protecting the
Company's trade secrets and proprietary rights and information.
Stock Plans
1995 Long Term Incentive Plan
In August 1995, the Company adopted The Mike's Original, Inc. 1995 Long
Term Incentive Plan (the "1995 Incentive Plan") in order to motivate qualified
employees of the Company, to assist the Company in attracting employees and to
align the interests of such persons with those of the Company's stockholders.
The 1995 Incentive Plan provides for the grant of "incentive stock options"
within the meaning of the Section 422 of the Internal Revenue Code of 1986, as
amended, "non-qualified stock options," restricted stock, performance grants and
other types of awards to officers, key employees, consultants and independent
contractors of the Company and its affiliates.
<PAGE>
The 1995 Incentive Plan, which is administered by the Board of Directors,
authorizes the issuance of a maximum of 433,333 shares of Common Stock. If any
award under the 1995 Incentive Plan terminates, expires unexercised, or is
canceled, the Common Stock that would otherwise have been issuable pursuant
thereto will be available for issuance pursuant to the grant of new awards. To
date, the Company has granted an aggregate of 306,667 options to purchase Common
Stock under the 1995 Incentive Plan, of which 250,000 options have been granted
to Michael Rosen, the Company's Chairman of the Board and Chief Executive
Officer. 33,333 of these options are exercisable for ten years from the date of
grant at a price of $3.00 per share and 216,667 of these options are exercisable
for ten years from the date of grant at a price of $1.50 per share. Another
56,667 options have been granted to Steven A. Cantor. Each of the options
granted to Mr. Cantor are exercisable for a ten year term at a price of $1.50
per share. As of March 31, 1998, none of these options had been exercised.
1996 Non-Qualified Stock Option Plan
In October 1996, the Company's Board of Directors approved a 1996
Non-Qualified Stock Option Plan (the "Non-Qualified Plan") which covers 500,000
shares of the Company's Common Stock. The options become exercisable in
installments as determined at the time of grant by the Board of Directors. As of
the date of this Prospectus, the Company had granted 478,333 options to purchase
shares of Common Stock under the Non-Qualified Plan at an exercise price of
$1.50 per share. Arthur G. Rosenberg, Martin Pilossoph and Myron Levy have been
granted options to purchase 23,333 shares of Common Stock each at the exercise
price of $1.50 per share pursuant to the Non-Qualified Plan. Frederic D. Heller
has been granted options to purchase 58,333 shares of Common Stock at the
exercise price of $1.50 per share pursuant to the Non-Qualified Plan. Alma has
been granted options to purchase 133,333 shares of Common Stock at an exercise
price of $1.50 per share pursuant to the Non-Qualified Plan. Steven A. Cantor
has been granted options to purchase 76,667 shares of Common Stock at an
exercise price of $1.50 per share. As of March 31, 1998, none of these options
had been exercised.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth the beneficial ownership of shares of voting
stock of the Company, as of March 31, 1998, of (i) each person known by the
Company to beneficially own 5% or more of the shares of outstanding Common
Stock, (ii) each of the Company's executive officers and directors, and (iii)
all of the Company's executive officers and directors as a group. Except as
otherwise indicated, all shares are beneficially owned, and investment and
voting power is held by, the persons named as owners:
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of of Shares Percentage
Beneficial Owner Beneficially Owned Ownership
------------------- ------------------- -----------
<S> <C> <C>
Michael Rosen (1) 283,333 (2) 8.3%
Rachelle Rosen (1) 283,333 (3) 8.3%
Steven A. Cantor (1) 432,295 (4) 12.9%
Annette Cantor 298,650 9.2%
Michael Mitchell 0 (5) *
Arthur G. Rosenberg (1) 23,333 (6) *
Martin Pilossoph (1) 23,333 (6) *
Frederic D. Heller (1) 75,000 (7) 2.2%
Myron Levy (1) 24,167 *
Louis P. Solferino (8) 180,034 5.6%
Michael Jones (9) 146,342 4.5%
The Moshe Isaac Foundation (10) 200,000 6.2%
Food Commodities Limited (11) 266,667 7.8%
All officers and directors
as a group (6 persons) 370,834 (12) 10.9%
* less than one percent (1%) unless otherwise indicated.
<FN>
(1) The address for each of these persons is 350 Theodore Fremd Avenue, Rye,
New York 10580.
(2) Includes options to purchase 33,333 shares of Common Stock granted under
the 1995 Long-Term Incentive Plan in May 1996 and options to purchase
166,667 shares of Common Stock granted under the 1995 Long- Term Incentive
Plan in October 1996. Does not include options to purchase 50,000 shares of
Common Stock granted under the 1995 Incentive Plan in May 1997.
(3) Represents Common Stock and options to purchase Common Stock owned by
Michael Rosen, Ms. Rosen's husband. Rachelle Rosen otherwise owns no shares
of Common Stock.
(4) Includes options to purchase 56,667 shares of Common Stock granted under
the 1995 Long-Term Incentive Plan and options to purchase 76,666 shares of
Common Stock granted under the 1996 Non-Qualified Plan.
(5) Does not include options to purchase 66,667 shares of Common Stock granted
under the 1996 Non-Qualified Plan.
(6) Includes options to purchase 23,333 shares of Common Stock granted under
the 1996 Non-Qualified Plan.
(7) Includes options to purchase 58,333 shares of Common Stock granted under
the 1996 Non-Qualified Plan.
(8) The address for Mr. Solferino is 115 Blue Spruce Road, Levittown, New York
11756.
(9) The address for Mr. Jones is 86 West Main Street, East Islip, New York
11730.
(10) The address for The Moshe Isaac Foundation is c/o Teaneck Nursing Center,
1104 Teaneck Road, Teaneck, New Jersey 07666. The principal of this entity
is Michael Koenig.
(11) The address for Food Commodities Limited is Bel Royal House, Hilgrove
Street, St. Helier, Jersey JE24WG, British Isles. The principal of this
entity is Robert S. Fraley.
(12) Includes 246,667 shares issuable upon the exercise of options granted
pursuant to the Company's stock option plans.
</FN>
</TABLE>
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In April 1997, the Company issued 150,000 shares of Common Stock to Steven
A. Cantor, the Company's largest stockholder, as consideration for the
termination of his three year consulting agreement providing for payments of
$125,000 annually, which would have commenced on the Company's IPO.
In December 1996, the Company issued a convertible promissory note to The
Moshe Isaac Foundation bearing interest at the rate of 8% per annum in the
principal amount of $225,000 (the "Convertible Note"). The Convertible Note was
to paid in full the earlier of five (5) days after the closing date of an
initial public offering or December 31, 1997. In lieu of receiving payment, the
holder of the Convertible Note has the right to convert within five (5) days of
the closing of such initial public offering into 200,000 shares of Common Stock.
In April 1997, such note was converted into 200,000 shares of Common Stock.
In October 1996, the Company issued 16,667 shares of Common Stock to
Frederic D. Heller, the Company's Vice President-Finance, Treasurer and a
director, as payment for services rendered during the year ended December 31,
1996. These shares were valued at $3.00 per share, the estimated fair market
value of the Common Stock at the date of issuance.
On August 28, 1996, Michael Rosen, the Company's Chairman of the Board,
President and Chief Executive Officer was issued a promissory note in the
principal amount of $206,250. The funds that Mr. Rosen loaned the Company were
the proceeds of a sale by Mr. Rosen to investors of 183,333 shares of his Common
Stock at a price of $1.12 per share. This loan bears interest at a rate of 8%
and initially was payable the earlier of (i) thirteen (13) months from the date
of the loan, or (ii) the date the Company successfully consummates an initial
public offering of securities of the Company, but only to the extent that the
over-allotment option is exercised in such offering and only from the proceeds
received by the Company from the exercise of the over-allotment option. In
September 1996, the maturity date of this promissory note was revised to
September 30, 1998. In addition, the revised promissory note provides that
one-half of the outstanding principal amount of the note will be paid with
accrued interest thereon in the event the Company successfully consummates an
initial public offering of securities of the Company, but only to the extent
that the over-allotment option was exercised in such offering and only from the
proceeds received by the Company from the exercise of the over-allotment option.
As of March 31, 1998, this loan remained outstanding.
In August, September and October 1996, the Company received three loans
from Steven A. Cantor aggregating $253,750. A portion of the funds that this
stockholder loaned the Company was a result of the stockholder selling shares of
his Common Stock to an investor. In August 1996, this stockholder sold 38,889
shares of his Common Stock at a price of $1.12 per share. In September 1996,
this stockholder sold 23,333 shares of his Common Stock at a price of $1.50 per
share. These loans, which were consolidated into one note in September 1997,
bear interest at a rate of 8% and are payable the earlier of (i) June 1, 1997,
or (ii) with respect to $123,750 of the principal amount, the date the Company
successfully consummates an initial public offering of securities of the
Company, but only to the extent that either the over-allotment option is
exercised in such offering or within ninety (90) days after the underwriter
elects not to exercise the over-allotment option. This loan was repaid in 1997.
On May 30, 1996, the Company received loans of $50,000 each from Louis P.
Solferino and Michael P. Jones. The loans bear interest at an annual rate of 10%
and initially were due on demand. In September 1996, the maturity date of these
promissory notes was revised to occur the earlier of (i) May 30, 1998 or (ii)
the date the Company successfully consummates an initial public offering of
securities of the Company, but only to the extent that the over-allotment option
is exercised in such offering and only from the proceeds received by the Company
from the exercise of the over-allotment option. In addition, the Company issued
6,667 shares of its Common Stock to each of Mr. Solferino and Mr. Jones. These
shares were valued at $3.00 per share, the fair market value of the Common Stock
at the date of issuance. As of March 31, 1998, these loans remained outstanding.
In February 1996, the Company issued $150,000 and $75,000 of 12%
convertible promissory notes to Mr. Solferino and Mr. Jones, respectively, which
were payable on the earlier of August 31, 1996 or upon the consummation of an
<PAGE>
interim financing as contemplated by a letter of intent with an investment
banker for an initial public offering of the Company's securities. In June 1996,
in lieu of receiving payment in such event, the holders of the notes exchanged
the notes, based on a conversion price determined by the notes, into Second
Private Placement Units. In April 1997, Mr. Solferino and Mr. Jones converted
$16,050 and $8,025 of the principal and accrued interest into 8,025 and 4,013
shares of Common Stock, respectively.
During the fiscal year ended March 31, 1995, the Company issued two
promissory notes of $25,000 each to Elizabeth Pilossoph, who is the mother of
Rachelle Rosen, the mother-in-law of Michael Rosen, and the wife of Martin
Pilossoph. These notes were originally due in November and December 1998,
respectively. The Company repaid one of these notes in April 1995. In September
1995, the maturity date of the outstanding promissory note was revised to occur
the earlier of the Company receiving proceeds from a securities offering or June
1, 1996. In April 1996, the maturity date of the outstanding promissory note was
revised to occur subsequent to the repayment of the Penn Note issued in April
1996. In September 1996, the maturity date of this promissory note was revised
to occur the earlier of (i) February 1, 1998 or (ii) upon the occurrence of
events defined by the note as a "Change in Control." Interest accrues at an
annual rate of 6% and is payable at the maturity of the note.
During the fiscal year ended March 31, 1994, the Company borrowed $100,000
from the mother of Steven A. Cantor. The loan, which was originally due on
demand, was formalized in the form a promissory note during September 1995. In
April 1996, the maturity date of the $100,000 obligation was revised to occur
subsequent to the repayment of the Penn Note issued in April 1996. The loan was
non-interest bearing through April 1994. From May 1994 through maturity interest
accrues at an annual rate of 6% and is payable upon maturity. In September 1996,
the maturity date of this promissory note was revised to occur the earlier of:
(i) February 1, 1998 or (ii) upon the occurrence of events defined by the note
as a "Change in Control." During the fiscal year ended March 31, 1995, the
Company borrowed an additional $100,000 from Ms. Cantor. The loan was due on
demand with interest at an annual rate of 6%. The Company repaid $50,000 of this
loan in March 1995, and repaid the remaining $50,000 during April 1995.
During the fiscal year ended March 31, 1994, the Company obtained loans
from Rachelle Rosen and issued promissory notes of $40,000 and $15,000 which are
payable in May and June 1998, respectively. Interest accrues at an annual rate
of 8% and is payable at the maturity date of the notes.
As a general rule, all transactions among the Company and its officers,
directors or stockholders have been, and in the future will be, made on terms no
less favorable to the Company than those available from unaffiliated parties.
<PAGE>
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Restated Certificate of Incorporation of the Registrant (*).
3.2 By-laws of the Registrant (*).
10.1 1995 Long Term Incentive Plan (*).
10.2 1996 Non-Qualified Stock Option Plan (*).
10.3 Employment Agreement dated June 1, 1995 between the Registrant and
Michael Rosen, as amended (*).
10.4 Consulting Agreement dated November 4, 1996 the Registrant and Steven A.
Cantor (*).
10.5 Consulting Agreement dated November 1, 1996 between the Registrant and
Alma Management Corp.(*)
10.6 Form of Second Private Placement Note (*).
10.7 Form of Second Private Placement Unit Subscription Agreement (*).
10.8 Form of Indemnification Agreement between the Registrant and its
officers and directors (*).
10.9 Credit Agreement dated April 10, 1996, as amended, between the Registrant
and The Penn Traffic Company (*).
10.10 Manufacturing, Delivery & Pricing Agreement dated as of September 11,
1996 between the Registrant and Fieldbrook Farms (*).
10.11 Asset Purchase Agreement between New Yorker Frozen Desserts, Inc., New
Yorker Ice Cream Corp, Kerry Group Ltd., Ted Ketsoglou and the
Registrant dated December 18, 1997.
10.12 Asset Purchase Agreement between New Yorker Frozen Desserts, Inc.,
Jerry's Ice Cream Co., Inc. and the Registrant dated December 18, 1997.
10.13 Credit Agreement with Fieldbrook Farms dated March 20, 1997 (*).
10.14 Modification Agreement with The Penn Traffic Company dated April 15, 1997
(*).
10.15 Employment Agreement dated July 16, 1997 between the Registrant and
Michael Mitchell (*).
21 Subsidiaries of Registrant
Name State of Incorporation
---- ----------------------
New York Frozen Desserts, Inc. New York
27 Financial Data Schedule
- -------
(*) Incorporated by reference to Registration Statement on Form SB-2
(No. 333-21575) filed July 23, 1997.
(b) Reports on Form 8-K
1. Report on Form 8-K dated September 10, 1997 with respect to
Items 4 and 7.
2. Report on Form 8-K dated January 15, 1998 with respect to Item 4.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1933, the Company has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized on the 14th day of April, 1998.
MIKE'S ORIGINAL, INC.
By: /s/ Michael Rosen
------------------------------------
Michael Rosen, Chairman of the Board
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on April 14, 1998 by the following persons in the
capacities indicated:
Signature Title
--------- -----
/s/ Michael Rosen Chairman of the Board, Chief Executive Officer
Michael Rosen President and Director
/s/ Michael Mitchell Vice President - Marketing and Sales
Michael Mitchell
/s/ Frederic D. Heller Director
Frederic D. Heller
_______________________________ Director
Myron Levy
/s/ Martin Pilossoph Director
Martin Pilossoph
/s/ Arthur G. Rosenberg Director
Arthur G. Rosenberg
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
Report of Independent Certified Public Accountants - Current Auditor F - 2
Report of Independent Certified Public Accountants - Prior Auditor F - 3
Financial Statements:
Balance Sheets F - 4
Statements of Operations F - 5
Statement of Changes in Stockholders' Deficit F - 6
Statements of Cash Flows F - 7
Notes to Financial Statements F - 9
</TABLE>
F - 1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Mike's Original, Inc.
We have audited the balance sheet of Mike's Original, Inc. (a Delaware
corporation) as of December 31, 1997, and the related statements of
operations, changes in stockholders' equity, and cash flows for the
year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion
on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1997 financial statements referred to above
present fairly, in all material respects, the financial position of
Mike's Original, Inc. as of December 31, 1997, and the results of its
operations and its cash flows for the year then ended in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2
to the financial statements, the Company has incurred a net loss of
$4,502,645 for the year ended December 31, 1997 and as of that date
current liabilities exceeded current assets by $1,062,651 and the
stockholders' deficit aggregated $1,051,056. These factors, among
others, raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans regarding these
matters are also described in Note 2. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/s/ Lazar Levine & Felix LLP
LAZAR LEVINE & FELIX LLP
New York, New York
February 25, 1998, except for Note 14,
the date of which is March 4, 1998
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Mike's Original, Inc.
We have audited the accompanying balance sheet of Mike's Original, Inc. as of
December 31, 1996, and the related statements of operations, changes in
stockholders' deficit and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mike's Original, Inc. as of
December 31, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a net loss of $4,050,547 during the year ended December 31,
1996, and, as of that date, the Company's current liabilities exceeded its
current assets by $2,539,788 and the Company's stockholders' deficit was
$2,996,411. These factors, among others, as discussed in Note 2 to the financial
statements, raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ GRANT THORNTON LLP
GRANT THORNTON LLP
Melville, New York
April 17, 1997 (except for Note 8, as to
which the date is June 20, 1997)
<PAGE>
MIKE'S ORIGINAL, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
- ASSETS (Note 8) -
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash $ 438,277 $ 32,523
Accounts receivable, less allowance for doubtful
accounts of $15,916 and $20,751 for 1997 and
1996, respectively 12,600 61,219
Inventories (Notes 3b and 4) 143,899 247,608
Prepaid expenses 17,303 16,589
-------- --------
TOTAL CURRENT ASSETS 612,079 357,939
-------- --------
FIXED ASSETS - NET (Notes 3c and 5) 3,505 14,478
-------- --------
OTHER ASSETS:
Trademarks and organization costs, net of accumulated
amortization of $15,489 and $11,787 for 1997 and
1996, respectively (Note 3d) 3,022 6,724
Security deposits and other assets 5,068 19,091
Deferred offering costs - 45,000
-------- --------
8,090 70,815
-------- --------
$623,674 $443,232
======== ========
- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) -
CURRENT LIABILITIES:
Accounts payable - trade $500,453 $1,104,336
Accrued payroll and payroll taxes 20,587 28,000
Other accrued liabilities (Note 6) 137,822 118,607
Capital lease obligations - current portion - 9,957
Notes payable - related parties (Note 7) 486,250 253,750
Current portion of long-term debt (Notes 8 and 13d) 529,618 1,383,077
--------- ---------
TOTAL CURRENT LIABILITIES 1,674,730 2,897,727
--------- ---------
LONG-TERM LIABILITIES:
Notes payable - related parties (Note 7) - 486,250
Capital lease obligations - 3,611
Accrued interest - related parties - 52,055
--------- ---------
- 541,916
--------- ---------
COMMITMENTS AND CONTINGENCIES (Notes 2, 12, 13 and 14)
STOCKHOLDERS' EQUITY (DEFICIT) (Notes 10 and 11):
Preferred stock, $.01 par value; 500,000 shares
authorized; none issued or outstanding - -
Common stock, $.001 par value; 20,000,000 shares
authorized; 3,265,429 and 1,892,641 shares issued
and outstanding for 1997 and 1996, respectively 3,265 1,892
Additional paid-in capital 10,087,327 4,000,700
Deferred financing costs - (360,000)
Accumulated deficit (11,141,648)(6,639,003)
---------- ----------
(1,051,056)(2,996,411)
---------- ----------
$ 623,674 $ 443,232
========== ==========
See accompanying notes
</TABLE>
<PAGE>
MIKE'S ORIGINAL, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
SALES - NET (Notes 3e) $ 384,348 $2,392,258
COST OF SALES 451,198 1,439,635
---------- ----------
GROSS PROFIT (LOSS) (66,850) 952,623
---------- ----------
OPERATING EXPENSES:
Selling, marketing and shipping (Note 3f) 723,861 2,596,500
General and administrative 2,177,698 2,193,602
Research and development (Note 3h) 28,594 70,632
---------- ----------
2,930,153 4,860,734
---------- ----------
LOSS FROM OPERATIONS (2,997,003) (3,908,111)
Interest expense - net of interest income of
$30,744 and $547 for 1997 and 1996, respectively (1,505,642) (142,436)
---------- ----------
LOSS BEFORE INCOME TAXES (4,502,645) (4,050,547)
Provision for income taxes (Notes 3i and 9) - -
---------- ----------
NET LOSS $(4,502,645) $(4,050,547)
========== ==========
BASIC LOSS PER SHARE (Note 3j) $(1.69) $(2.54)
====== ======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (Note 3j) 2,662,013 1,592,106
========== ==========
</TABLE>
See accompanying notes
<PAGE>
MIKE'S ORIGINAL, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Deferred Total
Common Common Paid-in Financing Accumulated Stockholders'
Shares Amount Capital Costs Deficit Deficit
------ ------ ----------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 1,362,160 $1,362 $ 829,742 $ - $(2,588,456) ($1,757,352)
Issuance of common stock for
services rendered 69,231 69 207,623 - - 207,692
Sale of common stock to
investors, net of issuance
costs of $330,437 461,250 461 1,052,853 - - 1,053,314
Compensation attributable to
the transfer of common stock
owned by the founder for
services rendered - - 100,000 - - 100,000
Compensation attributable to the
issuance of stock options - - 812,000 - - 812,000
Compensation attributable to the
release of shares held in escrow - - 265,000 - - 265,000
Waiver of compensation payable to
stockholders and founders - - 358,482 - - 358,482
Imputed interest - convertible
debt - - 375,000 (375,000) - -
Amortization of imputed interest
- convertible debt - - - 15,000 - 15,000
Net loss - - - - (4,050,547) (4,050,547)
-------- -------- -------- -------- ----------- -----------
Balance at December 31, 1996 1,892,641 1,892 4,000,700 (360,000) (6,639,003) (2,996,411)
Amortization of imputed
interest - convertible debt - - - 360,000 - 360,000
Conversion of debt into common
stock by creditor 320,288 320 455,938 - - 456,258
Imputed interest -
convertible debt - - 426,715 - - 426,715
Issuance of common stock
for imputed interest 67,000 67 301,433 - - 301,500
Issuance of common stock
for services rendered 285,500 286 1,330,964 - - 1,331,250
Waiver of compensation payable to
founder - - 27,333 - - 27,333
Imputed interest attributable to
warrants issued and loans - - 202,500 - - 202,500
Proceeds from Company's initial
public offering 700,000 700 3,341,744 - - 3,342,444
Net loss - - - - (4,502,645) (4,502,645)
--------- -------- ---------- -------- ------------ ------------
BALANCE AT DECEMBER 31,
1997 3,265,429 $3,265 $10,087,327 $ - $(11,141,648) $(1,051,056)
========= ======== ========== ======== ============ ============
See accompanying notes
</TABLE>
<PAGE>
MIKE'S ORIGINAL, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,502,645) $(4,050,547)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 14,675 14,718
Allowance for doubtful accounts (4,835) 13,863
Imputed interest 1,327,051 15,000
Compensation expense attributable to issuance of
common stock for services rendered 1,325,250 207,692
Compensation expense attributable to the release
of common stock from escrow account - 265,000
Compensation expense attributable to issuance of
common stock and stock options 6,000 812,000
Compensation expense attributable to the
transfer of common stock by founder for
services rendered - 100,000
Changes in operating assets and liabilities:
Decrease in accounts receivable 53,454 78,320
Decrease (increase) in inventories 103,709 (70,723)
(Increase) in prepaid expenses and other current assets (714) (21,089)
(Decrease) increase in accounts payable (130,986) 812,163
(Decrease) increase in accrued expenses and other
liabilities (12,920) 79,717
---------- ----------
Net cash used in operating activities (1,821,961) (1,743,886)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Refund (payment) of security deposits 14,023 (1,000)
---------- ----------
Net cash provided by (used in) investing activities 14,023 (1,000)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible note payable - 225,000
Proceeds from 12% subordinated notes payable - stockholders - 153,750
Repayment of 12% subordinated notes payable - stockholders (123,750) -
Net proceeds from issuance of common stock 3,387,444 1,053,314
Proceeds from notes payable to related parties - 560,000
Payment of notes payable to related parties (253,750) -
Payment of capital lease obligations (13,568) (9,147)
Payment of notes payable - (244,730)
Proceeds from line of credit - 24,134
Payment of line of credit (14,130) (628)
Proceeds from short-term loans 440,000 -
Repayment of short-term loans (315,000) -
Repayment of notes payable - trade creditors (893,554) -
------------ -----------
Net cash provided by financing activities 2,213,692 1,761,693
------------ -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 405,754 16,807
Cash and cash equivalents, at beginning of year 32,523 15,716
----------- -----------
CASH AND CASH EQUIVALENTS, AT END OF YEAR $ 438,277 $ 32,523
=========== ===========
See accompanying notes
</TABLE>
<PAGE>
MIKE'S ORIGINAL, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
(a) Interest paid $267,369 $64,685
Taxes paid - -
(b) During 1997 and 1996, the Company converted
$432,077 and $1,176,437 of trade accounts
payable to notes payable, respectively. During
1997, the Company also converted $39,920 of
accounts payable and $380,000 of notes
payable into common stock
(c) Compensation accrued at December 31, 1996 of
$27,333 was waived by founder and converted
to equity
See accompanying notes
</TABLE>
<PAGE>
MIKE'S ORIGINAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 1 - ORGANIZATION:
Mike's Original, Inc. (the "Company") was incorporated in Delaware in
May 1994 as successor to Melanie Lane Farms, Inc. ("Melanie Farms"), a
New York corporation formed in 1993. In June 1994, Melanie Farms was
merged into the Company. As both entities were under common control, the
merger was accounted for in a manner similar to a pooling of interests.
On December 31, 1997, a new entity, New York Frozen Desserts, Inc., was
incorporated in New York, as a wholly-owned subsidiary of the Company,
for the purpose of making acquisitions.
Effective December 31, 1995, the Company changed its fiscal year-end
from March 31 to December 31.
Since April 1, 1993, the Company has been engaged in the marketing and
distribution of super- premium ice cream products. The Company markets,
sells and distributes Mike's Original Cheesecake Ice Cream, a blend of
ice cream and cheesecake ingredients. This product line is offered in a
variety of flavors mainly to supermarkets and grocery stores and also,
to a lesser extent, to convenience stores, food service outlets and
warehouse clubs. The Company's products are sold in approximately
fourteen states, including New York, California, Pennsylvania and New
Jersey with sales generally concentrated on the East and West Coasts of
the United States (see Note 12).
NOTE 2 - BASIS OF PRESENTATION:
The Company has incurred losses from operations since its inception in
1993 and, at December 31, 1997, has a stockholders' deficit and a
working capital deficit of $1,051,056 and $1,062,651, respectively. At
December 31, 1996, the Company had a stockholders' deficit and a working
capital deficit of $2,996,411 and $2,539,788, respectively. A
significant portion of these amounts were incurred as a result of
intense marketing by the Company. Payments were made for introductory
programs with supermarkets and other food chain retailers of
approximately $201,000 and $622,000 for the years ended December 31,
1997 and 1996, respectively. Payments for product advertising, promotion
and marketing were also made aggregating $326,000 and $1,526,000 for the
years ended December 31, 1997 and 1996, respectively. Further, net sales
for the year ended December 31, 1997 were minimal and the Company is
continuing to incur losses from operations. The Company has relied
extensively on borrowings to finance its operations and in 1997,
successfully completed an initial public offering of its common stock
(see Note 10), the proceeds of which were used primarily to repay debt.
The circumstances described above raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in
regard to this matter are to change the emphasis of the Company's
operations from marketing and distributing super-premium ice cream
products to marketing and distributing frozen desserts that will include
a line or lines of super- premium ice cream products. Management hopes
to accomplish this plan through the strategic acquisition of
distribution companies, concentrated in large metropolitan areas, which
will provide new brands and customers, distribution expertise and an
operations center that can absorb future acquisitions. The Company is
engaged in discussions with nationally known companies to obtain
to market and distribute product bearing the name of the licenser. See
Notes 13f and 14.
<PAGE>
MIKE'S ORIGINAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 2 - BASIS OF PRESENTATION (Continued):
These acquisitions and distribution licenses would be financed from an
additional offering of securities planned for the second quarter of
1998. If an offering cannot be consummated or other financing obtained,
the Company would be hard pressed to continue. The Company has
sufficient cash on hand and product to sell to last until the end of the
second quarter of 1998. The financial statements do not include any
adjustments that might result from this uncertainty.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Use of Estimates in Financial Statement Presentation:
The preparation of these financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that could affect the amounts reported in
these financial statements and related notes. Actual results could
differ from these estimates.
(b) Inventories:
Inventories are stated at the lower of cost or market value, with cost
determined on a first-in, first out basis.
(c) Fixed Assets:
Fixed assets are stated at cost less accumulated depreciation.
Depreciation of fixed assets is recorded on a straight-line basis over
their estimated useful lives ranging from three to five years. Certain
leased computer equipment with future rental payments for periods
through 1998 have been capitalized. These amounts are included in fixed
assets within the accompanying balance sheets and are being depreciated
over the estimated useful life of the equipment or term of the lease,
whichever is shorter.
(d) Other Assets:
Costs related to trademark and organizational expenditures have been
deferred and are being amortized on a straight-line basis over five
years.
(e) Revenue Recognition:
Revenue from the sale of ice cream products is recognized upon shipment.
Sales are presented net of distribution fees of $95,679 and $527,540 for
the years ended December 31, 1997 and 1996, respectively. A significant
portion of the Company's sales is made to one distributor pursuant to a
distribution agreement which provides for the payment of distribution
fees based upon a percentage of sales, price protection and certain
rights of return on product unused by third parties. A provision for
such costs is made as revenue is recognized; however, costs relating to
price protection have not been material to date. This distribution
agreement was terminated by the distributor in September 1997.
<PAGE>
MIKE'S ORIGINAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(f) Advertising:
Advertising costs are charged to operations when incurred. Advertising
costs charged to operations were $93,000 and $346,000 for the years
ended December 31, 1997 and 1996, respectively.
(g) Introductory Programs:
Payments for introductory programs are made to certain customers
(supermarkets and other food chain retailers) in exchange for the
Company obtaining retail shelf space and are charged to operations when
the Company initially ships products to customers under such agreement.
No costs of introductory programs are deferred as of December 31, 1997
and 1996.
(h) Research & Development:
Research & development expenditures, primarily for product development,
are expensed as incurred.
(i) Income Taxes:
Deferred income taxes are recognized for temporary differences between
the financial statement and income tax bases of assets and liabilities
and loss carryforwards for which income tax benefits are expected to be
realized in future years. A valuation allowance has been established to
offset the deferred tax assets since it is not more likely than not that
such deferred assets will be realized. The effect on deferred taxes of a
change in tax rates is recognized in income in the period that includes
the enactment date.
(j) Income Per Common Share:
The Company has adopted SFAS 128 "Earnings Per Share" ("SFAS 128"),
which has changed the method of calculating earnings per share. SFAS 128
requires the presentation of "basic" and "diluted" earnings per share on
the face of the income statement. Prior period earnings per share data
has been restated in accordance with Statement 128. Loss per common
share is computed by dividing the net loss by the weighted average
number of common shares and common equivalent shares outstanding during
each period.
(k) Statements of Cash Flows:
For the purpose of the statements of cash flows, the Company considers
all highly liquid investments purchased with a remaining maturity of
three months or less to be cash equivalents.
(l) New Accounting Pronouncements:
SFAS 130 "Reporting Comprehensive Income" is effective for years
beginning after December 15, 1997 and early adoption is permitted. This
statement prescribes standards for reporting comprehensive income and
its components. Since the Company currently does not have any items of
other comprehensive income a statement of comprehensive income is not
yet required.
<PAGE>
MIKE'S ORIGINAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(l) New Accounting Pronouncements (continued):
SFAS 131 "Disclosures About Segments of an Enterprise and Related
Information", is effective for years beginning after December 15, 1997
and early adoption is encouraged. The Company does not presently believe
that it operates in more than one identifiable segment.
See also Income Per Common Share, above.
(m) Impact of the Year 2000 Issue:
The year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of
the Company's computer programs that have date- sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000.
This could potentially result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a
temporary inability to process transactions, send invoices, or engage in
other similar normal business activities. The Company had already
planned on upgrading its computer software to increase operational
efficiencies and information analysis and will ensure that the new
systems properly utilize dates beyond December 31, 1999. The cost of
this upgrade project, as it relates to the year 2000 issue, is not
expected to have a material effect on the operations of the Company.
NOTE 4 - INVENTORIES:
Inventories consist of the following as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Finished goods $143,899 $ 97,536
Raw materials - 150,072
-------- --------
$143,899 $247,608
======== ========
</TABLE>
NOTE 5 - FIXED ASSETS:
Fixed assets consist of the following as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Computer equipment $29,447 $29,447
Office equipment 6,000 6,000
------- -------
35,447 35,447
Less: accumulated depreciation 31,942 20,969
------- -------
$ 3,505 $14,478
======= =======
</TABLE>
<PAGE>
MIKE'S ORIGINAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 6 - OTHER ACCRUED LIABILITIES:
Other accrued liabilities consisted the following as of December 31,
1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Accrued distribution fee $ 1,499 $ 7,921
Distributors' deposits - 46,739
Accrued interest payable (Notes 7 and 8) 124,288 18,947
Professional fees payable 12,035 45,000
-------- --------
$137,822 $118,607
======== ========
</TABLE>
NOTE 7 - NOTES PAYABLE TO RELATED PARTIES:
During the fiscal year ended March 31, 1994, the Company obtained loans
from the founder and issued promissory notes of $40,000 and $15,000
which are payable in May and June 1998, respectively. Interest accrues
at an annual rate of 8% and is payable at the maturity date of the
notes. Accrued interest payable related to these notes amounts to
$18,957 and $14,557 at December 31, 1997 and 1996, respectively.
During the fiscal year ended March 31, 1994, the Company borrowed
$100,000 from a shareholder of the Company. The loan, which was
originally due on demand, was formalized in the form of a promissory
note during September 1995. In April 1996, the maturity date of the
$100,000 obligation was revised to occur subsequent to the repayment of
the promissory note issued in April 1996 as further described in Note 8.
The loan was non-interest bearing through April 1994. From May 1994
through maturity, interest accrues at an annual rate of 6% and is
payable upon maturity. In September 1996, the maturity date of this
promissory note was revised to occur the earlier of: (i) February 1,
1998 or (ii) upon the occurrence of events defined by the note as a
"Change in Control." Accrued interest payable related to this note
amounts to $27,491 and $21,491 at December 31, 1997 and 1996,
respectively.
During the fiscal year ended March 31, 1995, the Company issued two
promissory notes of $25,000 each to an investor, who is related to the
founder of the Company, which were originally due in November and
December 1998, respectively. The Company repaid $25,000 of these notes
in April 1995. In September 1995, the maturity date of the outstanding
promissory note was revised to occur the earlier of the Company
receiving proceeds from a securities offering or June 1, 1996. In April
1996, the maturity date of the outstanding promissory note was revised
to occur subsequent to the repayment of the promissory note issued in
April 1996 as further described in Note 8. In September 1996, the
maturity date of this promissory note was revised to occur the earlier
of: (i) February 1, 1998 or (ii) upon the occurrence of events defined
by the note as a "Change in Control." Interest accrues at an annual rate
of 6% and is payable at the maturity date of the note. Accrued interest
payable related to this note amounts to $6,174 and $4,674 at December
31, 1997 and 1996, respectively.
<PAGE>
MIKE'S ORIGINAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 7 - NOTES PAYABLE TO RELATED PARTIES (Continued):
On May 30, 1996, the Company received loans aggregating $100,000 from
two stockholders. The loans were originally due on demand bearing
interest at a rate of 10%. In September 1996, the maturity date of these
promissory notes was revised to occur the earlier of: (i) twenty-four
months from the date of the loans, or (ii) the date the Company
successfully consummates an initial public offering of securities of the
Company, but only to the extent that the overallotment option is
exercised in such offering and only from the proceeds received by the
Company from the exercise of the overallotment option. These notes are
still outstanding at December 31, 1997. Accrued interest payable related
to these notes amounts to $15,833 and $5,833 at December 31, 1997 and
1996, respectively.
On August 28, 1996, the founder of the Company was issued an additional
promissory note of $206,250. The funds that the founder loaned the
Company were a result of the founder selling 183,333 shares of his stock
to an investor at a price of $1.12 per share. This loan bears interest
at a rate of 8% and was originally payable the earlier of: (i) thirteen
months from the date of the loan, or (ii) the successful consummation of
an initial public offering of securities of the Company, but only to the
extent that the overallotment option is exercised in such offering and
only from the proceeds received by the Company from the exercise of the
overallotment option. In September 1996, the maturity date of this
promissory note was revised to occur twenty-four months from September
30, 1996. In addition, the revised promissory note provides that
one-half of the note will be paid with accrued interest in the event the
Company successfully consummates an initial public offering of
securities of the Company, but only to the extent that the overallotment
option is exercised in such offering and only from the proceeds received
by the Company from the exercise of the overallotment option. Accrued
interest related to this borrowing amounts to $22,000 and $5,500 at
December 31, 1997 and 1996, respectively.
In August and September 1996, the Company received three loans from a
stockholder aggregating $253,750. A portion of the funds that this
shareholder loaned the Company was a result of the shareholder selling
shares of his stock to investors. In August 1996, this shareholder sold
38,889 shares of his stock at a price of $1.12 per share. In September
1996, the shareholder sold 23,333 shares of his stock at a price of
$1.50 per share. These loans each bear interest at a rate of 8% per
annum and were originally payable the earlier of: (i) thirteen months
from the date of the loans, or (ii) the date the Company successfully
consummates an initial public offering, but only to the extent that the
overallotment option is exercised in such offering and only from the
proceeds received by the Company from the exercise of the overallotment
option. In September 1996, the maturity date of these promissory notes
was revised to June 1, 1997. In the event that the Company successfully
consummates an initial public offering prior to June 1, 1997, $123,750
will be payable from such proceeds and $130,000 will be payable 90 days
therefrom. In the event the underwriter exercises its overallotment
option, the balance otherwise payable in 90 days will be payable from
such proceeds. Accrued interest payable related to these borrowings
amounted to $5,978 at December 31, 1996. During 1997 the Company repaid
the entire balance of $253,750 plus interest accrued to the date of
repayment of $18,162.
As of December 31, 1997 and 1996, loans payable to related parties
aggregated $486,250 and $740,000, respectively. Interest accrued and
unpaid at December 31, 1997 and 1996 aggregated $90,455 and $58,033,
respectively.
<PAGE>
MIKE'S ORIGINAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 8 - NOTES PAYABLE:
In April 1996, the Company issued a promissory note in the amount of
$830,275 in exchange for certain trade accounts payable. The Company was
required to make payments in monthly installments beginning May 1996
consisting of: (i) accrued interest, and (ii) principal in the amount of
$12,000. In addition to these monthly installments, the Company was
required to pay additional amounts upon the occurrence of certain
events. In the event the Company did not complete an initial public
offering, the note was due in full on December 31, 1996. Interest on the
promissory note accrues at the prime rate plus 1% per annum. This note
is collateralized by substantially all of the assets of the Company. The
balance of this note was $710,275 at December 31, 1996. Accrued interest
payable related to this note amounted to $2,738 at December 31, 1996. In
April 1997 the terms of the note were amended to provide for payments to
the lender, from the proceeds of the Company's initial public offering,
in the amount of $575,000 with the balance of $135,275 payable on
December 31, 1997. In the event that the initial public offering is not
completed by June 1, 1997, all amounts outstanding will then become
immediately due and payable in full. Further, in April 1997, the Company
issued a $221,550 convertible note due December 31, 1998 in exchange for
a like amount of trade payables. The convertible note bears interest at
10% per annum, payable at maturity, and is convertible by the holder
into the Company's common stock at a conversion rate of $3.00 principal
amount for each share of common stock at the option of the holder at any
time prior to maturity. In June 1997, the Company renegotiated the terms
of this agreement. The renegotiated terms provide that if the Company's
initial public offering is not completed by July 15, 1997, all amounts
will then become immediately due and payable in full. In addition, the
balance due to the lender from the proceeds of the Company's initial
public offering was increased from $575,000 to $595,000 and the
principal balance of the convertible note due December 31, 1998 was
reduced to $201,000. On August 8, 1997, at the closing of the initial
public offering, the principal amount plus all accrued interest was
paid. At December 31, 1997, $115,275 plus accrued interest of $4,328 of
the convertible note remains unpaid.
On August 20, 1996, the Company issued a promissory note in the amount
of $289,482 in exchange for certain trade accounts payable and
inventories. The note bears interest at a rate of 10% per annum and was
payable on or before November 15, 1996. The balance of this note was
$210,283 at December 31, 1996. On December 31, 1996, the Company was not
in compliance with the terms of the subject loan agreement. However, the
lender involved has amended the agreement to permit the Company to be in
compliance with such terms at December 31, 1996. In February 1997, the
Company issued a promissory note in the amount of $20,000 in exchange
for a like amount of trade payables. In April 1997, the lender agreed to
extend the due date of such notes to the earlier of June 1, 1997 or the
closing of the Company's initial public offering. In the event the
Company completes its initial public offering by June 1, 1997, the
lender agreed to extend the due date of the then outstanding $96,000 of
principal to December 31, 1998. If such amount is extended, the lender
has the right to convert such amount into 32,000 shares of the Company's
common stock at any time prior to maturity. The lender agreed to extend
the maturity date of the promissory notes originally due on June 1, 1997
to July 31, 1997. At December 31, 1997, $96,000 of the convertible note
plus accrued interest of $3,794 remain unpaid.
<PAGE>
MIKE'S ORIGINAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 8 - NOTES PAYABLE (Continued):
In December 1996, the Company issued two additional short-term
promissory notes in exchange for certain trade accounts payable
aggregating $56,680. One promissory note bears interest at the rate of
10% per annum. Principal and interest are payable in installments as
follows: the sum of $500, or more, semimonthly beginning on December 5,
1996, and payable thereafter on the 20th and 5th day of each month,
until principal and interest have been paid in full. The second
promissory note bears interest at the rate of 8% per annum. Payment of
principal will be made at the rate of $5,000 per month commencing on
January 1, 1997 and monthly, thereafter until the earlier of: (i) May 1,
1997 or (ii) the date the Company successfully consummates an initial
public offering of its securities, at which time this note will be paid
in full with interest. The balance of these notes was $55,680 at
December 31, 1996. The Company has fully paid these notes during the
year ended December 31, 1997.
In December 1996, the Company issued a $225,000 promissory note to an
investor bearing interest at the rate of 8% per annum. This note is
payable in full the earlier of: (i) December 31, 1997 or (ii) five days
after the closing date of an initial public offering. In lieu of
receiving payment, the investor has the right to convert this promissory
note within five days of the closing of such initial public offering
into 200,000 shares of common stock of the Company, par value $.001 per
share. Imputed interest resulting from the difference between the
estimated fair value of the Company's common stock and the conversion
price has been provided for and was charged to operations over the
period this note first became convertible. Interest expense of $360,000
was recognized by the Company during the three months ended March 31,
1997, which represented the amortization of the imputed interest
associated with this transaction. In April 1997, the investor elected to
convert this note.
In January 1997, the Company issued a convertible promissory note to an
investor bearing interest at the rate of 8% per annum, in the principal
amount of $100,000. This convertible note is to be paid in full the
earlier of five days after the closing of an initial public offering or
January 31, 1998. In April 1997, the investor converted the note into
78,431 shares of the Company's common stock. Interest expense of
$252,940 representing the difference between the estimated fair value of
the Company's common stock and the conversion price was recognized
during the three months ended March 31, 1997.
<PAGE>
MIKE'S ORIGINAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 8 - NOTES PAYABLE (Continued):
In March 1997, the Company issued a $50,000 promissory note to an
investor bearing interest at the rate of 10% per annum. This note is
payable on demand on or after May 12, 1997. As additional consideration
for this loan, the Company issued the lender 2,000 shares of its common
stock. These shares were valued at $4.50 per share, the estimated fair
market value of the stock at the date of issuance. On April 3, 1997, the
lender converted $25,000 of the outstanding note balance into 12,500
shares of the Company's common stock. An interest charge of $31,000
representing the difference between the estimated fair value of the
Company's common stock and the value the Company ascribed to these
shares on the date of issuance was recognized by the Company upon
conversion. In June 1997, the lender agreed to extend the maturity date
of the outstanding note balance to the earlier of July 31, 1997 or the
completion of the Company's initial public offering. This note was fully
repaid in August 1997, together with interest accrued to the date of
payment.
In May 1997, the Company negotiated with a creditor in connection with
trade accounts payable balances owed to this creditor aggregating
$60,000. The creditor agreed that the Company would repay $30,000 of
this balance upon completion of an initial public offering. The Company
issued a convertible promissory note for the remaining outstanding
balance of $30,000 bearing interest at the rate of 10% per annum. The
note is payable in full on December 31, 1998. In lieu of receiving
payment, the creditor has the right to convert this promissory note, at
any time prior to the maturity date, into 10,000 shares of common stock
of the Company.
In May and June 1997, the Company issued three promissory notes to
investors bearing interest at the rate of 12% per annum in the aggregate
principal amount of $150,000. These notes are payable in full the
earlier of: (i) July 31, 1997 or (ii) on the date of an initial public
offering. In connection with these transactions, the Company issued an
aggregate of 75,000 warrants, expiring July 31, 2000, to these investors
to purchase 75,000 shares of the Company's common stock at a price of
$3.00 per share. These notes were paid in full in August 1997, together
with interest accrued to the date of payment.
NOTE 9 - INCOME TAXES:
A reconciliation between actual income tax (benefit) and the amount
computed by applying the statutory Federal income tax rate to the loss
before taxes is as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Tax expense (benefit) at statutory
Federal income tax $(1,532,000) $(1,377,000)
Nondeductible compensation 450,000 128,000
Net operating loss not currently
utilizable 1,082,000 1,249,000
----------- -----------
$ - $ -
=========== ===========
</TABLE>
<PAGE>
MIKE'S ORIGINAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 9 - INCOME TAXES (Continued):
The tax effects of temporary differences and loss carryforwards giving
rise to deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net operating loss and other carryforwards $ 2,890,000 $ 1,814,000
Bad debts 5,000 7,000
Depreciation/amortization 1,000 2,000
Deferred compensation 276,000 276,000
Other deferred assets - 20,000
---------- ----------
3,172,000 2,119,000
Valuation allowance (3,172,000) (2,119,000)
----------- -----------
$ - $ -
=========== ===========
</TABLE>
The Company anticipates that for the foreseeable future it will continue
to be required to provide a 100% valuation allowance for the tax benefit
of its net operating loss carryforward and temporary differences as the
Company cannot presently predict when it will generate sufficient
taxable income to utilize such deferred tax assets.
At December 31, 1997 and 1996, Company had net operating losses
available to carry forward of approximately $8,500,000 and $5,320,000
respectively, for tax purposes. Such net operating loss carryforwards
expire through the year ending 2013. No benefit has been recorded for
such loss carryforwards since realization cannot be assured. The
Company's use of its net operating loss carryforwards is limited as the
Company is deemed to have undergone an ownership change as defined in
Internal Revenue Code Section 382.
NOTE 10 - STOCKHOLDERS' EQUITY:
In September 1995, pursuant to a Shareholders' Agreement and associated
Escrow Agreement, a shareholder of the Company placed 88,513 shares of
his common stock in an escrow account. The Escrow Agreement was
terminated in February 1996 and the subject shares were returned to the
shareholder. Compensation expense of $265,000 was recognized based upon
the estimated fair value of the shares by the Company upon the release
of the shares from escrow.
On May 30, 1996, the Board of Directors authorized a reverse stock split
in the ratio of one common share for every six and one-half common
shares outstanding as of that date. In addition, on such date, the Board
of Directors approved an amendment to the Company's Certificate of
Incorporation increasing the number of authorized shares of the
Company's common stock from 3,076,923 to 20,000,000 shares. On February
6, 1997, the Board of Directors authorized a reverse stock split in the
ratio of two common shares for every three common shares outstanding as
of February 7, 1997. The reverse splits and changes in authorized
capital have been retroactively reflected for all periods presented.
<PAGE>
MIKE'S ORIGINAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 10 - STOCKHOLDERS' EQUITY (Continued):
In May 1996, the Company issued 50,000 shares of its common stock to
certain individuals for services rendered on behalf of the Company.
These shares were valued at $3.00 per share, the estimated fair value of
the stock at the date of issuance and accordingly, $150,000 was charged
to operations.
During June 1996 through September 1996, the Company completed a Private
Placement Offering pursuant to Rule 506 of the Securities Act of 1933
consisting of the sale of 61.5 units (the "Second Private Placement").
Each unit consisted of a $2,500, 12% subordinated promissory note and
7,500 shares of common stock at an offering price of $25,000 per unit.
The note balance at December 31, 1996 which resulted from this Second
Private Placement was $153,750. These notes mature on the earlier of:
(i) July 31, 1997, or (ii) the closing date of the initial public
offering. Accrued interest payable related to these notes amounted to
$7,688 at December 31, 1996. In April 1997, $30,000 of such notes, as
well as $2,100 of accrued interest, were converted to 16,050 shares of
the Company's common stock. The balance was repaid upon the successful
completion of the Company's IPO in July 1997.
In September 1996, the founder of the Company transferred 33,333 shares
of his common stock to certain individuals for services rendered on
behalf of the Company. These shares were valued at $3.00 per share, the
estimated fair value of the stock at the date of the transfer. As the
Company implicitly benefitted from this transaction, the value of the
shares transferred was reflected as an expense in the accompanying
financial statements with a corresponding credit of $100,000 to
additional paid-in capital.
In October 1996, the Company issued 19,231 shares of its common stock to
certain individuals for services rendered during the year ended December
31, 1996. These shares were valued at $3.00 per share, the estimated
fair market value of the stock at the date of issuance, and $57,692 was
charged to operations.
In March 1997, the Company in connection with entering into a two-year
exclusive East coast manufacturing agreement, issued 35,000 shares of
its common stock. These shares were valued at $4.50 per share, the
estimated fair market value of the stock at the date of issuance.
Pursuant to the agreement, the manufacturer agreed to provide $250,000
of 21-day credit terms. Further, the Company was obligated to pay the
manufacturer $150,000 against existing amounts owed by April 30, 1997.
In the event such amount was not paid, the Company is obligated to issue
an additional 30,000 shares of its common stock to the manufacturer.
These additional shares were issued to the manufacturer in May 1997.
In May 1997, the Company issued 100,000 shares of its common stock to
its legal counsel for services rendered during March and April of 1997.
These shares were valued at $4.50 per share, the estimated fair value of
the stock at the date of issuance and, accordingly, $450,000 was charged
to operations during the year ended December 31, 1997.
<PAGE>
MIKE'S ORIGINAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 10 - STOCKHOLDERS' EQUITY (Continued):
In June 1997, the Company issued 13,307 shares of its common stock to
certain individuals in settlement of amounts owed to these individuals
aggregating $39,921. An interest charge of $19,961 representing the
difference between the estimated fair value of the Company's common
stock and the value the Company ascribed to these shares on the date of
issuance was recognized by the Company in the year ended December 31,
1997.
On July 31, 1997. the Company completed its Initial Public Offering
("IPO") of 700,000 units sold to investors on the OTC Bulletin Board at
$6.20 per unit for aggregate gross proceeds of $4,340,000. Each unit
contained one share of common stock and two Class A warrants to purchase
one share of Common Stock each at $5.00 per share. The Company realized
net proceeds of $3,342,444.
In August 1997, the Company issued 35,500 shares of common stock as
compensation for professional fees rendered aggregating $206,250.
See also Notes 8 and 13c for additional share issuances.
NOTE 11 - STOCK OPTION PLANS:
At December 31, 1997 the Company has two stock-based compensation plans,
which are described below. The Company applies APB Opinion 25,
"Accounting for Stock Issued to Employees" and related interpretations
in accounting for stock options issued to employees. The Company applies
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
"Accounting for Stock- Based Compensation", in accounting for stock
options issued to non-employees. The compensation cost that has been
charged against income for stock options issued to non-employees was
$812,000 for the year ended December 31, 1996. No options were granted
under this plan during 1997.
Had compensation cost for employees been determined based on the fair
value at the grant dates consistent with the methodology of SFAS No.
123, the Company's net loss and net loss per share would have been
increased to the pro forma amounts indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
---- ----
<S> <C> <C>
Net loss:
As reported $(4,502,645) $(4,050,547)
Pro forma (4,732,943) (4,581,047)
Net loss per share:
As reported $(1.69) $(2.54)
Pro forma (1.78) (2.88)
</TABLE>
<PAGE>
MIKE'S ORIGINAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 11 - STOCK OPTION PLANS (Continued):
In August 1995, the Company formally adopted a Long-Term Incentive Plan
(the "1995 Plan"), which provides that the Company may grant certain key
employees or consultants either stock options, stock appreciation
rights, restricted stock, performance grants or other Company securities
(the "Awards"). The 1995 Plan, as amended, authorizes the issuance of a
maximum of 433,333 shares of common stock. As of December 31, 1997 and
1996, respectively, the Company has granted an aggregate of 306,667 and
256,667 options to purchase common stock with exercise prices ranging
from $1.50 to $3.00 under this Plan. At December 31, 1997 and 1996,
options exercisable under this plan were 306,667 and 33,333,
respectively. None of these options have been exercised to date. During
the year ended December 31, 1996, compensation cost recognized in income
for the issuance of options under the 1995 Plan to non-employees totaled
$119,000. To date, options granted under this plan are exercisable six
months from date of grant and expire 10 years from date of grant.
On October 15, 1996, the Company's Board of Directors approved a 1996
Non-qualified Stock Option Plan ("Non-qualified Plan") for officers,
directors, employees and consultants of the Company. The Plan, as
amended, authorizes the issuance of up to 500,000 shares of common
stock. As of December 31, 1997, the Company has granted 478,332 options
to purchase shares of common stock under the Non-qualified Plan at an
exercise price of $1.50. None of the stock options granted have been
exercised to date. During the year ended December 31, 1996, compensation
cost recognized for the issuance of options under the Non-qualified Plan
to non-employees totaled $693,000. To date, options granted under this
plan are exercisable six months from date of grant and expire 10 years
from date of grant.
A summary of stock option activity related to the Company's Plans is as
follows:
<TABLE>
<CAPTION>
Weighted
Average 1996
1995 Plan Exercise Non-qualified Plan
Shares Price Range Price Shares Price Range
------ ----------- --------- ------ -----------
<S> <C> <C> <C> <C> <C>
Outstanding at January 1, 1996 - -
Granted during 1996 256,667 $1.50 - $3.00 $1.69 396,666 $1.50
------- -------
Outstanding at December 31, 1996 256,667 $1.50 - $3.00 1.69 396,666 1.50
Granted during 1997 50,000 1.50 1.50 81,666 1.50
------- -------
Outstanding at December 31, 1997 306,667 1.66 478,332 1.50
======= =======
Exercisable at December 31, 1996 256,667 1.50 - 3.00 1.69 -
======= =======
Exercisable at December 31, 1997 306,667 1.50 - 3.00 1.69 478,332 1.50
======= =======
</TABLE>
<PAGE>
MIKE'S ORIGINAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 12 - FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF
CREDIT RISK:
The carrying amounts of cash, accounts receivable, accounts payable and
other accrued liabilities are estimated to approximate their fair value.
The Company believes that it is not practicable to estimate the value of
its debt obligations due to its current financial condition.
Concentration of credit risk with respect to trade accounts receivable
exists as the Company sells products primarily to one distributor. The
Company performs periodic credit evaluations of its customers' financial
condition and does not require collateral or other security. The
distributor referred to in Note 3e accounted for approximately 91% and
79% of the Company's sales for the years ended December 31, 1997 and
1996, respectively. This distributor accounted for 57% of the Company's
net accounts receivable at December 31, 1996. As of December 31, 1997,
the Company no longer sells to this distributor and there are no amounts
uncollected.
The Company's products have historically been manufactured by
independent facilities. Certain of these facilities have ceased
manufacturing on behalf of the Company due to the fact that these
facilities are owed substantial sums of money by the Company and the
Company's products are currently manufactured at only one facility. If
this manufacturer elects to suspend the manufacturing of the Company's
products, the Company's operating results may be adversely affected.
NOTE 13 - COMMITMENTS AND CONTINGENCIES:
(a) Lease Commitments:
Future minimum payments under noncancellable operating leases for office
space, equipment and vehicles, with initial terms of one or more years,
consist of the following at December 31, 1997:
<TABLE>
<CAPTION>
Operating
Leases
----------
<S> <C>
1998 $15,836
1999 11,025
2000 2,023
-------
$28,884
=======
</TABLE>
<PAGE>
MIKE'S ORIGINAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued):
(b) Employment Contracts:
The Company had an employment agreement with its former President which
provided for an annual base salary and bonuses. The agreement also
provided for the granting of 5,101 of immediately exercisable and fully
vested options to purchase shares of the Company's common stock at an
exercise price of $3.00. This agreement was to expire in February 1999.
In addition, the former President was granted an incentive stock option
to purchase 73,205 shares of the Company's common stock at an exercise
price of $3.00 which vested ratably over the three years beginning
February 1995. On September 15, 1996, the then President resigned his
employment with the Company. At the time of the resignation, 29,530
options to purchase shares of the Company's common stock at an option
price of $3.00 per share were exercisable and the balance was canceled.
The exercisable options expired on December 15, 1996, three months from
the date of the then President's resignation.
During the year ended December 31, 1996, the Company hired a Vice
President of Sales and Marketing and entered into an employment
agreement with this individual. The agreement provided for an annual
base salary of $100,000, plus an incentive bonus. This agreement was for
an initial term of one year from the earlier of the effective date of an
initial public offering of the Company's securities or March 1, 1997. On
June 20, 1997, this employee resigned his employment with the Company.
At the time of the resignation, 66,667 options to purchase shares of the
Company's common stock at an option price of $1.50 were canceled.
In addition, the Company has employment agreements with the founder and
another employee which provide for annual base salaries of $125,000 and
$40,000, respectively, and expire, as amended, in June 2001 and June
1998, respectively. During the year ended December 31, 1996, these
individuals voluntarily waived all rights to receive the accrued
salaries payable to them aggregating $110,565 and, accordingly, such
amount has been presented as a contribution to the Company's additional
paid-in capital. Further, in April 1997, the founder agreed to waive an
additional $27,333 of accrued salary through February 28, 1997. In
December 1997 the employee whose contract expires in June 1998, agreed
to modify the agreement and be compensated on an hourly basis which is
anticipated to produce substantially lower compensation. All other terms
of the contract remain in effect. The agreement with the founder,
currently serving as the Chairman of the Board and Chief Executive
Officer, provides for bonuses based on the Company's pretax income, and
also includes non-compete and change of control clauses.
In March 1997, the Company entered into a two-year employment agreement
with its Vice- President - Finance which provided for an annual base
salary of $95,000 for the first year and $105,000 for the second year.
In November 1997, this employee resigned, however remained as a member
of the Board of Directors.
<PAGE>
MIKE'S ORIGINAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued):
(b) Employment Contracts (continued):
On July 16, 1997, the Company entered into an employment agreement with
its Vice-President Marketing. The agreement provides for an annual base
salary of $115,000, plus an incentive bonus. This agreement is for an
initial term of one year from the effective date of the initial public
offering of the Company's securities. Options were granted to purchase
66,667 shares of the Company's common stock at an exercise price of
$1.50 per share. The Company is responsible for up to $25,000 of
expenses related to the employee traveling to and from Buffalo, NY,
temporary living and other such amounts necessary for the employee to
devote his full time employment to the Company. The agreement also
provides for an automobile allowance of $650 per month.
(c) Consulting Agreements:
On March 1, 1994, the Company entered into a consulting agreement with
an investor (the "Investor"), whereby the Company shall pay the Investor
$75,000 for the first year ended March 31, 1995, $100,000 for the second
year and $125,000 for the third year. The Company recorded accrued
consulting expense of $89,585 during the year ended December 31, 1996.
In September 1996, this investor voluntarily waived all rights to
receive the consulting fee payable to him and accordingly, the aggregate
amount waived, $247,917 has been reflected as a contribution to
additional paid-in capital.
In November 1996, this consulting agreement was superseded by a new
agreement. The new agreement provides that beginning January 1, 1997,
the Company will pay consulting fees to the Investor at the rate of
$125,000 per annum for a three-year period. However, no monies will be
paid to this Investor until such time as the Company shall consummate a
private or public offering of its securities for not less than
$2,000,000 in gross proceeds.
In April 1997, the November 1996 consulting agreement was terminated
and, in consideration for such termination, the Company issued 150,000
shares of its common stock to the consultant. At March 31, 1997, accrued
compensation payable to this consultant aggregated approximately
$31,000. In April 1997 the Company recognized a charge to operations of
approximately $644,000 based upon the estimated fair market value of the
shares issued to the consultant.
During the year ended December 31, 1996, the Company entered into a
consulting agreement with an entity that will provide sales and
marketing advisory and consulting services to the Company. This entity
will receive 30,000 shares of common stock (see Note 14), an annual
consulting fee of $50,000 and has received options to purchase 133,333
shares of the Company's common stock at $1.50 per share expiring October
15, 2006. One third of such options become exercisable at the end of
each successive six-month period. At December 31, 1997, options to
purchase 88,889 common shares were exercisable.
(d) Line of Credit:
In December 1995, the Company obtained an unsecured line of credit for
$25,000. Borrowings under this line bear interest at 15% per annum.
Borrowings outstanding under this line at December 31, 1997 and 1996,
were $9,374 and $23,506, respectively.
<PAGE>
MIKE'S ORIGINAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued):
(e) Legal Proceedings:
The Company is subject to various legal proceedings, claims and
liabilities which arise in the ordinary course of its business. In the
opinion of management, the amount of any additional liability in excess
of amounts already provided for with respect to these actions, will not
have a material adverse effect on the Company's results of operations,
cash flow or financial position. As of December 31, 1997, the Company
has provided for approximately $130,000 in connection with known legal
proceedings and claims.
(f) Acquisitions:
On December 18, 1997, the Company entered into two agreements (letters
of intent) to acquire companies engaged in the full service distribution
of ice cream in the New York Metropolitan area, through its wholly-owned
subsidiary, New York Frozen Desserts, Inc. In exchange for all the
assets of New Yorker Ice Cream Corp., the Company will pay (i) $465,000
at closing, (ii) $800,000 over three years with interest at 8% per annum
and (iii) will assume an existing obligation of $735,000, paying
$200,000 at closing, and the remaining $535,000 over four years with
interest at 8% per annum. In exchange for all the assets of Jerry's Ice
Cream Co., Inc., the Company will pay $245,000 at closing, and $220,000
over three years with interest at 8% per annum.
In connection with these acquisitions, the Company entered into an
agreement with a company whose shareholders consist of an investor and a
Director of the Company. The agreement provides for a finder's fee in
the amount of $200,000 and 200,000 shares of the Company's common stock
together with piggy back registration rights to be delivered at the
closing of the above transactions. All future acquisitions introduced by
this company, will involve similar fee arrangements to be negotiated
prior to the closing of each transaction.
(g) Government Regulation:
The Company is subject to regulation by various governmental agencies
regarding the distribution and sale of food products, including the FDA
and various state agencies. The Company believes that its marketing and
distributing operations comply with all existing applicable laws and
regulations.
(h) Insurance:
The Company's business exposes it to potential liability which is
inherent in the marketing and distribution of food products. The Company
currently maintains $2,000,000 of product liability insurance. The
Company also maintains $1,000,000 of general and personal injury
insurance per occurrence and $5,000,000 in the aggregate. If any product
liability claim is made and sustained against the Company and is not
covered by insurance, the Company's business and prospects could be
materially adversely affected.
<PAGE>
MIKE'S ORIGINAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 14 - SUBSEQUENT EVENTS:
On February 6, 1998, the Company issued 30,000 shares of its common
stock to a consultant in exchange for 1998 services. These shares are in
addition to a monthly fee that the Company has the option of paying in
either cash or the Company's common stock. These shares, and any
subsequently issued shares, bear a restrictive legend pursuant to Rule
144 governing such securities. See Note 13c.
On February 15, 1998, the Company signed a lease for a three-month term,
renewable monthly, for new office space in Rye, New York. This office
will serve as the corporate office of the Company until such time as the
Company and the planned acquisitions can be relocated to an appropriate
facility. The lease in Jericho, New York expired without any additional
costs.
On March 4, 1998, the Company, through its wholly-owned subsidiary,
signed a license agreement to sell and distribute frozen juice bars
under the name of a nationally known licensor. This agreement is for a
limited territory in the eastern part of the country and for a period of
two years. The Company has the option to obtain two sub-licensees to
operate under the main agreement on behalf of the Company.
ASSET PURCHASE AGREEMENT
THIS AGREEMENT, dated as of December ___, 1997 (the "Agreement"), is
entered into by and between NEW YORKER FROZEN DESSERTS, INC., a New York
corporation ("Purchaser"); and NEW YORKER ICE CREAM CORP., a New York
corporation ("NYIC"); and KERRY GROUP LTD., a New York corporation ("Kerry"),
the parent corporation of NYIC; and TED KETSOGLOU, an individual ("Mr.
Ketsoglou") and the sole shareholder of Kerry (Kerry, NYIC and Mr. Ketsoglou
shall hereinafter collectively be referred to as "Seller"); and MIKE'S ORIGINAL,
INC., a Delaware corporation ("Mike's"), the parent corporation of Purchaser.
W I T N E S S E T H:
-------------------
WHEREAS, Seller is engaged in the business of the full service distribution
of ice cream (the "Business"); and
WHEREAS, Seller and Purchaser desire to enter into this Agreement pursuant
to which Seller proposes to sell to Purchaser and Purchaser proposes to purchase
from Seller substantially all of the assets of Seller.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
ARTICLE 1
ASSET PURCHASE AND SALE
Section 1.1 Agreement to Sell. At the Closing (as hereinafter defined) and
except as otherwise specifically provided in this Article 1, Seller shall grant,
sell, convey, assign, transfer and deliver to Purchaser, upon and subject to the
terms and conditions of this Agreement, all right, title and interest of Seller
in and to (a) the Business as a going concern, and (b) all of the assets,
properties and rights of Seller, of every kind and description, real, personal
and mixed, tangible and intangible, wherever situated (which Business, assets,
properties and rights are hereinafter collectively referred to as the "Assets
"), free and clear of all mortgages, liens, pledges, security interests,
charges, claims, restrictions and encumbrances of any nature except for the
Excluded Assets set forth in Section 1.3 hereof.
Section 1.2 Included Assets. Except as otherwise expressly set forth in
Section 1.3 hereof, the Assets shall include without limitation the following
assets, properties, and rights of Seller:
<PAGE>
(a) All rights under any written or oral contract, agreement, lease, plan,
instrument, registration, license, certificate of occupancy, other permit or
approval of any nature, or other document, commitment, arrangement, undertaking,
practice or authorization except for such agreements that Seller has notified
Purchaser of in writing that Seller cannot transfer to Purchaser due to Seller's
inability to secure the consent to the assignment from the other party to the
Agreement;
(b) All machinery, equipment, tools, vehicles, furniture, furnishings,
leasehold improvements, goods and other tangible personal property, including,
but not limited to, the Assets set forth on Schedule 1.2 annexed hereto;
(c) All technologies, methods, formulations, databases, trade secrets,
know-how, inventions, computer software (including documentation and related
object codes) and other intellectual property;
(d) All office supplies;
(e) All rights under any patent, trademark, service mark, tradename or
copyrights, whether registered or unregistered, and any applications therefor
(the "Marks");
(f) All rights arising under express or implied warranties relating to the
Assets;
(g) All information, files, records, data, plans, contracts and recorded
knowledge, including client and vendor lists related to the foregoing;
(h) An irrevocable option for ten (10) years, which is hereby granted (i)
to purchase all of the issued and outstanding capital stock of NYIC for a
purchase price of One Dollar ($1.00), provided that Seller shall first divest
NYIC of all assets other than contracts for the distribution of ice cream and
other food products, including but not limited to its distribution agreements
with Haagen-Daz, Baskin-Robbins and Friendlies Ice Cream, which shall be
transferred to Purchaser as an asset of NYIC upon exercise of the option, or
(ii) to have NYIC assign to Purchaser all rights under any or all ice cream or
other product distribution agreements of NYIC with its suppliers, including but
not limited to NYIC's distribution agreements with Haagen-Daz, Baskin-Robbins
and Friendlies Ice Cream. This option shall survive the Closing;
(i) All right, title, licenses and interest in and to all vehicles
identified in Schedule 1.2 that are owned by American Classic Ice Cream Corp., a
New York Corporation, which hereby agrees to transfer the same to Purchaser and
shall execute this Agreement for such purpose.
Section 1.3 Excluded Assets. Notwithstanding anything to the contrary set
forth herein, the Assets shall not include any of the following (hereinafter
collectively referred to as "Excluded Assets"):
<PAGE>
(a) The corporate seals, certificates of incorporation, minute books,
stock books, tax returns, books of account or other constituent records relating
to the corporate organization of Seller;
(b) cash and cash equivalents;
(c) All accounts, notes and other receivables; and
(d) The rights which accrue to Seller under this Agreement.
Section 1.4 Agreement to Purchase. At the Closing, Purchaser shall purchase
the Assets from Seller, upon and subject to the terms and conditions of this
Agreement and in reliance on the representations, warranties and covenants of
Seller contained herein, in exchange for the Purchase Price (as hereinafter
defined).
Section 1.5 The Purchase Price. The purchase price for the Assets shall be
Two Million ($2,000,000.00) Dollars (the "Purchase Price").
Section 1.6 Payment of Purchase Price. At the Closing, Purchaser shall pay
to NYIC Four Hundred Sixty-Five Thousand ($465,000.00) Dollars (the "Initial
Payment") of the Purchase Price by certified check. The remaining One Million
Five Hundred Thirty-Five Thousand ($1,535,000.00) Dollars of the purchase price
shall be payable to the NYIC as follows:
(a) Eight Hundred Thousand ($800,000) Dollars, plus any additional
amount to be added in accordance with Section 1.6(b) below, shall be payable in
accordance with the terms and conditions of a Promissory Note in substantially
the form of Exhibit 1.6(a)-1 annexed hereto (the "Note"), which Note shall have
a repayment term of three (3) years and shall bear interest at the rate of eight
(8%) percent per annum and which shall be secured by a purchase money security
interest as set forth in the security agreement (the "Security Agreement")
attached hereto as Exhibit 1.6(a)-2; and
(b) Purchaser shall pay to the Estate of Joseph Kologlou (the
"Creditor"), the holder of the existing $735,000.00 secured loan on the
Business, an amount not to exceed Two Hundred Thousand ($200,000.00) Dollars,
and assume the obligation to repay the Creditor the remainder of such secured
loan (the "Assumed Obligation") over a term of four (4) years at an interest
rate of eight percent (8%) per annum. In the event the unpaid principal balance
on the Assumed Obligation at Closing is less than $735,000.00 as a result of
Seller's payments, the difference shall be added to the cash component of the
Purchase Price.
Section 1.7 Purchase of Seller's Inventory. In addition to the Purchase
Price, Purchaser shall, withing fifteen (15) days of the Closing, pay NYIC its
cost for the inventory and stock-in-trade of NYIC delivered to Purchaser that is
in good and saleable condition as of the Closing.
<PAGE>
Section 1.8 Excluded Liabilities. Notwithstanding anything to the contrary
set forth herein, except as set forth in Schedule 3.4 (b) (Leases), in no event
shall Purchaser assume, incur or become responsible for any liability or
obligation of the Seller of any nature whatsoever, whether now or hereafter
existing. The liabilities and obligations of Seller which Purchaser shall not
assume, incur or become responsible for are referred to herein as "Excluded
Liabilities".
Section 1.9 Prorations. All property and ad valorem taxes, business
licenses, permits, leasehold rentals, utilities and other customarily proratable
expense of Seller relating to the Assets payable prior to or subsequent to the
Closing Date and relating to the period of time both prior to and subsequent to
the Closing Date will be prorated between Purchaser and Seller as of the Closing
Date. If the actual amount of any proratable item is not known as of the Closing
Date, such proration will be based on the previous year's assessment of such
item or such other reasonable basis for estimating such amount as the parties
may select, and the parties agree to adjust such proration and pay any
underpayment or reimburse any overpayment promptly after the actual amount
becomes known. In the event any sales, use, excise, value added or other similar
taxes become due as a result of the transactions contemplated by this Agreement,
Purchaser and Seller shall each be responsible for and shall pay one-half of all
such taxes.
Section 1.10 Allocation of Purchase Price. The parties shall agree on the
allocation for tax purposes of the Purchase Price to be paid for the Assets
prior to or upon the Closing.
ARTICLE 2
CLOSING; ITEMS TO BE DELIVERED; FURTHER ASSURANCES
Section 2.1 Closing. The consummation of the transactions contemplated by
this Agreement is herein referred to as the "Closing". The "Closing Date" shall
be the date on which the Closing occurs. The Closing shall occur within ten (10)
business days of the satisfaction or waiver of the conditions set forth in
Article 6 hereof, but in no event shall the Closing Date be a date which is
subsequent to 120 days from the date hereof. The Closing shall take place at the
office of Blau, Kramer, Wactlar & Lieberman, P.C., 100 Jericho Quadrangle, Suite
225, Jericho, New York 11753, or at such other place upon which the Purchaser
and Seller shall mutually agree.
Section 2.2 Items to be Delivered at Closing. At the Closing and subject to
the terms and conditions herein contained:
(a) Seller shall deliver to Purchaser the following:
(i) Such bills of sale with covenants of warranty, assignments,
endorsements, and other good and sufficient instruments and documents
of conveyance and transfer, in form reasonably satisfactory to
Purchaser and its counsel, as shall be necessary and effective to
transfer and assign to, and vest in purchaser all of Seller's right,
title and interest in and to the Assets, including without limitation,
(A) good and valid title in and to all of the Assets owned by Seller,
<PAGE>
(B) good and valid leasehold interest in and to all of the Assets
leased by Seller as lessee, and (C) all of Seller's rights under all
agreements, contracts, commitments, leases, plans, bids, quotations,
proposals, instruments and other documents included in the Assets to
which Seller is a party or by which it has rights on the Closing Date;
and
(ii) All of the agreements, contracts, commitments, leases,
plans, bids, quotations, proposals, instruments, computer
programs and software, data bases whether in the form of
computer tapes or otherwise, related object and (to the
extent available) source code, manuals and guidebooks, price
books and price lists, customer and subscriber lists,
supplier lists, sales records, files, correspondence, legal
opinions, rulings issued by governmental entities, and other
documents, books, records, papers, files, office supplies
and data belonging to Seller which are part of the Assets;
(iii)Audited financial statements for Seller's last two fiscal
years; and
(iv) Estoppel certificates from the Creditor for the Assumed
Obligation and from the applicable lessors set forth in
Schedule 3.4 (b) indicating the total principal and lease
payments due under the Assumed Obligation and such leases;
(v) A Lease in form and substance satisfactory to Purchaser for
the current principal place of business of Seller as
described in Section 6.1 (j) hereof;
(vi) Certificates of the corporate secretaries of NYIC and Kerry
certifying that all transactions contemplated hereby have
been duly approved by the Board of Directors and
shareholders of each corporation and that the officer of
each corporation executing this Agreement is duly authorized
to do so;
(vii)Such other documentation as Purchaser may reasonably
require to assure the continuation of certain franchises
which Purchaser determines to be necessary for the continued
operations of Seller's business;
and simultaneously with such delivery, all such reasonable steps will be taken
as may be required to place Purchaser in actual possession and operating control
of the Assets.
(b) Purchaser shall deliver to Seller the following:
<PAGE>
(i) The Initial Payment;
(ii) The Note; and
(iii)The Security Agreement.
(iv) An agreement under which Purchaser assumes the Assumed
Obligation.
(c) The parties hereto also shall deliver to each other the documents
and instruments referred to in Article 6 hereof.
Section 2.3 Further Assurances. Seller from time to time after the Closing,
at Purchaser's request, will execute, acknowledge and deliver to Purchaser such
other instruments of conveyance and transfer and will take such other actions
and execute and deliver such other documents, certifications and further
assurances as Purchaser may reasonably request in order to vest more effectively
in Purchaser, or to put Purchaser more fully in possession of, any of the
Assets. Each of the parties hereto will cooperate with the other and execute and
deliver to the other such other instruments and documents and take such other
actions as may be reasonably requested from time to time by any party hereto as
necessary to carry out, evidence and confirm the intended purposes of this
Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
NYIC represents and warrants to Purchaser as follows:
Section 3.1 Organization. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York and has
all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as is now being conducted. Except as set
forth in Schedule 3.1, Seller has no subsidiaries and there are no other
entities which Seller directly or indirectly controls or is controlled by and
Seller is not a party to any joint venture and is not a partner of any
partnership. Seller is duly qualified to transact business, and is in good
standing, as a foreign corporation in each jurisdiction where the character of
its activities requires such qualification.
Section 3.2 Authorization. Seller has full corporate power and authority to
execute and deliver this Agreement and to perform its obligations under this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by Seller and the performance by Seller of its
obligations hereunder and the consummation of the transactions provided for
herein have been duly and validly authorized by all necessary corporate action
on the part of Seller. The Board of Directors and shareholders of Seller have
approved the execution, delivery and performance of this Agreement and the
<PAGE>
consummation of the transactions contemplated hereby. This Agreement has been
duly executed and delivered by Seller and constitutes the valid and binding
agreement of Seller, enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency and other similar laws affecting
the enforcement of creditors' rights generally, general equitable principles and
the discretion of courts in granting equitable remedies.
Section 3.3 Absence of Restrictions and Conflicts. The execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby do not violate or conflict with, constitute a breach of or
default under, result in the loss of any material benefit under, or permit the
acceleration of any obligation under, (i) any term or provision of the
Certificate of Incorporation or Bylaws of Seller; (ii) any contract or lease to
which Seller is a party; (iii) any judgment, decree or order of any court or
governmental authority or agency to which Seller is a party or by which Seller
or any of its respective properties is bound, or (iv) any statute, law,
regulation or rule applicable to Seller. No consent, approval, order or
authorization of, or registration, declaration or filing with, any governmental
agency or public or regulatory unit, agency, body or authority with respect to
Seller is required in connection with the execution, delivery or performance of
this Agreement by Seller or the consummation of the transactions contemplated
hereby.
Section 3.4 Ownership of Assets and Related Matters.
(a) Real Property. The Seller does not own any real property nor is
any ownership interest in real property included in the Assets.
(b) Leases. Schedule 3.4(b) sets forth a true and complete list of all
leases and agreements, including licensing rights, of Seller granting possession
of or rights to real or personal property included in the Assets (the "Scheduled
Leases and Licenses"). All such Scheduled Leases and Licenses are in full force
and effect and constitute the legal, valid, binding and enforceable obligations
of Seller, and are legal, valid, binding and enforceable in accordance with
their respective terms with respect to each other party thereto, in each case to
the extent material to the business and operations of the Business. There are no
existing defaults of Seller with respect to such Scheduled Leases and Licenses
or, to the knowledge of the Seller, of any of the other parties thereto.
(c) Personal Property. Seller has good and marketable title to all of
the Assets, and Seller owns the Assets free and clear of all liens, pledges,
security interests, charges, claims, restrictions and encumbrances of any nature
whatsoever.
(d) Necessary Assets. The Assets constitute all of the assets
necessary to conduct the operations of the Business in accordance with Seller's
past practices. As of the date hereof, all of the Assets are in good operating
condition and repair subject to normal wear and maintenance, are usable in the
regular and ordinary course of business and conform to all applicable laws,
ordinances, codes, rules and regulations applicable thereto.
<PAGE>
(e) No Third Party Options. There are no existing agreements, options,
commitments or rights with, of or to any person to acquire any of the Assets or
any interest therein.
Section 3.5 Legal Proceedings. Except as set forth in Schedule 3.5, there
are no suits, actions, claims, proceedings or investigations pending, or, to the
best knowledge of the Seller, threatened against, relating to or involving the
Seller, the Business or the Assets before any court, arbitrator or
administrative or governmental body. The Business is not subject to any
judgment, decree, injunction, rule or order of any court, and, to the knowledge
of the Seller, the Seller is not subject to any governmental restriction, which
is reasonably likely to cause a material limitation on Purchaser's ability to
acquire the Assets or operate the Business after the Closing. All suits,
actions, claims, proceedings or investigations of Seller, including, but not
limited to those set forth in Schedule 3.5, shall remain the sole obligation and
responsibility of Seller before and after the Closing.
Section 3.6 Compliance with Law. Seller has all material authorizations,
approvals, licenses and orders of and from all governmental and regulatory
officers and bodies necessary to carry on the Business as it is currently being
conducted, to own the Assets and to transfer the Assets to Purchaser.
Section 3.7 Insurance. Seller believes that the Assets and the Business
have been and are insured by financially sound and reputable insurers in such
amounts and against such risks as are reasonable in relation to its business.
Seller has made available to Purchaser true and complete copies of all insurance
policies covering the Assets and/or the Business. Seller shall bear all risk of
loss to the Business and the Assets until the Closing.
Section 3.8 Environmental Matters. The operations of the Business are in
compliance in all material respects with all statutes, regulations and
ordinances relating to the protection of human health and the environment. There
has been no release of a hazardous substance into the environment at any
property owned, leased or used by the Seller (the "Premises") including, without
limitation, any such release in the soil or groundwater underlying the Premises.
There is no asbestos, polychlorinated biphenyls or underground storage tanks
located on the Premises and there have been no releases of asbestos,
polychlorinated biphenyls or materials stored in underground storage tanks,
including, without limitation, petroleum or petroleum-based materials. The
Seller has not received notice of any violation of any environmental statute or
regulation nor has it been advised of any claim or liability pursuant to any
environmental statute or regulation brought by any governmental agency or
private party with respect to the Assets or the operation of the Business.
Section 3.9 Patents, Trademarks, Trade Names. Schedule 3.9 sets forth a
true and complete list of all Marks used or owned by Seller. Seller owns, or has
the right to use pursuant to valid and effective agreements, all Marks, and all
such rights shall be assigned and transferred to Purchaser in connection with
the consummation of the transactions contemplated hereby. To the best knowledge
of the Seller, (i) no claims are pending against Seller by any person with
respect to the use of any Mark or challenging or questioning the validity or
effectiveness of any license or agreement relating to the same, and (ii) the
current use by Seller of the Mark does not infringe on the rights of any third
party.
<PAGE>
Section 3.10 Bulk Sales Compliance. Except as set forth in Sections 1.6 and
1.8 hereof, Seller shall be responsible for and shall satisfy all claims of all
creditors of Seller arising out of transactions occurring prior to Closing.
Section 3.11 Brokers, Finders and Investment Bankers. Neither Seller nor
any of its respective officers, directors or employees has employed any broker,
finder or investment banker or incurred any liability for any investment banking
fees, financial advisory fees, brokerage fees or finders' fees in connection
with the transactions contemplated hereby.
Section 3.12 Other Liabilities. Other than the Assumed Obligation, there
are no other obligations, liabilities or claims associated with the Assets or
the Business that shall not remain with Seller and remain Seller's obligation
responsibility before and after the Closing.
Section 3.13 Disclosure. No representation, warranty or covenant made by
Seller in this Agreement, or the Schedules or Exhibits attached hereto contains
an untrue statement of a material fact or omits to state a material fact
required to be stated herein or therein or necessary to make the statements
contained herein or therein not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller as follows:
Section 4.1 Organization. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as now being conducted.
Section 4.2 Authorization. Upon the duly and validly obtained approval of
the execution, delivery and performance of this Agreement from the Board of
Directors of the Purchaser: (i) Purchaser shall have full corporate power and
authority to execute and deliver this Agreement and to perform its obligations
under this Agreement and to consummate the transactions contemplated hereby;
(ii) the execution and delivery of this Agreement by Purchaser and the
performance by Purchaser of its obligations hereunder and the consummation of
the transactions provided for herein shall have been duly and validly authorized
by all necessary corporate action on the part of Purchaser; and (iii) this
Agreement shall have been duly executed and delivered by Purchaser and shall
constitute the valid and binding agreement of Purchaser, enforceable against it
in accordance with its terms, subject to applicable bankruptcy, insolvency and
other similar laws affecting the enforcement of creditors' rights generally,
general equitable principles and the discretion of courts in granting equitable
remedies.
<PAGE>
Section 4.3 Absence of Restrictions and Conflicts. The execution, delivery
and performance of this Agreement, the consummation of the transactions
contemplated by this Agreement and the fulfillment of and compliance with the
terms and conditions of this Agreement do not and will not with the passing of
time or the giving of notice or both, violate or conflict with, constitute a
breach of or default under, result in the loss of any material benefit under, or
permit the acceleration of any obligation under, (i) any term or provision of
the Certificate of Incorporation or Bylaws of Purchaser, (ii) any contract,
agreement, commitment or understanding to which Purchaser is a party or to which
it or any of its properties is subject, (iii) any judgment, decree or order of
any court or governmental authority or agency to which Purchaser is a party or
by which Purchaser or any of its respective properties is bound, or (iv) any
statute, law, regulation or rule applicable to Purchaser. No consent, approval,
order or authorization of, or registration, declaration or filing with, any
governmental agency or public or regulatory unit, agency, body or authority with
respect to Purchaser is required in connection with the execution, delivery or
performance of this Agreement by Purchaser or the consummation of the
transactions contemplated by this Agreement by Purchaser.
Section 4.4 Disclosure. No representation, warranty or covenant made by
Purchaser in this Agreement or the Schedules or Exhibits attached hereto
contains an untrue statement of a material fact or omits to state a material
fact required to be stated herein or therein or necessary to make the statements
contained herein or therein not misleading.
Section 4.5 Brokers, Finders Investment Bankers. Except for Purchaser's
agreement with Multi Venture Partners Ltd., under which Purchaser will pay a
finder's fee, neither Purchaser nor any of its respective officers, directors or
employees has employed any broker or finder in connection with this transaction.
Section 4.6 Legal Proceedings. Except as set forth in Schedule 4.6, there
are no suits, pending, or, to the best knowledge of the Purchaser, threatened
against, relating to or involving the Purchaser, before any court.
ARTICLE 5
CERTAIN COVENANTS AND AGREEMENTS
Section 5.1 Conduct of Business by Seller. From the date hereof to the
Closing Date, Seller will, except as required in connection with the
transactions contemplated by this Agreement or consented to in writing by
Purchaser:
(a) Except and only to the extent necessary to secure new product
distribution opportunities, carry on the Business in the ordinary and regular
course in substantially the same manner as heretofore conducted and not engage
in any new line of business or enter into any agreement, transaction or activity
or make any commitment with respect to the Business except those in the ordinary
and regular course of business and not otherwise prohibited under this Section
5.1 and except as otherwise consented to in writing by Purchaser;
<PAGE>
(b) Use its reasonable efforts to preserve intact the goodwill and
business organization of the Business, to keep the officers and employees of the
Business available to Purchaser and to preserve the relationships of the
Business with customers, suppliers and others having business relations with the
Business;
(c) Not (i) sell any of the Assets, (ii) create, incur or assume any
indebtedness secured by the Assets, or (iii) grant, create, incur, or suffer to
exist any liens or encumbrances on the Assets which did not exist on the date
hereof;
(d) Not amend, modify or extend in any manner the terms of any
employment agreement with any employee of Seller;
(e) Perform in all material respects all of its obligations under all
Scheduled Leases (except those being contested in good faith) and not enter
into, assume or amend any contract or commitment that would be a Scheduled
Lease;
(f) Use its reasonable efforts to continue to maintain and service the
Assets used in the conduct of the Business in the same manner as has been its
consistent past practice; and
(g) Use its reasonable efforts to maintain its inventory of products
and stock-in-trade at normal levels in the ordinary course of business.
(h) Cooperate with Purchaser in the consummation of the purchase by
Purchaser of certain other businesses that Purchaser has identified to Seller.
Section 5.2 Financing Commitment. Upon the execution of this Agreement,
Purchaser shall diligently and expeditiously make a good faith effort to obtain
a Commitment for financing of the cash portion of the purchase price on or prior
to the Commitment Date (each of which terms are defined in Section 6.1(g)), the
proceeds of which are payable to the Purchaser no later than the Closing Date.
Purchaser will promptly notify Seller upon its receipt of a Commitment.
Section 5.3 Inspection and Access to Information. Between the date of this
Agreement and the Closing Date, Seller will provide Purchaser and its
accountants, counsel and other authorized representatives full access, during
reasonable business hours and under reasonable circumstances to any and all of
its employees, premises, properties, contracts, commitments, books, records and
other information (including tax returns filed and those in preparation) and
will cause its officers to furnish to Purchaser and its authorized
representatives any and all financial, technical and operating data and other
information pertaining to the Business, as Purchaser shall from time to time
reasonably request.
<PAGE>
Section 5.4 Reasonable Efforts; Further Assurances; Cooperation. Subject to
the other provisions of this Agreement, the parties hereto shall each use their
reasonable, good faith efforts to perform their obligations herein and to take,
or cause to be taken or do, or cause to be done, all things necessary, proper or
advisable under applicable law to obtain all regulatory approvals and satisfy
all conditions to the obligations of the parties under this Agreement and to
cause the transactions contemplated herein to be effected on the Closing Date in
accordance with the terms hereof and shall cooperate fully with each other and
their respective officers, directors, employees, agents, counsel, accountants
and other designees in connection with any steps required to be taken as a part
of their respective obligations under this Agreement, including without
limitation:
(a) Each of Seller and Purchaser shall cause to be taken, all actions
and do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to obtain any required approval of any federal,
state, or local governmental agency or regulatory body with jurisdiction over
the transactions contemplated by this Agreement.
(b) Each party shall give prompt written notice to the other parties
hereto of (i) the occurrence, or failure to occur, of any event which occurrence
or failure would be likely to cause any representation or warranty of such party
contained in this Agreement to be untrue or inaccurate in any material respect
at any time from the date hereof to the Closing Date or that will or may result
in the failure to satisfy any of the conditions specified in Article 6 hereof
and (ii) any failure of such party, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder.
(c) Seller shall secure all necessary consents of third parties to the
assignment to Purchaser of all Scheduled Leases included in the Assets.
Section 5.5 Maintenance of Seller's Corporate Existence. From the date
hereof to the Closing Date, and thereafter if requested by Purchaser, Seller
shall maintain its corporate existence in good standing with the jurisdiction of
its incorporation and enter into any agreement with Purchaser for no additional
consideration as is reasonably necessary to provide Purchaser with the full
benefit all product distribution and other agreements to which Seller is a party
and Seller shall resell and deliver to Purchaser all products purchased under
any such distribution agreement at Seller's Cost.
Section 5.6. Appointment to Board of Directors. Upon the Closing, Mike's
shall use reasonable efforts to cause its Board of Directors to appoint Ted
Ketsoglou as a member of the Board of Directors of Mike's and to provide
directors and officers liability insurance to Mr. Ketsoglou and Mike's other
directors.
<PAGE>
ARTICLE 6
CONDITIONS TO CLOSING
Section 6.1 Conditions to Obligations of Purchaser. The obligations of
Purchaser to effect the acquisition of the Business and the Assets and to assume
the Assumed Obligation shall be subject to the fulfillment at or prior to the
Closing of each of the following additional conditions:
(a) Representations and Warranties. The representations and warranties
of Seller set forth in Article 3 of this Agreement shall be true and correct as
of the date of this Agreement and as of the Closing Date as through made on and
as of the Closing Date.
(b) Performance of Obligations of Seller. Seller shall have performed
in all material respects all covenants and agreements required to be performed
by it under this Agreement.
(c) Authorization of Transactions. All corporate action necessary by
Seller to authorize the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby shall have been
duly and validly taken.
(d) Consents. All consents, authorizations, orders and approvals of
(or filings or registrations with) any governmental commission, board or other
regulatory body required in connection with the execution, delivery and
performance of this Agreement shall have been obtained or made.
(e) Authorization by Purchaser's Board of Directors. Purchaser shall
have obtained the approval and authorization of the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby from its Board of Directors.
(f) Employment Agreement with Ted Ketsoglou. Purchaser shall have
entered into, or shall enter into on the Closing Date, an employment agreement
with Ted Ketsoglou, in substantially the form of Exhibit 6.1(f) attached hereto
(the "Employment Agreement") and the Purchaser shall have obtained the approval
and authorization of the execution, delivery and performance of the Purchaser
Employment Agreement from its Board of Directors.
(g) Financing. On or before the date which is one hundred and twenty
(120) days subsequent to the date of execution of this Agreement (the
"Commitment Date"), Purchaser shall have obtained a commitment for financing in
form and substance satisfactory to Purchaser, in Purchaser's sole discretion, to
consummate the transaction contemplated by this Agreement (the "Commitment").
(h) Due Diligence Period. On or before the date which is forty-five
(45) days subsequent to the date of execution of this Agreement, Purchaser shall
have had access to the financial and business records of Seller for Purchaser's
due diligence investigation of Seller and shall have concluded based on such
records, in its sole and absolute discretion, that there is no circumstance that
would make the transaction contemplated by this Agreement economically and
financially unfeasible for Purchaser.
<PAGE>
(i) Certificates. Seller shall furnish Purchaser with a certificate of
its appropriate officers as to compliance with the conditions set forth in
Sections 6.1(a), (b), (c) and (d).
(j) Leases. Purchaser shall have received consents to assignment of
all Scheduled Leases or written waivers of the provisions of any Scheduled
Leases requiring the consents of third parties and Purchaser shall have entered
into an acceptable one (1) year lease with Seller's landlord at 1122-1124 and
1161-1165 Southern Boulevard, Bronx, New York (the "Premises"), for the lease of
the Premises at a monthly rental of $7,500.00 plus electric. Purchaser shall be
entitled to all rents from the current sub-tenants of such premises during the
term of such lease, and Seller or its landlord shall remain responsible for all
taxes, maintenance costs and other fees and expenses related to such Premises
during the term of the lease, except any and all electrical and freezer
maintenance. The parties agree that the landlord of the Premises may allocate
such rental income as it sees fit.
(k) Assumed Obligation. Seller shall have received the consent of the
Creditor to Purchaser's assumption of the Assumed Obligation under the terms set
forth herein.
(l) Audited Financial Statements. Purchaser shall have received
audited financial statements prepared accordance with generally accepted
accounting principles for Seller's last two fiscal years that indicate a sales
volume substantially in accordance with that indicated in the unaudited
financial statements previously made available by Seller to Purchaser. Further,
Purchaser shall have received year-to-date financial statements of Seller for
1997 that indicate an annualized sales volume substantially the same as that of
each of Seller's previous two fiscal years.
(m) Condition of Assets. All of the Assets shall be in good condition
and shall not have been subject to any loss or casualty, or, in the event of any
loss or casualty, Purchaser, in its sole and absolute discretion, shall elect to
accept substitute assets or reasonable compensation for such loss or casualty
from Seller or Seller's insurer.
Section 6.2 Conditions to Obligations of Seller. The obligations of Seller
to effect the sale of the Business and the Assets and the assignment of the
Assumed Obligation shall be subject to the fulfillment at or prior to the
Closing of each of the following additional conditions:
(a) Representations and Warranties. The representations and warranties
of Purchaser set forth in Article 4 of this Agreement shall be true and correct
as of the date of this Agreement and as of the Closing Date as through made on
and as of the Closing Date.
(b) Performance of Obligations of Purchaser. Purchaser shall have
performed in all material respects all covenants and agreements required to be
performed by it under this Agreement.
(c) Authorization of Transactions. All corporate action necessary by
Purchaser to authorize the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby shall have been
duly and validly taken, including, but not limited to, the approval and
authorization of the execution, delivery and performance of this Agreement and
the Employment Agreement by the Board of Directors of the Purchaser and of
Mikes.
<PAGE>
(d) Consents. Except as disclosed in writing to Purchaser by Seller,
all consents, authorizations, orders and approvals of (or filings or
registrations with) any governmental commission, board or other regulatory body
required in connection with the execution, delivery and performance of this
Agreement shall have been obtained or made.
(e) Employment Agreement with Ted Ketsoglou. Purchaser and Mike's
shall have entered into, or shall enter into on the Closing Date, the Employment
Agreement with Ted Ketsoglou in substantially the form of Exhibit 6.1(e)
attached hereto.
(f) Financing. Purchaser shall have received a Commitment on or prior
to the Commitment Date:
(g) Certificates. Purchaser shall furnish Seller with a certificate of
its appropriate officers as to compliance with the conditions set forth in
Sections 6.2(a), (b) and (c).
ARTICLE 7
ADDITIONAL CLOSING OBLIGATIONS
[INTENTIONALLY OMITTED]
ARTICLE 8
TERMINATION
Section 8.1 Termination and Abandonment. This Agreement may be terminated
at any time prior to the Closing:
(a) by mutual agreement of the Boards of Directors of the Purchaser and
Seller;
(b) by Seller, if the conditions set forth in Section 6.2 hereof shall not
have been complied with or performed and such noncompliance or nonperformance
shall not have been cured or eliminated (or by its nature cannot be cured or
eliminated) by Purchaser on or before the Closing Date;
<PAGE>
(c) by Purchaser, if the conditions set forth in Section 6.1 hereof shall
not have been complied with or performed and such noncompliance or
nonperformance shall not have been cured or eliminated (or by is nature cannot
be cured or eliminated) by Seller on or before the Closing Date;
(d) by either Seller or Purchaser if a Commitment has not been received by
the Commitment Date;
(e) by Purchaser if Purchaser determines as a result of its due diligence
investigation of Seller that the transaction contemplated by this Agreement is
not economically or financially feasible for Purchaser.
Section 8.2 Specific Performance and Other Rights. The parties hereto each
acknowledge that the rights of each party to consummate the transactions
contemplated hereby are special, unique and of extraordinary character, and
that, in the event that any party violates or fails or refuses to perform any
covenant or agreement made by it herein, the non-breaching party may be without
an adequate remedy at law. The parties each agree, therefore, that in the event
that either party violates or fails or refuses to perform any covenant or
agreement made by such party herein, the non-breaching party or parties may,
subject to the terms of this Agreement and in addition to any remedies at law
for damages or other relief, institute and prosecute an action in any court of
competent jurisdiction to enforce specific performance of such covenant or
agreement or seek any other equitable relief.
Section 8.3 Effect of Termination. In the event of termination of this
Agreement pursuant to this Article 8 or as a result of Purchaser's diligence
investigation or due to Purchaser's failure to obtain a Commitment on or prior
to the Commitment Date, this Agreement shall forthwith become void and there
shall be no liability on the part of any party hereto or its respective
officers, directors or stockholders, except for obligations under Section 10.10
and this Section, all of which shall survive the termination. Notwithstanding
the foregoing, nothing contained herein shall relieve any party from liability
for any breach of any covenant or agreement in this Agreement.
ARTICLE 9
INDEMNIFICATION
Section 9.1 Indemnification Obligations of Seller. From and after the
Closing, each of NYIC, Kerry and Mr. Ketsoglou shall jointly and severally,
indemnify and hold harmless the Purchaser and its subsidiaries and affiliates
(including Purchaser, each of their respective officers and directors,
employees, agents and representatives and each of the heirs, executors,
successors and assigns of any of the foregoing (collectively, the "Purchaser
Indemnified Parties") from, against and in respect of any and all claims,
liabilities, obligations, losses, costs, expenses, penalties, fines and other
judgments (at equity or at law) and damages whenever arising or incurred
(including, without limitation, amounts paid in settlement, costs of
investigation and reasonable attorneys' fees and expenses) arising out of or
relating to:
<PAGE>
(a) Any Excluded Liability or any and all other liabilities and
obligations of Seller of any nature whatsoever, including but not limited to
claims under Article 6 (Bulk Transfers) of the New York Uniform Commercial Code;
(b) Any and all actions, suits, claims, or legal, administrative,
arbitration, governmental or other proceedings or investigations against any
Purchaser Indemnified Party that relate to Seller, the Assets or the Business to
the extent the principal event giving rise thereto occurred prior to the Closing
Date or which result from or arise out of any action or inaction prior to the
Closing Date of Seller or any affiliate, officer, director, employee, agent,
representative or subcontractor of Seller;
(c) Any breach of any representation, warranty, covenant, agreement or
undertaking made by Seller in this Agreement or in any certificate, agreement,
exhibit, schedule or other writing delivered by Seller to Purchaser in
connection with the matters contemplated hereby or pursuant to the provisions
hereof (collectively, the "Seller Ancillary Documents"); or
(d) Any fraud, willful misconduct, bad faith or any intentional breach
of any representation, warranty, covenant, agreement or undertaking made by the
Seller in this Agreement or the Seller Ancillary Documents.
Section 9.2 Liquidated Damages. Except as set forth in Sections 1.6 and 1.8
hereof, in the event Purchaser makes any payment to any creditor of Seller,
Seller, in addition to its indemnification responsibilities as provided herein,
shall pay to Purchaser, and shall be jointly and severally liable to Purchaser
for, liquidated damages equal to twenty percent (20%) of the aggregate amount
paid by Purchaser to each creditor of Seller.
Section 9.3 Indemnification Obligations of Purchaser. From and after the
Closing, Purchaser shall indemnify and hold harmless Seller and its subsidiaries
and affiliates, each of their respective officers, directors, employees, agents
and representatives and each of the heirs, executors, successors and assigns of
any of the foregoing (collectively, the "Seller Indemnified Parties") from,
against and in respect of any and all claims, liabilities, obligations, losses,
costs, expenses, penalties, fines and other judgments (at equity or at law) and
damages whenever arising or incurred (including, without limitation, amounts
paid in settlement, costs of investigation and reasonable attorneys' fees and
expenses) arising out of or relating to:
(a) Any and all actions, suits, claims, or legal, administrative,
arbitration, governmental or other proceedings or investigations against any
Seller Indemnified Party that relate to Purchaser or the Business to the extent
the principal event giving rise thereto occurred after the Closing Date or which
result from or arise out of any action or inaction after the Closing Date of
Purchaser or any affiliate, officer, director, employee, agent, representative
or subcontractor of Purchaser;
<PAGE>
(b) Any breach of any representation, warranty, covenant, agreement or
undertaking made by Purchaser in this Agreement or in any certificate,
agreement, exhibit, schedule or other writing delivered by Purchaser to Seller
in connection with the matters contemplated hereby or pursuant to the provisions
hereof (collectively, the "Purchaser Ancillary Documents"); or
(c) Any fraud, willful misconduct, bad faith or any intentional breach
of any representation, warranty, covenant, agreement or undertaking made by the
Purchaser in this Agreement or the Purchaser Ancillary Documents.
Section 9.4 Notice and Opportunity to Defend. Each party seeking
indemnification hereunder shall provide prompt written notice to the other of
the indemnified party's receipt of a claim for which indemnification is sought
and shall permit the indemnifying party to defend against such claim, provided
that the indemnifying party shall remain liable for all damages, claims, costs
and expenses incurred by the indemnified party notwithstanding the indemnifying
party's defense.
Section 9.5 Jurisdiction and Forum.
(a) By the execution and delivery of this Agreement, each Indemnifying
Party irrevocably designates and appoints each of the parties set forth under
its name below as its authorized agent upon which process may be served in any
suit or proceeding arising out of or relating to this Agreement that may be
instituted in any state or federal court in the State of New York.
Seller: Spanton, Parsoff & Siegel, P.C.
------ 425 Broad Hollow Road
Melville, NY 11747
Attention: Neil M. Parsoff, Esq.
Purchaser: Blau, Kramer, Wactlar & Lieberman, P.C.
--------- 100 Jericho Quadrangle
Suite 225
Jericho, New York 11753
Attention: David H. Lieberman, Esq.
In addition, each party agrees that service of process upon the above-designated
individuals shall be deemed in every respect effective service of process upon
such party in any such suit or proceeding. The foregoing shall not limit the
rights of any party to serve process in any other matter permitted by law.
(b) The parties hereto hereby agree that the appropriate forum and
venue for any disputes between any of the parties hereto arising out of this
<PAGE>
Agreement shall be any state or federal court in the State of New York and each
of the parties hereto hereby submits to the personal jurisdiction of any such
court. The foregoing shall not limit the rights of any party to obtain execution
of judgment in any other jurisdiction. The parties further agree, to the extent
permitted by law, that a final and unappealable judgment against any of them in
any action or proceeding contemplated above shall be conclusive and may be
enforced in any other jurisdiction within or outside the United States by suit
on the judgment, a certified or exemplified copy of which shall be conclusive
evidence of the fact and amount of such judgment.
ARTICLE 10
MISCELLANEOUS PROVISIONS
Section 10.1 Notices. All notices, communications and deliveries hereunder
shall be made in writing signed by the party making the same, shall specify the
Section hereunder pursuant to which it is given or being made, and shall be
deemed given or made on the date delivered if delivered in person, on the date
initially sent if delivered by telecopy transmission followed by mailed
confirmation, on the date delivered if delivered by a nationally recognized
overnight courier service or on the date sent if mailed by certified mail
(return receipt requested) (with postage and other fees prepaid) as follows:
To Purchaser: New Yorker Frozen Desserts, Inc.
131 Jericho Turnpike
Jericho, NY 11753
With copy to: Blau, Kramer, Wactlar & Lieberman, P.C.
100 Jericho Quadrangle
Suite 225
Jericho, NY 11753
Attention: David H. Lieberman, Esq.
To Seller: New Yorker Ice Cream Corp.
1122 Southern Boulevard
Bronx, NY 10459
With copy to: Spanton, Parsoff & Siegel, P.C.
425 Broad Hollow Road
Melville, NY 11747
Attention: Neil M. Parsoff, Esq.
<PAGE>
or to such other representative or at such other address of a party as such
party hereto may furnish to the other parties in writing.
Section 10.2 Schedules and Exhibits. All Schedules and Exhibits annexed
hereto are hereby incorporated into this Agreement and are hereby made a part
hereof as if set out in full in this Agreement.
Section 10.3 Assignment; Successors in Interest. No assignment or transfer
by Purchaser or Seller of their respective rights and obligations hereunder
prior to the Closing shall be made except with the prior written consent of the
other parties hereto. Notwithstanding the foregoing, Purchase shall have the
right to assign this Agreement without Seller's consent to any entity whose
capital stock is publicly traded and to whose Board of Directors Ted Ketts has
been elected or appointed or any entity controlled by the principal shareholders
of Purchaser. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their permitted successors and assigns, and
any reference to a party hereto shall also be a reference to a permitted
successor or assign.
Section 10.4 Investigations; Representations and Warranties. The
representations, warranties and covenants of Seller and Purchaser set forth in
this Agreement shall not be extinguished by the Closing and shall survive the
Closing Date. Notwithstanding anything to the contrary set forth in this Section
10.4, (i) the indemnification obligations of Seller and Purchaser set forth in
Sections 9.1 and 9.5, respectively, shall survive the Closing and shall
terminate on the expiration of the applicable statutes of limitation relative to
the liability relating to such indemnification obligations and (ii) this Section
10.4 shall not limit or restrict Seller or Purchaser's remedy against the other
or any other person for fraud, willful misconduct, bad faith or any other
intentional breach of any representation, warranty, covenant or agreements
contained herein.
Section 10.5 Captions. The titles and captions contained in this Agreement
are inserted herein only as a matter of convenience and for reference and in no
way define, limit, extend or describe the scope of this Agreement or the intent
of any provision hereof.
Section 10.6 Controlling Law; Integration; Amendment.
(a) This Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York without reference to
New York's choice of law rules. This Agreement supersedes all negotiations,
agreements and understandings among the parties with respect to the subject
matter hereof and constitutes the entire agreement among the parties hereto.
<PAGE>
(b) Amendments to this Agreement may be proposed by the parties hereto
by or pursuant to action taken by their respective Boards of Directors at any
time; provided, however, that this Agreement may not be amended, modified or
supplemented except by written agreement executed by each of the parties hereto.
Section 10.7 Severability. Any provision hereof which is prohibited or
unenforceable in any jurisdiction will, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction will not invalidate or render unenforceable such provision in any
other jurisdiction. To the extent permitted by law, the parties hereto waive any
provision of law which renders any such provision prohibited or unenforceable in
any respect.
Section 10.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original.
Section 10.9 Waiver. At any time prior to the Closing, the parties hereto,
by or pursuant to action taken by their respective Boards of Directors, may, to
the extent legally permitted: (i) extend the time for the performance of any of
the obligations or other acts of any other party; (ii) waive any inaccuracies in
the representations or warranties of any other party contained in this Agreement
or in any document or certificate delivered pursuant hereto; (iii) waive
compliance or performance by any other party with any of the covenants,
agreements or obligations of such party contained herein; and (iv) waive the
satisfaction of any condition that is precedent to the performance by the party
so waiving of any of its obligations hereunder. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party. A waiver by one party
of the performance of any covenant, agreement, obligation, condition,
representation or warranty shall not be construed as a waiver of any other
covenant, agreement, obligation, condition, representation or warranty. A waiver
by any party of the performance of any act shall not constitute a waiver of the
performance of any other act or an identical act required to be performed at a
later time.
Section 10.10 Fees and Expenses. Purchaser shall pay its own fees, costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby, including, but not limited to, the fees, costs and expenses
of its accountants and counsel. Seller shall pay its own fees, costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby, including, but not limited to, the fees, costs and expenses
of its accountants and counsel, except that Purchaser shall select and engage an
accounting firm and shall be responsible for the payment of the accounting fees
for the auditing of Seller's financial statements for its last two fiscal years.
In the event that Purchaser is unable to secure a Commitment on or prior to the
Commitment Date and all other conditions to Purchaser's obligation to close
shall have been satisfied by such date, then, in such event Purchaser shall pay
Seller's actual and reasonable attorneys fees incurred in preparation of this
Agreement in an amount not to exceed $7,000.00.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the date first above written.
(corporate seal) NEW YORKER FROZEN DESSERTS, INC.
Attest:
By:_________________________ By:___________________________________
Title:_____________________ Title:__________________________________
(corporate seal) MIKE'S ORIGINAL, INC.
Attest:
By:_________________________ By:___________________________________
Title:_____________________ Title:__________________________________
(corporate seal) KERRY GROUP LTD.
Attest:
By: ________________________ By:___________________________________
Title: _____________________ Title: _________________________________
(corporate seal) NEW YORKER ICE CREAM CORP.
Attest:
By:_________________________ By:___________________________________
Title:______________________ Title:_________________________________
-------------------------------------
Ted Ketsoglou, an individual
<PAGE>
(corporate seal) AMERICAN CLASSIC ICE CREAM CORP.
Attest:
By:________________________ By:___________________________________
Title:______________________ Title:_________________________________
ASSET PURCHASE AGREEMENT
THIS AGREEMENT, dated as of December ___, 1997 (the "Agreement"), is
entered into by and between NEW YORKER FROZEN DESSERTS, INC., a New York
corporation ("Purchaser"); and JERRY'S ICE CREAM CO., INC., a New York
corporation ("Seller"); and MIKE'S ORIGINAL, INC., a Delaware corporation
("Mike's"), the parent corporation of Purchaser.
W I T N E S S E T H:
-------------------
WHEREAS, Seller is engaged in the business of the full service distribution
of ice cream (the "Business"); and
WHEREAS, Seller and Purchaser desire to enter into this Agreement pursuant
to which Seller proposes to sell to Purchaser and Purchaser proposes to purchase
from Seller substantially all of the assets of Seller.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
ARTICLE 1
ASSET PURCHASE AND SALE
Section 1.1 Agreement to Sell. At the Closing (as hereinafter defined) and
except as otherwise specifically provided in this Article 1, Seller shall grant,
sell, convey, assign, transfer and deliver to Purchaser, upon and subject to the
terms and conditions of this Agreement, all right, title and interest of Seller
in and to (a) the Business as a going concern, and (b) all of the assets,
properties and rights of Seller, of every kind and description, real, personal
and mixed, tangible and intangible, wherever situated (which Business, assets,
properties and rights are hereinafter collectively referred to as the "Assets
"), free and clear of all mortgages, liens, pledges, security interests,
charges, claims, restrictions and encumbrances of any nature except for the
Excluded Assets set forth in Section 1.3 hereof.
Section 1.2 Included Assets. Except as otherwise expressly set forth in
Section 1.3 hereof, the Assets shall include without limitation the following
assets, properties, and rights of Seller:
<PAGE>
(a) All rights under any written or oral contract, agreement, lease, plan,
instrument, registration, license, certificate of occupancy, other permit or
approval of any nature, or other document, commitment, arrangement, undertaking,
practice or authorization except for such agreements that Seller has notified
Purchaser of in writing that Seller cannot transfer to Purchaser due to Seller's
inability to secure the consent to the assignment from the other party to the
Agreement;
(b) All machinery, equipment, tools, vehicles, furniture, furnishings,
leasehold improvements, goods and other tangible personal property, including,
but not limited to, the Assets set forth on Schedule 1.2 annexed hereto;
(c) All technologies, methods, formulations, databases, trade secrets,
know-how, inventions, computer software (including documentation and related
object codes) and other intellectual property;
(d) All office supplies;
(e) All rights under any patent, trademark, service mark, tradename or
copyrights, whether registered or unregistered, and any applications therefor
(the "Marks");
(f) All rights arising under express or implied warranties relating to the
Assets;
(g) All information, files, records, data, plans, contracts and recorded
knowledge, including client and vendor lists related to the foregoing;
(h) An irrevocable option for ten (10) years, which is hereby granted (i)
to purchase all of the issued and outstanding capital stock of Seller for a
purchase price of One Dollar ($1.00), provided that Seller shall first divest
Seller of all assets other than contracts for the distribution of ice cream and
other food products, including but not limited to its distribution agreements
with Haagen-Daz, Baskin-Robbins and Friendlies Ice Cream, which shall be
transferred to Purchaser as an asset of Seller upon exercise of the option, or
(ii) to have Seller assign to Purchaser all rights under any or all ice cream or
other product distribution agreements of Seller with its suppliers, including
but not limited to Seller's distribution agreements with Haagen-Daz,
Baskin-Robbins and Friendlies Ice Cream. This option shall survive the Closing.
Section 1.3 Excluded Assets. Notwithstanding anything to the contrary set
forth herein, the Assets shall not include any of the following (hereinafter
collectively referred to as "Excluded Assets"):
(a) The corporate seals, certificates of incorporation, minute books, stock
books, tax returns, books of account or other constituent records relating to
the corporate organization of Seller;
(b) Cash and cash equivalents;
<PAGE>
(c) All accounts, notes and other receivables; and
(d) The rights which accrue to Seller under this Agreement.
Section 1.4 Agreement to Purchase. At the Closing, Purchaser shall purchase
the Assets from Seller, upon and subject to the terms and conditions of this
Agreement and in reliance on the representations, warranties and covenants of
Seller contained herein, in exchange for the Purchase Price (as hereinafter
defined).
Section 1.5 The Purchase Price. The purchase price for the Assets shall be
Four Hundred Sixty-Five Thousand Dollars ($465,000.00), (the "Purchase Price").
Section 1.6 Payment of Purchase Price. At the Closing, Purchaser shall pay
to Seller, Two Hundred Forty-Five Thousand ($245,000.00) Dollars (the "Initial
Payment") of the Purchase Price by certified check. The remaining Two Hundred
Twenty Thousand Dollars ($220,000), shall be payable in accordance with the
terms and conditions of a Promissory Note in substantially the form of Exhibit
1.6(a)-1 annexed hereto (the "Note"), which Note shall have a repayment term of
three (3) years and shall bear interest at the rate of eight (8%) percent per
annum and which shall be secured by a purchase money security interest as set
forth in the security agreement (the "Security Agreement") attached hereto as
Exhibit 1.6(a)-2; and
Section 1.7 Purchase of Seller's Inventory. In addition to the Purchase
Price, Purchaser shall, withing fifteen (15) days of the Closing, pay Seller its
cost for the inventory and stock-in-trade of Seller delivered to Purchaser that
is in good and saleable condition as of the Closing.
Section 1.8 Excluded Liabilities. Notwithstanding anything to the contrary
set forth herein, except as set forth in Schedule 3.4 (b) (Leases), in no event
shall Purchaser assume, incur or become responsible for any liability or
obligation of the Seller of any nature whatsoever, whether now or hereafter
existing. The liabilities and obligations of Seller which Purchaser shall not
assume, incur or become responsible for are referred to herein as "Excluded
Liabilities".
Section 1.9 Prorations. All property and ad valorem taxes, business
licenses, permits, leasehold rentals, utilities and other customarily proratable
expense of Seller relating to the Assets payable prior to or subsequent to the
Closing Date and relating to the period of time both prior to and subsequent to
the Closing Date will be prorated between Purchaser and Seller as of the Closing
Date. If the actual amount of any proratable item is not known as of the Closing
Date, such proration will be based on the previous year's assessment of such
item or such other reasonable basis for estimating such amount as the parties
may select, and the parties agree to adjust such proration and pay any
underpayment or reimburse any overpayment promptly after the actual amount
becomes known. In the event any sales, use, excise, value added or other similar
taxes become due as a result of the transactions contemplated by this Agreement,
Purchaser and Seller shall each be responsible for and shall pay one-half of all
such taxes.
<PAGE>
Section 1.10 Allocation of Purchase Price. The parties shall agree on the
allocation for tax purposes of the Purchase Price to be paid for the Assets
prior to or upon the Closing.
ARTICLE 2
CLOSING; ITEMS TO BE DELIVERED; FURTHER ASSURANCES
Section 2.1 Closing. The consummation of the transactions contemplated by
this Agreement is herein referred to as the "Closing". The "Closing Date" shall
be the date on which the Closing occurs. The Closing shall occur within ten (10)
business days of the satisfaction or waiver of the conditions set forth in
Article 6 hereof, but in no event shall the Closing Date be a date which is
subsequent to 120 days from the date hereof. The Closing shall take place at the
office of Blau, Kramer, Wactlar & Lieberman, P.C., 100 Jericho Quadrangle, Suite
225, Jericho, New York 11753, or at such other place upon which the Purchaser
and Seller shall mutually agree.
Section 2.2 Items to be Delivered at Closing. At the Closing and subject to
the terms and conditions herein contained:
(a) Seller shall deliver to Purchaser the following:
(i) Such bills of sale with covenants of warranty, assignments,
endorsements, and other good and sufficient instruments and
documents of conveyance and transfer, in form reasonably
satisfactory to Purchaser and its counsel, as shall be
necessary and effective to transfer and assign to, and vest
in purchaser all of Seller's right, title and interest in
and to the Assets, including without limitation, (A) good
and valid title in and to all of the Assets owned by Seller,
(B) good and valid leasehold interest in and to all of the
Assets leased by Seller as lessee, and (C) all of Seller's
rights under all agreements, contracts, commitments, leases,
plans, bids, quotations, proposals, instruments and other
documents included in the Assets to which Seller is a party
or by which it has rights on the Closing Date; and
(ii) All of the agreements, contracts, commitments, leases,
plans, bids, quotations, proposals, instruments, computer
programs and software, data bases whether in the form of
computer tapes or otherwise, related object and (to the
extent available) source code, manuals and guidebooks, price
books and price lists, customer and subscriber lists,
supplier lists, sales records, files, correspondence, legal
opinions, rulings issued by governmental entities, and other
documents, books, records, papers, files, office supplies
and data belonging to Seller which are part of the Assets;
(iii)Audited financial statements for Seller's last two fiscal
years; and
<PAGE>
(iv) Estoppel certificates from the applicable lessors set forth
in Schedule 3.4 (b) indicating the total principal and lease
payments due under such leases;
(v) A Lease in form and substance satisfactory to Purchaser for
the current principal place of business of Seller as
described in Section 6.1 (j) hereof;
(vi) A certificate of the corporate secretary of Seller
certifying that all transactions contemplated hereby have
been duly approved by the Board of Directors and
shareholders of Seller and that the officer of Seller
executing this Agreement is duly authorized to do so;
(vii)Such other documentation as Purchaser may reasonably
require to assure the continuation of certain franchises
which Purchaser determines to be necessary for the continued
operations of Seller's business;
and simultaneously with such delivery, all such reasonable steps will be taken
as may be required to place Purchaser in actual possession and operating control
of the Assets.
(b) Purchaser shall deliver to Seller the following:
(i) The Initial Payment;
(ii) The Note; and
(iii)The Security Agreement.
(c) The parties hereto also shall deliver to each other the documents
and instruments referred to in Article 6 hereof.
Section 2.3 Further Assurances. Seller from time to time after the Closing,
at Purchaser's request, will execute, acknowledge and deliver to Purchaser such
other instruments of conveyance and transfer and will take such other actions
and execute and deliver such other documents, certifications and further
assurances as Purchaser may reasonably request in order to vest more effectively
in Purchaser, or to put Purchaser more fully in possession of, any of the
Assets. Each of the parties hereto will cooperate with the other and execute and
deliver to the other such other instruments and documents and take such other
actions as may be reasonably requested from time to time by any party hereto as
necessary to carry out, evidence and confirm the intended purposes of this
Agreement.
<PAGE>
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser as follows:
Section 3.1 Organization. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York and has
all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as is now being conducted. Except as set
forth in Schedule 3.1, Seller has no subsidiaries and there are no other
entities which Seller directly or indirectly controls or is controlled by and
Seller is not a party to any joint venture and is not a partner of any
partnership. Seller is duly qualified to transact business, and is in good
standing, as a foreign corporation in each jurisdiction where the character of
its activities requires such qualification.
Section 3.2 Authorization. Seller has full corporate power and authority to
execute and deliver this Agreement and to perform its obligations under this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by Seller and the performance by Seller of its
obligations hereunder and the consummation of the transactions provided for
herein have been duly and validly authorized by all necessary corporate action
on the part of Seller. The Board of Directors and shareholders of Seller have
approved the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby. This Agreement has been
duly executed and delivered by Seller and constitutes the valid and binding
agreement of Seller, enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency and other similar laws affecting
the enforcement of creditors' rights generally, general equitable principles and
the discretion of courts in granting equitable remedies.
Section 3.3 Absence of Restrictions and Conflicts. The execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby do not violate or conflict with, constitute a breach of or
default under, result in the loss of any material benefit under, or permit the
acceleration of any obligation under, (i) any term or provision of the
Certificate of Incorporation or Bylaws of Seller; (ii) any contract or lease to
which Seller is a party; (iii) any judgment, decree or order of any court or
governmental authority or agency to which Seller is a party or by which Seller
or any of its respective properties is bound, or (iv) any statute, law,
regulation or rule applicable to Seller. No consent, approval, order or
authorization of, or registration, declaration or filing with, any governmental
agency or public or regulatory unit, agency, body or authority with respect to
Seller is required in connection with the execution, delivery or performance of
this Agreement by Seller or the consummation of the transactions contemplated
hereby.
Section 3.4 Ownership of Assets and Related Matters.
(a) Real Property. The Seller does not own any real property nor is
any ownership interest in real property included in the Assets.
<PAGE>
(b) Leases. Schedule 3.4(b) sets forth a true and complete list of all
leases and agreements, including licensing rights, of Seller granting possession
of or rights to real or personal property included in the Assets (the "Scheduled
Leases and Licenses"). All such Scheduled Leases and Licenses are in full force
and effect and constitute the legal, valid, binding and enforceable obligations
of Seller, and are legal, valid, binding and enforceable in accordance with
their respective terms with respect to each other party thereto, in each case to
the extent material to the business and operations of the Business. There are no
existing defaults of Seller with respect to such Scheduled Leases and Licenses
or, to the knowledge of the Seller, of any of the other parties thereto.
(c) Personal Property. Seller has good and marketable title to all of
the Assets, and Seller owns the Assets free and clear of all liens, pledges,
security interests, charges, claims, restrictions and encumbrances of any nature
whatsoever.
(d) Necessary Assets. The Assets constitute all of the assets
necessary to conduct the operations of the Business in accordance with Seller's
past practices. As of the date hereof, all of the Assets are in good operating
condition and repair subject to normal wear and maintenance, are usable in the
regular and ordinary course of business and conform to all applicable laws,
ordinances, codes, rules and regulations applicable thereto.
(e) No Third Party Options. There are no existing agreements, options,
commitments or rights with, of or to any person to acquire any of the Assets or
any interest therein.
Section 3.5 Legal Proceedings. Except as set forth in Schedule 3.5, there
are no suits, actions, claims, proceedings or investigations pending, or, to the
best knowledge of the Seller, threatened against, relating to or involving the
Seller, the Business or the Assets before any court, arbitrator or
administrative or governmental body. The Business is not subject to any
judgment, decree, injunction, rule or order of any court, and, to the knowledge
of the Seller, the Seller is not subject to any governmental restriction, which
is reasonably likely to cause a material limitation on Purchaser's ability to
acquire the Assets or operate the Business after the Closing. All suits,
actions, claims, proceedings or investigations of Seller, including, but not
limited to those set forth in Schedule 3.5, shall remain the sole obligation and
responsibility of Seller before and after the Closing.
Section 3.6 Compliance with Law. Seller has all material authorizations,
approvals, licenses and orders of and from all governmental and regulatory
officers and bodies necessary to carry on the Business as it is currently being
conducted, to own the Assets and to transfer the Assets to Purchaser.
Section 3.7 Insurance. Seller believes that the Assets and the Business
have been and are insured by financially sound and reputable insurers in such
amounts and against such risks as are reasonable in relation to its business.
Seller has made available to Purchaser true and complete copies of all insurance
policies covering the Assets and/or the Business. Seller shall bear all risk of
loss to the Business and the Assets until the Closing.
<PAGE>
Section 3.8 Environmental Matters. The operations of the Business are in
compliance in all material respects with all statutes, regulations and
ordinances relating to the protection of human health and the environment. There
has been no release of a hazardous substance into the environment at any
property owned, leased or used by the Seller (the "Premises") including, without
limitation, any such release in the soil or groundwater underlying the Premises.
There is no asbestos, polychlorinated biphenyls or underground storage tanks
located on the Premises and there have been no releases of asbestos,
polychlorinated biphenyls or materials stored in underground storage tanks,
including, without limitation, petroleum or petroleum-based materials. The
Seller has not received notice of any violation of any environmental statute or
regulation nor has it been advised of any claim or liability pursuant to any
environmental statute or regulation brought by any governmental agency or
private party with respect to the Assets or the operation of the Business.
Section 3.9 Patents, Trademarks, Trade Names. Schedule 3.9 sets forth a
true and complete list of all Marks used or owned by Seller. Seller owns, or has
the right to use pursuant to valid and effective agreements, all Marks, and all
such rights shall be assigned and transferred to Purchaser in connection with
the consummation of the transactions contemplated hereby. To the best knowledge
of the Seller, (i) no claims are pending against Seller by any person with
respect to the use of any Mark or challenging or questioning the validity or
effectiveness of any license or agreement relating to the same, and (ii) the
current use by Seller of the Mark does not infringe on the rights of any third
party.
Section 3.10 Bulk Sales Compliance. Except as set forth in Sections 1.6 and
1.8 hereof, Seller shall be responsible for and shall satisfy all claims of all
creditors of Seller arising out of transactions occurring prior to Closing.
Section 3.11 Brokers, Finders and Investment Bankers. Neither Seller nor
any of its respective officers, directors or employees has employed any broker,
finder or investment banker or incurred any liability for any investment banking
fees, financial advisory fees, brokerage fees or finders' fees in connection
with the transactions contemplated hereby.
Section 3.12 Other Liabilities. Other than the Assumed Obligation, there
are no other obligations, liabilities or claims associated with the Assets or
the Business that shall not remain with Seller and remain Seller's obligation
responsibility before and after the Closing.
Section 3.13 Disclosure. No representation, warranty or covenant made by
Seller in this Agreement, or the Schedules or Exhibits attached hereto contains
an untrue statement of a material fact or omits to state a material fact
required to be stated herein or therein or necessary to make the statements
contained herein or therein not misleading.
<PAGE>
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller as follows:
Section 4.1 Organization. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as now being conducted.
Section 4.2 Authorization. Upon the duly and validly obtained approval of
the execution, delivery and performance of this Agreement from the Board of
Directors of the Purchaser: (i) Purchaser shall have full corporate power and
authority to execute and deliver this Agreement and to perform its obligations
under this Agreement and to consummate the transactions contemplated hereby;
(ii) the execution and delivery of this Agreement by Purchaser and the
performance by Purchaser of its obligations hereunder and the consummation of
the transactions provided for herein shall have been duly and validly authorized
by all necessary corporate action on the part of Purchaser; and (iii) this
Agreement shall have been duly executed and delivered by Purchaser and shall
constitute the valid and binding agreement of Purchaser, enforceable against it
in accordance with its terms, subject to applicable bankruptcy, insolvency and
other similar laws affecting the enforcement of creditors' rights generally,
general equitable principles and the discretion of courts in granting equitable
remedies.
Section 4.3 Absence of Restrictions and Conflicts. The execution, delivery
and performance of this Agreement, the consummation of the transactions
contemplated by this Agreement and the fulfillment of and compliance with the
terms and conditions of this Agreement do not and will not with the passing of
time or the giving of notice or both, violate or conflict with, constitute a
breach of or default under, result in the loss of any material benefit under, or
permit the acceleration of any obligation under, (i) any term or provision of
the Certificate of Incorporation or Bylaws of Purchaser, (ii) any contract,
agreement, commitment or understanding to which Purchaser is a party or to which
it or any of its properties is subject, (iii) any judgment, decree or order of
any court or governmental authority or agency to which Purchaser is a party or
by which Purchaser or any of its respective properties is bound, or (iv) any
statute, law, regulation or rule applicable to Purchaser. No consent, approval,
order or authorization of, or registration, declaration or filing with, any
governmental agency or public or regulatory unit, agency, body or authority with
respect to Purchaser is required in connection with the execution, delivery or
performance of this Agreement by Purchaser or the consummation of the
transactions contemplated by this Agreement by Purchaser.
Section 4.4 Disclosure. No representation, warranty or covenant made by
Purchaser in this Agreement or the Schedules or Exhibits attached hereto
contains an untrue statement of a material fact or omits to state a material
fact required to be stated herein or therein or necessary to make the statements
contained herein or therein not misleading.
<PAGE>
Section 4.5 Brokers, Finders Investment Bankers. Except for Purchaser's
agreement with Multi Venture Partners Ltd., under which Purchaser will pay a
finder's fee, neither Purchaser nor any of its respective officers, directors or
employees has employed any broker or finder in connection with this transaction.
Section 4.6 Legal Proceedings. Except as set forth in Schedule 4.6, there
are no suits, pending, or, to the best knowledge of the Purchaser, threatened
against, relating to or involving the Purchaser, before any court.
ARTICLE 5
CERTAIN COVENANTS AND AGREEMENTS
Section 5.1 Conduct of Business by Seller. From the date hereof to the
Closing Date, Seller will, except as required in connection with the
transactions contemplated by this Agreement or consented to in writing by
Purchaser:
(a) Except and only to the extent necessary to secure new product
distribution opportunities, carry on the Business in the ordinary and regular
course in substantially the same manner as heretofore conducted and not engage
in any new line of business or enter into any agreement, transaction or activity
or make any commitment with respect to the Business except those in the ordinary
and regular course of business and not otherwise prohibited under this Section
5.1 and except as otherwise consented to in writing by Purchaser;
(b) Use its reasonable efforts to preserve intact the goodwill and
business organization of the Business, to keep the officers and employees of the
Business available to Purchaser and to preserve the relationships of the
Business with customers, suppliers and others having business relations with the
Business;
(c) Not (i) sell any of the Assets, (ii) create, incur or assume any
indebtedness secured by the Assets, or (iii) grant, create, incur, or suffer to
exist any liens or encumbrances on the Assets which did not exist on the date
hereof;
(d) Not amend, modify or extend in any manner the terms of any
employment agreement with any employee of Seller;
(e) Perform in all material respects all of its obligations under all
Scheduled Leases (except those being contested in good faith) and not enter
into, assume or amend any contract or commitment that would be a Scheduled
Lease;
(f) Use its reasonable efforts to continue to maintain and service the
Assets used in the conduct of the Business in the same manner as has been its
consistent past practice; and
<PAGE>
(g) Use its reasonable efforts to maintain its inventory of products
and stock-in-trade at normal levels in the ordinary course of business.
(h) Cooperate with Purchaser in the consummation of the purchase by
Purchaser of certain other businesses that Purchaser has identified to Seller.
Section 5.2 Financing Commitment. Upon the execution of this Agreement,
Purchaser shall diligently and expeditiously make a good faith effort to obtain
a Commitment for financing of the cash portion of the purchase price on or prior
to the Commitment Date (each of which terms are defined in Section 6.1(g)), the
proceeds of which are payable to the Purchaser no later than the Closing Date.
Purchaser will promptly notify Seller upon its receipt of a Commitment.
Section 5.3 Inspection and Access to Information. Between the date of this
Agreement and the Closing Date, Seller will provide Purchaser and its
accountants, counsel and other authorized representatives full access, during
reasonable business hours and under reasonable circumstances to any and all of
its employees, premises, properties, contracts, commitments, books, records and
other information (including tax returns filed and those in preparation) and
will cause its officers to furnish to Purchaser and its authorized
representatives any and all financial, technical and operating data and other
information pertaining to the Business, as Purchaser shall from time to time
reasonably request.
Section 5.4 Reasonable Efforts; Further Assurances; Cooperation. Subject to
the other provisions of this Agreement, the parties hereto shall each use their
reasonable, good faith efforts to perform their obligations herein and to take,
or cause to be taken or do, or cause to be done, all things necessary, proper or
advisable under applicable law to obtain all regulatory approvals and satisfy
all conditions to the obligations of the parties under this Agreement and to
cause the transactions contemplated herein to be effected on the Closing Date in
accordance with the terms hereof and shall cooperate fully with each other and
their respective officers, directors, employees, agents, counsel, accountants
and other designees in connection with any steps required to be taken as a part
of their respective obligations under this Agreement, including without
limitation:
(a) Each of Seller and Purchaser shall cause to be taken, all actions
and do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to obtain any required approval of any federal,
state, or local governmental agency or regulatory body with jurisdiction over
the transactions contemplated by this Agreement.
(b) Each party shall give prompt written notice to the other parties
hereto of (i) the occurrence, or failure to occur, of any event which occurrence
or failure would be likely to cause any representation or warranty of such party
contained in this Agreement to be untrue or inaccurate in any material respect
at any time from the date hereof to the Closing Date or that will or may result
in the failure to satisfy any of the conditions specified in Article 6 hereof
and (ii) any failure of such party, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder.
<PAGE>
(c) Seller shall secure all necessary consents of third parties to the
assignment to Purchaser of all Scheduled Leases included in the Assets.
Section 5.5 Maintenance of Seller's Corporate Existence. From the date
hereof to the Closing Date, and thereafter if requested by Purchaser, Seller
shall maintain its corporate existence in good standing with the jurisdiction of
its incorporation and enter into any agreement with Purchaser for no additional
consideration as is reasonably necessary to provide Purchaser with the full
benefit all product distribution and other agreements to which Seller is a party
and Seller shall resell and deliver to Purchaser all products purchased under
any such distribution agreement at Seller's Cost.
ARTICLE 6
CONDITIONS TO CLOSING
Section 6.1 Conditions to Obligations of Purchaser. The obligations of
Purchaser to effect the acquisition of the Business and the Assets and to assume
the Assumed Obligation shall be subject to the fulfillment at or prior to the
Closing of each of the following additional conditions:
(a) Representations and Warranties. The representations and warranties
of Seller set forth in Article 3 of this Agreement shall be true and correct as
of the date of this Agreement and as of the Closing Date as through made on and
as of the Closing Date.
(b) Performance of Obligations of Seller. Seller shall have performed
in all material respects all covenants and agreements required to be performed
by it under this Agreement.
(c) Authorization of Transactions. All corporate action necessary by
Seller to authorize the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby shall have been
duly and validly taken.
(d) Consents. All consents, authorizations, orders and approvals of
(or filings or registrations with) any governmental commission, board or other
regulatory body required in connection with the execution, delivery and
performance of this Agreement shall have been obtained or made.
(e) Authorization by Purchaser's Board of Directors. Purchaser shall
have obtained the approval and authorization of the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby from its Board of Directors.
(f) Employment Agreement with Gerald Schneider. Purchaser shall have
entered into, or shall enter into on the Closing Date, an employment agreement
with Gerald Schneider, in substantially the form of Exhibit 6.1(f) attached
hereto (the "Employment Agreement") and the Purchaser shall have obtained the
approval and authorization of the execution, delivery and performance of the
Employment Agreement from its Board of Directors.
<PAGE>
(g) Financing. On or before the date which is one hundred and twenty
(120) days subsequent to the date of execution of this Agreement (the
"Commitment Date"), Purchaser shall have obtained a commitment for financing in
form and substance satisfactory to Purchaser, in Purchaser's sole discretion, to
consummate the transaction contemplated by this Agreement (the "Commitment").
(h) Due Diligence Period. On or before the date which is forty-five
(45) days subsequent to the date of execution of this Agreement, Purchaser shall
have had access to the financial and business records of Seller for Purchaser's
due diligence investigation of Seller and shall have concluded based on such
records, in its sole and absolute discretion, that there is no circumstance that
would make the transaction contemplated by this Agreement economically and
financially unfeasible for Purchaser.
(i) Certificates. Seller shall furnish Purchaser with a certificate of
its appropriate officers as to compliance with the conditions set forth in
Sections 6.1(a), (b), (c) and (d).
(j) Leases. Purchaser shall have received consents to assignment of
all Scheduled Leases or written waivers of the provisions of any Scheduled
Leases requiring the consents of third parties and Purchaser shall have entered
into an acceptable one (1) year lease with Seller's landlord at 1122-1124 and
1161-1165 Southern Boulevard, Bronx, New York (the "Premises"), for the lease of
the Premises at a monthly rental of $7,500.00 plus electric. Purchaser shall be
entitled to all rents from the current sub-tenants of such premises during the
term of such lease, and Seller or its landlord shall remain responsible for all
taxes, maintenance costs and other fees and expenses related to such Premises
during the term of the lease, except any and all electrical and freezer
maintenance. The parties agree that the landlord of the Premises may allocate
such rental income as it sees fit.
(k) Assumed Obligation. Seller shall have received the consent of the
Creditor to Purchaser's assumption of the Assumed Obligation under the terms set
forth herein.
(l) Audited Financial Statements. Purchaser shall have received
audited financial statements prepared accordance with generally accepted
accounting principles for Seller's last two fiscal years that indicate a sales
volume substantially in accordance with that indicated in the unaudited
financial statements previously made available by Seller to Purchaser. Further,
Purchaser shall have received year-to-date financial statements of Seller for
1997 that indicate an annualized sales volume substantially the same as that of
each of Seller's previous two fiscal years.
(m) Condition of Assets. All of the Assets shall be in good condition
and shall not have been subject to any loss or casualty, or, in the event of any
loss or casualty, Purchaser, in its sole and absolute discretion, shall elect to
accept substitute assets or reasonable compensation for such loss or casualty
from Seller or Seller's insurer.
<PAGE>
Section 6.2 Conditions to Obligations of Seller. The obligations of Seller
to effect the sale of the Business and the Assets and the assignment of the
Assumed Obligation shall be subject to the fulfillment at or prior to the
Closing of each of the following additional conditions:
(a) Representations and Warranties. The representations and warranties
of Purchaser set forth in Article 4 of this Agreement shall be true and correct
as of the date of this Agreement and as of the Closing Date as through made on
and as of the Closing Date.
(b) Performance of Obligations of Purchaser. Purchaser shall have
performed in all material respects all covenants and agreements required to be
performed by it under this Agreement.
(c) Authorization of Transactions. All corporate action necessary by
Purchaser to authorize the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby shall have been
duly and validly taken, including, but not limited to, the approval and
authorization of the execution, delivery and performance of this Agreement and
the Employment Agreement by the Board of Directors of the Purchaser and of
Mikes.
(d) Consents. Except as disclosed in writing to Purchaser by Seller,
all consents, authorizations, orders and approvals of (or filings or
registrations with) any governmental commission, board or other regulatory body
required in connection with the execution, delivery and performance of this
Agreement shall have been obtained or made.
(e) Employment Agreement with Gerald Schneider. Purchaser and Mike's
shall have entered into, or shall enter into on the Closing Date, the Employment
Agreement with Gerald Schneider in substantially the form of Exhibit 6.1(e)
attached hereto.
(f) Financing. Purchaser shall have received a Commitment on or prior
to the Commitment Date:
(g) Certificates. Purchaser shall furnish Seller with a certificate of
its appropriate officers as to compliance with the conditions set forth in
Sections 6.2(a), (b) and (c).
ARTICLE 7
ADDITIONAL CLOSING OBLIGATIONS
[INTENTIONALLY OMITTED]
<PAGE>
ARTICLE 8
TERMINATION
Section 8.1 Termination and Abandonment. This Agreement may be terminated
at any time prior to the Closing:
(a) by mutual agreement of the Boards of Directors of the Purchaser and
Seller;
(b) by Seller, if the conditions set forth in Section 6.2 hereof shall not
have been complied with or performed and such noncompliance or nonperformance
shall not have been cured or eliminated (or by its nature cannot be cured or
eliminated) by Purchaser on or before the Closing Date;
(c) by Purchaser, if the conditions set forth in Section 6.1 hereof shall
not have been complied with or performed and such noncompliance or
nonperformance shall not have been cured or eliminated (or by is nature cannot
be cured or eliminated) by Seller on or before the Closing Date;
(d) by either Seller or Purchaser if a Commitment has not been received by
the Commitment Date;
(e) by Purchaser if Purchaser determines as a result of its due diligence
investigation of Seller that the transaction contemplated by this Agreement is
not economically or financially feasible for Purchaser.
Section 8.2 Specific Performance and Other Rights. The parties hereto each
acknowledge that the rights of each party to consummate the transactions
contemplated hereby are special, unique and of extraordinary character, and
that, in the event that any party violates or fails or refuses to perform any
covenant or agreement made by it herein, the non-breaching party may be without
an adequate remedy at law. The parties each agree, therefore, that in the event
that either party violates
or fails or refuses to perform any covenant or agreement made by such party
herein, the non-breaching party or parties may, subject to the terms of this
Agreement and in addition to any remedies at law for damages or other relief,
institute and prosecute an action in any court of competent jurisdiction to
enforce specific performance of such covenant or agreement or seek any other
equitable relief.
Section 8.3 Effect of Termination. In the event of termination of this
Agreement pursuant to this Article 8 or as a result of Purchaser's diligence
investigation or due to Purchaser's failure to obtain a Commitment on or prior
to the Commitment Date, this Agreement shall forthwith become void and there
shall be no liability on the part of any party hereto or its respective
officers, directors or stockholders, except for obligations under Section 10.10
and this Section, all of which shall survive the termination. Notwithstanding
the foregoing, nothing contained herein shall relieve any party from liability
for any breach of any covenant or agreement in this Agreement.
<PAGE>
ARTICLE 9
INDEMNIFICATION
Section 9.1 Indemnification Obligations of Seller. From and after the
Closing, Seller shall indemnify and hold harmless the Purchaser and its
subsidiaries and affiliates (including Purchaser, each of their respective
officers and directors, employees, agents and representatives and each of the
heirs, executors, successors and assigns of any of the foregoing (collectively,
the "Purchaser Indemnified Parties") from, against and in respect of any and all
claims, liabilities, obligations, losses, costs, expenses, penalties, fines and
other judgments (at equity or at law) and damages whenever arising or incurred
(including, without limitation, amounts paid in settlement, costs of
investigation and reasonable attorneys' fees and expenses) arising out of or
relating to:
(a) Any Excluded Liability or any and all other liabilities and
obligations of Seller of any nature whatsoever, including but not limited to
claims under Article 6 (Bulk Transfers) of the New York Uniform Commercial Code;
(b) Any and all actions, suits, claims, or legal, administrative,
arbitration, governmental or other proceedings or investigations against any
Purchaser Indemnified Party that relate to Seller, the Assets or the Business to
the extent the principal event giving rise thereto occurred prior to the Closing
Date or which result from or arise out of any action or inaction prior to the
Closing Date of Seller or any affiliate, officer, director, employee, agent,
representative or subcontractor of Seller;
(c) Any breach of any representation, warranty, covenant, agreement or
undertaking made by Seller in this Agreement or in any certificate, agreement,
exhibit, schedule or other writing delivered by Seller to Purchaser in
connection with the matters contemplated hereby or pursuant to the provisions
hereof (collectively, the "Seller Ancillary Documents"); or
(d) Any fraud, willful misconduct, bad faith or any intentional breach
of any representation, warranty, covenant, agreement or undertaking made by the
Seller in this Agreement or the Seller Ancillary Documents.
Section 9.2 Liquidated Damages. Except as set forth in Sections 1.6 and 1.8
hereof, in the event Purchaser makes any payment to any creditor of Seller,
Seller, in addition to its indemnification responsibilities as provided herein,
shall pay to Purchaser, and shall be jointly and severally liable to Purchaser
for, liquidated damages equal to twenty percent (20%) of the aggregate amount
paid by Purchaser to each creditor of Seller.
Section 9.3 Indemnification Obligations of Purchaser. From and after the
Closing, Purchaser shall indemnify and hold harmless Seller and its subsidiaries
and affiliates, each of their respective officers, directors, employees, agents
and representatives and each of the heirs, executors, successors and assigns of
any of the foregoing (collectively, the "Seller Indemnified Parties") from,
against and in respect of any and all claims, liabilities, obligations, losses,
costs, expenses, penalties, fines and other judgments (at equity or at law) and
damages whenever arising or incurred (including, without limitation, amounts
paid in settlement, costs of investigation and reasonable attorneys' fees and
expenses) arising out of or relating to:
<PAGE>
(a) Any and all actions, suits, claims, or legal, administrative,
arbitration, governmental or other proceedings or investigations against any
Seller Indemnified Party that relate to Purchaser or the Business to the extent
the principal event giving rise thereto occurred after the Closing Date or which
result from or arise out of any action or inaction after the Closing Date of
Purchaser or any affiliate, officer, director, employee, agent, representative
or subcontractor of Purchaser;
(b) Any breach of any representation, warranty, covenant, agreement or
undertaking made by Purchaser in this Agreement or in any certificate,
agreement, exhibit, schedule or other writing delivered by Purchaser to Seller
in connection with the matters contemplated hereby or pursuant to the provisions
hereof (collectively, the "Purchaser Ancillary Documents"); or
(c) Any fraud, willful misconduct, bad faith or any intentional breach
of any representation, warranty, covenant, agreement or undertaking made by the
Purchaser in this Agreement or the Purchaser Ancillary Documents.
Section 9.4 Notice and Opportunity to Defend. Each party seeking
indemnification hereunder shall provide prompt written notice to the other of
the indemnified party's receipt of a claim for which indemnification is sought
and shall permit the indemnifying party to defend against such claim, provided
that the indemnifying party shall remain liable for all damages, claims, costs
and expenses incurred by the indemnified party notwithstanding the indemnifying
party's defense.
Section 9.5 Jurisdiction and Forum.
(a) By the execution and delivery of this Agreement, each Indemnifying
Party irrevocably designates and appoints each of the parties set forth under
its name below as its authorized agent upon which process may be served in any
suit or proceeding arising out of or relating to this Agreement that may be
instituted in any state or federal court in the State of New York.
Seller: Spanton, Parsoff & Siegel, P.C.
------ 425 Broad Hollow Road
Melville, NY 11747
Attention: Neil M. Parsoff, Esq.
<PAGE>
Purchaser: Blau, Kramer, Wactlar & Lieberman, P.C.
--------- 100 Jericho Quadrangle
Suite 225
Jericho, New York 11753
Attention: David H. Lieberman, Esq.
In addition, each party agrees that service of process upon the above-designated
individuals shall be deemed in every respect effective service of process upon
such party in any such suit or proceeding. The foregoing shall not limit the
rights of any party to serve process in any other matter permitted by law.
(b) The parties hereto hereby agree that the appropriate forum and
venue for any disputes between any of the parties hereto arising out of this
Agreement shall be any state or federal court in the State of New York and each
of the parties hereto hereby submits to the personal jurisdiction of any such
court. The foregoing shall not limit the rights of any party to obtain execution
of judgment in any other jurisdiction. The parties further agree, to the extent
permitted by law, that a final and unappealable judgment against any of them in
any action or proceeding contemplated above shall be conclusive and may be
enforced in any other jurisdiction within or outside the United States by suit
on the judgment, a certified or exemplified copy of which shall be conclusive
evidence of the fact and amount of such judgment.
ARTICLE 10
MISCELLANEOUS PROVISIONS
Section 10.1 Notices. All notices, communications and deliveries hereunder
shall be made in writing signed by the party making the same, shall specify the
Section hereunder pursuant to which it is given or being made, and shall be
deemed given or made on the date delivered if delivered in person, on the date
initially sent if delivered by telecopy transmission followed by mailed
confirmation, on the date delivered if delivered by a nationally recognized
overnight courier service or on the date sent if mailed by certified mail
(return receipt requested) (with postage and other fees prepaid) as follows:
To Purchaser: New Yorker Frozen Desserts, Inc.
131 Jericho Turnpike
Jericho, NY 11753
With copy to: Blau, Kramer, Wactlar & Lieberman, P.C.
100 Jericho Quadrangle
Suite 225
Jericho, NY 11753
Attention: David H. Lieberman, Esq.
<PAGE>
To Seller: Jerry's Ice Cream Co., Inc.
1122 Southern Boulevard
Bronx, NY 10459
With copy to: Spanton, Parsoff & Siegel, P.C.
425 Broad Hollow Road
Melville, NY 11747
Attention: Neil M. Parsoff, Esq.
or to such other representative or at such other address of a party as such
party hereto may furnish to the other parties in writing.
Section 10.2 Schedules and Exhibits. All Schedules and Exhibits annexed
hereto are hereby incorporated into this Agreement and are hereby made a part
hereof as if set out in full in this Agreement.
Section 10.3 Assignment; Successors in Interest. No assignment or transfer
by Purchaser or Seller of their respective rights and obligations hereunder
prior to the Closing shall be made except with the prior written consent of the
other parties hereto. Notwithstanding the foregoing, Purchase shall have the
right to assign this Agreement without Seller's consent to any entity whose
capital stock is publicly traded and to whose Board of Directors Ted Ketts has
been elected or appointed or any entity controlled by the principal shareholders
of Purchaser. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their permitted successors and assigns, and
any reference to a party hereto shall also be a reference to a permitted
successor or assign.
Section 10.4 Investigations; Representations and Warranties. The
representations, warranties and covenants of Seller and Purchaser set forth in
this Agreement shall not be extinguished by the Closing and shall survive the
Closing Date. Notwithstanding anything to the contrary set forth in this Section
10.4, (i) the indemnification obligations of Seller and Purchaser set forth in
Sections 9.1 and 9.5, respectively, shall survive the Closing and shall
terminate on the expiration of the applicable statutes of limitation relative to
the liability relating to such indemnification obligations and (ii) this Section
10.4 shall not limit or restrict Seller or Purchaser's remedy against the other
or any other person for fraud, willful misconduct, bad faith or any other
intentional breach of any representation, warranty, covenant or agreements
contained herein.
<PAGE>
Section 10.5 Captions. The titles and captions contained in this Agreement
are inserted herein only as a matter of convenience and for reference and in no
way define, limit, extend or describe the scope of this Agreement or the intent
of any provision hereof.
Section 10.6 Controlling Law; Integration; Amendment.
(a) This Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York without reference to
New York's choice of law rules. This Agreement supersedes all negotiations,
agreements and understandings among the parties with respect to the subject
matter hereof and constitutes the entire agreement among the parties hereto.
(b) Amendments to this Agreement may be proposed by the parties hereto
by or pursuant to action taken by their respective Boards of Directors at any
time; provided, however, that this Agreement may not be amended, modified or
supplemented except by written agreement executed by each of the parties hereto.
Section 10.7 Severability. Any provision hereof which is prohibited or
unenforceable in any jurisdiction will, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction will not invalidate or render unenforceable such provision in any
other jurisdiction. To the extent permitted by law, the parties hereto waive any
provision of law which renders any such provision prohibited or unenforceable in
any respect.
Section 10.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original.
Section 10.9 Waiver. At any time prior to the Closing, the parties hereto,
by or pursuant to action taken by their respective Boards of Directors, may, to
the extent legally permitted: (i) extend the time for the performance of any of
the obligations or other acts of any other party; (ii) waive any inaccuracies in
the representations or warranties of any other party contained in this Agreement
or in any document or certificate delivered pursuant hereto; (iii) waive
compliance or performance by any other party with any of the covenants,
agreements or obligations of such party contained herein; and (iv) waive the
satisfaction of any condition that is precedent to the performance by the party
so waiving of any of its obligations hereunder. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party. A waiver by one party
of the performance of any covenant, agreement, obligation, condition,
representation or warranty shall not be construed as a waiver of any other
covenant, agreement, obligation, condition, representation or warranty. A waiver
by any party of the performance of any act shall not constitute a waiver of the
performance of any other act or an identical act required to be performed at a
later time.
<PAGE>
Section 10.10 Fees and Expenses. Purchaser shall pay its own fees, costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby, including, but not limited to, the fees, costs and expenses
of its accountants and counsel. Seller shall pay its own fees, costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby, including, but not limited to, the fees, costs and expenses
of its accountants and counsel, except that Purchaser shall select and engage an
accounting firm and shall be responsible for the payment of the accounting fees
for the auditing of Seller's financial statements for its last two fiscal years.
In the event that Purchaser is unable to secure a Commitment on or prior to the
Commitment Date and all other conditions to Purchaser's obligation to close
shall have been satisfied by such date, then, in such event Purchaser shall pay
Seller's actual and reasonable attorneys fees incurred in preparation of this
Agreement in an amount not to exceed $3,000.00.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the date first above written.
(corporate seal) NEW YORKER FROZEN DESSERTS, INC.
Attest:
By:_________________________ By:___________________________________
Title:_____________________ Title:__________________________________
(corporate seal) MIKE'S ORIGINAL, INC.
Attest:
By:_________________________ By:___________________________________
Title:_____________________ Title:__________________________________
(corporate seal) JERRY'S ICE CREAM CO., INC.
Attest:
By: ________________________ By:___________________________________
Title: _____________________ Title: _________________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the financial
statements for the year ended December 31, 1997 and is qualified in its entirety
by reference to such statements
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 438,277
<SECURITIES> 0
<RECEIVABLES> 28,516
<ALLOWANCES> 15,916
<INVENTORY> 143,899
<CURRENT-ASSETS> 612,079
<PP&E> 35,447
<DEPRECIATION> 31,942
<TOTAL-ASSETS> 623,674
<CURRENT-LIABILITIES> 1,674,730
<BONDS> 0
0
0
<COMMON> 3,265
<OTHER-SE> (1,054,321)
<TOTAL-LIABILITY-AND-EQUITY> 623,674
<SALES> 384,348
<TOTAL-REVENUES> 384,348
<CGS> 451,198
<TOTAL-COSTS> 451,198
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (4,835)
<INTEREST-EXPENSE> 1,536,386
<INCOME-PRETAX> (4,502,645)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,502,645)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,502,645)
<EPS-PRIMARY> (1.69)
<EPS-DILUTED> (1.69)
</TABLE>
