DEFINITIVE PROXY STATEMENT
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WASHINGTON, D.C. 20549
----------------------
SCHEDULE 14A INFORMATION
Proxy Statement
(Pursuant to Section 14(a) of the Securities Exchange Act of 1934)
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Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| CONFIDENTIAL, For Use of the Commission Only
|X| Definitive Proxy Statement (as permitted by Rule 14a-6(e)(2))
|_| Definitive Additional Materials
|_| Soliciting Materials Pursuant to Rule 14a-11(c) or Rule 14a-12
SUN CITY INDUSTRIES, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
|_| No Fee Required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction
applies: common stock of Sun City Industries, Inc. ("Sun
City").
(2) Aggregate number of securities to which transaction applies:
45,044,001 maximum aggregate shares of common stock of Sun
City.
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11. The filing fee is
$10,135, which is 1/50th of 1% of the product of (i) $1.125,
the average of the high and low prices for the Sun City common
stock on October 17, 1997, multiplied by (ii) 45,044,001,
which is the maximum aggregate number of shares of Sun City
common stock anticipated to be issued pursuant to the Merger
described in the accompanying Proxy Statement of Sun City.
(4) Proposed maximum aggregate value of transaction: $50,674,501
(5) Total fee paid: $10,135
|X| Fee Paid previously with preliminary materials: $10,135
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
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SUN CITY INDUSTRIES, INC.
5545 NORTHWEST 35TH AVENUE
FORT LAUDERDALE, FLORIDA
November 7, 1997
Dear Shareholders:
You are cordially invited to attend the Annual Meeting of the
Shareholders (the "Annual Meeting") of Sun City Industries, Inc., a Delaware
corporation ("Sun City"), to be held on December 17, 1997 at 10:00 A.M., local
time, at the offices of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel,
P.A., 515 East Las Olas Boulevard, Suite 1500, Ft. Lauderdale, Florida 33301.
At the Annual Meeting, the shareholders will be asked to consider and
vote upon the following proposals (the "Proposals"):
1. Proposal to approve the Agreement and Plan of Merger, dated as of
June 17, 1997, as amended (the "Merger Agreement"), by and among Sun City,
Specialties Acquisition Corp., a Florida corporation and wholly-owned subsidiary
of Sun City ("Acquisition"), and SeaSpecialties, Inc., a Florida corporation
("SeaSpecialties"). Pursuant to the Merger Agreement, (i) Acquisition will merge
with and into SeaSpecialties (the "Merger"), with SeaSpecialties being the
surviving corporation of the Merger (the "Surviving Corporation"), (ii) the
outstanding shares of common stock of SeaSpecialties will be converted into
shares of common stock of Sun City, and as a result of such conversion Sun City
will issue approximately 38,335,320 shares of its common stock to the
shareholders of SeaSpecialties, and the shares of Sun City common stock
currently outstanding will constitute approximately 3.1% of the total shares of
Sun City common stock outstanding upon consummation of the Merger, (iii) Sun
City's outstanding Senior Convertible Subordinated Debentures (and all accrued
interest thereon) will be converted into shares of Sun City's common stock that
will constitute approximately 14.4% of the total shares of Sun City common stock
outstanding upon consummation of the Merger, and (iv) each outstanding share of
common stock of Acquisition will be converted into one share of common stock of
the Surviving Corporation, resulting in SeaSpecialties becoming a wholly-owned
subsidiary of Sun City.
2. Proposal to approve amendments to Sun City's Certificate of
Incorporation in connection with the Merger to (i) increase the authorized
number of shares of Sun City's common stock from 3,000,000 to 75,000,000 shares,
(ii) decrease the par value per share of Sun City's common stock from $.10 to
$.01, and (iii) change Sun City's name to "SeaSpecialties, Inc."
3. Proposal to approve the adoption of Sun City's 1997 Stock Option
Plan.
4. Proposal to elect three members to Sun City's Board of Directors.
5. Proposal to amend Sun City's Certificate of Incorporation to limit
certain liability of directors of Sun City as permitted by law.
6. Proposal to approve an amendment to Sun City's Certificate of
Incorporation to implement a reverse stock split of Sun City's common stock in
the range between one-for-two and one-for-ten, inclusive, to be effected at a
future time in the event the Board of Directors determines that such a reverse
split is necessary or advisable at any time within one year from the date of the
Annual Meeting, with the exact size of the reverse split to be determined by the
Board of Directors.
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7. To transact such other business as may properly come before the
Annual Meeting or any adjournment thereof.
It is a condition to consummation of the Merger that the holders of the
outstanding shares of the common stock, par value $.10 per share, of Sun City
vote in person or by proxy at the Annual Meeting to approve the Merger Agreement
and the transactions contemplated thereby.
The terms and conditions of the Merger Agreement are described in the
accompanying Proxy Statement, a copy of which is attached as Appendix A to the
Proxy Statement.
Mesirow Financial, Inc., Sun City's financial advisor, has rendered its
opinion, dated as of October 22, 1997, a copy of which is attached as Appendix B
to the attached Proxy Statement, to the effect that, as of the date of its
opinion and based upon the matters described therein, the Merger is fair to Sun
City and its Shareholders from a financial point of view.
The proposed Stock Option Plan, a copy of which is attached as Appendix
C to the Proxy Statement, is described in the accompanying Proxy Statement.
After careful consideration, your Board of Directors believes that the
Merger is fair and reasonable to, and that the Proposals are in the best
interests of, Sun City and its shareholders. THE BOARD OF DIRECTORS HAS
UNANIMOUSLY APPROVED THE MERGER AND EACH OF THE OTHER PROPOSALS AND RECOMMENDS
THAT YOU VOTE IN FAVOR OF EACH OF THE PROPOSALS AT THE ANNUAL MEETING. The
directors and executive officers of Sun City have indicated that they will vote
all of the shares of Sun City Common Stock held by them or which they otherwise
have the power to vote, constituting approximately 12.8% of the outstanding
shares of Sun City Common Stock, FOR approval of the Merger and the other
Proposals. Certain officers and directors of Sun City will receive certain
benefits upon the Merger which are not being received generally by the
shareholders of Sun City. Accordingly, Sun City shareholders should consider
such officers' and directors' interests in the Merger in connection with the
Board of Directors' recommendation of the Merger, as more particularly described
in the accompanying Proxy Statement. See "The Merger--Interests of Certain
Persons in the Merger."
It is important that your shares be voted at the Annual Meeting,
regardless of the number of shares you hold. THEREFORE, PLEASE COMPLETE, SIGN,
DATE AND RETURN THE ENCLOSED PROXY AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN
TO ATTEND THE ANNUAL MEETING. This will not prevent you from voting your shares
in person if you do attend.
We look forward to seeing you at the Annual Meeting on December 17,
1997.
Sincerely,
MALVIN AVCHEN
CHAIRMAN OF THE BOARD
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SUN CITY INDUSTRIES, INC.
5545 NORTHWEST 35TH AVENUE
FORT LAUDERDALE, FLORIDA
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 17, 1997
TO THE SHAREHOLDERS OF SUN CITY INDUSTRIES, INC.:
NOTICE IS HEREBY GIVEN that an Annual Meeting of the Shareholders (the
"Annual Meeting") of Sun City Industries, Inc., a Delaware corporation ("Sun
City"), will be held on December 17, 1997, at the offices of Greenberg, Traurig,
Hoffman, Lipoff, Rosen & Quentel, P.A., 515 East Las Olas Boulevard, Suite 1500,
Ft. Lauderdale, Florida 33301, commencing at 10:00 A.M., local time, to consider
and vote upon the following proposals:
(1) Proposal to approve the Agreement and Plan of Merger, dated as of
June 17, 1997, as amended (the "Merger Agreement"), by and among Sun City,
Specialties Acquisition Corp., a Florida corporation and wholly-owned subsidiary
of Sun City ("Acquisition"), and SeaSpecialties, Inc., a Florida corporation
("SeaSpecialties"), pursuant to which Acquisition will merge with and into
SeaSpecialties and SeaSpecialties will thereby become a wholly owned subsidiary
of Sun City (the "Merger").
(2) Proposal to approve amendments to Sun City's Certificate of
Incorporation in connection with the Merger to (i) increase the authorized
number of shares of Sun City's common stock from 3,000,000 to 75,000,000 shares,
(ii) decrease the par value per share of Sun City common stock from $.10 to $.01
per share, and (iii) change Sun City's name to "SeaSpecialties, Inc."
(3) Proposal to approve the adoption of Sun City's 1997 Stock Option
Plan.
(4) Proposal to elect three members to Sun City's Board of Directors.
(5) Proposal to amend Sun City's Certificate of Incorporation to limit
certain liability of directors of Sun City as permitted by law.
(6) Proposal to approve an amendment to Sun City's Certificate of
Incorporation to implement a reverse stock split of Sun City's common stock in
the range between one-for-two and one-for-ten, inclusive, to be effected at a
future time in the event the Board of Directors determines that such a reverse
split is necessary or advisable at any time within one year from the date of the
Annual Meeting, with the exact size of the reverse split to be determined by the
Board of Directors.
(7) To transact such other business as may properly come before the
Annual Meeting or any adjournment thereof.
Only those shareholders of record at the close of business on November
10, 1997 (the "Record Date"), will be entitled to notice of and to vote at the
Annual Meeting or any adjournment thereof.
Certain officers and directors of Sun City will receive certain
benefits upon the Merger which are not being received generally by the
Shareholders of Sun City. Accordingly, Sun City shareholders should consider
such officers' and directors' interests in the Merger in connection with the
Board of Directors' recommendation of the Merger, as more particularly described
in the accompanying Proxy Statement. See "The Merger--Interests of Certain
Persons in the Merger."
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, SIGN, DATE AND RETURN THE
ENCLOSED PROXY AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE
ANNUAL MEETING. Proxies are revocable at any time prior to the time they are
voted, and shareholders who are present at the meeting may withdraw their
proxies and vote in person if they so desire.
By Order of the Board of Directors,
MALVIN AVCHEN
CHAIRMAN OF THE BOARD
Fort Lauderdale, Florida
November 7, 1997
<PAGE>
SUN CITY INDUSTRIES, INC.
5545 N.W. 35TH AVENUE
FT. LAUDERDALE, FLORIDA 33309
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 17, 1997
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This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Sun City Industries, Inc., a Delaware corporation
("Sun City"), of proxies from holders of shares of Sun City's common stock ("Sun
City Common Stock"), for use at Sun City's Annual Meeting of Shareholders to be
held on December 17, 1997 (the "Annual Meeting"), or any adjournment(s) thereof,
pursuant to the foregoing Notice of Annual Meeting at the time and place
indicated therein. The approximate date this Proxy Statement and the enclosed
form of proxy are first being sent to holders of Sun City Common Stock is
November 12, 1997. The complete mailing address, including zip code, of the
principal executive offices of Sun City is 5545 N.W. 35th Avenue, Fort
Lauderdale, Florida 33309, and its telephone number is (954) 730-3333.
This Proxy Statement relates to the "Proposals" described herein which
are to be voted upon by Sun City's shareholders at the Annual Meeting. See
"Summary-Purposes of Meeting; Meeting Proposals." The Proposals include a
proposal to approve the transactions provided for in that certain Agreement and
Plan of Merger, dated as of June 17, 1997, as amended (the "Merger Agreement"),
by and among Sun City, Specialties Acquisition, Inc., a Florida corporation and
a wholly-owned subsidiary of Sun City ("Acquisition"), and SeaSpecialties, Inc.,
a Florida corporation ("SeaSpecialties"). If the Merger Agreement is approved by
the requisite vote of the shareholders of Sun City at the Annual Meeting, and if
the other conditions specified in the Merger Agreement are satisfied or waived,
Acquisition will merge with and into SeaSpecialties, with SeaSpecialties being
the surviving corporation. See "Summary" and "The Merger." All information in
this Proxy Statement concerning Sun City has been furnished by Sun City, and all
information in this Proxy Statement concerning SeaSpecialties has been furnished
by SeaSpecialties.
FOR A DISCUSSION OF CERTAIN CONSIDERATIONS WHICH SHOULD BE CONSIDERED
WHEN EVALUATING THE TRANSACTI ONS CONTEMPLATED BY THIS PROXY STATEMENT, SEE
"RISK FACTORS" WHICH APPEARS ON PAGES 15 THROUGH 17.
THE MERGER AND THE OTHER TRANSACTIONS DESCRIBED HEREIN HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE FAIRNESS OF MERITS OF SUCH TRANSACTIONS
NOR THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The date of this Proxy Statement is November 7, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
SUMMARY................................................................ 3
General............................................................. 3
Purposes of Meeting; Meeting Proposals.............................. 3
Annual Meeting and Proxies.......................................... 4
No Dissenters' Rights of Appraisal.................................. 4
Record Date and Vote Required....................................... 4
The Merger (Proposal 1)...............................................4
Parties to the Merger.................................................4
Terms of the Merger; Conversion Formulas............................ 5
Closing and Effective Time of the Merger............................ 6
Recommendations of the Boards of Directors.......................... 6
Opini on of Financial Advisor....................................... 6
Conditions to the Merger and Termination............................ 7
Interests of Certain Persons in the Merger.......................... 7
Potential Adverse Consequences to Sun City and
Its Shareholders; Certain Other Considerations.................... 7
Government and Regulatory Approvals................................. 7
Federal Income Tax Consequences..................................... 7
Accounting Treatment................................................ 7
Operation and Management of Sun City After the
Merger............................................................ 8
Amendments to Certificate of Incorporation
(Proposal 2)...................................................... 8
Increase Authorized Shares; Decrease Par Value
per Share......................................................... 8
Approval of 1997 Stock Option Plan
(Proposal 3)...................................................... 8
Election of Directors (Proposal 4).................................. 9
Nominees............................................................ 9
Change in Directors Upon Merger..................................... 9
Amendment to Limit Director Liability
(Proposal 5)...................................................... 9
Reverse Stock Split (Proposal 6).................................... 9
Common Stock Market Prices and Per Share
Data.............................................................. 10
Summary Financial Data.............................................. 12
CERTAIN FORWARD LOOKING STATEMENTS......................................15
RISK FACTORS........................................................... 15
No Combined Operating History; No Assurance
of Integration of Businesses...................................... 15
Effect of Significant Market Competition............................ 15
Dependence on Key Management; Change in
Management upon Merger............................................ 15
Certain Affiliated Transactions..................................... 16
Deterioration in Financial Condition of Sun City.................... 16
Dilution of Voting Power; Potential Adverse
Impact of Future Sale of Sun City Shares.......................... 16
No Dissenters' Rights of Appraisal.................................. 17
New Controlling Shareholders of Sun City............................ 17
Interests of Certain Persons in the Merger.......................... 17
Risk of Stock Exchange Delisting; Negative
Effect on Stock Liquidity and Value............................... 17
THE SUN CITY ANNUAL MEETING............................................ 18
Time, Date and Place of Annual Meeting.............................. 18
Business to be Conducted at Annual Meeting.......................... 18
Proxies: Voting and Revocation...................................... 18
No Dissenters' Rights of Appraisal.................................. 19
Proxy Solicitation.................................................. 19
Vote Required....................................................... 19
THE MERGER (Proposal 1)................................................ 21
Terms of the Merger; Conversion Formulas;
Effects of the Merger............................................. 21
Background of the Merger............................................ 22
Management Agreement with SeaSpecialties............................ 22
Sun City's Reasons for the Merger and Board of
Directors' Recommendation......................................... 23
Opinion of Mesirow Financial, Inc................................... 24
The Merger Agreement................................................ 27
Closing and Effective Time of the Merger............................ 27
Conditions of the Merger Agreement.................................. 27
Termination of the Merger Agreement..................................28
Interests of Certain Persons in the Merger.......................... 29
Certain Affiliated Transactions..................................... 31
Governmental and Regulatory Approvals............................... 31
Federal Income Tax Consequences..................................... 31
Accounting Treatment................................................ 32
Resales of Sun City Common Stock.................................... 32
Vote Required and Recommendation.................................... 33
OPERATION, MANAGEMENT AND BUSINESS
OF SUN CITY AFTER THE MERGER........................................ 33
Business of Sun City................................................ 33
Management of Sun City.............................................. 34
Principal Shareholders of Sun City After the
Merger............................................................ 35
Sun City Capital Stock After the Merger............................. 36
Stock Exchange Listing of Sun City Common
Stock............................................................. 36
Transfer Agent...................................................... 37
AMENDMENTS TO CERTIFICATE OF
INCORPORATION (Proposal 2).......................................... 37
Authorization of Additional Shares; Decrease in
Par Value Per Share............................................... 37
Change of Sun City's Name........................................... 38
Vote Required and Recommendation.................................... 38
APPROVAL OF 1997 STOCK OPTION PLAN
(Proposal 3)........................................................ 38
General............................................................. 38
Summary of Plan..................................................... 39
Options Granted Under the Plan...................................... 40
Certain Terms and Conditions........................................ 40
Federal Income Tax Consequences..................................... 41
Vote Required and Recommendation.................................... 43
ELECTION OF DIRECTORS (Proposal 4)..................................... 43
AMENDMENT TO LIMIT DIRECTOR
LIABILITY (Proposal 5)...............................................43
REVERSE STOCK SPLIT (Proposal 6)....................................... 45
Exchange of Stock Certificates...................................... 48
Text of Amendment to Certificate of
Incorporation......................................................49
Federal Income Tax Consequences..................................... 49
Vote Required and Recommendation.................................... 50
PRICE RANGE OF COMMON STOCK............................................ 50
Market for Sun City Common Stock and Related
Shareholder Matters............................................... 50
(i)
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SUN CITY SELECTED CONSOLIDATED
FINANCIAL DATA...................................................... 52
SUN CITY MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS.......................................................... 53
General............................................................. 53
Results of Operations............................................... 53
Liquidity and Capital Resources..................................... 57
SEASPECIALTIES SELECTED FINANCIAL
DATA................................................................ 61
SEASPECIALTIES MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................... 62
General............................................................. 62
Results of Operations............................................... 62
Liquidity and Capital Resources..................................... 66
BUSINESS OF SUN CITY................................................... 67
Background.......................................................... 67
Properties.......................................................... 69
Legal Proceedings................................................... 70
MANAGEMENT OF SUN CITY................................................. 73
Executive Officers and Directors.................................... 73
Compensation of Directors........................................... 73
Information Concerning the Board of Directors
and its Committees................................................ 74
SUN CITY EXECUTIVE COMPENSATION........................................ 75
Summary Compensation Table.......................................... 75
Option Grants Table................................................. 75
Aggregated Option Exercises and Fiscal Year-
End Option Value Table............................................ 75
Employment Agreements and Termination of
Employment and Change in Control
Arrangements...................................................... 76
Deferred Compensation Agreements.................................... 76
Certain Transactions................................................ 76
Compensation Committee Report on Executive
Compensation...................................................... 77
COMMON STOCK PERFORMANCE GRAPH......................................... 79
PRINCIPAL SHAREHOLDERS OF SUN CITY..................................... 80
DESCRIPTION OF SUN CITY CAPITAL
STOCK............................................................... 81
Sun City Common Stock............................................... 81
Issuance of Shares upon Merger...................................... 81
Certain Provisions of Delaware Law and Sun
City's Certificate of Incorporation............................... 81
COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT........................................................ 82
BUSINESS OF SEASPECIALTIES............................................. 82
DESCRIPTION OF SEASPECIALTIES CAPITAL
STOCK............................................................... 83
General............................................................. 83
Shareholders of SeaSpecialties...................................... 83
Dividends........................................................... 83
OTHER BUSINESS......................................................... 83
RELATIONSHIP WITH INDEPENDENT
AUDITORS............................................................ 83
FUTURE STOCKHOLDER PROPOSALS........................................... 84
LEGAL OPINIONS......................................................... 84
FINANCIAL STATEMENTS...................................................F-1
APPENDIX A - AGREEMENT AND PLAN OF
MERGER
APPENDIX B - OPINION OF MESIROW
FINANCIAL, INC.
APPENDIX C - 1997 STOCK OPTION PLAN
(ii)
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AVAILABLE INFORMATION
Sun City is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission" or the "SEC"). Such
reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the Commission at the Commission's
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549; as well as
the Regional Offices of the Commission located at 500 West Madison, 14th Floor,
Chicago, Illinois 60661-2511; and 7 World Trade Center, New York, New York
10048. Copies of each document may also be obtained through the Commission's
Internet address at http://www.sec.gov. Copies of such material can be obtained
from the Public Reference Section of the Commission, at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; at prescribed rates.
* * * * *
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT IN CONNECTION WITH THE
SOLICITATION MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY SUN CITY. THIS PROXY STATEMENT DOES NOT
CONSTITUTE AN OFFER TO EXCHANGE OR SELL, OR A SOLICITATION OF AN OFFER TO
EXCHANGE OR PURCHASE, ANY SECURITIES OR THE SOLICITATION OF A PROXY IN ANY
JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. THE DELIVERY OF THIS PROXY STATEMENT SHALL NOT, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
AFFAIRS OF SUN CITY OR SEASPECIALTIES.
2
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SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN OF THE INFORMATION CONTAINED IN
THIS PROXY STATEMENT. THIS SUMMARY DOES NOT PURPORT TO BE COMPLETE AND SHOULD BE
READ IN CONJUNCTION WITH, AND IS QUALIFIED IN ITS ENTIRETY BY, THE FULL TEXT OF
THIS PROXY STATEMENT AND THE APPENDICES HERETO. SHAREHOLDERS ARE URGED TO READ
AND CONSIDER CAREFULLY ALL THE INFORMATION CONTAINED IN THIS PROXY STATEMENT AND
THE APPENDICES HERETO.
GENERAL
PURPOSES OF MEETING; MEETING PROPOSALS
This Proxy Statement is furnished to shareholders of Sun City
Industries, Inc., a Delaware corporation ("Sun City"), in connection with the
solicitation of proxies by the Board of Directors of Sun City for use at an
Annual Meeting of the Shareholders of Sun City (the "Annual Meeting") to be held
at 10:00 a.m., local time, on December 17, 1997, at the offices of Greenberg,
Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., 515 East Las Olas Boulevard,
Suite 1500, Ft. Lauderdale, Florida 33301.
At the Annual Meeting, the shareholders will be asked to consider and
vote upon the following proposals (the "Proposals"):
1. Proposal to approve the Agreement and Plan of Merger, dated as of
June 17, 1997, as amended (the "Merger Agreement"), by and among Sun City,
Specialties Acquisition Corp., a Florida corporation and wholly-owned subsidiary
of Sun City ("Acquisition"), and SeaSpecialties, Inc., a Florida corporation
("SeaSpecialties"). Pursuant to the Merger Agreement, (i) Acquisition will merge
with and into SeaSpecialties (the "Merger"), with SeaSpecialties being the
surviving corporation of the Merger (the "Surviving Corporation"), (ii) the
outstanding shares of common stock of SeaSpecialties will be converted into
shares of common stock of Sun City, and as a result of such conversion Sun City
will issue approximately 38,335,320 shares of its Common Stock to the
shareholders of SeaSpecialties, and the shares of Sun City Common Stock
currently outstanding will constitute approximately 3.1% of the total shares of
Sun City Common Stock outstanding upon consummation of the Merger, (iii) Sun
City's outstanding Senior Convertible Subordinated Debentures (and all accrued
interest thereon) will be converted into shares of Sun City's Common Stock that
will constitute approximately 14.4% of the total shares of Sun City Common Stock
outstanding upon consummation of the Merger, and (iv) each outstanding share of
common stock of Acquisition will be converted into one share of common stock of
the Surviving Corporation, resulting in SeaSpecialties becoming a wholly-owned
subsidiary of Sun City.
2. Proposal to approve amendments to Sun City's Certificate of
Incorporation in connection with the Merger to (i) increase the authorized
number of shares of Sun City Common Stock from 3,000,000 to 75,000,000 shares,
(ii) decrease the par value per share of Sun City Common Stock from $.10 to
$.01, and (iii) change Sun City's name to "SeaSpecialties, Inc."
3. Proposal to approve the adoption of Sun City's 1997 Stock Option
Plan.
4. Proposal to elect three members to Sun City's Board of Directors.
5. Proposal to amend Sun City's Certificate of Incorporation to limit
certain liability of directors of Sun City as permitted by law.
6. Proposal to approve an amendment to Sun City's Certificate of
Incorporation to implement a reverse stock split of the Sun City Common Stock
(the "Reverse Split") in the range between one-for-two and one-for-ten,
inclusive, to be effected at a future time in the event the Board of Directors
determines that such a reverse split is necessary or advisable at any time
within one year from the date of the Annual Meeting, with the exact size of the
reverse split to be determined by the Board of Directors.
7. To transact such other business as may properly come before the
Annual Meeting or any adjournment thereof.
3
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ANNUAL MEETING AND PROXIES
All shares of Sun City Common Stock represented by properly executed
proxies will be voted at the Annual Meeting in accordance with the directions on
the proxies, unless such proxies have been previously revoked. If no direction
is indicated, the shares will be voted FOR the Merger and the other Proposals.
Any Sun City shareholder giving a proxy may revoke his or her proxy at any time
before its exercise at the Annual Meeting by (i) giving written notice of such
revocation to the Secretary of Sun City, or (ii) signing and delivering to such
Secretary a proxy bearing a later date. However, the mere presence at the Annual
Meeting of a Sun City shareholder who has delivered a valid proxy will not of
itself revoke that proxy. See "The Sun City Annual Meeting-Proxies: Voting and
Revocation."
NO DISSENTERS' RIGHTS OF APPRAISAL
Sun City is not a constituent corporation to the Merger (Sun City
itself is not merging, only Acquisition and SeaSpecialties are merging);
therefore, Sun City Shareholders do not have dissenters' rights of appraisal
under Section 262 of the Delaware General Corporation Law.
RECORD DATE AND VOTE REQUIRED
The record date for shareholders of Sun City entitled to vote at the
Annual Meeting is November 10, 1997 (the "Record Date").
The attendance, in person or by proxy, of the holders of a majority of
the outstanding shares of Sun City Common Stock is necessary to constitute a
quorum for the conduct of business at the Annual Meeting. If less than a
majority of the outstanding shares of Sun City Common Stock are represented at
the Annual Meeting, a majority of the shares so represented may adjourn the
Annual Meeting without further notice other than announcement at the meeting.
For purposes of electing directors at the Annual Meeting, the nominees receiving
the greatest number of votes of Sun City Common Stock shall be elected as
directors. The Proposal to approve the Merger and the Proposals involving
amendments to Sun City's Certificate of Incorporation (Proposals 1, 2, 5 and 6)
will be approved if a majority of the total outstanding shares of Sun City
Common Stock are voted in favor of such Proposals. The Proposal to approve the
1997 Stock Option Plan (Proposal 3) will be approved if a majority of the shares
present in person or by proxy at the Annual Meeting are voted in favor of such
Proposal. See "The Sun City Annual Meeting."
SUN CITY'S BOARD OF DIRECTORS RECOMMENDS APPROVAL OF PROPOSALS 1
THROUGH 6 AT THE ANNUAL MEETING. NEITHER THE MERGER (PROPOSAL 1) NOR THE
PROPOSED AMENDMENTS TO SUN CITY'S CERTIFICATE OF INCORPORATION (PROPOSAL 2) WILL
OCCUR UNLESS BOTH SUCH PROPOSALS 1 AND 2 ARE APPROVED BY THE REQUISITE VOTE OF
SHAREHOLDERS AT THE ANNUAL MEETING.
As of November 6, 1997, directors and executive officers of Sun City
and their respective affiliates held or otherwise have the power to vote an
aggregate of 185,898 shares of Sun City Common Stock, exclusive of options and
other rights to purchase Sun City Common Stock, representing approximately 12.8%
of the outstanding shares of Sun City Common Stock. All such directors and
executive officers have indicated their intention to vote such shares in favor
of the Proposals.
THE MERGER
(PROPOSAL 1)
PARTIES TO THE MERGER
SUN CITY. Sun City Industries, Inc., which began in 1949 as an egg
processing and marketing company, is presently engaged primarily in the
foodservice marketing and distribution business throughout much of the eastern
seaboard of the United States with a heavy concentration in Florida. In 1990,
Sun City began its expansion as a foodservice distributor that now includes four
centers in Florida covering the West Coast of Florida, Central Florida and
Southeast Florida from Key West to West Palm Beach. In addition, the Company has
operations that distribute
4
<PAGE>
to markets in Atlanta, Georgia; Baltimore, Maryland; Philadelphia, Pennsylvania;
and throughout New Jersey. The Company's clientele includes supermarkets,
hotels, restaurants, airline caterers, cruise lines and schools. The principal
executive offices of Sun City are located at 5545 N.W. 35th Avenue, Ft.
Lauderdale, Florida 33309, and its telephone number is (954) 730-3333.
SEASPECIALTIES. SeaSpecialties, Inc., founded in 1954, is a processor
and distributor of fresh, frozen, smoked and pickled seafood products, whose
products are marketed through it own sales staff and by independent sales
representatives to supermarkets and grocery chains, restaurants, cruise lines
and bagel shops. SeaSpecialties has offices and processing and distribution
centers in Miami, Fort Lauderdale and Plantation Key, Florida. SeaSpecialties'
products are sold throughout the United States with a high concentration of
sales in Florida, Southern California and the Northeast region of the United
States. The principal executive offices of SeaSpecialties are located at 1111
N.W. 159th Drive, Miami, Florida 33169.
SPECIALTIES ACQUISITION CORP. Acquisition is a newly formed Florida
corporation and a wholly-owned subsidiary of Sun City formed for purposes of the
Merger. Currently, Acquisition has no material assets or liabilities. At
consummation of the proposed Merger, Acquisition will merge into SeaSpecialties
and cease to exist as a separate entity.
TERMS OF THE MERGER; CONVERSION FORMULAS
Under the terms of the Merger Agreement, Acquisition shall be merged
with and into SeaSpecialties, with SeaSpecialties being the Surviving
Corporation, and the shares of common stock of SeaSpecialties (the
"SeaSpecialties Shares") shall be converted into an aggregate number of shares
of common stock of Sun City determined as provided below in this paragraph
(collectively, the "Sun City Shares"), which Sun City Shares shall be allocated
pro rata among the holders of the SeaSpecialties Shares in accordance with such
holders' proportionate ownership of the SeaSpecialties Shares. The Sun City
Shares shall be that number of shares which, when issued pursuant to the Merger,
shall constitute eighty percent (80%) of the sum of (i) the aggregate number of
shares of Sun City's outstanding common stock after consummation of the Merger
(including, without limitation, the "Debenture Shares" (as defined below) issued
upon the exchange of the Debentures described below), plus (ii) the aggregate
number of shares of Sun City's common stock then issuable upon exercise,
conversion, exchange or otherwise pursuant to outstanding derivative securities
or other rights to acquire common stock (including, without limitation, options,
warrants, convertible securities, etc. whether or not exercisable as of the
Closing Date) (the sum of the foregoing clauses (i) and (ii) is referred to
herein as the "Total Sun City Shares"); it being the intent and agreement of the
parties that the Sun City Shares to be issued in the Merger to the shareholders
of SeaSpecialties shall constitute not less than 80% of the Total Sun City
Shares upon consummation of the Merger. In addition, upon consummation of the
Merger each share of Acquisition shall be converted into one share of the Common
Stock of SeaSpecialties, and Sun City's outstanding Senior Convertible
Subordinated Debentures (the "Debentures") and all accrued interest thereon will
be converted into that number of shares of Sun City Common Stock that will
constitute fourteen percent (14%) of the Total Sun City Shares. See "The
Merger."
The conversion formulas described in the previous paragraph (the
"Conversion Formulas") established by the Merger Agreement for converting shares
of SeaSpecialties Common Stock and the Debentures into shares of Sun City Common
Stock were negotiated in arms'-length negotiations by the boards of directors of
Sun City and SeaSpecialties. In determining the Conversion Formulas, the Boards
considered, among other factors, (i) the analyses and reports of their
respective financial advisors and senior management; (ii) the trading price of
Sun City Common Stock; (iii) the financial condition and historical results of
operations of each of Sun City and SeaSpecialties; and (iv) judgments regarding
the relative prospects of Sun City and SeaSpecialties as separate and combined
companies (including certain anticipated synergies). See "The Merger-Background
of the Merger."
Based upon the number of outstanding shares of Sun City Common Stock as
of November 6, 1997, and the number of options, warrants and other rights to
purchase shares of such Common Stock anticipated to be outstanding as of the
closing of the Merger, approximately 46,491,900 shares of Sun City Common Stock
would be outstanding upon consummation of the Merger, of which (i) approximately
1,447,899 shares, representing approximately 3.1% of the total, will be held by
the current Sun City shareholders, (ii) approximately 38,335,320 shares,
representing approximately 82.5% of the total, will be held by former
SeaSpecialties shareholders and (iii)
5
<PAGE>
approximately 6,708,681, shares, representing approximately 14.4% of the total,
will be held by former Debenture holders. See "The Merger-Terms of the Merger;
Conversion Formulas; Effects of the Merger."
CLOSING AND EFFECTIVE TIME OF THE MERGER
The Merger will become effective (the "Effective Time") upon the filing
of properly executed Articles of Merger with the Secretary of State of the State
of Florida, which filing will be made after satisfaction of certain conditions
set forth in the Merger Agreement, including approval of the Merger by the
shareholders of Sun City. The Effective Time is presently anticipated to occur
in December 1997 or January 1998. For more information, see "The Merger-Closing
and Effective Time of the Merger."
MANAGEMENT AGREEMENT. For various reasons, including recent
deteriorations in Sun City's business and financial condition, Sun City entered
into a Management Agreement, dated June 17, 1997, with SeaSpecialties whereby
SeaSpecialties will assist in managing Sun City's business prior to the Merger.
See "The Merger-Management Agreement with SeaSpecialties."
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
The Boards of Directors of Sun City and SeaSpecialties have each
approved the Merger Agreement and the transactions contemplated thereby and
separately determined that the Merger is fair to and in the best financial
interests of their respective shareholders. See "The Merger-Interests of Certain
Persons in the Merger."
The factors considered by the Sun City Board of Directors in making
this determination included, among others, (i) the trading price of Sun City
Common Stock; (ii) the opportunity that the Merger will provide for Sun City
shareholders to have an equity participation in a larger, more diversified
enterprise with enhanced geographic presence and generally greater managerial,
financial and marketing resources and opportunities; (iii) the presentation by
its financial adviser, Mesirow Financial, Inc., to the Sun City Board of
Directors; (iv) judgments with regard to the relative prospects of Sun City and
SeaSpecialties as related companies as compared to independent companies
(including certain anticipated synergies); (v) the perceived ability of Sun City
and SeaSpecialties to use their respective sales representatives to market and
distribute each other's products; (vi) certain anticipated reductions of
administrative expenses; and (vii) certain anticipated improvements in
investors' perception of Sun City.
THE BOARD OF DIRECTORS OF SUN CITY RECOMMENDS APPROVAL OF THE MERGER BY
SUN CITY'S SHAREHOLDERS. For a more detailed discussion of the reasons
considered by the Board of Directors of Sun City in approving the Merger
Agreement, see "Background of The Merger--Sun City's Reasons for the Merger and
Board of Directors' Recommendation."
OPINION OF FINANCIAL ADVISOR
Mesirow Financial, Inc. ("Mesirow") delivered its written opinion to
the Sun City Board of Directors on October 22, 1997 to the effect that, as of
such date, the proposed Merger and the Conversion Formulas were fair, from a
financial point of view, to Sun City and the holders of Sun City Common Stock.
In connection with its opinion, Mesirow reviewed certain financial and other
information with respect to Sun City and SeaSpecialties that was publicly
available or furnished to Mesirow by or on behalf of Sun City and
SeaSpecialties, including certain internal financial analyses, financial
forecasts, reports and other information prepared by their respective
managements and representatives. Mesirow held discussions with the management
and representatives of each of Sun City and SeaSpecialties concerning their
respective historical and current operations, financial condition and prospects
as well as the strategic and operating benefits anticipated from the Merger. In
arriving at its opinion, Mesirow, among other things: (i) reviewed the Merger
Agreement; (ii) met with the officers and certain members of the managements of
Sun City and SeaSpecialties to discuss their respective businesses, financial
conditions, operating results, and future prospects assuming that the Merger is
consummated and assuming that the Merger is not consummated; (iii) reviewed
annual audited financial statements and interim unaudited financial statements
through August 2, 1997 for Sun City and August 31, 1997 for SeaSpecialties as
had been provided to Mesirow as of September 30, 1997; (iv) reviewed publicly
available information including recent SEC filings and shareholder
communications for Sun City; (v) compared certain financial and stock market
data of Sun City with similar data
6
<PAGE>
for selected publicly-held foodservice processing and distribution companies;
(vi) reviewed projected financial statements through 1998 for Sun City and for
SeaSpecialties as prepared by the respective managements of each company; (vii)
reviewed historical market price and volume data for the Sun City Common Stock
and (viii) made such other financial studies, analyses, and investigations as
Mesirow deemed appropriate. A copy of Mesirow's written opinion, dated October
22, 1997, which sets forth certain of the assumptions made, procedures followed,
matters considered, limitations on and scope of the review by Mesirow in
rendering its opinion, is attached to this Proxy Statement as Appendix B and
should be read carefully by shareholders in its entirety. See "Background of the
Merger--Opinion of Mesirow Financial, Inc."
CONDITIONS TO THE MERGER AND TERMINATION
The consummation of the Merger is subject to a number of conditions
which, if not fulfilled or waived, permit termination of the Merger Agreement.
If the shareholders of Sun City fail to approve the Merger, the Merger will not
be consummated. The Merger Agreement may also be terminated at any time prior to
consummation of the Merger by mutual consent, and may be terminated by Sun City
or SeaSpecialties if the Merger has not been consummated on or before January
31, 1998, or for various other reasons as provided in the Merger Agreement. See
"The Merger--Conditions of the Merger Agreement" and "--Termination of the
Merger Agreement."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain affiliates of Sun City will receive certain benefits upon the
Merger which are not being received generally by the shareholders of Sun City.
Accordingly, Sun City Shareholders should consider such affiliates' interest in
the Merger in connection with the Board of Directors' recommendation of the
Merger. See "Risk Factors" and "The Merger--Interests of Certain Persons in the
Merger."
POTENTIAL ADVERSE CONSEQUENCES TO SUN CITY AND ITS SHAREHOLDERS; CERTAIN OTHER
CONSIDERATIONS
See "Risk Factors" for a discussion of certain risks and circumstances
relating to Sun City and the Merger and other transactions described herein.
Among other things, current shareholders of Sun City will experience immediate
and substantial voting dilution upon consummation of the Merger.
GOVERNMENT AND REGULATORY APPROVALS
Neither Sun City nor SeaSpecialties is aware of any material
governmental or regulatory approvals required for consummation of the Merger,
other than compliance with federal and applicable state securities and corporate
laws.
FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to be a tax-free "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"). There will be no Federal income tax consequences to a shareholder of
Sun City as a result of the Merger; no gain or loss will be recognized by a
shareholder of Sun City as a result of the Merger. Consummation of the Merger is
conditioned upon the delivery of a tax opinion to that effect from Greenberg,
Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. Subject to limitations set forth
therein, a shareholder of Sun City generally will recognize no gain or loss for
federal income tax purposes as a result of the exchange of Sun City Common Stock
for SeaSpecialties Common Stock pursuant to the Merger. See "The Merger--Federal
Income Tax Consequences."
ACCOUNTING TREATMENT
The Merger is intended to be accounted for as a purchase for accounting
and financial reporting purposes.
7
<PAGE>
OPERATION AND MANAGEMENT OF SUN CITY AFTER THE MERGER
From and after the Effective Time, Sun City will continue to operate
its ongoing businesses, and SeaSpecialties will continue operating its
businesses as a wholly-owned subsidiary of Sun City. The directors and executive
officers of Sun City following the Merger will include certain current directors
and executive officers of SeaSpecialties as described below. Sun City also
intends to integrate the operations of SeaSpecialties with Sun City to the
extent it deems appropriate in order to take advantage of potential synergistic
efficiencies presented by the Merger. Sun City may take advantage of
opportunities for profitable restructuring or disposition of certain assets.
See "Operation, Management and Business of Sun City After the Merger."
Upon consummation of the Merger, the Board of Directors of Sun City
will consist of five members, none of whom currently serve on the Board of
Directors of Sun City. The five new Sun City directors will include Harvey
Oxenberg, David H. Fleischman and Lawrence J. Oxenberg, all of whom currently
serve as directors and/or officers of SeaSpecialties or its affiliates, and
Kraig Kramers and Don J. Hindman, who currently serve on SeaSpecialties' Board
of Advisors. See "Operation, Management and Business of Sun City After the
Merger--Management of Sun City." Upon consummation of the Merger, Harvey
Oxenberg will serve as President and Chief Executive Officer and David H.
Fleischman will serve as Senior Vice President, Chief Financial Officer,
Treasurer and Secretary of Sun City.
All officers of Sun City will hold office at the pleasure of the Board
of Directors and until their successors have been duly elected and qualified,
unless sooner removed. Any officer may be removed at any time by the Board,
subject to any severance rights contained in their respective employment
agreements. See "The Merger --Interest of Certain Persons in the Merger" and
"Sun City Executive Compensation--Employment Agreements and Termination of
Employment and Change in Control Arrangements."
AMENDMENTS TO CERTIFICATE OF INCORPORATION
(PROPOSAL 2)
INCREASE AUTHORIZED SHARES; DECREASE PAR VALUE PER SHARE
In connection with the Merger, subject to the approval of shareholders
at the Annual Meeting, the Certificate of Incorporation of Sun City will be
amended to (i) increase the number of authorized shares of Sun City Common Stock
from 3,000,000 to 75,000,000, (ii) decrease the par value per share of Sun City
Common Stock from $.10 to $.01, and (iii) change Sun City's name to
"SeaSpecialties, Inc." Shareholders will be asked to approve these amendments at
the Annual Meeting. The primary purpose of these amendments is to authorize
additional shares prior to the Merger, including shares needed for issuance
pursuant to the Merger. See "Amendments to Certificate of Incorporation."
APPROVAL OF 1997 STOCK OPTION PLAN
(PROPOSAL 3)
In connection with the Merger, Sun City has adopted, subject to
approval of shareholders at the Annual Meeting, the 1997 Stock Option Plan to
provide additional incentive to attract and retain qualified competent persons
to provide management services. See "Approval of 1997 Stock Option Plan." A copy
of the 1997 Stock Option Plan is included as Appendix C to this Proxy Statement.
8
<PAGE>
ELECTION OF DIRECTORS
(PROPOSAL 4)
NOMINEES
Sun City's current three directors have been nominated for reelection
at the Annual Meeting as directors to hold office until the next annual meeting
of the shareholders or until their successors are duly elected and qualified.
See "Election of Directors."
CHANGE IN DIRECTORS UPON MERGER
Notwithstanding the reelection of Sun City's directors at the Annual
Meeting, if the Merger is approved at the Annual Meeting and consummated, the
persons named or designated as directors pursuant to the Merger Agreement (none
of which are currently directors of Sun City) will thereupon constitute the
Board of Directors of Sun City for terms extending until the next annual meeting
of stockholders or until their successors are elected and qualified. See
"Operation, Management and Business of Sun City after the Merger."
AMENDMENT TO LIMIT DIRECTOR LIABILITY
(PROPOSAL 5)
Directors of corporations may become subject to substantial personal
liability for acts or omissions in their capacities as directors as well as
significant expenses in defending lawsuits related to their conduct as
directors. The proliferation of litigation involving the personal liability of
directors coupled with the significantly increased costs and reduced coverage of
directors' liability insurance has generally had an adverse effect on the
ability of corporations to attract and retain well-qualified directors.
Accordingly, Sun City's Board of Directors has approved and proposed an
amendment to Sun City's Certificate of Incorporation that would eliminate
directors' liability in certain circumstances as permitted under applicable law
and thereby enhance Sun City's ability to attract and retain qualified
directors. See "Amendment to Limit Director Liability."
REVERSE STOCK SPLIT
(PROPOSAL 6)
The Board of Directors of Sun City is seeking stockholder approval of a
proposal, which it has unanimously approved, to amend the Sun City's Certificate
of Incorporation to implement a Reverse Split of Sun City Common Stock in the
range between one-for-two and one-for-ten, inclusive, to be effected in the
event the Board of Directors determines that such a Reverse Split is necessary
or advisable at any time within one year from the date of the Annual Meeting,
with the exact size of the Reverse Split to be determined by the Board of
Directors. The effect of the Reverse Split would be to reduce the number of
outstanding shares of Sun City Common Stock to between 50% and 10% of the number
of shares outstanding prior to the Reverse Split. One of the reasons for the
Board to implement the Reverse Split would be for the purpose of increasing the
market price of the Sun City Common Stock for compliance with the listing
requirements of the American Stock Exchange. If the Reverse Split is approved by
the holders of the Sun City Common Stock at the Annual Meeting and the Board
subsequently determines to implement the Reverse Split, the Reverse Split will
be effected by the filing of an amendment to Sun City's Certificate of
Incorporation. See "Reverse Stock Split."
Sun City believes that the Reverse Split, if implemented, would
constitute a recapitalization within the meaning of Section 368(a)(1)(E) of the
Code and, if so, a shareholder of Sun City would recognize no gain or loss as a
result of the Reverse Split, except with respect to cash received in lieu of a
fractional share, if any. See "Reverse Stock Split."
Promptly after consummation of the Reverse Split, American Stock
Transfer & Trust Company or such other bank or trust company designated by Sun
City (the "Exchange Agent") will mail written transmittal materials concerning
exchange of stock certificates to each record holder of outstanding shares of
Sun City Common Stock. The transmittal materials will contain instructions with
respect to the proper method of surrender of certificates
9
<PAGE>
formerly representing shares of Sun City Common Stock in exchange for
certificates representing post-reverse stock split shares of Sun City Common
Stock. Upon surrender to the Exchange Agent by a shareholder of certificates
formerly representing shares of Sun City Common Stock for cancellation, together
with properly completed transmittal materials, such shareholder will be entitled
to receive a certificate representing the corresponding number of whole shares
of Sun City Common Stock after the Reverse Split.
COMMON STOCK MARKET PRICES AND PER SHARE DATA
The Sun City Common Stock is quoted on the American Stock Exchange
under the symbol "SNI". The following table sets forth, for the calendar periods
indicated, the high and low closing prices per share for Sun City Common Stock
as quoted on the American Stock Exchange. See "Price Range of Common
Stock--Market for Sun City Common Stock."
<TABLE>
<CAPTION>
HIGH LOW
----------------- -----------------
<S> <C> <C>
1995
- ----
First Quarter: $5.375 $4.375
Second Quarter: $4.875 $3.375
Third Quarter: $4.375 $3.25
Fourth Quarter: $3.625 $2.00
1996
- ----
First Quarter: $3.125 $2.375
Second Quarter: $3.125 $2.25
Third Quarter: $2.75 $1.875
Fourth Quarter: $1.625 $.75
1997
- ----
First Quarter: $1.375 $.75
Second Quarter: $1.9375 $.625
Third Quarter: $1.5625 $.75
</TABLE>
The following table sets forth the closing price per share of Sun City
Common Stock as reported by the American Stock Exchange on May 29, 1997 (the
date preceding public announcement that Sun City and SeaSpecialties had entered
into preliminary discussions for the proposed Merger), and on June 19, 1997 (the
date preceding public announcement that Sun City and SeaSpecialties had signed
the Merger Agreement). Shareholders are encouraged to obtain current quotations
for the market prices of Sun City Common Stock before voting on this Merger.
SUN CITY
DATE COMMON STOCK
- ----------------------------- ------------------------
May 29, 1997 $1.625
June 19, 1997 $1.44
10
<PAGE>
The following table presents selected historical per common share data
for Sun City and SeaSpecialties and equivalent pro forma per common share data
for Sun City and SeaSpecialties after giving effect to the Merger on a purchase
accounting basis, assuming the Merger had been effective during all the periods
presented. The pro forma equivalent data are based on the additional shares
issued in connection with the Merger. This data should be read in conjunction
with the financial statements and other financial and pro forma financial
information with respect to Sun City and SeaSpecialties included elsewhere in
this Proxy Statement. Sun City has not paid any cash dividends with respect to
its Common Stock for many years. As an S Corporation, SeaSpecialties has made
distributions to its shareholders and anticipates making additional
distributions through the Merger date.
<TABLE>
<CAPTION>
SUN CITY SEASPECIALTIES PRO
HISTORICAL HISTORICAL FORMA
----------- ------------------ -----------
<S> <C> <C> <C>
Book value per share of Sun City common stock at
August 2, 1997............................................ $(1.75) $-- $--
Book value per share of SeaSpecialties common stock at
June 30, 1997............................................. -- 811.52 --
Pro forma book value per share at June 30, 1997............. -- -- $0.09
Income per share of SeaSpecialties common stock for:
Year ended December 31, 1996 (unaudited).................. -- 15.25 -
Six months ended June 30, 1997............................ -- 20.20 -
Income (Loss) per share of Sun City common stock for:
Year ended February 1, 1997............................... (0.81) -- (0.00)
Six months ended August 2, 1997........................... (1.25) -- 0.01
</TABLE>
11
<PAGE>
SUMMARY FINANCIAL DATA
The following table presents unaudited summary pro forma selected
operations data for the fiscal year ended December 31, 1996 and the six months
ended June 30, 1997, after giving effect to the Merger as if the Merger were
consummated on January 1, 1997 and 1996, and unaudited summary pro forma
selected balance sheet data at June 30, 1997, giving effect to the Merger as if
the Merger were consummated on such dates, using the purchase method of
accounting.
The following unaudited pro forma condensed combined financial data are
provided for comparative purposes only and should be read in conjunction with
the unaudited pro forma condensed combined financial statements and notes
thereto contained elsewhere herein, and the audited consolidated financial
statements of Sun City and the audited financial statements of SeaSpecialties
and the related notes thereto contained elsewhere herein. The following
unaudited summary pro forma financial data do not purport to be indicative of
the results that actually would have occurred if the Merger had been consummated
on the dates indicated or which may be obtained in the future.
<TABLE>
<CAPTION>
SUN CITY INDUSTRIES, INC.
PRO FORMA FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA: YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------------- ---------------------
<S> <C> <C>
Net sales............................................... $93,203 $ 48,727
Cost of sales........................................... 83,414 43,066
----------------------- ---------------------
Gross profit.......................................... 9,789 5,661
Selling, general and administrative expense............. 8,077 4,934
Non-recurring charges................................... 910 -
----------------------- ---------------------
Operating income...................................... 802 727
Interest expense........................................ 842 336
----------------------- ---------------------
Income before provision for income taxes................ (40) 391
Provision for income taxes.............................. - 141
----------------------- ---------------------
Net income (loss)..................................... (40) $250
======================= =====================
Per share data:
Net income (loss) per share........................... $(0.00) $0.01
----------------------- ---------------------
Weighted average shares outstanding 46,941,900 46,941,900
======================= =====================
</TABLE>
<TABLE>
BALANCE SHEET DATA: JUNE 30, 1997
-----------------
<S> <C>
Working capital................................................................. $ 4,948
Total assets.................................................................... 23,358
Total debt...................................................................... 7,920
Total shareholders' equity...................................................... 4,251
</TABLE>
- --------------------
12
<PAGE>
The following tables set forth summary consolidated historical
financial data for Sun City and SeaSpecialties. The data have been derived from,
and should be read in conjunction with, the consolidated financial statements
and notes thereto and other financial information with respect to Sun City and
SeaSpecialties set forth elsewhere in this Proxy Statement, and such data are
qualified in their entirety by reference thereto.
<TABLE>
<CAPTION>
SUN CITY INDUSTRIES, INC.
CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA AND WORKING CAPITAL RATIO)
YEARS ENDED SIX SIX
-------------------------------------------------------- MONTHS MONTHS
FEB. 1, FEB. 3, JAN. 28, JAN. 29, JAN. 31, ENDED ENDED
1997 1996(1) 1995 1994 1993 8/2/97 8/3/96
--------- --------- --------- -------- - --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS: (unaudited)(unaudited)
Net Sales........................ $68,245 $91,085 $69,351 $66,098 $61,255 $34,326 $34,533
Income (Loss) Before Income Taxes (1,167) (2,761) (74) 238 (270) (1,817) 117
Net Income (Loss) ............... (1,167) (2,761) (82) 222 (333) (1,817) 117
Net Income (Loss) per common
share)....................... (0.81) (1.92) (0.06) 0.15 (0.23) (1.25) 0.08
Shares used in computation....... 1,448 1,439 1,437 1,477 1,436 1,448 1,448
OTHER DATA AT END OF
PERIOD
Working capital.................. $421 $4,142 $5,166 $5,019 $2,309 $(1,114) $2,949
Working capital ratio............ 1.05 to 1 1.65 to 1 2.01 to 1 1.97 to 1 1.47 to 1 .87 to 1 1.61 to 1
Total assets..................... 12,447 14,930 16,288 14,011 10,853 9,995 12,472
Long-term obligations............ 5,410 8,097 7,675 5,400 2,880 4,257 6,745
Stockholders' equity (deficit)... (758) 356 3,064 3,087 2,812 (2,535) 525
</TABLE>
- -------------------------
(1) Operating results for the year ended February 3, 1996 include 53 weeks
of financial information.
13
<PAGE>
<TABLE>
<CAPTION>
SEASPECIALTIES, INC.
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT FOR SHARE DATA AND RATIOS)
EIGHT MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31,(2) YEAR ENDED APRIL 30, JUNE 30,
--------------------- -------------------------------------------------- ------------------
1996 1995 1996 1995 1994 1993 1992 1997 1996
--------- --------- ---------- ------- -------- -------- ------- -------- --------
(unaudited) (unaudited)(unaudited)(unaudited)(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL(1)
Net Sales........ $22,655 $19,337 $32,960 $31,216 $30,611 $27,892 $28,141 $18,338 $17,496
Net Income (Loss)
Before Income
Taxes........ (308) 177 240 435 1,006 (234) 718 184 (174)
Net Income (Loss) (192) 114 145 94 393 (130) 487 115 (109)
Net Income (Loss)
per common
share)....... (33.87) 20.00 25.61 16.55 69.25 (22.19) 85.74 20.20 (19.13)
Shares used in
computation.. 5,680 5,680 5,680 5,680 5,680 5,680 5,680 5,680 5,680
OTHER DATA AT
END OF PERIOD
Working capital.. $1,659 $2,028 $1,483 $2,312 $2,189 $2,942 $3,923 $1,845 $1,304
Working capital
ratio........ 1.26 1.26 1.22 1.40 1.42 1.62 2.01 1.32 1.21
Total assets..... 12,454 14,022 12,928 12,068 9,978 9,417 9,327 12,078 12,424
Long-term
obligations.. 1,481 1,363 1,350 1,552 40 525 1,161 1,692 1,371
Stockholders'
equity....... 4,518 4,900 4,932 4,786 4,692 4,137 4,268 4,609 4,695
</TABLE>
- -------------------------
(1) Effective May 1, 1996 SeaSpecialties became an S Corporation for income
tax purposes. As a result, periods subsequent to May 1, 1996 reflect a
pro forma provision (benefit) for income taxes as if SeaSpecialties
were a C Corporation subject to federal and state corporate income
taxes.
(2) In May 1996, SeaSpecialties changed its year end from April 30 to
December 31.
14
<PAGE>
CERTAIN FORWARD-LOOKING STATEMENTS
Certain statements in this Proxy Statement, including without
limitation statements contained herein under the captions "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual future results, occurrences or other circumstances to
be materially different from any future results, occurrences or other
circumstances expressed or implied by such forward-looking statements. Such
factors include, but are not limited to the following: general economic and
business conditions; the factors discussed under the caption "Risk Factors";
success of operating initiatives; development and operating costs; advertising
and promotional efforts; the existence or absence of adverse publicity;
acceptance of new products and services; changing trends in customer orders;
changes in business strategy or development plans; quality of management;
availability, terms and deployment of capital; business abilities of judgment of
personnel; availability of qualified personnel; labor and employee benefit
costs; availability and cost of product and supplies; changes in government
regulations; the costs and other effects of legal and administrative
proceedings; and other factors referenced in this Proxy Statement. Accordingly,
there can be no assurance that any such results, occurrences or other such
circumstances will in fact transpire.
RISK FACTORS
The following factors, in addition to those discussed elsewhere in this
Proxy Statement, should be carefully considered in evaluating the Merger and the
other Proposals.
NO COMBINED OPERATING HISTORY; NO ASSURANCE OF INTEGRATION OF BUSINESSES
Prior to consummation of the Merger, Sun City and SeaSpecialties have
each operated as separate, independent entities. While Sun City and
SeaSpecialties are engaged in somewhat similar businesses, there can be no
assurance that the management of Sun City, after giving effect to the Merger,
will be able to efficiently integrate the two businesses or be able to oversee
and implement successfully the business strategy of the combined entities. See
"Operation, Management and Business of Sun City after the Merger." The pro forma
combined financial statements and other financial data presented in this Proxy
Statement have been prepared by combining the financial data of Sun City and
SeaSpecialties and are not necessarily indicative of what the historical
combined financial performance of Sun City and SeaSpecialties would have been
during the periods presented, or what the future financial performance of Sun
City will be after the Merger.
EFFECT OF SIGNIFICANT MARKET COMPETITION
The food distribution industry is highly competitive and includes a
large number of food products distributors, none of which dominate the market.
Many of the companies which will compete directly with Sun City have
substantially greater financial and other resources than Sun City.
DEPENDENCE ON KEY MANAGEMENT; CHANGE IN MANAGEMENT UPON MERGER
Sun City's success will depend to a significant extent upon the
performance of its new management team following the Merger. While Sun City
believes that its new management team will have significant depth, the loss of
services of Sun City's senior executive officers could have a material adverse
impact on it. Sun City's Board of Directors and executive officers will change
upon the Merger to include persons who are currently officers and/or directors
of SeaSpecialties. See "Operation, Management and Business of Sun City After the
Merger-Management of Sun City."
15
<PAGE>
CERTAIN AFFILIATED TRANSACTIONS
Sun City and certain of its affiliates have entered into certain
agreements and arrangements with SeaSpecialties and certain of its affiliates in
contemplation of the Merger, including a management agreement pursuant to which
SeaSpecialties is providing management services to Sun City, secured loans made
to Sun City, an option agreement to purchase assets of one of Sun City's
subsidiaries, an accounts purchase agreement pursuant to which SeaSpecialties is
purchasing accounts receivables of one of Sun City's subsidiaries, and an
agreement pursuant to which SeaSpecialties and its affiliates will be entitled
to certain rights and relief in the event that Sun City files for protection
under the federal bankruptcy laws of the United States or other debtor
protection laws. See "The Merger - Management Agreement with SeaSpecialties" and
"The Merger - Certain Affiliated Transactions."
DETERIORATION IN FINANCIAL CONDITION OF SUN CITY
Sun City has experienced substantial deterioration in its business,
financial condition and results of operations. See "Sun City Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business of Sun City," and "The Merger--Sun City's Reasons for the Merger and
Board of Directors Recommendations." The continuing decline in the financial
condition of Sun City, including the carryover effect from the disposal of its
egg processing operations, and cyclical liquidity problems, resulting in Sun
City's default in obligations to its principal lender and causing declining
sales at Sun City's foodservice operation leading to default in other
obligations, compounded by the loss of egg marketing revenue due to the death of
Gustave Minkin, one of Sun City's officers, in May 1997, have raised doubts
about Sun City's ability to continue as a going concern without infusion of
fresh capital or a merger or other business combination with a suitable partner.
DILUTION OF VOTING POWER; POTENTIAL ADVERSE IMPACT OF FUTURE SALE OF SUN CITY
SHARES
Upon consummation of the Merger, based upon the number of outstanding
shares of Sun City Common Stock as of November 6, 1997, and the number of
options, warrants and other rights to purchase Sun City Common Stock anticipated
to be outstanding as of the closing of the Merger, approximately 46,491,900
shares of Sun City Common Stock will be outstanding, of which (i) approximately
1,447,899 shares, representing approximately 3.1% of the total number of
outstanding shares of Sun City Common Stock will be held by the current Sun City
shareholders, (ii) approximately 6,708,681 shares, representing approximately
14.4% of the total number of outstanding shares of Sun City Common Stock will be
held by former Sun City Debenture holders, and (iii) approximately 38,335,320
shares, representing approximately 82.5% of the total number of outstanding
shares of Sun City Common Stock, will be held by former SeaSpecialties
shareholders (without giving effect to such persons' prior ownership of Sun City
Common Stock, if any). As a result, the current shareholders of Sun City will
experience immediate and substantial voting dilution upon consummation of the
Merger. The Merger will be accounted for as a reverse acquisition.
Shares of Sun City Common Stock that are outstanding prior to the
consummation of the Merger will be freely tradeable without restriction under
the Securities Act of 1933, as amended (the "Securities Act"), after
consummation of the Merger, unless such shares are held by persons who are
"affiliates" of Sun City. In that regard, the Merger Agreement requires the
current officers and directors of Sun City to agree prior to closing that they
will not sell any shares of Sun City Common Stock for one year following the
Merger. Shares of Sun City Common Stock that are issued to shareholders of
SeaSpecialties and to Debenture holders as consideration for the Merger will
constitute "restricted securities" issued pursuant to an exemption from the
registration requirements of the Securities Act. Accordingly, such restricted
shares of Sun City cannot be resold unless in compliance with the Securities
Act. Pursuant to Rule 144 under the Securities Act, such restricted shares are
generally eligible for resale in the public markets one year after the closing
of the Merger, subject to certain volume and other limitations. Additional
shares of Sun City Common Stock issuable upon exercise of options, warrants and
other rights to purchase shares of Sun City Common Stock will also become
available for sale in the public market from time to time in the future. Sales
or the potential for sales of substantial amounts of Sun City Common Stock in
the public market could adversely affect the market price of Sun City Common
Stock. See "The Merger--Resales of Sun City Common Stock."
16
<PAGE>
NO DISSENTERS' RIGHTS OF APPRAISAL
Sun City is not a constituent corporation to the Merger (Sun City
itself is not merging, only Acquisition and SeaSpecialties are merging);
therefore, Sun City shareholders do not have dissenters' rights of appraisal
under Section 262 of the Delaware General Corporation Law.
NEW CONTROLLING SHAREHOLDERS OF SUN CITY
After the Merger, the former shareholders of SeaSpecialties will
beneficially own an aggregate of 38,335,320 shares of the outstanding shares of
Sun City Common Stock, constituting approximately 82.5% of the outstanding
shares of Sun City Common Stock, all of which shares will be beneficially owned
by (and 74.68% of which shares will be held of record by) Harvey Oxenberg, who
will be an officer and a director of Sun City. Accordingly, such persons will be
in a position to control the outcome of substantially all matters that require
the consent of Sun City's outstanding voting stock, including the election of
directors. see "Operation, Management and Business of Sun City after the
Merger-Management of Sun City," and "-Principal Shareholders of Sun City after
the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain officers and directors of Sun City will receive certain
benefits upon the Merger which are not being received generally by the
shareholders of Sun City. Accordingly, Sun City shareholders should consider
such officers' and directors' interests in the Merger in connection with the
Board of Directors' recommendation of the Merger. See "The Merger-Interests of
Certain Persons in the Merger." Among other things, in contemplation of the
Merger, in October 1997 Sun City entered into new two-year employment agreements
(the "Agreements") with each of Malvin Avchen, Sun City's Chairman and Chief
Executive Officer, and Saul Zalka, Sun City's President and Chief Operating
Officer (the "Executives"), which become effective upon the closing of the
Merger and their existing employment agreements will thereupon terminate. The
Agreements provide for the Executives to be employed on a full-time basis for
six months following the Merger, during which time the Executives will perform
such duties as are delegated to them consistent with their current duties. For
the remainder of the term the Executives will provide consulting services to Sun
City. In addition to certain other benefits including a $12,000 per year car
allowance, the salary for each Executive will be payable at the rate of $100,000
per annum during the first 15 months and at the rate of $50,000 per annum for
the next 18 months. Pursuant to the Agreements, each Executive received options
for 200,000 shares of Sun City Common Stock under Sun City's 1997 Stock Option
Plan with an exercise price equal to the market price on the date of grant,
vesting 50% per year over a two-year period. The Agreements include the
Executives' covenants not to compete with Sun City continuing for 30 months
following the Merger.
RISK OF STOCK EXCHANGE DELISTING; NEGATIVE EFFECT ON STOCK LIQUIDITY AND VALUE
An additional listing application will be made to list the additional
shares of Sun City Common Stock to be issued pursuant to the Merger and the 1997
Stock Option Plan on the American Stock Exchange ("AMEX"), which is the exchange
upon which the outstanding shares of Sun City Common Stock are currently traded
under the symbol "SNI." Due to the decline in the market price of Sun City's
Common Stock and the recent deterioration in Sun City's financial condition, Sun
City has been notified by AMEX that the Sun City Common Stock no longer meets
certain AMEX listing requirements and such stock is at risk of being delisted
from AMEX. AMEX has been notified about the proposed Merger and has indicated
that if the anticipated positive effects of the Merger on Sun City's financial
condition are realized, then there will be a greater likelihood that the Sun
City Common Stock will continue to be traded on AMEX; however, there can be no
assurance (whether or not the Merger is consummated) that Sun City's Common
Stock will continue to be listed on AMEX or on any other stock exchange or
quotation system. If the Sun City Common Stock is not traded on AMEX, the
resulting reduction in liquidity of the Sun City Common Stock and the absence of
an active market for such stock will likely cause a decline in the value of Sun
City Common Stock and it will likely be more difficult for a shareholder to sell
his shares and to realize the value thereof. One of the purposes of the proposed
Reverse Split, if implemented, would be to help Sun City comply with some of
AMEX's listing requirements. See "Reverse Stock Split."
17
<PAGE>
THE SUN CITY ANNUAL MEETING
TIME, DATE AND PLACE OF ANNUAL MEETING
The Annual Meeting of Sun City Industries, Inc., a Delaware corporation
("Sun City") will be held at 10:00 a.m., local time, on December 17, 1997, at
the offices of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., 515
East Las Olas Boulevard, Suite 1500, Ft. Lauderdale, Florida 33301.
BUSINESS TO BE CONDUCTED AT ANNUAL MEETING
Each copy of this Proxy Statement mailed to the shareholders of Sun
City is accompanied by a form of proxy solicited by the Sun City Board for use
at the Annual Meeting and at any adjournment thereof. At the Annual Meeting, the
shareholders of Sun City will vote upon the following proposals (the
"Proposals"):
(1) Proposal to approve the Agreement and Plan of Merger, dated as of
June 17, 1997, as amended (the "Merger Agreement"), by and among Sun City,
Specialties Acquisition Corp., a Florida corporation and wholly-owned subsidiary
of Sun City ("Acquisition"), and SeaSpecialties, Inc., a Florida corporation
("SeaSpecialties"), pursuant to which Acquisition will merge with and into
SeaSpecialties and SeaSpecialties will thereby become a wholly owned subsidiary
of Sun City (the "Merger").
(2) Proposal to approve amendments to Sun City's Certificate of
Incorporation in connection with the Merger to (i) increase the authorized
number of shares of Sun City Common Stock from 3,000,000 to 75,000,000 shares,
(ii) decrease the par value per share of Sun City Common Stock from $.10 to
$.01, and (iii) change Sun City's name to "SeaSpecialties, Inc."
(3) Proposal to approve the adoption of Sun City's 1997 Stock Option
Plan.
(4) Proposal to elect three members to Sun City's Board of Directors.
(5) Proposal to amend Sun City's Certificate of Incorporation to limit
certain liability of directors of Sun City as permitted by law.
(6) Proposal to approve an amendment to Sun City's Certificate of
Incorporation to implement a reverse stock split of the Sun City Common Stock
(the "Reverse Split") in the range between one-for-two and one-for-ten,
inclusive, to be effected at a future time in the event the Board of Directors
determines that such a reverse split is necessary or advisable at any time
within one year from the date of the Annual Meeting, with the exact size of the
reverse split to be determined by the Board of Directors.
(7) To transact such other business as may properly come before the
Annual Meeting or any adjournment thereof.
PROXIES: VOTING AND REVOCATION
The enclosed Sun City Proxy is solicited on behalf of the Board of
Directors of Sun City. When a Sun City proxy is properly executed and returned,
the shares of Sun City Common Stock it represents will be voted in accordance
with the directions indicated on the proxy, or if no directions are indicated,
the shares will be voted (i) FOR the approval of Proposals 1 through 6 and (ii)
by the proxies in their discretion upon any other proposals as may properly come
before the Annual Meeting. Any Sun City shareholder giving a proxy may revoke
his or her proxy at any time before its exercise at the Annual Meeting by (i)
giving written notice of such revocation to the Secretary of Sun City, 5545
Northwest 35th Avenue, Fort Lauderdale, Florida, or (ii) signing and delivering
to such Secretary a proxy bearing a later date. However, the mere presence at
the Annual Meeting of a Sun City shareholder who has delivered a valid proxy
will not of itself revoke that proxy.
18
<PAGE>
NO DISSENTERS' RIGHTS OF APPRAISAL
Sun City is not a constituent corporation to the Merger (Sun City itself is not
merging, only Acquisition and SeaSpecialties are merging); therefore, Sun City
shareholders do not have dissenters' rights of appraisal under Section 262 of
the Delaware General Corporation Law.
SUN CITY SHAREHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO SUN CITY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE, EVEN IF THEY ARE PLANNING TO ATTEND THE ANNUAL MEETING.
PROXY SOLICITATION
Sun City will bear the cost of soliciting proxies from its
shareholders. Proxies may be solicited by personnel of Sun City in person, by
telephone or through other forms of communication without payment of additional
compensation to such personnel. Additionally, arrangements will be made with
brokerage houses and other custodians, nominees and fiduciaries for the
forwarding of proxy solicitation materials to beneficial owners of Sun City
Common Stock held of record by such custodians, nominees and fiduciaries and for
Sun City's payment of reasonable expenses incurred in connection therewith. Sun
City is contemplating engaging a proxy solicitation company to assist in
soliciting proxies for the Annual Meeting, but has not yet decided to do so.
VOTE REQUIRED
The Board of Directors has set the close of business on November 10,
1997 (the "Record Date"), as the record date for determining shareholders of Sun
City entitled to notice of and to vote at the Annual Meeting. As of November 6,
1997, there were 1,447,899 shares of Sun City Common Stock issued and
outstanding, all of which are entitled to be voted at the Annual Meeting.
Holders of Sun City Common Stock are entitled to one vote per share on each
matter that is submitted to shareholders for approval.
The attendance, in person or by proxy, of the holders of a majority of
the outstanding shares of Sun City Common Stock is necessary to constitute a
quorum for the conduct of business at the Annual Meeting. If less than a
majority of the outstanding shares of Sun City Common Stock are represented at
the Annual Meeting, a majority of the shares so represented may adjourn the
Annual Meeting without further notice other than announcement at the meeting.
For purposes of electing directors at the Annual Meeting, the nominees receiving
the greatest number of votes of Sun City Common Stock shall be elected as
directors. The Proposal to approve the Merger and the Proposals involving
amendments to Sun City's Certificate of Incorporation (Proposals 1, 2, 5 and 6)
will be approved if a majority of the total outstanding shares of Sun City
Common Stock are voted in favor of such Proposals. The Proposal to approve the
1997 Stock Option Plan (Proposal 3) will be approved if a majority of the shares
present in person or by proxy at the Annual Meeting are voted in favor of such
Proposal. Any other matter that may be submitted to a vote of the shareholders
will be approved if a majority of the shares present in person or by proxy at
the Annual Meeting are voted in favor of the matter, unless the matter is one
for which a greater vote is required by law or Sun City's Certificate of
Incorporation or Bylaws.
Abstentions are considered as shares present and entitled to vote for
purposes of determining the presence of a quorum and will be counted as votes
cast for purposes of determining the outcome of any matter submitted to the
shareholders for a vote, but are not counted as votes "for" or "against" any
matter. The inspectors of election will treat shares referred to as "broker or
nominee non-votes" (shares held by brokers or nominees as to which instructions
have not been received from the beneficial owners or persons entitled to vote
and the broker or nominee does not have discretionary voting power on a
particular matter) as shares that are present and entitled to vote for purposes
of determining the presence of a quorum. For purposes of determining the outcome
of any matter as to which the proxies reflect broker or nominee non-votes,
shares represented by such proxies will be treated as not present and not
entitled to vote on that subject matter and therefore will not be considered by
the inspectors of election when counting votes cast on the matter (even though
those shares are considered entitled to vote for quorum purposes and may be
entitled to vote on other matters.) Accordingly, broker or nominee non-votes
will have the same effect as a vote against Proposals 1, 2, 5 and 6, but will
not have the same effect as a vote against the election of any director or
against Proposal 3. Abstentions will not have the same effect as a vote against
the election of any director but will have the same effect as a vote against the
other Proposals.
19
<PAGE>
As of November 6, 1997, directors and executive officers of Sun City,
together with their affiliates, held or otherwise have the power to vote an
aggregate of 185,898 shares of Sun City Common Stock, exclusive of options or
other rights to purchase Sun City Common Stock, representing approximately 12.8%
of the outstanding shares of Sun City Common Stock. All such directors and
executive officers of Sun City have indicated their intention to vote such
shares in favor of the Proposals.
SUN CITY'S BOARD OF DIRECTORS RECOMMENDS APPROVAL OF PROPOSALS 1
THROUGH 6 AT THE ANNUAL MEETING. NEITHER THE MERGER (PROPOSAL 1) NOR THE
PROPOSED AMENDMENTS TO SUN CITY'S CERTIFICATE OF INCORPORATION (PROPOSAL 2) WILL
OCCUR UNLESS BOTH SUCH PROPOSALS 1 AND 2 ARE APPROVED BY THE REQUISITE VOTE OF
SHAREHOLDERS AT THE ANNUAL MEETING.
20
<PAGE>
THE MERGER
(PROPOSAL 1)
TERMS OF THE MERGER; CONVERSION FORMULAS; EFFECTS OF THE MERGER
The descriptions in this Proxy Statement of the terms and conditions of
the Merger and the Merger Agreement are qualified in their entirety by reference
to the copy of the Merger Agreement attached as Appendix A to this Proxy
Statement. Shareholders are encouraged to read the Merger Agreement in its
entirety.
Under the terms of the Merger Agreement, Acquisition will be merged
with and into SeaSpecialties, with SeaSpecialties being the Surviving
Corporation, and the shares of common stock of SeaSpecialties (the
"SeaSpecialties Shares") shall be converted into an aggregate number of shares
of common stock of Sun City determined as provided below in this paragraph
(collectively, the "Sun City Shares"), which Sun City Shares shall be allocated
pro rata among the holders of the SeaSpecialties Shares in accordance with such
holders' proportionate ownership of the SeaSpecialties Shares. The Sun City
Shares shall be that number of shares which, when issued pursuant to the Merger,
shall constitute eighty percent (80%) of the sum of (i) the aggregate number of
shares of Sun City's outstanding common stock after consummation of the Merger
(including, without limitation, the "Debenture Shares" (as defined below) issued
upon the exchange of the Debentures described below), plus (ii) the aggregate
number of shares of Sun City's common stock then issuable upon exercise,
conversion, exchange or otherwise pursuant to outstanding derivative securities
or other rights to acquire common stock (including, without limitation, options,
warrants, convertible securities, etc. whether or not exercisable as of the
Closing Date) (the sum of the foregoing clauses (i) and (ii) is referred to
herein as the "Total Sun City Shares"); it being the intent and agreement of the
parties that the Sun City Shares to be issued in the Merger to the shareholders
of SeaSpecialties shall constitute not less than 80% of the Total Sun City
Shares upon consummation of the Merger. In addition, upon consummation of the
Merger each share of Acquisition shall be converted into one share of the Common
Stock of SeaSpecialties, and Sun City's outstanding Senior Convertible
Subordinated Debentures (the "Debentures") and all accrued interest thereon will
be converted into that number of shares of Sun City Common Stock that will
constitute fourteen percent (14%) of the Total Sun City Shares. Following the
Merger, Sun City's name will be changed to "SeaSpecialties, Inc." See
"Amendments to Certificate of Incorporation."
The conversion formulas described in the previous paragraph (the
"Conversion Formulas") established by the Merger Agreement for converting shares
of SeaSpecialties Common Stock and the Debentures into shares of Sun City Common
Stock were determined in arms'-length negotiations by the boards of directors of
Sun City and SeaSpecialties. In determining the Conversion Formulas, the Boards
considered, among other factors, (i) the analyses and reports of their
respective financial advisors and senior management; (ii) the trading price of
Sun City Common Stock; (iii) the financial condition and historical results of
operations of each of Sun City and SeaSpecialties; (iv) judgments regarding the
relative prospects of Sun City and SeaSpecialties as separate and combined
companies (including certain anticipated synergies). See "-Background of the
Merger."
Based upon the number of outstanding shares of Sun City Common Stock as
of November 6, 1997, and the number of options, warrants and other rights to
purchase shares of such Common Stock anticipated to be outstanding as of the
closing of the Merger, approximately 46,491,900 shares of Sun City Common Stock
would be outstanding upon consummation of the Merger, of which (i) approximately
1,447,899 shares, representing approximately 3.1% of the total, will be held by
the current Sun City shareholders, (ii) approximately 38,335,320 shares,
representing approximately 82.5% of the total, will be held by former
SeaSpecialties shareholders and (iii) approximately 6,708,681 shares,
representing approximately 14.4% of the total, will be held by former Debenture
holders.
It is contemplated that the Effective Time for the Merger will occur as
soon as practicable after the Annual Meeting, and upon satisfaction or waiver of
all of the other conditions set forth in the Merger Agreement. The Effective
Time is presently anticipated to occur in December 1997 or January 1998.
21
<PAGE>
BACKGROUND OF THE MERGER
Although certain officers of Sun City and SeaSpecialties from time to
time informally discussed the possibility and ramifications of combining Sun
City and SeaSpecialties, no proposal or understanding with respect to a possible
combination existed until March 18, 1997, when Harvey Oxenberg, Chairman of the
Board, President and Chief Executive Officer of SeaSpecialties, proposed to Sun
City that such companies consider a business combination such as the Merger. The
Board of Directors of each of Sun City and SeaSpecialties subsequently
determined to study the feasibility of a combination.
The Executive Committee of Sun City, consisting of three of the then
four directors of Sun City (which three members were also the principal officers
of Sun City), undertook the task of evaluating the proposed business combination
of Sun City and SeaSpecialties, in close consultation with the sole director not
a member of the Executive Committee, in order to reach a determination by the
whole Board as to the proposal. Sun City's Chief Executive Officer was directed
to negotiate the terms and conditions of the proposed Merger in consultation
with the other members of the Executive Committee, and to engage independent
experts, including legal counsel and a financial advisor, to advise it with
respect to such proposed transaction.
Through June 17, 1997, Sun City and SeaSpecialties conducted
preliminary due diligence activities that included gathering and exchanging
information. Various business, financial and legal considerations were also
discussed during this period, including preliminary terms of a proposed business
combination, merger conversion formulas that might be acceptable to the parties,
third party approvals, operational issues, retention of management and treatment
of benefit plans. Counsel to SeaSpecialties was instructed to commence
preparation of a draft of the Merger Agreement, various drafts of which were
provided to Sun City for review and input during such period.
During such period, Sun City's Executive Committee consulted with Sun
City's independent legal and financial advisors, and specifically discussed and
considered (i) the methodology and scope of financial analyses and valuations of
Sun City and SeaSpecialties, (ii) the trading prices of Sun City's securities
and the intrinsic value reflected in the valuation analysis, (iii) projections
as to the future financial performance prepared by management of each of Sun
City and SeaSpecialties, (iv) the range of merger conversion formulas that might
be acceptable to Sun City and SeaSpecialties, respectively, (v) certain
discounted cash flow analyses, and (vi) the various other matters described
under "--Sun City's Reasons for the Merger and Board of Directors'
Recommendation."
On June 17, 1997, Sun City's Board completed its review and discussion
of the desirability of the proposed business combination, including a review of
the proposed merger agreement, discussion of the views of SeaSpecialties
management personnel concerning the combination, and discussion of advice by
Baker & McKenzie, Sun City's outside legal counsel, on the fiduciary
responsibilities of the Board and certain structural and other general issues
related to the proposed merger. A written consent was prepared and signed by all
Board members reflecting their conclusion that a merger would be in the best
interests of Sun City and its shareholders and recommending that Sun City pursue
such merger. It was determined that Sun City's Chief Executive Officer should
engage Mesirow to review and render an opinion to the Board as to the fairness
of the proposed Merger to Sun City and its shareholders.
MANAGEMENT AGREEMENT WITH SEASPECIALTIES
Sun City has suffered certain recent significant deteriorations in its
business and financial condition, and Sun City's management and Board of
Directors believed that it would be helpful to Sun City's business and financial
condition for Sun City to be assisted with the managerial abilities and
resources of Seaspecialties pending the Merger. Accordingly, in connection with
the execution of the Merger Agreement, a Management Agreement (the "Management
Agreement") was entered into on June 17, 1997, by Sun City and Seaspecialties.
The Management Agreement provides for SeaSpecialties to assist Sun City in
managing Sun City's business and operations prior to the Merger.
22
<PAGE>
The authority granted to SeaSpecialties is subject to the authority and
discretion of Sun City's Board of Directors to the same extent that an officer's
authority is subject to Board authority under the corporate law of Delaware.
Under the Management Agreement, Sun City has the right to (but is not required
to) exercise, as and to the extent determined by SeaSpecialties in its
discretion, the authority of Sun City's executive officers, and Sun City's
existing officers holding such positions are to perform such duties and
responsibilities as and to the extent directed and delegated to them from time
to time by SeaSpecialties (which duties may include, but are not limited to, any
and all duties currently conducted by such persons). As of the date of this
Proxy Statement, SeaSpecialties has provided only limited assistance with
certain specific aspects of Sun City's business, including cash management,
accounts payable and sales management. The Management Agreement does not
obligate SeaSpecialties to manage or supervise or take any other actions
regarding Sun City except to the extent that SeaSpecialties deems it necessary
or desirable to do so in its sole discretion. SeaSpecialties is paid a fee of
$1,000 per month, in addition to costs and expenses. Either Sun City or
SeaSpecialties may terminate the Management Agreement, with or without cause and
without penalty.
SUN CITY'S REASONS FOR THE MERGER AND BOARD OF DIRECTORS' RECOMMENDATION
The Board of Directors of Sun City believes that the Merger is fair to
and in the best financial interests of Sun City and its shareholders and has
approved the Merger Agreement and the transactions contemplated thereby. The Sun
City Board recommends that Sun City shareholders vote in favor of the proposal
to adopt the Merger Agreement and the transactions contemplated thereby.
Through daily meetings and consultations among the three Sun City Board
members who constitute the Executive Committee, frequent consultation with the
other Board member, and consultation with outside financial and legal advisors,
the Sun City Board of Directors considered the terms and structure of the legal,
financial and other ramifications of the Merger and the related transactions.
In reaching its decision to enter into and to recommend the adoption of
the Merger Agreement and the Merger, the Sun City Board considered a number of
factors, including, without limitation, the following:
1. The value of Sun City and the trading prices of Sun City Common
Stock.
2. The value of SeaSpecialties.
3. The continuing decline in the financial condition of Sun City,
including the carryover effect from the disposal of its egg processing
operations, and cyclical liquidity problems, resulting in default in obligations
to Congress Financial and causing declining sales at Sun City's foodservice
operation leading to default in other obligations, compounded by the loss of egg
marketing revenue due to the death of Gustave Minkin, have raised doubts about
Sun City's ability to continue as a going concern without infusion of fresh
capital or a merger or other business combination with a suitable partner. See
"Sun City Management's Discussion and Analysis of Financial Condition and
Results of Operations."
4. The results of operations, financial condition, competitive position
and prospects of Sun City and SeaSpecialties, both on an historical and
prospective basis. The Sun City Board concluded that the Merger would provide
Sun City with the opportunity to become a significantly larger enterprise with
potentially greater resources and ability to compete more efficiently against
other food distributor companies. The Sun City Board also gave consideration to
the possibility that certain Sun City and SeaSpecialties products could be
distributed to customers through both companies' existing distribution networks.
5. Sun City shareholders' continued participation in a larger, more
diversified enterprise with enhanced geographic presence, distribution
capabilities and marketing opportunities. The Sun City Board concluded that by
combining its resources with SeaSpecialties pursuant to the Merger, Sun City's
ability to compete more effectively against other companies in the food
distribution industry, many of which have significantly greater resources than
Sun City, would be enhanced.
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<PAGE>
6. The presentation by Mesirow to the Sun City Board to the effect that
the Conversion Formulas were fair, from a financial point of view, to Sun City
and the holders of Sun City Common Stock. The Sun City Board of Directors
considered various financial, comparative, pro forma and contribution analyses
of Sun City and SeaSpecialties, certain of which had been included in Mesirow's
presentation to the Sun City Board of Directors and felt that such analyses,
taken as a whole, supported the conclusion that the Conversion Formulas were
fair, from a financial point of view, to Sun City and the Sun City shareholders.
See "--Opinion of Mesirow Financial, Inc."
7. The terms of the Merger Agreement and the structure of the Merger
generally. In regard to the Merger Agreement, the Sun City Board of Directors
placed special emphasis on the usual and customary nature of conditions to
closing as well as the "no shop" and "break up" fees applicable to both Sun City
and SeaSpecialties in the Merger Agreement. The Sun City Board concluded that
the nature of the closing conditions provided Sun City with reasonable assurance
that the Merger, once announced, would ultimately be consummated. Moreover, the
Sun City Board concluded that the consequences of the "no shop" and "break up"
fee provisions to SeaSpecialties offered Sun City assurance that SeaSpecialties
was sufficiently committed to consummating the Merger. See the last paragraph
under "Termination of the Merger Agreement" below for a description of the "no
shop" and "break up" fee provisions.
8. Provisions of the Merger Agreement permitting Sun City, to the
extent required to fulfill the fiduciary duties of its Board of Directors, to
participate in negotiations or discussions with respect to alternative offers or
proposals to acquire all or substantially all of the business, properties or
capital stock of Sun City and permitting the Sun City Board to pursue such
alternative acquisition proposals, subject to the payment of a specified
"break-up" fee. The Sun City Board of Directors believed that such provisions
adequately provided Sun City with the ability to entertain unsolicited third
party acquisition proposals, and thus fulfill its fiduciary duties to Sun City
and its shareholders, while still participating in the Merger.
9. The possibility of integrating capabilities to reduce management,
marketing and financing expenses.
The Sun City Board concluded, in light of these factors, that the
Merger is fair to and in the best financial interests of Sun City and its
shareholders. THE BOARD OF DIRECTORS OF SUN CITY RECOMMENDS THAT THE
SHAREHOLDERS OF SUN CITY APPROVE THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY.
OPINION OF MESIROW FINANCIAL, INC.
The Sun City Board of Directors retained Mesirow Financial, Inc.
("Mesirow") to render an opinion as to the fairness, from a financial point of
view, of the proposed Merger and the Conversion Formulas for the shares of
common stock to be issued by Sun City in the Merger. Mesirow, as part of its
investment banking business, is engaged in the valuation of securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. Mesirow was retained on the
basis of its familiarity with Sun City, its national reputation and its
experience in rendering fairness opinions with respect to transactions such as
the Merger.
Mesirow delivered to the Board of Directors of Sun City, a written
opinion, dated as of October 22, 1997, which stated that, based on the
assumptions and subject to qualifications set forth therein which are summarized
below, as of such date, the proposed Merger and the related Conversion Formulas
were fair, from a financial point of view, to Sun City and the shareholders of
Sun City. Mesirow did not structure, establish or negotiate the terms of the
Merger. In addition, Mesirow did not express any opinion with respect to the
price at which Sun City Common Stock will trade subsequent to the Merger. The
full text of the written opinion of Mesirow which sets forth certain of the
assumptions made, procedures followed, matters considered, limitations on and
scope of review by Mesirow in rendering its opinion is attached as Appendix B to
this Proxy Statement and is incorporated herein by reference. Sun City
shareholders are urged to read Mesirow's opinion in its entirety.
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<PAGE>
In connection with its opinion, Mesirow reviewed, among other things,
the Merger Agreement, including all Schedules and Exhibits thereto and
preliminary drafts of this Proxy Statement. Mesirow also reviewed certain
financial and other information with respect to Sun City and SeaSpecialties that
was publicly available or furnished to Mesirow by or on behalf of Sun City and
SeaSpecialties, including certain internal financial analyses, financial
forecasts, reports and other information prepared by Sun City's and
SeaSpecialties' respective managements and representatives. Mesirow held
discussions with the management and representatives of Sun City and
SeaSpecialties concerning their respective historical and current operations,
financial condition and prospects as well as the strategic and operating
benefits anticipated from the Merger. In arriving at its opinion, Mesirow, among
other things: (i) reviewed the Merger Agreement; (ii) met with the officers and
certain members of the managements of Sun City and SeaSpecialties to discuss
their respective businesses, financial conditions, operating results, and future
prospects assuming that the Merger is consummated and assuming that the Merger
is not consummated; (iii) reviewed annual audited financial statements and
interim unaudited financial statements through August 2, 1997 for Sun City and
August 31, 1997 for SeaSpecialties as had been provided to Mesirow as of
September 30, 1997; (iv) reviewed publicly available information including
recent Securities and Exchange Commission filings and shareholder communications
for Sun City; (v) compared certain financial and stock market data of Sun City
with similar data for selected publicly-held foodservice processing and
distribution companies; (vi) reviewed projected financial statements through
1998 for Sun City and SeaSpecialties as prepared by the respective managements
of each company; (vii) reviewed historical market price and volume data for the
Sun City Common Stock; and (viii) made such other financial studies, analyses,
and investigations as Mesirow deemed appropriate.
In rendering its opinion, Mesirow relied upon the accuracy and
completeness of all financial and other information reviewed by Mesirow that was
publicly available or furnished to it by or on behalf of Sun City and
SeaSpecialties. Mesirow was not requested to and generally did not undertake to
verify independently the accuracy and completeness of such information. Mesirow
relied upon the reasonableness of all projections and forecasts provided to it
and assumed that such projections and forecasts were prepared in accordance with
accepted standards on bases reflecting the best currently available estimates
and good faith judgments of the respective managements of each of Sun City and
SeaSpecialties with respect to future performance of Sun City and
SeaSpecialties. Mesirow also assumed, with Sun City's consent, that (i) the
Merger will be accounted for under the purchase method of accounting; (ii) the
Merger will be a tax-free reorganization; (iii) no adjustment will be made to
the respective Conversion Formulas; and (iv) all material liabilities
(contingent or otherwise, known or unknown) of Sun City and SeaSpecialties are
as set forth in the respective consolidated financial statements of Sun City and
SeaSpecialties and the Merger Agreement including the Schedules thereto. Mesirow
did not make an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of Sun City and SeaSpecialties nor was Mesirow
furnished with any such evaluations or appraisals. Consequently, Mesirow did not
express any opinion regarding the value of any of Sun City's or SeaSpecialties'
individual respective assets. Mesirow was not requested to, and did not,
participate in the structuring or negotiating of the Merger. Furthermore,
Mesirow expressed no opinion as to the range at which shares of Sun City Common
Stock will trade subsequent to the consummation of the Merger. Sun City did not
place any limitations upon Mesirow with respect to the procedures followed or
factors considered by Mesirow in rendering its opinion.
Mesirow believes that its analyses must be considered as a whole and
that selecting portions of its analyses and of the factors considered by it,
without considering all factors and analyses, could create a misleading view of
the processes underlying its opinion. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial analysis or
summary description. In its analysis, Mesirow made numerous assumptions with
respect to industry performance and general business, regulatory and economic
conditions including, but not limited to, the general condition of the
securities markets and other matters, many of which are beyond the control of
Sun City and SeaSpecialties. Any estimates contained therein are not necessarily
indicative of future results or actual values, which may be significantly more
or less favorable than such estimates. Estimates of values of Sun City and
SeaSpecialties or assets do not purport to be appraisals or necessarily reflect
the prices at which such companies or assets may actually be sold. Because such
estimates are inherently subject to uncertainty, none of Sun City,
SeaSpecialties, Mesirow or any other person assumes responsibility for their
accuracy.
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<PAGE>
Set forth below is a brief summary of certain of the factors and
analyses conducted by Mesirow Financial.
PROJECTED FINANCIAL STATEMENT ANALYSIS. Mesirow analyzed certain
projected financial statements for both Sun City and SeaSpecialties. The
projected financial statements were for the years ending December 31, 1997 and
1998. In conducting its analysis, Mesirow considered, among other things, the
feasibility of the projections given the working capital positions and debt
amortization schedules of both Sun City and SeaSpecialties. Consideration was
given to Sun City's defaults on indebtedness, including the default with its
major lender in the second half of Sun City's fiscal year ending February 1,
1997. As a result of the default, certain monetary restrictions were placed on
Sun City by its lender which limited the use of its cash flow. As a result, Sun
City failed to meet debt service requirements on its $1.4 million of Senior
Subordinated Convertible Debentures. These cash flow restrictions and defaults
were considered in assessing the feasibility of Sun City's projected financial
statements.
COMPARABLE COMPANIES ANALYSIS. Using publicly available information,
Mesirow compared selected historical and published estimate information and
ratios, including, among other things, stock prices, net sales, operating cash
flow, debt levels, net income, estimated earnings per share and market
capitalizations, of Sun City and SeaSpecialties with those of selected
publicly-traded companies that Mesirow deemed comparable. Such comparable
companies included, for food service distribution, JP Foodservice, Performance
Food Group, Prosource, Rykoff-Sexton, and Sysco, and for food processing,
American Rice, Dean Foods, Doughtie's Foods, International Multifoods, Michael
Foods, Seneca Foods and Smithfield Companies (collectively, the "Comparable
Companies"). Mesirow compared the enterprise value of capitalization, defined as
market value of equity plus net debt (defined as the current portion of
long-term debt plus long-term debt less cash), as multiples of the latest twelve
month period net sales, operating cash flow and operating income. Enterprise
value to operating income multiples ranged from 6.5 to 19.2 with a mean value of
14.1. Market value of equity to net income multiples ranged from 7.1 to 37.2
with a mean value of 23.7. Market value of equity to forecasted net income
ranged from 19.4 to 25.2 with a mean value of 21.9.
DISCOUNTED CASH FLOW ANALYSIS. Using discounted cash flow analysis,
Mesirow estimated the present value of the future streams of free cash flow that
Sun City, SeaSpecialties, and the combined entity might produce through 2001,
based on projections provided to it by the companies' respective managements.
Mesirow also estimated the terminal values for Sun City Common Stock,
SeaSpecialties Common Stock, and the common stock of the combined entity at the
end of 2001 by applying a range of growth rates to projected earnings in the
terminal year. The free cash flow streams and terminal values were then
discounted to present values using discount rates ranging from 10.5% to 12.5%
which reflect different assumptions regarding the required rates of return of
holders or prospective buyers of Sun City Common Stock and SeaSpecialties Common
Stock. Mesirow noted that on a per share basis Sun City Common Stock reflected a
range of values from $(2.21) to $(3.11) per share, and the Common Stock of the
combined entity reflected a range of values from $.36 to $.55 per share.
PRO-FORMA MERGER ANALYSIS. Mesirow analyzed certain pro-forma effects
resulting from the Merger based on the Conversion Formulas. In conducting its
analysis, Mesirow considered, among other things, the pro-forma net income, cash
flow, total assets and total liabilities and shareholders' equity following
consummation of the Merger. In addition, Mesirow noted that at the proposed
Conversion Formulas, Sun City shareholders would own approximately 3.1% of Sun
City Common Stock following the consummation of the Merger based on shares of
Sun City Common Stock and equivalents outstanding as of October 17, 1997 and
options anticipated to be outstanding as of the closing of the Merger. The
pro-forma ownership values were compared to the values projected from remaining
as an independent entity.
OTHER FACTORS AND ANALYSES. In addition to the aforementioned
quantitative analyses, Mesirow evaluated various qualitative factors in
connection with, and resulting from, the Merger. In reaching its conclusion as
to the fairness of the Conversion Formulas, Mesirow did not rely on any single
analysis or factor described above, assign relative weights to the analyses or
factors considered by it, or make any conclusions as to how the results of any
given analysis, taken alone, supported its opinion.
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<PAGE>
As compensation for rendering its opinion as described above, Sun City
will pay Mesirow a fee of $55,000. In addition, Sun City will reimburse Mesirow
for its reasonable out-of-pocket expenses up to $5,000.
THE MERGER AGREEMENT
The Merger Agreement was entered into by and among Sun City,
Acquisition and SeaSpecialties as of June 17, 1997, following approval by each
company's Board of Directors. A copy of the Merger Agreement is attached as
Appendix A to this Proxy Statement. Pursuant to the terms of the Merger
Agreement, Acquisition, a wholly-owned subsidiary of Sun City, will merge with
and into SeaSpecialties with SeaSpecialties being the surviving corporation.
Upon the Merger, SeaSpecialties will become the wholly-owned subsidiary of Sun
City and the former shareholders of SeaSpecialties will own approximately 82.5%
of the outstanding Sun City Common Stock. See "-Terms of the Merger; Conversion
Formulas; Effects of the Merger."
CLOSING AND EFFECTIVE TIME OF THE MERGER
The Merger will become effective (the "Effective Time") upon the
completion of the filing of properly executed Articles of Merger with the
Secretary of State of the State of Florida, which filing will be made at the
closing of the Merger. The Merger will occur after satisfaction of certain
conditions set forth in the Merger Agreement, including approval of the Merger
by shareholders of Sun City. The Effective Time is presently anticipated to
occur in December 1997 or January 1998.
CONDITIONS OF THE MERGER AGREEMENT
Conditions to the closing of the Merger Agreement include, but are not
limited to, the following:
1. PERFORMANCE OF OBLIGATIONS. Each of Sun City and SeaSpecialties
shall have performed in all material respects its obligations under the Merger
Agreement required to be performed by it at or prior to the Effective Time.
2. SHAREHOLDER APPROVAL. The Merger Agreement and the transactions
contemplated thereby shall have been approved and adopted by the requisite vote
of the holders of the outstanding shares of Sun City Common Stock. If the
shareholders of Sun City fail to approve the Merger, the Merger will not be
consummated. See "The Sun City Annual Meeting."
3. LENDER APPROVALS. The Merger shall have been approved by Congress
Financial Corporation, Sun City's principal lender, and by Barnett Bank of South
Florida, N.A., SeaSpecialties' principal lender. Sun City anticipates that the
Congress facility will be repaid in full at the time of the Merger with the
proceeds of the contemplated new credit facility. At this time Sun City's
intention is to repay both facilities from the proceeds of a new facility which
is currently being negotiated. See paragraph 7 below.
4. TAX OPINION. SeaSpecialties shall have received an opinion from
Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., substantially to the
effect that the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code, and that each
of Sun City, Acquisition and SeaSpecialties will be a party to the
reorganization within the meaning of Section 368(b) of the Code. See "-Federal
Income Tax Consequences" below.
5. OPINION OF FINANCIAL ADVISOR. Sun City shall have received an
opinion from Mesirow Financial, Inc. to the effect that the Merger is fair to
Sun City and its shareholders from a financial point of view.
6. EMPLOYMENT AGREEMENTS. Sun City's current employment agreements
shall be amended, terminated or replaced to the reasonable satisfaction of
SeaSpecialties, including agreements with Malvin Avchen, Saul Zalka and Gregg
Leslie. In that regard, see "Interest of Certain Persons in the Merger" for a
description of the replacement employment agreements with Malvin Avchen and Saul
Zalka. Also see "Operation, Management and
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<PAGE>
Business of Sun City after the Merger," "Sun City Executive
Compensation--Employment Agreements and Termination of Employment and Change in
Control Arrangements" and Note H to Sun City's audited financial statements
included elsewhere in this Proxy Statement.
Another employment agreement to be replaced is the employment agreement
with Gregg M. Leslie ("Leslie"), who is currently the General Manager of one of
Sun City's subsidiaries, Sun City Produce, Inc. ("Produce"). Following the
Effective Time of the Merger, Sun City Produce, Inc. ("Produce") will enter into
an employment agreement (the "Employment Agreement") with Leslie whereby Leslie
will act as Produce's Director of Operations through December 31, 2000.
Compensation under the Employment Agreement includes a participation equal to
one-third of Produce's Net Profit Before Income Taxes, as defined therein, and a
minimum monthly salary of $22,500 from August 1 through December 31, 1997 that
will be credited against his participation income. The Employment Agreement
further provides that specified severance compensation must be paid to Leslie if
Leslie's employment is terminated. The Employment Agreement contains Leslie's
covenant not to compete during the term and for a period of eighteen (18) months
thereafter subject to earlier termination as provided in the agreement. Also, a
Shareholders' Agreement will be entered into by and among Produce and its two
shareholders, Sun City and Leslie, which will impose certain restrictions on the
sale or transfer of the capital stock of Produce. In October 1997, in connection
with preparations for the new agreements with Leslie, Sun City granted a
non-qualified stock option under Sun City's 1997 Stock Option Plan (the
"Option") to purchase 700,000 shares of Sun City Common Stock to Leslie at an
exercise price of $1.00 per share. The Option vests 50% on the date of grant and
50% ratably over three years subject to certain earnings targets of Produce
being met.
7. CREDIT FACILITY. Sun City and SeaSpecialties shall have obtained a
new credit facility that will fund advances beginning no later than the Closing
Date, in such amounts and on such terms as are satisfactory to SeaSpecialties.
The new facility being negotiated is expected to include an asset based loan and
term debt, both of which would bear interest at rates lower than Sun City's
current interest rates to its primary lender.
8. AMERICAN STOCK EXCHANGE. All of Sun City's shares including
outstanding shares of Common Stock and all shares to be issued pursuant to the
Merger or options shall be approved for listing on the American Stock Exchange
upon official notice of issuance.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated prior to the Effective Time upon
the occurrence of certain events, including, but not limited to, the following:
1. By mutual written consent of Sun City and SeaSpecialties.
2. By Sun City or SeaSpecialties if the Merger shall not have been
consummated on or before January 31, 1998.
3. By Sun City or SeaSpecialties if the Board of Directors of the other
corporation withdraws or adversely modifies its approval or recommendation of
the Merger Agreement or the Merger (unless such approval or recommendation is
reinstated and publicly confirmed prior to the termination).
4. By Sun City or SeaSpecialties if any court of competent jurisdiction
in the United States or other United States governmental body shall have issued
an order, decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the Merger, and such order, decree, ruling or other action
shall have become final and non-appealable.
5. By Sun City or SeaSpecialties if approval of the shareholders of
either company required for the consummation of the Merger shall not have been
obtained by reason of the failure to obtain the required vote at a duly held
meeting of the shareholders or any adjournment thereof.
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6. By SeaSpecialties if Sun City's Common Stock ceases to be listed on
the American Stock Exchange or if the shares to be issued pursuant to the Merger
are not approved for listing on such exchange prior to the Closing Date.
7. By SeaSpecialties if SeaSpecialties reasonably determines (A) that
Sun City's business or financial condition has materially deteriorated since
February 1, 1997 (subject to certain exceptions), or (B) that Sun City is or
will likely be unable to pay its material debts or other material obligations as
they become due (subject to certain exceptions).
8. By SeaSpecialties if Sun City or any of its creditors commences
bankruptcy proceedings applicable to Sun City or other proceedings applicable to
Sun City involving insolvency, reorganization or similar debtor or creditor
relief laws, if such proceedings are not dismissed in 30 days.
9. By SeaSpecialties if any one or more of Sun City's creditors
commences one or more lawsuits against Sun City for the collection of debts or
liabilities of Sun city and all such suits are not dismissed within 30 days
after the first commencement of any such suit.
In addition, in the event that the Merger Agreement is terminated as
provided because either Sun City or SeaSpecialties (each a "Company") (i)
violates under the "no shop" provisions by initiating, soliciting, encouraging,
or engaging in (except as required in the exercise of its Board of Directors'
fiduciary duty) negotiations or has discussions with any other entity concerning
any acquisition, tender offer, exchange offer, merger, consolidation,
acquisition of beneficial ownership of or the right to vote securities
representing 10% or more of the total voting power of such Company, dissolution,
business combination, purchase of all or any significant portion of the assets
or any division of, or any equity interest in, such Company (other than the
Merger, an "Acquisition Proposal"); (ii) breaches in a material respect any
other material obligation under the Merger Agreement; or (iii) terminates the
Merger Agreement upon receipt of an Acquisition Proposal, then such Company must
pay to the other Company a "break up" fee of $350,000.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain officers and directors of Sun City will receive certain
benefits upon the Merger which are not being received generally by the
Shareholders of Sun City. Accordingly, Shareholders should consider such
affiliates' interest in the Merger in connection with their recommendation of
the Merger.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS. In contemplation of
the Merger, in October 1997 Sun City entered into new two-year employment
agreements (the "Agreements") with each of Malvin Avchen and Saul Zalka (the
"Executives"), which become effective upon the closing of the Merger and their
existing employment agreements will thereupon terminate. The Agreements provide
for the Executives to be employed on a full-time basis for six months following
the Merger, during which time the Executives will perform such duties as are
delegated to them consistent with their current duties. For the remainder of the
term the Executives will provide consulting services to Sun City. In addition to
certain other benefits including a $12,000 per year car allowance, the salary
for each Executive will be payable at the rate of $100,000 per annum during the
first 15 months and at the rate of $50,000 per annum for the next 18 months.
Pursuant to the Agreements, each Executive received options for 200,000 shares
of Sun City Common Stock under Sun City's 1997 Stock Option Plan with an
exercise price equal to the market price on the date of grant, vesting 50% per
year over a two-year period. The Agreements include the Executives' covenants
not to compete with Sun City continuing for 30 months following the Merger. One
of the benefits to Sun City under the new Agreements is the elimination of Sun
City's requirement to make certain termination payments, including certain
payments in the event of a change in control, under the prior employment
agreements. See "Approval of 1997 Stock Option Plan-Options Granted Under the
Plan" and "Sun City Executive Compensation--Employment Agreements and
Termination of Employment and Change in Control Arrangements."
Sun City is also considering granting stock options following the
Merger to the new directors and officers of Sun City who will take office upon
the closing of the Merger, although the number and terms of such options have
not yet been determined. See "Operation, Management and Business of Sun City
After the Merger."
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Following the Merger, Sun City will also pay to each non-employee
director of Sun City a quarterly retainer of $1,500, an additional retainer of
$250 for serving on the Compensation Committee of the Sun City Board and a fee
of $500 for each attended meeting of the Board. Such non-employee directors will
also receive an option to purchase 2,500 shares of Sun City Common Stock, under
Sun City's 1997 Stock Option Plan, upon initial election and upon each
reelection as a director at Sun City's annual meeting.
OTHER MERGER-RELATED FEES. Mesirow will receive a fee of $55,000 and be
reimbursed for certain out-of- pocket expenses up to $5,000 in connection with
its rendering of a fairness opinion regarding the Merger. See "Background of the
Merger-Opinion of Mesirow Financial, Inc."
STOCK AND OPTION HOLDINGS OF DIRECTORS AND OFFICERS.
The chart below indicates the number of shares subject to currently
outstanding options held by the specified individuals and groups as of November
6, 1997 under Sun City's stock option plans and the average exercise price per
share of such options. All such options will remain outstanding pursuant to
their terms following the Merger. The outstanding options will automatically
adjust to take account of the Reverse Split, if it occurs. See "Reverse Stock
Split."
<TABLE>
<CAPTION>
SUN CITY OPTIONS
NUMBER OF SHARES AVERAGE EXERCISE
OPTION HOLDER SUBJECT TO OPTIONS PRICE PER SHARE
- --------------------------------------------------------------- --------------------------- ------------------
EXERCISABLEUNEXERCISABLE(1)
<S> <C> <C> <C>
Malvin Avchen 0 200,000 $.9375
Saul Zalka 0 200,000 .9375
Syed Jafri 7,500 0 .9375
Charles Ostrow 1,500 1,000 3.000
All current executive officers as a group (3 persons) 7,500 400,000 .9375
All current directors who are not executive officers as a
group (1 person) 1,500 1,000 3.00
All employees as a group, excluding all executive officers
(10 persons) 391,250 356,000 1.071
</TABLE>
- ------------------------
(1) The options held by Messrs. Avchen, Zalka and Leslie become exercisable as
indicated above (see "Conditions of the Merger Agreement -- Employment
Agreements" and "Interests of Certain Persons in the Merger --Compensation of
Executive Officers and Directors"). Other options indicated generally become
exercisable at a rate of 20% per year.
As of November 6, 1997, Sun City's directors and executive officers and
their affiliates beneficially owned in the aggregate, approximately 12.8% of the
outstanding Sun City Common Stock. Upon consummation of the Merger, it is
anticipated that (i) the current directors and executive officers of Sun City
and their affiliates will beneficially own in the aggregate approximately 0.2%
of the outstanding shares of Sun City Common Stock, (ii) the current directors
and executive officers of SeaSpecialties and their affiliates will beneficially
own in the aggregate approximately 82.5% of the outstanding shares of Sun City
Common Stock and (iii) Sun City Debenture holders will beneficially own in the
aggregate approximately 14.4% of the outstanding shares of Sun City Common
Stock. All of the current directors and executive officers of Sun City have
indicated that they will vote their respective shares of Sun City Common Stock
FOR approval of the Merger Agreement. For more information, see
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"Operation, Management and Business of Sun City After the Merger--Principal
Shareholders of Sun City After the Merger" and "Sun City Principal
Shareholders."
CERTAIN AFFILIATED TRANSACTIONS
LOAN AGREEMENTS. Premier Smoked Fish, Inc. ("Premier"), an affiliate of
SeaSpecialties, made two loans to Oak Crest Enterprises, Inc. ("Oak Crest"), a
subsidiary of Sun City, on May 20, 1997 and July 1, 1997, respectively. The
loans were in the amount of $251,500 and $155,852, respectively, and the
aggregate balance of the loans as of September 30, 1997 was $246,185. To secure
the loans, Premier was granted a mortgage in certain real property of Oak Crest
and Sun City guaranteed repayment of the loans. Premier is not a parent or
subsidiary corporation of SeaSpecialties and its assets and operations are not
consolidated with SeaSpecialties.
OPTION AGREEMENT TO PURCHASE ASSETS. In connection with the loans made
by Premier, Sun City entered into an Option Agreement whereby Certified Food
Service of PA, Inc. ("Certified"), which is a subsidiary of Sun City engaged in
the food distribution business, granted an option to Premier to purchase all of
the business and assets of Certified at a price pursuant to a formula based upon
Certified's net book value. The Option Agreement is and will remain exercisable
whether or not the Merger occurs. Certified, which is located in Burlington, New
Jersey, lost approximately $186,000 for the year ended February 1, 1997 and had
revenues of approximately $6.1 million for such year. Its balance sheet as of
February 1, 1997 reflects total assets of $3,327,526 and total liabilities of
$779,374.
MANAGEMENT AGREEMENT. For various reasons, including recent
deteriorations in Sun City's business and financial condition, Sun City entered
into a Management Agreement, dated June 17, 1997, with SeaSpecialties whereby
SeaSpecialties will assist in managing Sun City's business prior to the Merger.
See "-Management Agreement with SeaSpecialties" above.
RECEIVABLES PURCHASE AGREEMENT WITH SEASPECIALTIES. In October 1997,
Sun City and SeaSpecialties entered into a receivables purchase agreement
pursuant to which SeaSpecialties has agreed to purchase certain accounts
receivable of one of Sun City's subsidiaries, Sun City Produce, Inc.
("Produce"), for an initial price equal to 60% of the net invoice amount of each
purchased receivable, plus amounts collected on the purchased receivable in
excess of the initial price, less interest on the initial price at the rate of
11.5% per annum. SeaSpecialties has committed to continue purchasing receivables
of Produce such that the uncollected balance of the purchased receivables is
approximately $417,500. Such obligation to purchase receivables is subject to
certain conditions and is subject to termination as provided in the agreement.
In connection with the receivables purchase agreement, the parties also entered
into an agreement whereby Sun City agreed, subject to certain conditions, not to
file for protection under the federal bankruptcy laws of the United States or
other debtor protection laws prior to the closing of the Merger, and that if
such a filing occurred prior to such time, SeaSpecialties and its affiliates
would be entitled to certain rights and relief in connection with any such
proceeding with respect to amounts owing to SeaSpecialties and its affiliates
and related security interests and agreements among such parties.
GOVERNMENTAL AND REGULATORY APPROVALS
Neither Sun City nor SeaSpecialties is aware of any material
governmental or regulatory approvals required for consummation of the Merger,
other than compliance with federal and applicable state securities and corporate
laws.
FEDERAL INCOME TAX CONSEQUENCES
The following summary is a general discussion of certain Federal income
tax consequences of the Merger. See "Reverse Stock Split" for a discussion of
the tax consequences of the Reverse Split. This summary is based upon Federal
income tax laws, regulations, rulings and decisions in effect as of the date
hereof, all of which are subject to change. Any change, which may or may not be
retroactive, could alter the tax consequences set forth herein. While this
summary addresses the material Federal income tax consequences generally
applicable to
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<PAGE>
shareholders of Sun City and SeaSpecialties, this summary does not discuss all
aspects of Federal income taxation that may be relevant to a particular investor
in light of his personal circumstances or to certain types of investors subject
to special treatment under the Federal income tax laws (for example, life
insurance companies, tax-exempt organizations, foreign investors, dealers in
securities and taxpayers subject to the alternative minimum tax) and does not
discuss any aspect of state, local or foreign tax laws.
Consummation of the Merger is subject to the condition that
SeaSpecialties shall have received an opinion of Greenberg, Traurig, Hoffman,
Lipoff, Rosen & Quentel, P.A., dated as of the Effective Time, substantially to
the effect that, on the basis of facts, representations and assumptions set
forth in that opinion which are consistent with the state of facts existing at
the Effective Time, the Merger will be treated for Federal income tax purposes
as a reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, (the "Code"), and each of Sun City, Acquisition and SeaSpecialties
will be a party to the reorganization within the meaning of Section 368(b) of
the Code. This opinion will not be binding upon the Internal Revenue Service
("IRS") or the courts. Sun City and SeaSpecialties do not intend to apply for a
ruling from the IRS with respect to the Federal income tax consequences of the
Merger.
If the Merger constitutes a reorganization and Sun City, Acquisition
and SeaSpecialties are parties to the reorganization, neither Sun City nor
SeaSpecialties would recognize any gain or loss as a result of the Merger. There
will be no Federal income tax consequences to a shareholder of Sun City as a
result of the Merger; no gain or loss will be recognized by a shareholder of Sun
City as a result of the Merger. The following would be the material federal
income tax consequences of the Merger to a shareholder of SeaSpecialties: (i)
the shareholder would recognize no gain or loss on the exchange of
SeaSpecialties Common Stock for Sun City Common Stock, except in respect of cash
received in lieu of a fractional share of Sun City Common Stock pursuant to the
Merger; (ii) the tax basis of the Sun City Common Stock received by the
shareholder pursuant to the Merger (treating the shareholder for this purpose as
receiving any fractional share of Sun City Common Stock in respect of which he
receives cash) will be the same as his tax basis in the SeaSpecialties Common
Stock surrendered therefor; and (iii) the holding period of the Sun City Common
Stock received pursuant to the Merger will include the period the shareholder
held the SeaSpecialties Common Stock surrendered therefor, provided he holds
that SeaSpecialties Common Stock as a capital asset at the Effective Time. A
SeaSpecialties shareholder will recognize gain or loss on the receipt of cash in
lieu of a fractional share of Sun City Common Stock.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY. SHAREHOLDERS OF SUN CITY AND SEASPECIALTIES ARE URGED
TO CONSULT THEIR OWN TAX ADVISORS FOR MORE SPECIFIC AND DEFINITIVE ADVICE AS TO
THE FEDERAL INCOME TAX CONSEQUENCES TO THEM OF THE EXCHANGE OF SEASPECIALTIES
COMMON STOCK FOR SUN CITY COMMON STOCK PURSUANT TO THE MERGER, AS WELL AS ADVICE
AS TO THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN INCOME AND OTHER
TAX LAWS.
ACCOUNTING TREATMENT
The Merger is intended to be accounted for as a purchase for accounting
and financial reporting purposes.
RESALES OF SUN CITY COMMON STOCK
Shares of Sun City Common Stock that are outstanding prior to the
consummation of the Merger will be freely tradeable without restrictions under
the Securities Act after consummation of the Merger, except that shares of Sun
City Common Stock held by persons who are deemed to be "affiliates" (as that
term is defined in Rule 144 under the Securities Act) of Sun City may be resold
by them only in transactions permitted by the resale provisions of Rule 144 or
as otherwise permitted under the Securities Act. In that regard, the Merger
Agreement requires the current officers and directors of Sun City to agree prior
to closing that they will not sell any shares of Sun City Common Stock for one
year following the Merger. Shares of Sun City Common Stock that are issued to
shareholders of SeaSpecialties and to Debenture holders as consideration for the
Merger will constitute "restricted
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<PAGE>
securities" issued pursuant to an exemption from the registration requirements
of the Securities Act. Accordingly, such restricted shares of Sun City cannot be
resold unless in compliance with the Securities Act. Pursuant to Rule 144 under
the Securities Act, such restricted shares can generally be eligible for resale
in the public markets one year after the closing of the Merger, subject to
certain volume and other limitations. Additional shares of Sun City Common Stock
issuable upon exercise of options, warrants and other rights to purchase shares
of Sun City Common Stock will also become available for sale in the public
market from time to time in the future. Sales or the potential for sales of
substantial amounts of Sun City Common Stock in the public market could
adversely affect the market price of Sun City Common Stock.
In general, under Rule 144, as currently in effect, a person (or
persons whose shares are aggregated), including an affiliate, is entitled to
sell in the open market within any three-month period a number of shares that
does not exceed the greater of (i) 1% of the then outstanding shares of Sun
City's Common Stock, and (ii) the average weekly trading volume during the four
calendar weeks preceding such sale. Sales under Rule 144 are also subject to
certain limitations on the manner of sale, notice requirements and availability
of current public information about Sun City. Restricted shares properly sold in
reliance upon Rule 144 are thereafter freely tradeable without restrictions or
registration under the Securities Act, unless thereafter held by an affiliate of
Sun City. After a holding period of two years, restricted securities can
generally be sold under Rule 144 without volume and manner of sale limitations.
Subject to the increase in the number of authorized shares of Sun City
Common Stock contemplated by this Proxy Statement, Sun City has reserved an
aggregate of 2,500,000 shares of Sun City Common Stock for issuance pursuant to
its 1997 Stock Option Plan and Sun City intends to register under the Securities
Act the shares underlying options granted under the 1997 Stock Option Plan
pursuant to a registration statement on Form S-8. Subject to restrictions under
the 1997 Stock Option Plan, shares of Sun City Common Stock issued pursuant to
the 1997 Stock Option Plan after the effective date of registration on Form S-8
will be available for sale in the public market without restriction to the
extent they are held by persons who are not affiliates of Sun City, and may be
sold by affiliates subject to the provisions of Rule 144. See "Approval of 1997
Stock Option Plan."
VOTE REQUIRED AND RECOMMENDATION
The affirmative vote of a majority of the outstanding shares of Sun
City Common Stock in person or by proxy will constitute approval of the
Agreement and Plan of Merger at the Annual Meeting. The Merger will not occur
unless Proposal 2 is also approved by Sun City shareholders at the Annual
Meeting. See "Amendments to Certificate of Incorporation."
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE
AGREEMENT AND PLAN OF MERGER.
OPERATION, MANAGEMENT AND BUSINESS OF SUN CITY AFTER THE MERGER
BUSINESS OF SUN CITY
From and after the Effective Time, Sun City will continue to operate
its ongoing businesses, and SeaSpecialties will continue operating its
businesses as a wholly owned subsidiary of Sun City. Upon the Merger, Sun City's
name will be changed to "SeaSpecialties, Inc." See "Amendments to Certificate of
Incorporation."
Sun City also intends to integrate the operations of SeaSpecialties
with Sun City to the extent it deems appropriate in order to take advantage of
potential synergistic efficiencies presented by the Merger. Sun City may take
advantage of opportunities for profitable restructuring or disposition of
certain assets.
Sun City expects that decisions as to the continued employment of Sun
City's employees, and the continuing operation of business at each of Sun City's
facilities, will be made on a case-by-case basis after the consummation
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of the Merger based upon Sun City's evaluation of the combined operations of Sun
City and SeaSpecialties. See "Business of Sun City" and "Business of
SeaSpecialties."
MANAGEMENT OF SUN CITY
Upon consummation of the Merger, the Board of Directors of Sun City
will be replaced with five new members, none of whom currently serve on the
Board of Directors of Sun City. The five new Sun City directors will include
Harvey Oxenberg, David H. Fleischman and Lawrence J. Oxenberg, all of whom
currently serve as directors and/or officers of SeaSpecialties or its
affiliates, and Kraig Kramers and Don J. Hindman. Upon consummation of the
Merger, Harvey Oxenberg will serve as Chairman of the Board, President and Chief
Executive Officer and David H. Fleischman will serve as Senior Vice President,
Chief Financial Officer, Treasurer and Secretary of Sun City. The executive
officers and directors of Sun City upon closing of the Merger will be as
follows:
<TABLE>
<CAPTION>
EXECUTIVE OFFICER AGE POSITION WITH SUN CITY AFTER MERGER PRESENT POSITION WITH SEASPECIALTIES
- -------------------------------- ----- ------------------------------------ ------------------------------------
<S> <C> <C>
Harvey Oxenberg 50 Chairman of the Board, President Chairman of the Board,
and Chief Executive Officer President, Chief Executive
Officer of SeaSpecialties
David H. Fleischman 51 Senior Vice President, Chief Senior Vice President, Chief
Financial Officer, Secretary, Financial Officer, Secretary,
Treasurer and Director and Treasurer of SeaSpecialties
Lawrence J. Oxenberg 25 Director Director of SeaSpecialties and
Assistant Vice President of
Premier Smoked Fish, a
SeaSpecialties affiliate
Kraig Kramers 54 Director Member of Board of Advisors
Don J. Hindman 65 Director Member of Board of Advisors
</TABLE>
HARVEY OXENBERG. Mr. Harvey Oxenberg has served as President, Chief
Executive Officer and Chairman of the Board of SeaSpecialties since 1987. Mr.
Oxenberg joined SeaSpecialties in 1969.
DAVID H. FLEISCHMAN. Mr. David Fleischman has served as Senior Vice
President, Chief Financial Officer, Secretary and Treasurer since he joined
SeaSpecialties in January 1997. Prior to joining SeaSpecialties, Mr. Fleischman
served as Vice President of J.I. Kislak, Inc. and as Senior Vice President and
Treasurer of J.I. Kislak Mortgage Corporation from December 1992 through January
1997. During a portion of such period he also served as Chief Financial Officer
of Kislak National Bank.
LAWRENCE OXENBERG. Mr. Lawrence Oxenberg has served as a director of
SeaSpecialties since 1996 and Assistant Vice President of Premier Smoked Fish
since May 1996. Prior to joining Premier, Mr. Oxenberg served as Assistant to
the President of SeaSpecialties. From January 1993 to April 1995, Mr. Oxenberg
served as an Assistant Manager at Federal Valet Car Parking. Lawrence Oxenberg
is the son of Harvey Oxenberg.
KRAIG KRAMERS. Mr. Kramers has served as a member of SeaSpecialties'
Board of Advisors since June 1996. Mr. Kramers serves as President and Chief
Executive Office of Corporate Partners, Inc., a consulting company. From
November 1991 to July 1993, in addition to this role at Corporate Partners, Inc.
Mr. Kramers served as President of Snapper Power Equipment, an equipment
manufacturer.
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<PAGE>
DON J. HINDMAN. Mr. Hindman has served as a member of SeaSpecialties'
Board of Advisors since June 1996. Mr. Hindman has served as Chairman and Chief
Executive Officer of Clark Foodservice, Inc., a foodservice distributor, for the
past 20 years. Additionally, he serves as a member of the Board of Directors of
Derlan Industries and Porter Chadburn.
All officers of Sun City will hold office at the pleasure of the Board
of Directors and until their successors have been duly elected and qualified,
unless sooner removed. Any officer may be removed at any time by the Board,
subject to any severance rights contained in their employment agreements. See
"The Merger -- Interests of Certain Persons in the Merger."
PRINCIPAL SHAREHOLDERS OF SUN CITY AFTER THE MERGER
The following table sets forth certain information known to Sun City
and SeaSpecialties with respect to beneficial ownership of Sun City Common Stock
as of November 6, 1997, as adjusted to reflect the consummation of the Merger,
by (i) each person who is projected to own beneficially more than 5% of the
outstanding shares of Sun City Common Stock; (ii) each of Sun City's directors
upon closing of the Merger; (iii) each of Sun City's executive officers upon
closing of the Merger; and (iv) all of Sun City's directors and executive
officers as a group upon closing of the Merger:
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF SUN CITY COMMON STOCK(2)
----------------------------------------------------------
NAME OF BENEFICIAL OWNER(1) NUMBER OF SHARES PERCENT
- ------------------------------------------------- ------------------------ -------------------------------
<S> <C> <C> <C>
Harvey Oxenberg(3)............................... 38,335,320 82.5%
David H. Fleischman.............................. 0 -
Lawrence J. Oxenberg............................. 0 -
Bernard Oxenberg Trust(4)........................ 9,706,503 20.9%
Kraig Kramers.................................... 0 -
Don J. Hindman................................... 0 -
All directors and executive officers as a group 38,335,320 82.5%
(5 persons)......................................
</TABLE>
- --------------------
(*) Less than 1%.
(1) Unless otherwise indicated, the address of each beneficial owner is c/o
SeaSpecialties, Inc., 1111 N.W. 159th Drive, Miami, Florida 33169.
(2) Unless otherwise indicated, each person named has sole voting and
investment power with respect to all such shares.
(3) Includes 9,706,502 shares to be held by the Bernard Oxenberg Trust over
which Harvey Oxenberg has shared voting power.
(4) Harvey Oxenberg shares voting power over the shares held by the trust.
See Footnote 3.
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<PAGE>
SUN CITY CAPITAL STOCK AFTER THE MERGER
Upon consummation of the Merger, the authorized capital stock of Sun
City will consist of 75,000,000 shares of common stock, par value $.01 per share
(the "Post-Merger Common Stock"). The following is a summary of certain rights
of the Post-Merger Common Stock. The rights of the holders of Sun City's common
stock will generally not be changed as a result of the Merger, except as a
result of amendments to Sun City's Certificate of Incorporation as described in
Proposals 2 and 5 and the issuance of additional shares pursuant to the
Conversion Formulas for the Merger. For additional information, see "Risk
Factors," "The Merger-Terms of the Merger; Conversion Formulas; Effects of the
Merger", "Amendments to Certificate of Incorporation", "Reverse Stock Split",
"Amendment to Limit Director Liability" and "Description of Sun City Capital
Stock."
The holders of Post-Merger Common Stock will be entitled to one vote
for each share held of record on all matters submitted to a vote of
shareholders. The holders of Post-Merger Common Stock will have no cumulative
voting rights in the election of directors. The holders of Post-Merger Common
Stock will be entitled to dividends, when and if declared by the Sun City Board
out of funds legally available therefor. In the event of the liquidation,
dissolution or winding up of Sun City, the holders of Post-Merger Common Stock
will be entitled to share ratably in all assets remaining after payment of
liabilities and any liquidation preferences. Holders of Post-Merger Common Stock
will have no preemptive rights and have no right to convert Post-Merger Common
Stock into any other securities. All shares of Post-Merger Common Stock issued
pursuant to the Merger will be, when issued, fully paid and nonassessable.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK. Under Sun City's
Certificate of Incorporation, after giving effect to the amendments thereto as
provided in Proposal 2 and the issuance of shares contemplated in the Merger,
there will be an aggregate of approximately 28,508,100 authorized but unissued
shares of Post-Merger Common Stock, including 2,500,000 shares of Post-Merger
Common Stock reserved for issuance under the 1997 Stock Option Plan. The
unissued and unreserved shares may be utilized for a variety of corporate
purposes, including future public or private offerings to raise additional
capital and to finance corporate acquisitions. Except pursuant to the Merger and
Sun City's stock option plans, Sun City currently has no plans to issue
additional shares of its Common Stock. However, one of the effects of authorized
but unissued and unreserved shares of capital stock may be to render more
difficult or discourage an attempt by a potential acquiror to obtain control of
Sun City by means of a merger, tender offer, proxy contest or otherwise, and
thereby protect the continuity of Sun City's management. The issuance of such
shares of capital stock may have the effect of delaying, deferring or preventing
a change in control of Sun City without any further action by the shareholders
of Sun City. See "Amendments to Certificate of Incorporation." The Reverse
Split, if implemented, may also increase the number of unissued shares of Sun
City Common Stock. See "Reverse Stock Split."
STOCK EXCHANGE LISTING OF SUN CITY COMMON STOCK
An additional listing application will be made to list the additional
shares of Sun City Common Stock to be issued pursuant to the Merger and the 1997
Stock Option Plan on the American Stock Exchange ("AMEX"), which is the exchange
upon which the outstanding shares of Sun City Common Stock are currently traded
under the symbol "SNI." Due to the decline in the market price of Sun City
Common Stock and the recent deterioration in Sun City's financial condition, Sun
City has been notified by AMEX that the Sun City Common Stock no longer meets
certain AMEX listing requirements and such stock is at risk of being delisted
from AMEX. AMEX has been notified about the proposed Merger and has indicated
that if the anticipated positive effects of the Merger on Sun City's financial
condition are realized, then there will be a greater likelihood that the Sun
City Common Stock will continue to be traded on AMEX; however, there can be no
assurance (whether or not the Merger is consummated) that Sun City Common Stock
will continue to be listed on AMEX or on any other stock exchange or traded over
the facilities of any recognized quotation system. If the Sun City Common Stock
is not traded on AMEX, the resulting reduction in liquidity of the Sun City
Common Stock and the absence of an active market for the stock will likely cause
a decline in the value of Sun City Common Stock and it will likely be more
difficult for a shareholder to sell his shares and to realize the value thereof.
One of the purposes of the proposed Reverse Split,
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<PAGE>
if implemented, would be to help Sun City comply with some of AMEX's listing
requirements. See "Reverse Stock Split."
TRANSFER AGENT
American Stock Transfer & Trust Company will act as transfer agent for
the Sun City Common Stock following consummation of the Merger.
AMENDMENTS TO CERTIFICATE OF INCORPORATION
(PROPOSAL 2)
In connection with the consummation of the Merger, and subject to
approval by Sun City's stockholders at the Annual Meeting, the Certificate of
Incorporation of Sun City will be amended as described below to (i) increase the
number of authorized shares of Sun City Common Stock from 3,000,000 to
75,000,000 shares, (ii) reduce the par value per share of Sun City Common Stock
from $.10 to $.01, and (iii) change Sun City's name to "SeaSpecialties, Inc."
(collectively, the "Amendments"). The Sun City Board unanimously has approved,
and recommends to the holders of the Sun City Common Stock that they approve,
the Amendments. If approved by the stockholders, the effectiveness of the
Amendments will occur immediately prior to the Merger as described below, except
that the Amendment to change Sun City's name will occur after the Merger.
AUTHORIZATION OF ADDITIONAL SHARES; DECREASE IN PAR VALUE PER SHARE
Sun City's Certificate of Incorporation currently authorizes the
issuance of up to 3,000,000 shares of Sun City Common Stock. If the Merger and
this Proposal 2 are approved by the stockholders of Sun City, prior to the
Merger the Certificate of Incorporation of Sun City will be amended to increase
the authorized number of shares of Sun City Common Stock to 75,000,000 shares.
The authorization of the additional shares of Sun City Common Stock is necessary
to provide sufficient shares for the issuance of the approximately 45,044,001
shares anticipated to be issued pursuant to the Merger. In addition,
approximately 2,500,000 of the additional shares being authorized will be
available for issuance under Sun City's 1997 Stock Option Plan and the remainder
of the additional shares will be available for effecting other possible future
transactions, including stock dividends, stock splits, public or private
offerings, financing arrangements or acquisitions by Sun City of other
businesses if favorable acquisitions were to become available. Except with
respect to the shares of Sun City Common Stock issuable in connection with (i)
the Merger, (ii) Sun City's stock-based employee benefit plans (including Sun
City's 1997 Stock Option Plan), or (iii) the settlement relating to Gulf Coast
Foodservice, Inc., Sun City has no present plans for any particular issuance of
additional shares of Sun City Common Stock. See "The Merger--Description of Sun
City Capital Stock--Certain Effects of Authorized but Unissued Stock"; "Approval
of 1997 Stock Option Plan" and "Sun City Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
The unissued shares of Sun City Common Stock remaining after the Merger
will be available for issuance at any time in the future without further
shareholder approval, unless such approval were required by law, as in the case
of consolidations and certain statutory mergers, or by the rules of any
securities exchange on which the Sun City Common Stock were then to be listed.
Holders of Sun City Common Stock have no preemptive right to purchase or
otherwise acquire any shares of Sun City Common Stock that Sun City may issue in
the future.
Under certain circumstances, an increase in the number of authorized
shares of common stock can provide corporate management with the means to
discourage a change of control, such as through the issuance to stockholders of
rights to purchase additional shares of common stock at bargain prices. As in
the case of other types of issuances, those intended to prevent or adversely
affect changes of control could be accomplished without further stockholder
approval. However, the Sun City board of directors has no present intention of
using the additionally authorized shares for such a purpose and except for the
Merger is not aware that any takeover or similar action is
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<PAGE>
contemplated. See "Reverse Stock Split" for a discussion of additional unissued
shares that could result if the proposed Reverse Split occurs.
The Amendments include a reduction in the par value per share of Sun
City Common Stock from $.10 per share to $.01 per share. The primary purpose for
the reduction in par value is to limit the increase in Sun City's stated capital
account that would otherwise occur as a result of the shares issued pursuant to
the Merger, and the reduction may also help to limit certain taxes payable by
Sun City with respect to its common stock, including the annual Delaware
corporation franchise tax. Upon the filing of the Amendment to effect the
decrease in par value, each issued and outstanding share of Sun City's $.10 par
value Common Stock will automatically be converted into one share of $.01 par
value Common Stock without further action by Sun City or the holders of such
stock. From and after such time, stock certificates representing $.10 par value
shares of the Common Stock of Sun City outstanding prior to such time will
automatically represent the same number of shares with a par value of $.01, and
will continue to be used to effect transfers or deliveries of the Common Stock
of Sun City. There will be no need for stockholders to exchange their stock
certificates. After the decrease in par value, the transfer agent of Sun City
will use stock certificates reflecting the new par value of the Common Stock for
all transfers and issuances of Common Stock.
In order to effect the increase in the number of authorized shares of
Sun City Common Stock and the decrease in the par value per share, prior to
consummation of the Merger, Sun City will file a Certificate of Amendment to Sun
City's Certificate of Incorporation to amend Article FOURTH thereof to read in
its entirety as follows:
"The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 75,000,000 shares of
common stock, and the par value of each of such shares is $.01. Each
holder of common stock shall be entitled to one vote for each share of
common stock held by such stockholder."
CHANGE OF SUN CITY'S NAME
The managements of Sun City and SeaSpecialties believe that it would be
in the best interest of Sun City to operate under a new name following the
Merger. Accordingly, the Board of Directors of Sun City has approved the new
name "SeaSpecialties, Inc." for Sun City, to take effect following the Merger.
In order to cause the change in name to take effect, following the consummation
of the Merger Sun City will file a Certificate of Amendment to Sun City's
Certificate of Incorporation to amend Article FIRST thereof to read as follows:
"The name of the corporation is SeaSpecialties, Inc."
VOTE REQUIRED AND RECOMMENDATION
The affirmative vote of a majority of the outstanding shares of Sun
City Common Stock will be required for approval of the amendments to Sun City's
Certificate of Incorporation. The Amendments will not become effective unless
the Merger is also approved by Sun City's shareholders at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE
AMENDMENTS TO SUN CITY'S CERTIFICATE OF INCORPORATION.
APPROVAL OF 1997 STOCK OPTION PLAN
(PROPOSAL 3)
GENERAL
Sun City's Board of Directors adopted Sun City's 1997 Stock Option Plan
(the "Plan") in October 1997. A copy of the Plan is included as Appendix C to
this Proxy Statement.
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<PAGE>
The purpose of the Plan is to provide an additional incentive to
attract and retain qualified competent persons who provide management services
and upon whose efforts and judgment the success of Sun City is largely
dependent, through the encouragement of stock ownership in Sun City by such
persons. In furtherance of this purpose, the Plan authorizes, among other
things, the discretionary granting of incentive or nonqualified stock options to
purchase shares of Sun City's Common Stock to persons selected by the
administrators of the plan from the class of all regular employees of Sun City
(including directors and officers who are regular employees), non-employee
directors, and persons who provide consulting or other services to Sun City as
independent contractors, which class presently consists of approximately 128
persons. The Plan also provides for the Plan administrators to grant loans by
Sun City to participants to finance the exercise of options and the payment of
taxes in connection therewith, and the use of already owned shares of Sun City
Common Stock as payment of the exercise price for options granted under the
Plan.
One of the reasons for submitting the Plan for shareholder approval is
to ensure that awards under the Plan will qualify as performance-based
compensation for purposes of Section 162(m) of the Internal Revenue Code (the
"Code"). That section, which became law in 1994, generally disallows a tax
deduction for certain compensation over $1 million paid, or otherwise taxable,
to persons named in Sun City's Summary Compensation Table and employed by Sun
City at the end of the year for which the deduction is claimed. Qualifying
performance-based compensation is not subject to the deduction limit if certain
requirements are met, including shareholder approval in the case of the Plan.
Shareholder approval of the Plan at the Annual Meeting will also satisfy any
applicable requirements of the American Stock Exchange for shareholder approval.
A summary of the Plan is set forth below. The full text of the Plan is
annexed to this Proxy Statement as Appendix C, and the following summary is
qualified in its entirety by reference to Appendix C.
SUMMARY OF PLAN
The Plan limits the total aggregate number of options that any one
person can receive under the Plan to options for One Million (1,000,000) shares
of Sun City Common Stock (subject to proportionate decrease in the event a
Reverse Split is implemented). The purpose of this limit is to help ensure that
Sun City's tax deductions for compensation expense under the Plan are not
limited by Section 162(m) of the Code.
The Plan and the options granted thereunder are designed and intended
to be administered so that the grant of options under the Plan and transactions
thereunder will comply with the requirements for exemption under Rule 16b-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Rule
16b-3 exempts certain transactions involving the grant and exercise of stock
options under the Plan by directors, executive officers and principal
shareholders of Sun City from the short-swing profit recovery provisions of
Section 16 of the Exchange Act.
The Plan provides that it shall be administered by the Board of
Directors, or by a committee consisting of not less than two directors
designated by the Board of Directors (the "Committee"), which directors shall be
"outside directors" (I.E., a member of the Board who qualifies as an "outside
director" under Section 162(m) of the Code and the regulations thereunder and as
a "non-employee director" under Rule 16b-3). The Plan will be administered by
the Board until a Committee is appointed following the Merger.
Both the Board and the Committee have the power to determine the
persons to be awarded options, the number of shares subject thereto and the
exercise price and other terms thereof. In addition, both the Committee and the
Board have the power and authority to construe and interpret the Plan, and the
acts of the Committee or the Board are final, conclusive and binding upon all
interested parties, including Sun City, its shareholders, its officers and
employees, recipients of grants under the Plan, and all persons or entities
claiming by or through such persons.
An aggregate of 2,500,000 shares of Sun City Common Stock (subject to
proportionate decrease in the event a Reverse Split is implemented) are reserved
for issuance upon exercise of options granted under the Plan.
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The shares acquired upon exercise of options granted under the Plan will be
authorized and issued shares of Sun City Common Stock. Sun City's shareholders
will not have any preemptive rights to purchase or subscribe for any shares by
reason of the reservation and issuance of Sun City Common Stock under the Plan.
If any option granted under the Plan should expire or terminate for any reason
other than having been exercised in full, the unpurchased shares subject to that
option will again be available for purposes of the Plan.
OPTIONS GRANTED UNDER THE PLAN
On October 17, 1997, options for an aggregate of 1,129,750 shares of
Sun City Common Stock were granted to certain officers, directors and employees
of Sun City, as described below. Options for 200,000 shares were granted to each
of Malvin Avchen, Sun City's Chairman of the Board and Chief Executive Officer,
and Saul Zalka, Sun City's President and Chief Operating Officer (see "The
Merger - Interests of Certain Persons in the Merger - Compensation of Executive
Officers and Directors"). One of Sun City's employees received a grant of
700,000 of such options at an exercise price of $1.00 per share (see "The Merger
- - Conditions of the Merger Agreement - Employment Agreements"). The remaining
29,750 options were granted to four employees (including one executive officer),
which options replaced 29,750 previously existing options. Except for the $1.00
options described above, all of such options were granted with an exercise price
equal to the closing market price per share on the date of grant as reported by
AMEX ($1.125 per share), and were subsequently repriced on October 24, 1997 to
have an exercise price equal to the closing market price on that date ($.9375
per share). Pursuant to Sun City's employment agreements with Messrs. Avchen and
Zalka, Sun City agreed to reprice their options, if requested by them within 30
days after the closing of the Merger, to have an exercise price equal to the
closing market price on the date requested.
Sun City's management believes that options granted under the Plan will
be awarded primarily to those persons who possess a capacity to contribute
significantly to the successful performance of Sun City. Because persons to whom
future discretionary grants of options are to be made are to be determined from
time to time by the Committee or the Board in their discretion, it is impossible
at this time to indicate the precise number, name or positions of persons who
will hereafter receive such options or the number of shares for which options
will be granted. However, Sun City is contemplating granting options to certain
of the new officers and directors that will take office upon the Merger, but the
persons to receive such grants and the terms thereof have not been determined.
See "The Merger - Interests of Certain Persons in the Merger" and "Operation,
Management and Business of Sun City After the Merger."
CERTAIN TERMS AND CONDITIONS
All grants of options under the Plan must be evidenced by an Option
Agreement between Sun City and the grantee. Such agreement shall contain such
terms and conditions as the Committee (or the Board) shall prescribe, consistent
with the Plan, including, without limitation, the exercise price, term and any
restrictions on the exercisability of the options granted. Such terms often
include the automatic termination of options upon certain events, such as the
death, disability or termination of employment of an optionee.
The price per share for discretionary grants may be any price
determined by the Committee (or the Board); provided, however, that in no event
shall the option price of any incentive stock option be less than the fair
market value per share of Common Stock on the date of grant. For purposes of the
Plan, and for so long as Sun City's Common Stock is listed on the American Stock
Exchange, the term "fair market value" means the closing price of Sun City
Common Stock as reported on the American Stock Exchange on the date of grant,
unless the Committee or the Board shall determine otherwise in a fair and
uniform manner. The closing price per share of Sun City Common Stock on November
6, 1997 as reported on the American Stock Exchange was $1.125. The exercise
price of an option may be paid in cash, by certified or official bank check, by
money order, by delivery of already owned shares of Sun City Common Stock having
a fair market value equal to the exercise price, or by a combination of the
foregoing. The Plan also authorizes Sun City to make loans to optionees to
enable them to exercise their options. If the exercise price is paid with the
optionee's promissory note, the note must (i) provide for recourse to the
optionee, (ii) bear interest at a rate no less than the prime rate of interest
of Sun City's principal
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lender, and (iii) be secured by the shares of common stock purchased. Cash
payments will be used by Sun City for general corporate purposes. Payments made
in common stock must be made by delivery of stock certificates in negotiable
form.
Already owned shares of Sun City Common Stock may be used to pay the
exercise price of an option in a single transaction or by "pyramiding" already
owned shares in successive, simultaneous option exercises. In general,
pyramiding permits an option holder to start with as little as one share of
Common Stock and exercise an entire option to the extent then exercisable (no
matter what the number of shares subject thereto). By utilizing already owned
shares of Sun City Common Stock, no cash (except for fractional share
adjustments) is needed to exercise an option. Consequently, the optionee would
receive Sun City Common Stock equal in value to the spread between the fair
market value of the shares subject to the option and the exercise price of the
option. In addition, the amended Plan allows other forms of cashless exercise
procedures approved by the Committee or the Board.
Generally, options granted under the Plan are not assignable or
transferable, other than by will or by the laws of descent and distribution or
with the prior consent of the Committee or the Board. During the lifetime of an
optionee, an option is exercisable only by the optionee. The expiration date of
an option will be determined by the Committee or the Board at the time of the
grant, but in no event will an option be exercisable after the expiration of 10
years from the date of grant. An option may be exercised at any time or from
time to time or only after a period of time or in installments, as the Committee
or the Board determines. The Committee or the Board may in its sole discretion
accelerate the date on which any option may be exercised.
Each Option Agreement shall set forth when the unexercised portion of
any option granted under the Plan shall be terminated. To prevent dilution of
the rights of a holder of an option, the Plan provides for appropriate
adjustment of the number of shares for which options may be granted, the number
of shares subject to outstanding options and the exercise price of outstanding
options, in the event of any increase or decrease in the number of issued and
outstanding shares of Sun City's capital stock resulting from a stock dividend,
recapitalization or other capital adjustment of Sun City. Such adjustments shall
take place in the event the Merger and/or the Reverse Split are consummated. The
Committee or the Board has discretion to make appropriate antidilution
adjustments to outstanding options in the event of a merger, consolidation or
other reorganization of Sun City or a sale or other disposition of substantially
all Sun City's assets.
The Plan will expire in October 2007, and any option outstanding when
the Plan expires will remain outstanding until it expires or is exercised. The
Committee or the Board may amend the Plan or any option at any time, provided
that such amendment may not substantially impair the rights of an optionee under
an outstanding option without the optionee's consent. Any such amendment shall
be subject to shareholder approval if necessary under any federal law or state
law or regulation (including, without limitation, Rule 16b-3 or to comply with
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code") or
under the rules of any stock exchange or automated quotation system on which the
Sun City Common Stock may be listed or traded.
FEDERAL INCOME TAX CONSEQUENCES
The Plan is not qualified under the provisions of section 401(a) of the
Code, as amended (the "Code"), and is not subject to any of the provisions of
the Employee Retirement Income Security Act of 1974, as amended.
NONQUALIFIED STOCK OPTIONS. On exercise of a nonqualified stock option
granted under the Plan, an Optionee will generally recognize ordinary income
equal to the excess, if any, of the fair market value on the date of exercise of
the shares of Common Stock acquired on exercise of the Option over the exercise
price. That income will be subject to the withholding of Federal income tax. The
Optionee's tax basis in those shares will be equal to their fair market value on
the date of exercise of the Option, and his holding period for those shares will
begin on that date.
If an Optionee pays for shares of Common Stock on exercise of an Option
by delivering shares of the Company's Common Stock, the Optionee will not
recognize gain or loss on the shares delivered, even if their fair
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market value at the time of exercise differs from the Optionee's tax basis in
them. The Optionee, however, otherwise will be taxed on the exercise of the
Option in the manner described above as if he had paid the exercise price in
cash. If a separate identifiable stock certificate is issued for that number of
shares equal to the number of shares delivered on exercise of the Option, the
Optionee's tax basis in the shares represented by that certificate will be equal
to his tax basis in the shares delivered, and his holding period for those
shares will include his holding period for the shares delivered. The Optionee's
tax basis and holding period for the additional shares received on exercise of
the Option will be the same as if the Optionee had exercised the Option solely
in exchange for cash.
Sun City will be entitled to a deduction for Federal income tax
purposes equal to the amount of ordinary income taxable to the Optionee,
provided that amount constitutes an ordinary and necessary business expense for
Sun City and is reasonable in amount, and either the employee includes that
amount in income or Sun City timely satisfies its reporting requirements with
respect to that amount.
INCENTIVE STOCK OPTIONS. The Plan provides for the grant of stock
options that qualify as "incentive stock options" as defined in section 422 of
the Code. Under the Code, an Optionee generally is not subject to tax upon the
grant or exercise of an incentive stock option. In addition, if the Optionee
holds a share received on exercise of an incentive stock option for at least two
years from the date the Option was granted and at least one year from the date
the Option was exercised (the "Required Holding Period"), the difference, if
any, between the amount realized on a sale or other taxable disposition of that
share and the holder's tax basis in that share will be long-term capital gain or
loss.
If, however, an Optionee disposes of a share acquired on exercise of an
incentive stock option before the end of the Required Holding Period (a
"Disqualifying Disposition"), the Optionee generally will recognize ordinary
income in the year of the Disqualifying Disposition equal to the excess, if any,
of the fair market value of the share on the date the incentive stock option was
exercised over the exercise price. If, however, the Disqualifying Disposition is
a sale or exchange on which a loss, if realized, would be recognized for Federal
income tax purposes, and if the sales proceeds are less than the fair market
value of the share on the date of exercise of the Option, the amount of ordinary
income recognized by the Optionee will not exceed the gain, if any, realized on
the sale. If the amount realized on a Disqualifying Disposition exceeds the fair
market value of the share on the date of exercise of the Option, that excess
will be short-term or long-term capital gain, depending on whether the holding
period for the share exceeds one year.
An Optionee who exercises an incentive stock option by delivering
shares of Common Stock acquired previously pursuant to the exercise of an
incentive stock option before the expiration of the Required Holding Period for
those shares is treated as making a Disqualifying Disposition of those shares.
This rule prevents "pyramiding" the exercise of an incentive stock option (that
is, exercising an incentive stock option for one share and using that share, and
others so acquired, to exercise successive incentive stock options) without the
imposition of current income tax.
Only employees of Sun City or its subsidiaries qualify for the tax
treatment applicable to incentive stock options. Thus, optionees who are
non-employee advisers or consultants to Sun City will be taxed solely under the
rules applicable to nonqualified stock options.
Sun City is not allowed an income tax deduction with respect to the
grant or exercise of an incentive stock option or the disposition of a share
acquired on exercise of an incentive stock option after the Required Holding
Period. However, if there is a Disqualifying Disposition of a share, Sun City is
allowed a deduction in an amount equal to the ordinary income includible in
income by the Optionee, provided that amount constitutes an ordinary and
necessary business expense for Sun City and is reasonable in amount, and either
the employee includes that amount in income or Sun City timely satisfies its
reporting requirements with respect to that amount.
IMPORTANCE OF CONSULTING TAX ADVISER. The information set forth above
is a summary only and does not purport to be complete. In addition, the
information is based upon current Federal income tax rules and therefore is
subject to change when those rules change. Moreover, because the tax
consequences to any Optionee
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may depend on his particular situation, each Optionee should consult his tax
adviser as to the Federal, state, local and other tax consequences of the grant
or exercise of an Option or the disposition of Common Stock acquired on exercise
of an Option.
VOTE REQUIRED AND RECOMMENDATION
The affirmative vote of a majority of the shares of Sun City Common
Stock present at the Annual Meeting in person or by proxy will be required for
approval of the Plan at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF SUN CITY'S
1997 STOCK OPTION PLAN.
ELECTION OF DIRECTORS
(PROPOSAL 4)
Sun City's Bylaws provide that the number of directors constituting Sun
City's Board of Directors shall consist of not less than three members and no
more than nine members, the exact number of directors to be determined from time
to time by resolution adopted by the Board of Directors. The Board of Directors
has fixed at three the number of directors that will constitute the Board for
the ensuing year, subject, however, to a change in the number of directors and
the persons constituting the Board upon consummation of the Merger. Each
director elected at the Annual Meeting will serve for a term expiring at Sun
City's next Annual Meeting of Shareholders, expected to be held sometime in
1998, or until his successor has been duly elected and qualified or until the
consummation of the Merger, whichever first occurs. Each of Sun City's current
three directors, Malvin Avchen, Saul Zalka and Charles Ostrow, has been
nominated to be reelected as a director at the Annual Meeting by the holders of
Sun City Common Stock and proxies will be voted for such persons absent contrary
instructions. See "Management of Sun City."
The Board of Directors has no reason to believe that any nominee will
refuse to act or be unable to accept election; however, in the event that a
nominee for a directorship is unable to accept election or if any other
unforeseen contingencies should arise, it is intended that proxies will be voted
for the remaining nominees and for such other person as may be designated by the
Board of Directors, unless it is directed by a proxy to do otherwise.
HOWEVER, PLEASE BE ADVISED THAT IF THE MERGER IS APPROVED AND
CONSUMMATED, UPON CLOSING OF THE MERGER THE BOARD OF DIRECTORS OF SUN CITY WILL
BE REPLACED WITH PERSONS OTHER THAN THE CURRENT DIRECTORS. SEE "OPERATION,
MANAGEMENT AND BUSINESS OF SUN CITY AFTER THE MERGER--MANAGEMENT OF SUN CITY"
FOR A DESCRIPTION OF THE NEW DIRECTORS AND EXECUTIVE OFFICERS OF SUN CITY THAT
WILL TAKE OFFICE UPON THE CLOSING OF THE MERGER. IF THE MERGER OCCURS, SUCH
PERSONS WILL TAKE OFFICE, NOTWITHSTANDING THAT THE SHAREHOLDERS OF SUN CITY
ELECT OTHER DIRECTORS AT THE ANNUAL MEETING.
AMENDMENT TO LIMIT DIRECTOR LIABILITY
(PROPOSAL 5)
Directors of corporations may become subject to substantial personal
liability for acts or omissions in their capacities as directors as well as
significant expenses in defending lawsuits related to their conduct as
directors. The proliferation of litigation involving the personal liability of
directors coupled with the significantly increased costs and reduced coverage of
directors' liability insurance has generally had an adverse effect on the
ability of corporations to attract and retain well-qualified directors.
Accordingly, Sun City's Board of Directors has approved and proposed an
amendment to Sun City's Certificate of Incorporation that would eliminate
directors' liability in certain circumstances as permitted under applicable law
and thereby enhance Sun City's ability to attract and retain qualified
directors.
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Under the Delaware General Corporation Law (the "DGCL"), the business
and affairs of a corporation are managed by or under the direction of a board of
directors. The directors owe to the corporation and its stockholders fundamental
duties of loyalty and care. The duty of care requires that directors exercise
informed business judgment in discharging their duties to the corporation and
its stockholders. To this end, directors must be reasonably informed as to
material information concerning the corporation's business and affairs and must
act with requisite care in discharging their duties. The duty of loyalty
requires that, in making a business decision, the directors must exercise their
powers in the corporation's best interests, and not in the directors' own
interest to the extent the duty of loyalty is violated.
Although directors may be held personally liable for the breach of
these duties, the DGCL permits corporations under certain circumstances to
indemnify directors against expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement incurred by a director in connection with
an action, suit, or proceeding to which he or she has been or is threatened to
be made a party by reason of the fact that he or she is or was a director. The
DGCL also requires corporations to indemnify directors against expenses incurred
in the successful defense of such an action, suit, or proceeding. Sun City's
Certificate of Incorporation similarly provides for such indemnification. See
"Description of Sun City Capital Stock-Certain Provisions of Delaware Law and
Sun City's Certificate of Incorporation." Sun City's Certificate of
Incorporation also permits Sun City to purchase insurance on behalf of directors
against any liability or expense asserted against a director in his or her
capacity as a director regardless of whether Sun City would have the power to
indemnify him or her against such liability or expense. Due to the generally
high cost of such insurance, Sun City currently maintains only a limited amount
of insurance for its directors and officers (aggregate coverage approximately
$2,000,000, subject to deductibles and other limitations), although Sun City may
increase or decrease such coverage in the future.
The Board of Directors believes that the high cost and uncertainty of
maintaining adequate directors' and officers' insurance could have an adverse
effect on the ability of Sun City to attract and retain qualified persons to
serve as directors.
In response to concerns about the increasing difficulty of retaining
qualified directors due to liability concerns, and the increasing cost and
decreasing availability of adequate insurance, the Delaware legislature amended
the DGCL to permit corporations to provide additional protection for directors
against personal liability. Section 102(b)(7) of the DGCL, which became
effective in 1986, enables corporations to adopt amendments to their
certificates of incorporation eliminating or limiting the liability of directors
to the corporation or its stockholders for monetary damages for breach of
fiduciary duties as a director, but not for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for payment of a dividend or approval of a stock
repurchase in violation of Section 174 of the DGCL, or (iv) for any transaction
from which the director derived an improper personal benefit. Section 102(b)(7)
has no effect on the availability of equitable remedies, such as an injunction
or rescission, for breach of fiduciary duties.
Sun City's Board of Directors has adopted a resolution proposing an
amendment, subject to stockholders' approval, of Sun City's Certificate of
Incorporation to add a new Article thereto which would eliminate directors'
liability to the full extent permitted by applicable law, including Section
102(b)(7) of the DGCL. The proposed amendment, if approved, will read as
follows:
To the full extent permitted by the General Corporation Law of
the State of Delaware or any other applicable laws presently
or hereafter in effect, no director of the corporation shall
be personally liable to the corporation or its stockholders
for or with respect to any acts or omissions or breach of
fiduciary duty in the performance of his or her duties as a
director of the corporation. Any repeal or modification of
this Article shall not adversely affect any right or
protection of a director of the corporation existing hereunder
prior to such repeal or modification.
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As permitted under Section 102(b)(7) of the DGCL, the amendment would
thus eliminate a director's personal liability to Sun City and its stockholders
for monetary damages for certain breaches of such director's duty of care,
subject to the limitations of Section 102(b)(7) described above. If the proposed
amendment is adopted, Sun City and its stockholders would be precluded from
obtaining monetary damages against directors of Sun City resulting from the
directors' breach of their duty of care, to the extent such liability is
eliminated under Section 102(b)(7) of the DGCL and the proposed amendment. Sun
City's stockholders would, however, still be entitled to bring an action seeking
to enjoin a director or directors from breaching his or their duty of care.
The Board of Directors believes that adoption of the proposed amendment
to the Certificate of Incorporation will benefit Sun City and its stockholders
by enhancing Sun City's ability to attract and retain well-qualified directors.
Further, although there can be no assurance of a reduction in
directors' and officers' liability insurance rates available to Sun City or an
increase in the availability of coverage as a result of the proposed amendment,
the Board of Directors believes that its adoption may have a favorable impact on
the availability and cost of such insurance. Finally, if such insurance is not
available on satisfactory terms or is prohibitively expensive, the proposed
amendment would provide protection not otherwise available. Of course, by the
very nature of the proposed amendment, the directors have a personal interest in
its adoption, at the potential expense of stockholders of Sun City.
If the proposed amendment is adopted, directors of Sun City will not be
further protected by reason of such amendment against liability for acts or
omissions prior to the effective date of the amendment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THIS
PROPOSAL 5.
REVERSE STOCK SPLIT
(PROPOSAL 6)
The Board of Directors of Sun City is seeking stockholder approval of
this proposal, which it has unanimously approved, to amend the Sun City's
Certificate of Incorporation to implement a Reverse Split of Sun City Common
Stock in the range between one-for-two and one-for-ten, inclusive, to be
effected in the event the Board of Directors determines that such a Reverse
Split is necessary or advisable at any time within one year from the date of the
Annual Meeting, with the exact size of the Reverse Split to be determined by the
Board of Directors. As described below, the effect of the Reverse Split would be
to reduce the number of outstanding shares of Sun City Common Stock to between
50% and 10% of the number of shares outstanding prior to the Reverse Split. If
the Reverse Split is approved by the holders of the Sun City Common Stock at the
Annual Meeting and the Board subsequently determines to implement the Reverse
Split, the Reverse Split will be effected by the filing of an amendment to Sun
City's Certificate of Incorporation, substantially in the form set forth below
under the caption "Text of Amendment to Certificate of Incorporation." Although
the Merger Agreement contemplates that the Reverse Split will occur prior to the
Merger, the parties subsequently agreed that the Reverse Split may occur, if at
all, at any time (either before or after the Merger) during the period and in
the manner described in this proposal.
The Board is seeking stockholder approval of this Reverse Split
proposal in advance of a definitive decision by the Board to implement the
Reverse Split in order for Sun City to be able to more promptly respond to
developments that the Board, in its discretion, determines makes such Reverse
Split necessary or advisable. The Company's Common Stock is listed and traded on
the American Stock Exchange ("AMEX"). AMEX maintains certain standards for
continued listing and trading on AMEX, and AMEX may seek to delist securities of
a company for various reasons, including common stock selling for a substantial
period of time at low prices, sustained losses, or aggregate market value below
specified thresholds. In that regard, AMEX has notified Sun City that it has
failed to meet certain of such requirements and that AMEX may seek to delist the
Sun City Common Stock if Sun City's compliance is not improved. Due to Sun
City's failure to meet certain continued listing requirements, the Sun City
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Common Stock was suspended from trading by AMEX from May 19 to May 29, 1997. The
closing price of Sun City Common Stock as reported on AMEX was $1.125 per share
on November 6, 1997. If the market price of Sun City Common Stock does not
improve following the closing of the Merger, or if other listing requirements
are not met, the Sun City Common Stock could be delisted and cease to be traded
on AMEX. In that regard, it is not unlikely that AMEX may require Sun City to
effect a Reverse Split as a condition to continued listing on AMEX, for the
purpose of thereby causing the price per share of Sun City Common Stock to
increase for better compliance with AMEX's listing requirements. In order to be
in a position to more promptly respond to such a request by AMEX, Sun City is
seeking shareholder authorization to implement the Reverse Split. In addition,
the Board believes that the Reverse Split may be otherwise necessary or
advisable in order to improve the liquidity and marketability of Sun City Common
Stock, and to respond to future opportunities which may arise to raise
additional capital, based upon future developments in the business affairs of
the Company, of the market and of the economy. It is possible, however, that
liquidity of the Sun City Common Stock could be affected adversely by the
reduced number of shares outstanding after the Reverse Split. Furthermore, there
can be no assurance that any Reverse Split will occur or that the market price
of the Sun City Common Stock upon implementation of the proposed Reverse Split
will increase by any anticipated amount or at all or will be maintained for any
period of time. Even if a Reverse Split is implemented, there can be no
assurance that Sun City will be in compliance with AMEX's listing requirements.
Accordingly, even if the Reverse Split is approved by the stockholders there can
be no assurance that the Sun City Common Stock will continue to be traded on
AMEX or any other stock market or exchange. If the Sun City Common Stock is
delisted by AMEX, certain negative effects could likely result, including
possible reductions in the liquidity and value of Sun City Common Stock. See
"Risk Factors-Risk of Stock Exchange Delisting; Negative Effect on Stock
Liquidity and Value."
The Reverse Split will not be implemented automatically if the
stockholders approve this Reverse Split proposal. If approved at the Annual
Meeting, implementation of the Reverse Split will occur only upon a subsequent
decision by the Board, in its discretion within one year of the date of the
Annual Meeting, to implement the Reverse Split. All references to the effects
of, and other descriptions of, the Reverse Split in this Proxy Statement will
only apply if the Reverse Split is approved by the stockholders and subsequently
implemented by the Board. In addition, the exact size of the Reverse Split of
the Sun City Common Stock will be fixed by the Board in the range between
one-for-two and one-for-ten, inclusive, if and at the time the Board determines
to implement the Reverse Split. The Reverse Split will become effective only in
the event the Board, in its discretion at any time within one year after the
date of the Annual Meeting, determines that the Reverse Split is necessary or
desirable, and directs one or more officers of Sun City to file a Certificate of
Amendment to Sun City's Certificate of Incorporation with the Secretary of State
of the State of Delaware. If this Reverse Split proposal is adopted by the
stockholders at the Annual Meeting, no further authorization or approval by the
stockholders would be required in order for the Board to implement the Reverse
Split. This discussion of the Reverse Split is qualified in its entirety by
reference to the specific language of the proposed amendment to Sun City's
Certificate of Incorporation to effect a Reverse Split, which is set forth below
under the caption "Text of Amendment to Certificate of Incorporation."
If the Reverse Split is approved by the holders of Sun City Common
Stock at the Annual Meeting and thereafter implemented by the Board, an
amendment to Sun City's Certificate of Incorporation, in substantially the form
set forth below, would be filed with the Secretary of State of the State of
Delaware to effect the Reverse Split. The Reverse Split would become effective
as of 5:00 p.m. on the date of such filing (the "Reverse Split Date"). The
Reverse Split would have a ratio between 2 and 10 (the "Split Ratio"), as
determined by the Board in its discretion, (i.e., the Split Ratio is the number
of pre-split outstanding shares of Sun City Common Stock that would be converted
into each whole share of common stock outstanding after the Reverse Split).
Without any further action on the part of Sun City or the holders of the Sun
City Common Stock, the shares of Sun City Common Stock held by stockholders of
record as of the Reverse Split Date would be converted at 5:00 p.m. on the
Reverse Split Date into the right to receive an amount of whole shares of new
Sun City Common Stock (the "New Common Stock"), equal to the number of their
shares divided by the Split Ratio. For example, if the Split Ratio is 5, a
holder of 100 shares of Sun City Common Stock would have such shares converted
into 20 shares of New Common Stock as a result of the Reverse Split.
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The amendment to Sun City's Certificate of Incorporation will not
include an amendment to decrease the number of authorized shares of Sun City
Common Stock unless the Board in its discretion determines to include such a
decrease, which decrease will be proportionate to the decrease in the number of
outstanding shares resulting from the Reverse Split, or will be ANY LESSER
AMOUNT that may be selected by the Board of Directors. For example, if the
number of outstanding shares of Sun City Common Stock is reduced by 60% as a
result of the Reverse Split, the number of authorized shares will not decrease
as a result of the Reverse Split unless the Board determines that such a
decrease is in the best interests of Sun City. If the Board determines to reduce
the number of authorized shares in connection with such a Reverse Split, the
Board could select any decrease up to 60% of the authorized number of shares of
Sun City Common Stock (i.e., the largest decrease that the Board could effect
would result in a number of authorized shares equal to 40% of the authorized
shares prior to the Reverse Split, but the Board could instead select any
smaller decrease or no decrease at all). In deciding whether (and how much) to
decrease the number of authorized shares of Sun City Common Stock, the relevant
factors to be considered by the Board would likely include, among other things,
Sun City's need for available shares to be issued in future transactions such as
acquisitions, securities offerings, stock dividends, exercise of stock options,
etc. Other considerations would be the Board's evaluation of how Sun City's
capital structure (including the number of unissued shares) could affect the
market value of the Sun City Common Stock, and potential tax reductions
resulting from a decrease in the number of authorized shares. The approval of
this proposal by Sun City's shareholders at the Annual Meeting will constitute
the shareholders' approval of both the Reverse Split and the related reduction
in the number of authorized shares of Sun City's Common Stock, as determined and
implemented by the Board of Sun City within the limits specified in this
proposal.
No fractional shares of the New Common Stock will be issued to any
stockholder as a result of the Reverse Split. Instead, a stockholder who would
otherwise be entitled to receive a fractional share will receive, in lieu
thereof, cash in an amount equal to the product of (i) the fractional share,
multiplied by (ii) the average closing price per share of the Sun City Common
Stock on the American Stock Exchange on the five trading days immediately
following the Reverse Split Date.
The occurrence of the Reverse Split would not affect any continuing
stockholder's percentage ownership interest in Sun City or proportional voting
power, except for minor differences resulting from the payment in cash for
fractional shares. The shares of New Common Stock which would be issued upon
effectiveness of the Reverse Stock Split would be fully paid and nonassessable.
The voting rights and other privileges of the continuing holders of New Common
Stock would not be affected substantially by adoption of the Reverse Stock Split
or subsequent implementation thereof.
The Board believes that approval of this proposal to give the Board
authority to implement a Reverse Split within the specified range is desirable
so that, if the Board determines the Reverse Split is necessary or advisable, it
will be able to more promptly implement a Reverse Split without the delay and
expense of calling a special meeting of stockholders. The Board believes this
flexibility is important and in the best interest of the stockholders because it
will enable the Board to more promptly effect a Reverse Split if necessary to
continue the listing of Sun City's Common Stock on AMEX.
Based upon the approximately 46,491,900 shares of Sun City Common Stock
that Sun City currently anticipates will be outstanding upon the closing of the
Merger, the Reverse Split, if implemented, would reduce the number of
outstanding shares of Common Stock to between approximately 23,245,950 and
4,649,190, depending on the definitive Split Ratio selected by the Board and
subject to adjustment as a result of the elimination of fractional shares. The
Reverse Split would not affect the par value of the Sun City Common Stock, which
after the Merger will be $.01 per share, or the number of authorized shares of
Sun City Common Stock, which after the Merger will be 75,000,000 shares (unless
the Board determines to decrease the number of authorized shares as discussed
above). Because one effect of the Reverse Split will be to decrease the number
of shares of Sun City Common Stock outstanding without any increase in the par
value per share of the Sun City Common Stock, Sun City's stated capital account
could be reduced, and the account for aggregate capital in excess of par value
attributable to outstanding common stock could be correspondingly increased,
subject to applicable law as described in the following sentence. Under Delaware
law, the Board would have the authority, subject to certain limitations,
47
<PAGE>
to transfer some or all of such capital in excess of par value from capital to
surplus. Sun City presently anticipates that such a transfer of capital would be
likely to occur in connection with a Reverse Split, subject to applicable law
and the Board's discretion.
If the Reverse Split is implemented, then (depending on the exact Split
Ratio fixed by the Board) each outstanding option or warrant would generally be
adjusted pursuant to its terms to become an option or warrant, as the case may
be, to purchase between 50% and 10% of the number of shares subject to the
option or warrant immediately prior to the Reverse Split at an exercise price
which is two to ten times the exercise price of the option or warrant
immediately prior to the Reverse Split, subject to adjustment as a result of the
elimination of fractional shares. For example, if the Split Ratio is 5, a
pre-split option for 100 shares at $2.00 per share would become an option for 20
shares at $10.00 per share after the Reverse Split. In addition, the number of
shares available for issuance under Sun City's 1997 Stock Option Plan would be
reduced by between 50% to 90% to reflect the Reverse Split, subject to
adjustments required to eliminate fractional shares, and the other relevant
terms and provisions of Sun City's stock option plans and options thereunder
would be appropriately adjusted to reflect the Reverse Split.
If the Reverse Split is implemented, then the decrease in number of
shares of Sun City Common Stock outstanding and the corresponding decease in the
number of shares reserved for issuance pursuant to the exercise of options and
warrants will result in an increase in the number of unissued shares of Sun City
Common Stock available for issuance by the Board for raising additional capital,
stock options and warrants, acquisitions, stock splits, stock dividends or other
corporate purposes (however, such increase will be limited if and to the extent
that the Board in its discretion decreases the authorized number of shares
within the limits described above). The Board will determine whether, when and
on what terms future issuance of shares of Common Stock may be warranted. Like
the presently authorized but unissued shares of Common Stock, the additional
shares of Sun City Common Stock which would become available for issuance upon
the implementation of the Reverse Split would be available for issuance without
further action by Sun City's stockholders, unless such action is required by
applicable law or the rules of AMEX or any other stock exchange or stock market
on which the Sun City Common Stock may be listed in the future. Holders of Sun
City Common Stock have no preemptive rights to subscribe to or for any
additional shares of the Sun City Common Stock. Except in certain cases such as
stock dividends, the issuance of additional shares of Sun City Common Stock
would have the effect of diluting the voting power of existing stockholders. Sun
City has no present arrangements, commitments, understandings or agreements with
respect to the sale or issuance of any additional shares of Sun City Common
Stock, except in connection with outstanding options, warrants and other
convertible securities. Such increase in the number of Sun City's unissued
shares as a result of the Reverse Split could provide management with the means
to discourage a change of control, such as through the issuance to stockholders
of rights to purchase additional shares of common stock at bargain prices. As in
the case of other types of issuances, those intended to prevent or adversely
affect changes of control could be accomplished without further stockholder
approval. However, the Sun City board of directors has no present intention of
using additional authorized shares resulting from the Reverse Split for such a
purpose.
EXCHANGE OF STOCK CERTIFICATES
If the Reverse Split is consummated, as soon as practicable after the
Reverse Split Date Sun City will send a letter of transmittal to each
stockholder of record on the Reverse Split Date for use in transmitting
certificates representing shares of Sun City Common Stock ("Old Certificates")
to the Exchange Agent. The letter of transmittal will contain instructions for
the surrender of Old Certificates to the Exchange Agent in exchange for
certificates representing the appropriate number of whole shares of New Common
Stock. No new certificates will be issued to a stockholder until such
stockholder has surrendered all Old Certificates together with a properly
completed and executed letter of transmittal to the Exchange Agent.
Upon proper completion and execution of the letter of transmittal and
return thereof to the Exchange Agent, together with all Old Certificates,
stockholders will receive a new certificate or certificates representing the
number of whole shares of New Common Stock into which their shares of Sun City
Common Stock represented by the Old Certificates have been converted as a result
of the Reverse Split. Until surrendered, outstanding Old Certificates held by
stockholders will be deemed for all purposes to represent the number of whole
shares of New Common
48
<PAGE>
Stock to which such stockholders are entitled as a result of the Reverse Split.
Stockholders should not send their Old Certificates to the Exchange Agent until
they have received the letter of transmittal. Shares not presented for surrender
as soon as practicable after the letter of transmittal is sent shall be
exchanged at the first time they are presented for transfer.
TEXT OF AMENDMENT TO CERTIFICATE OF INCORPORATION
In the event this Reverse Split proposal is approved by the
stockholders at the Annual Meeting, and thereafter is implemented by the Board
of Directors within one year of the date of the Annual Meeting, then Sun City's
Certificate of Incorporation shall be amended by adding provisions substantially
as follows:
Effective as of 5:00 p.m., New York, New York time, on the date this
Certificate of Amendment to Certificate of Incorporation is filed with
the Secretary of State of the State of Delaware ("Reverse Split
Effective Date"), each [between two and ten, inclusive] issued and
outstanding share of common stock of this Corporation ("Pre-Split
Common Stock") shall be automatically, without further action by the
holders of the Pre-Split Common Stock, converted into one share of
common stock of the Corporation ("Post-Split Common Stock") to give
effect to a one-for-[between two and ten, inclusive] reverse stock
split ("Reverse Split"). From and after the Reverse Split Effective
Date, each certificate representing shares of Pre- Split Common Stock
shall be deemed to represent for all purposes the number of shares of
Post-Split Common Stock into which the shares of Pre-Split Common Stock
represented thereby were converted pursuant to the Reverse Split (plus
the right to receive a cash payment in lieu of any fractional share as
described below); provided, however, that each person holding of record
a stock certificate or certificates that represented shares of
Pre-Split Common Stock shall receive, upon surrender of such
certificate or certificates, a new certificate or certificates
evidencing and representing the number of whole shares of Post-Split
Common Stock into which such shares of Pre-Split Common Stock were
converted. No fractional shares of Post-Split Common Stock shall be
issued in connection with the Reverse Split. In lieu thereof, each
holder of record of shares of Pre-Split Common Stock who would
otherwise have been entitled to receive a fractional share of
Post-Split Common Stock pursuant to the Reverse Split shall, upon
surrender of such holder's certificates representing shares of
Pre-Split Common Stock, be entitled to receive a cash payment equal to
the product of (a) the fractional share, multiplied by (b) the average
closing price of the Post-Split Common Stock for the five (5) trading
days immediately following the Reverse Split Effective Date as reported
on the American Stock Exchange (or, if the Post-Split Common Stock is
not traded on such exchange, then the principal stock exchange, stock
market, or stock system on which the Post-Split Common Stock is traded)
or, if there is no reported sale on any such date, such average shall
be computed using the average of the last reported high and low bid
prices on such date, and such amount shall in no event accrue any
interest. From and after the Reverse Split Effective Date, all such
fractional interests shall represent only the right to receive the cash
payment described in this paragraph.
In the event that the Board of Directors of Sun City determines to
reduce the number of authorized shares of Sun City Common Stock within the
limits described above, Article FOURTH of Sun City's Certificate of
Incorporation will be amended accordingly by setting forth the reduced number of
authorized shares of Sun City Common Stock fixed by the Board as provided
herein, and such amendment will be included with the amendment to effect the
Reverse Split described above.
FEDERAL INCOME TAX CONSEQUENCES
The following summary is a general discussion of certain Federal income
tax consequences of the Reverse Split, if implemented, to stockholders of Sun
City. This summary is based upon Federal income tax laws, regulations, rulings
and decisions in effect as of the date hereof, all of which are subject to
change. Any change,
49
<PAGE>
which may or may not be retroactive, could alter the tax consequences set forth
herein. While this summary addresses the material Federal income tax
consequences of the Reverse Split, it does not discuss all aspects of Federal
income taxation that may be relevant to a particular shareholder in light of his
personal circumstances or to certain types of investors subject to special
treatment under the Federal income tax laws (for example, life insurance
companies, tax-exempt organizations, foreign investors, dealers in securities
and taxpayers subject to the alternative minimum tax) and does not discuss any
aspect of state, local or foreign tax laws. Sun City does not intend to apply
for a ruling from the IRS with respect to the Federal income tax consequences of
the Reverse Split.
Sun City believes that the Reverse Split would be a recapitalization
within the meaning of Section 368(a)(1)(E) of the Code. If the Reverse Split
constitutes a recapitalization, (i) a shareholder of Sun City would recognize no
gain or loss on the exchange of Sun City Common Stock for New Common Stock,
except in respect of cash received in lieu of a fractional share of New Common
Stock pursuant to the Reverse Split; (ii) the tax basis of the New Common Stock
received by the shareholder pursuant to the Reverse Split (treating the
shareholder for this purpose as receiving any fractional share of New Common
Stock in respect of which he receives cash) will be the same as his tax basis in
the Sun City Common Stock surrendered therefor; and (iii) the holding period of
the New Common Stock received pursuant to the Reverse Split will include the
period the shareholder held the Sun City Common Stock surrendered therefor;
provided he holds that Sun City Common Stock as a capital asset at the time of
the Reverse Split. A Sun City shareholder will recognize gain or loss on the
receipt of cash in lieu of a fractional share of New Common Stock. That gain or
loss, which will be equal to the difference between the amount realized for the
fractional share and the shareholder's basis in the fractional share, will be
capital gain or loss if the fractional share is held as a capital asset at the
time of its sale and will be long-term capital gain or loss if the holding
period for the fractional share at the time is more than one year.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY. SUN CITY SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN
TAX ADVISORS FOR MORE SPECIFIC AND DEFINITIVE ADVICE AS TO THE FEDERAL INCOME
TAX CONSEQUENCES TO THEM OF THE EXCHANGE OF THEIR SUN CITY COMMON STOCK FOR NEW
COMMON STOCK PURSUANT TO THE REVERSE SPLIT, AS WELL AS ADVICE AS TO THE
APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
VOTE REQUIRED AND RECOMMENDATION
The affirmative vote of a majority of the outstanding shares of Sun
City Common Stock will be required for approval of the proposed Reverse Split
and the related amendment to Sun City's Certificate of Incorporation. The
Reverse Split will not be implemented unless the Board determines to do so in
its discretion as described above.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE PROPOSED
REVERSE SPLIT AND THE RELATED AMENDMENT TO SUN CITY'S CERTIFICATE OF
INCORPORATION.
PRICE RANGE OF COMMON STOCK
MARKET FOR SUN CITY COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Sun City Common Stock has been traded on the American Stock Exchange
under the symbol "SNI." As of November 6, 1997, Sun City had 171 shareholders of
record. The following table sets forth, for the calendar periods indicated, the
reported high and low closing prices per share of Sun City Common Stock, as
reported by the American Stock Exchange. For current price information,
shareholders are encouraged to consult publicly available sources.
50
<PAGE>
<TABLE>
<CAPTION>
HIGH LOW
----------------- -----------------
<S> <C> <C>
1995
- ----
First Quarter: $5.375 $4.375
Second Quarter: $4.875 $3.375
Third Quarter: $4.375 $3.25
Fourth Quarter: $3.625 $2.00
1996
- ----
First Quarter: $3.125 $.375
Second Quarter: $3.125 $2.25
Third Quarter: $2.75 $1.875
Fourth Quarter: $1.625 $.75
1997
- ----
First Quarter: $1.375 $.75
Second Quarter: $1.9375 $.625
Third Quarter $1.5625 $.75
</TABLE>
On May 29, 1997, the trading day immediately preceding the public
announcement of the proposed Merger, the last reported closing price per share
of Sun City Common Stock was $1.625. On June 19, 1997, the trading day
immediately preceding public announcement that Sun City and SeaSpecialties had
signed the Merger Agreement, the last reported closing price per share of Sun
City Common Stock was $1.44.
DIVIDENDS. Sun City has not declared or paid any cash dividends on Sun
City Common Stock for many years and does not anticipate that any dividends will
be paid in the foreseeable future, whether or not the Merger is consummated. Sun
City's payment of dividends is restricted under the terms of its credit
facilities and similar restrictions are likely to be applicable to Sun City
following the Merger. See "Description of SeaSpecialties Capital Stock" for a
description of dividends by SeaSpecialties.
51
<PAGE>
SUN CITY SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data and working capital ratio)
The following selected financial data for the five years ended February
1, 1997, February 3, 1996, January 28, 1995, January 29, 1994 and January 31,
1993 are derived from the consolidated financial statements of Sun City
Industries, Inc. The financial data for the six months ended August 2, 1997 and
August 3, 1996 are derived from unaudited financial statements. The unaudited
financial statements include all adjustments, consisting of normal recurring
accruals, which Sun City Industries, Inc. considers necessary for a fair
presentation of the financial position and the results of operations for these
periods. Operating results for the six months ended August 2, 1997 and August 3,
1996 are not necessarily indicative of the results that may be expected for the
current fiscal year. The data should be read in conjunction with the
consolidated financial statements, related notes, and other financial
information included herein, and Sun City Management's Discussion and Analysis
of Financial Condition and Results of Operations.
<TABLE>
<CAPTION>
YEARS ENDED SIX SIX
-------------------------------------------------------- MONTHS MONTHS
FEB. 1, FEB. 3, JAN. 28, JAN. 29, JAN. 31, ENDED ENDED
1997 1996(2) 1995 1994 1993 8/2/97 8/3/96
--------- --------- --------- -------- - --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS: (unaudited)(unaudited)
Net Sales........................ $68,245 $91,085 $69,351 $66,098 $61,255 $34,326 $34,533
Income (Loss) Before Income Taxes (1,167) (2,761) (74) 238 (270) (1,817) 117
Net Income (Loss)................ (1,167) (2,761) (82) 222 (333) (1,817) 117
Net Income (Loss) per common share (0.81) (1.92) (0.06) 0.15 (0.23) (1.25) 0.08
Shares used in computation....... 1,448 1,439 1,437 1,477 1,436 1,448 1,448
OTHER DATA AT END OF
PERIOD
Working capital.................. $421 $4,142 $5,166 $5,019 $2,309 $1,114 $2,949
Working capital ratio............ 1.05 to 1 1.65 to 1 2.01 to 1 1.97 to 1 1.47 to 1 .87 to 1 1.61 to 1
Total assets..................... 12,447 14,930 16,288 14,011 10,853 9,995 12,472
Long-term obligations............ 5,410 8,097 7,675 5,400 2,880 4,257 6,745
Stockholders' equity (deficit)... (758) 356 3,064 3,087 2,812 (2,535) 525
</TABLE>
- --------------------
(1) See "Sun City Management's Discussion and Analysis of Financial
Condition and Results of Operations" for discussion of these items.
(2) Operating results for the year ended February 3, 1996 include 53 weeks
of financial information.
52
<PAGE>
SUN CITY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Sun City Industries, Inc. ("Sun City"), which began in 1949 as an egg
processing and marketing company, is presently primarily engaged in the
foodservice marketing and distribution business throughout much of the eastern
seaboard of the United States with a heavy concentration in Florida. In 1990,
Sun City began its expansion as a foodservice distributor that now includes four
centers in Florida covering the West Coast of Florida, Central Florida and
Southeast Florida from Key West to West Palm Beach. In addition, Sun City has
operations that distribute to markets in Atlanta, Georgia, Baltimore, Maryland,
Philadelphia, Pennsylvania and throughout New Jersey. Sun City's clientele
includes supermarkets, hotels, restaurants, airline caterers, cruise lines, and
schools.
The following discussion provides information which management believes
is relevant to an assessment and understanding of Sun City's operations and
financial condition. This discussion should be read in conjunction with the
consolidated financial statements and notes appearing herein.
RESULTS OF OPERATIONS
Sales for the fiscal years 1997, 1996 and 1995 were as follows:
% (Decrease)
Year Sales Increase
- ------ ----------------- ---------------
1997 $68,245,383 (25.1)%
1996 91,084,629 31.3%
1995 69,351,205 4.9%
Sales for the six months ended August 2, 1997 and August 3, 1996 were
as follows:
<TABLE>
Foodservice % of % of
Six Months Total Sales Division Total Egg Division Total
- -------------- -------------- ------------- ----------- -------------- --------
<S> <C> <C> <C> <C> <C>
1997 $34,326,102 $31,776,041 92.6% $2,550,061 7.4%
1996 34,532,847 31,541,839 91.3% 2,991,008 8.7
-------------- ------------- ----------- -------------- --------
Net Change $(206,745) $ 234,202 $(440,947)
</TABLE>
COMPARISON OF SIX MONTHS ENDED AUGUST 2, 1997 AND AUGUST 3, 1996
SALES:
FOODSERVICE:
Increased sales at the Sun City Produce division were $234,202 greater
than sales decreases in the other foodservice divisions.
EGGS:
53
<PAGE>
The decrease in sales of $440,947 results from a decrease of units sold
and lower selling prices on 3.4 million dozens sold.
COST OF GOODS SOLD:
Cost of goods sold include product cost and freight in costs.
During the six months, cost of goods sold increased $307,422. Cost of
sales were generally in line with Sun City's business except for the Gulf Coast
division which experienced reduced margins. The rate of change is influenced by
Sun City's overall customer and product mix, as well as the changes in market
prices which fluctuate from year to year.
OPERATING EXPENSES:
Operating expenses include warehousing and distribution costs.
During the six months operating expenses decreased $100,176 reflecting
minor changes in Sun City's business as compared to the same period of the prior
year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
During the six months, selling, general and administrative expenses
were up $181,138. The change reflects minor changes in all divisions plus costs
associated with the Congress default.
INTEREST EXPENSE:
Interest expense increased by $49,321 during the first six months. This
increase reflects a 2% greater cost for borrowing, offset by reduced borrowing
levels incurred with Sun City's primary lender.
INCOME TAXES:
Sun City accounts for income taxes in accordance with SFAS 109, under
which deferred tax liabilities are recognized for future taxable amounts and
deferred tax assets are recognized for future deductions and operating loss
carryforwards. A valuation allowance is recognized to reduce the entire net
deferred tax assets to the amounts that are more likely than not to be realized.
Sun City estimates that, after filing its fiscal 1997 tax return, it
will have loss carryforwards of approximately $5,500,000 expiring in the years
2009 through 2012.
NET (LOSS) EARNINGS:
For the six months the net loss amounted to $1,816,964 as compared to
net earnings of $116,765 for the same six months a year ago. The loss per share
is $1.25 versus a profit of $0.08 per share reported for the same period a year
ago.
The following table highlights certain factors contributing to the
differences in results of operations between the six months ended August 2, 1997
compared to the six months ended August 3, 1996.
54
<PAGE>
<TABLE>
<CAPTION>
Comparison of Six
Months Ended
August 2, 1997 to Six
Months Ended Change From
August 3, 1996 1996 to 1997 Explanations
- ------------------------ -------------- -----------------------------------------------------------------------
<S> <C> <C>
Foodservice Sales $(524,532) The impact of a 30% decline in six month sales at Gulf Coast
resulted in a loss of $236,679 compared to a profit of $42,036 for
the same period a year ago. The remainder results from decreases in
earnings of $96,000 in Georgia, Orlando and Fort Lauderdale,
$86,000 in New Jersey and $63,000 at Auburndale, all resulting from
Sun City's lack of capital that put added pressure on its ability to buy
competitively and its inability to discount its invoices.
Egg Marketing Sales (27,573) This decrease results from a decline of 307,000 units sold.
Loss On Planned (1,280,967) This reflects the estimated loss resulting from the disposal of the Gulf
Disposal Of A Coast subsidiary.
Subsidiary
Interest Expense (49,321) Interest expense increased due to higher rates during the six months
compared to a year ago.
All Other (51,336)
--------------
Net Difference $(1,933,729)
==============
</TABLE>
(LOSS) EARNINGS PER COMMON SHARE:
<TABLE>
Six Months Ended August 2, 1997 August 3, 1996
----------------------- ------------------------
<S> <C> <C>
(Loss) earnings per common share $ (1.25) $ .08
Average shares used in the computation 1,447,902 1,528,397
</TABLE>
COMPARISON OF FISCAL YEARS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 AND JANUARY
28, 1995
SALES:
For the fiscal year ended February 1, 1997, consolidated sales
decreased $22.8 million or 25.1%. Of this decrease $19.6 million resulted
directly from the sale and elimination of the three egg operations.
Additionally, a decrease in the size of the Gulf Coast operation offset net
sales increases in the other foodservice divisions.
55
<PAGE>
For the fiscal year ended February 3, 1996, consolidated sales
increased $21.7 million or 31.3%. Sales increased $16.9 million as a result of
the acquisition of Sheppard Foodservice on February 27, 1995. Sales increased
$7.6 million resulting from the start up of the Sun City Produce division on
June 19, 1995. Offsetting these increases was a $2.2 million decrease in sales
in the discontinued egg division, resulting in a 7.7 million decrease in units
sold.
COST OF SALES:
Cost of sales include product cost, warehousing, distribution and egg
processing costs. Cost of sales as a percentage of sales was 94.0% in fiscal
1997, 95.2% in fiscal 1996 and 92.3% in fiscal year 1995. Margins are influenced
by Sun City's overall customer and product mix shifting from primarily an egg
company to that of a foodservice company. The decrease in the cost of sales
percent in fiscal year 1997 was also the result of disposing of Sun City's egg
production operations and joint venture investments.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Selling, general and administrative expenses remained fairly constant
as a percentage of sales for fiscal 1997, 1996 and 1995, at 6.5%, 6.5% and 6.9%,
respectively.
During fiscal 1997, administrative costs decreased $1,494,875 due to
the elimination of Sun City's three egg divisions as well as a major reduction
in costs at Sun City's administrative home office. Management expects that as
Sun City's operations become more foodservice oriented, future direct selling,
general and administrative expenses, as a percentage of sales, will approximate
6.0% to 6.5%.
During fiscal 1996, overall selling, general and administrative
expenses increased $1,181,756 due to the addition of Sheppard Foodservice and
Sun City Produce.
INTEREST EXPENSE:
Interest expense decreased $151,308 in fiscal 1997. The lower interest
costs result primarily from the elimination of debt associated with the
disposition of Sun City's three egg operations offset by higher rates
experienced during the year.
Interest expense increased $392,396 in fiscal 1996. This increase
relates to debt associated with the Sheppard acquisition, the issuance of an
additional $700,000 in 9% Senior Convertible Subordinated Debentures in February
1995 and a 2.5% effective increase in average interest rates for fiscal year
1996 of 11.0% versus 8.5% for fiscal year 1995 associated with Sun City's
principal line of credit.
DISPOSITION OF EGG OPERATIONS:
During 1995, management implemented several strategic measures. These
measures included the disposition of three egg operations and related egg
production joint venture investments.
In September 1995, Sun City disposed of its Spring Grove, Pennsylvania
egg operations and related joint venture investment. In December 1995, Sun City
disposed of its Burgaw, North Carolina egg operations and related joint venture
investment and in January 1996, Sun City disposed of its Jarratt, Virginia egg
operations.
As a result of these sales and the operating losses sustained by these
operations during the year, Sun City recorded losses of approximately $1.6
million of which approximately $720,000 resulted from the disposition of
approximately $3.1 million of assets. During the year these operations generated
approximately $19.9 million in sales revenues.
On July 19, 1997 the egg division lost its primary customer and
virtually all its egg marketing business.
56
<PAGE>
INCOME TAXES:
Sun City accounts for income taxes in accordance with SFAS 109, under
which deferred tax liabilities are recognized for future taxable amounts and
deferred tax assets are recognized for future deductions and operating loss
carryforwards. A valuation allowance is recognized to reduce net deferred tax
assets to the amounts that are more likely than not to be realized.
Sun City estimates that, after filing its 1997 tax return, it will have
tax loss carryforwards of approximately $5,500,000 expiring in the years 2009
through 2012.
NET LOSS:
For the fiscal year ended February 1, 1997, a net loss of $1,167,087
resulted from the reasons discussed above and the following factors:
/bullet/ Higher effective interest rates and increase of legal and
audit fees, bank fees, and related costs associated with Sun
City's default with its major lender during the second half of
the fiscal year.
/bullet/ Reduced sales levels in the Gulf Coast operation which
adversely effected operating results.
/bullet/ An increased provision for bad debts and doubtful accounts.
/bullet/ Relocation costs, expenses and write-offs experienced with the
move of the Produce division to larger facilities during the
fiscal year.
For the fiscal year ended February 3, 1996, the net loss of $2,761,305
resulted from the reasons discussed above and the following factors:
/bullet/ Losses of $1,628,000 incurred as a result of the disposal of
assets relating to the disposition of the egg processing division
as well as losses incurred in egg operations during the fiscal
year.
/bullet/ An increase of approximately $420,000 of higher administrative
costs mainly associated with the management and disposition of
the egg operations.
/bullet/ Increased interest expense of $392,000 resulting from higher
interest rates with Sun City's primary lender as well as interest
associated with the Gulf Coast and Sheppard acquisitions.
Loss per common share for the fiscal years 1997, 1996 and 1995 was as
follows:
<TABLE>
1997 1996 1995
---------------- ---------------- --------------
<S> <C> <C> <C>
Loss per common share ($.81) ($1.92) ($.06)
Average shares used in the computation 1,447,902 1,438,952 1,437,165
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As shown in the accompanying
financial statements, during the years ended February 1, 1997 and February 3,
1996, Sun City incurred net losses of $1,167,087 and $2,761,305, respectively,
and as of August 2, 1997 Sun City had a stockholders' deficit of $2,535,440.
These factors, among others, indicate that Sun City may be unable to continue as
a going concern.
57
<PAGE>
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts and classification
of liabilities that might be necessary should Sun City be unable to continue as
a going concern. As described in Note F of Sun City's audited financial
statements for fiscal 1997 included in this Proxy Statement, Sun City is not in
compliance with several provisions of its line of credit agreement and the
lender has placed significant operating and financing restrictions on Sun City
pursuant to a forbearance agreement. Sun City's continuation as a going concern
is dependent upon its ability to generate sufficient cash flow to meet its
obligations on a timely basis, to comply with the terms and covenants of its
financing agreements, to obtain additional financing or refinancing as may be
required, and ultimately to attain successful operations. Management anticipates
that Sun City's consolidated financial position and results of operations will
be significantly improved as a result of and following the Merger. However,
whether or not the Merger is consummated, there can be no assurance that
management's efforts to improve Sun City's financial condition will ultimately
be successful or that Sun City will be able to continue as a going concern.
During fiscal 1997, Sun City:
Was placed in default by its major lender as a result of over-advances
the lender made to Sun City which were not secured by assets of Sun City. As a
result of the default, Sun City's stated interest rate on this debt increased
from 2.25% over the prime rate in fiscal 1996 to 4.25% over the prime rate in
fiscal 1997.
On December 16, 1996, signed a Forbearance Agreement with its primary
lender which extends the existing line of credit until March 30, 1998, agreed to
a repayment schedule that permits Sun City to operate and fund its business
under certain limitations and conditions and provides the lender additional
collateral in the form of its North Carolina and Virginia real estate.
Failed to make its regular semi-annual interest payments on its $1.4
million principal amount of Senior Subordinated Convertible Debentures. Although
Sun City is in monetary default, its Debenture holders have not indicated they
will place Sun City in default. On the contrary, the Debenture holders have
cooperated with Sun City in Sun City's attempts to raise additional capital
through a direct investment or through a qualified merger partner, and have
signed agreements to convert the Debentures into shares of Sun City Common Stock
as contemplated by the Merger.
Did not fully satisfy the American Stock Exchange's guidelines for
continued listing and was temporarily suspended from trading. Accordingly, there
can be no assurance that the listing will be continued.
On May 20, 1997, Oak Crest Enterprises, Inc. ("Oak Crest"), a
subsidiary of Sun City, borrowed $251,500 from a SeaSpecialties affiliate and
received a mortgage for the Hawthorne, Florida property. Sun City also signed an
option agreement to sell its New Jersey operations to such lender. See "Risk
Factors -- Certain Affiliated Transactions." Subsequent to fiscal 1997, Oak
Crest borrowed an additional $155,852 against the same mortgage. Oak Crest
subsequently repaid $100,000.
On May 29, 1997, Sun City announced that it had entered into
preliminary merger discussions with SeaSpecialties, and on June 17, 1997 signed
a definitive merger agreement for the proposed Merger with SeaSpecialties. Upon
consummation of the Merger, Mr. Harvey Oxenberg, Chairman and C.E.O. of
SeaSpecialties, in a stock for stock transaction, will own a majority of the
outstanding stock of Sun City, and SeaSpecialties will become a wholly owned
subsidiary of Sun City. See "The Merger."
In June, 1997, Sun City and its subsidiary Gulf Coast Foodservice, Inc.
("Gulf Coast") received a notice of default and intent to sue from WL & HM, Inc.
under a promissory note evidencing the balance of the purchase price for the
foodservice business purchased by Gulf Coast in 1993. The note was secured by
fixed assets, trademarks, tradenames, business names and utility deposits,
pursuant to a security agreement. Sun City was the guarantor of such note and of
lease obligations of Gulf Coast, to an affiliate of WL & HM, Inc., which lease
obligations were cross-defaulted with the promissory note.
58
<PAGE>
On August 31, 1997, Sun City closed its Gulf Coast operations, and sold
its inventory to an affiliate of WL & HM, Inc. On September 25, 1997, Gulf Coast
and Sun City entered into and closed an agreement with WL & HM, Inc. and others,
under which Gulf Coast transferred its remaining tangible personal property,
telephone numbers, and utility and security deposits to an affiliate of WL & HM,
Inc. in exchange for a covenant by WL & HM, Inc. not to sue under the promissory
note and an assumption or payoff by WL & HM, Inc. of certain debt of Gulf Coast
encumbering some of the purchased assets. Gulf Coast and Sun City were released
from all obligations under the lease except for certain environmental
indemnifications. Gulf Coast retained and is attempting to collect its
receivables, and intends to use the net proceeds to retire debt secured by
receivables, with any balance to be applied first to debt claims under the
Perishable Agricultural Commodities Act, and then to unsecured debt. It is
anticipated that the receivables will not generate sufficient funds to pay
unsecured debt. The holders of Sun City's Senior Convertible Subordinated
Debentures have agreed to contribute up to $200,000 towards payment of certain
liabilities of Gulf Coast if the Merger is consummated, in exchange for Sun
City's agreement to grant to such holders options to purchase one share of Sun
City Common Stock for each dollar contributed by such holders for payment of
Gulf Coast's debts. Such options will be granted as and when such funds are
distributed and will have an exercise price equal to the market price of Sun
City Common Stock on the date of grant. See "Business of Sun City -- Legal
Proceedings."
COMMITMENTS:
As of July 31, 1997, Sun City had no commitments for capital
expenditures.
During fiscal 1996, Sun City:
Disposed of property, plant and equipment and related joint venture
investments relating to its Spring Grove, Pennsylvania, Burgaw, North Carolina,
and Jarratt, Virginia, egg production and processing operations. This resulted
in a reduction in fixed assets and capital lease obligations of $1,543,663 and
$503,031, respectively.
Acquired Sheppard Distributors, Inc. of Auburndale, Florida for
$1,350,000. This resulted in goodwill of $450,000.
Surrendered certain key man life insurance policies, the net proceeds
of which were used to purchase new split dollar and paid up deferred
compensation policies.
Completed its second private placement offering by raising an
additional $700,000 in five year Senior Subordinated Convertible Debentures
carrying a fixed 9% interest rate, convertible at $5.125 per share.
Expanded its credit facility with its major lender from $7.0 million to
$7.5 million. The credit facility is solely for Sun City's working capital
needs.
As of February 3, 1996, Sun City did not meet the minimum net worth
requirement required by its lending arrangement. The lender increased the
interest rate on the line of credit by an additional quarter of one percent.
DETERIORATING FINANCIAL CONDITION OF SUN CITY
As discussed to some extent above, the financial condition of Sun City
has continued to decline. While Sun City typically experiences a seasonal
decline in sales and operating profits beginning after the Easter/Passover
season and continuing through Thanksgiving, the current year's results are
substantially worse than normal and Sun City's net worth has declined to
($2,535,440) as of August 2, 1997. The major factors in this decline have been
the continuing liquidity problems that arose during fiscal 1996, with the
disposal of Sun City's egg processing operations and joint ventures, and during
fiscal 1997 with the default on the Congress Financial credit facility. The new
credit criteria established by Congress Financial following the default in
August, 1996, has severely restricted Sun City's ability to pay its vendors on
regular terms.
59
<PAGE>
While higher sales levels during the months of November 1996 to March,
1997, created funding sufficient to pay down the Congress Financial overadvance
from $1.1 million to $300,000, as well as reducing the debt level owed to
Congress Financial, the requirements imposed by such lender resulted in a
reduction of the outstanding balance on the Congress Financial credit facility
to $1.275 million as of October 10, 1997, but reducing cash available for
operations. Further, available funding under the Congress Financial facility
fell from approximately $1.6 million per week in March, 1997 to approximately
$800,000 per week during October, 1997. These factors, along with the annual
seasonable sales decline, made it more difficult for Sun City to purchase
inventory from vendors, leaving Sun City with insufficient inventory available
for sale to customers even at reduced seasonal levels, resulting in even lower
sales volume.
These adverse circumstances were compounded with the passing of Mr.
Gustave Minkin, as a result of which Sun City lost all of its egg marketing
operations. The adverse effect of this loss was partially offset by the proceeds
of key man insurance on Mr. Minkin.
The most serious consequences of these adverse developments has been
the closing of the Gulf Coast Foodservice operation and default on the deferred
purchase price obligations owed with reference to the Sheppard Foodservice
operation. See "Sun City Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources" and
"Business of Sun City - Legal Proceedings."
60
<PAGE>
SEASPECIALTIES SELECTED FINANCIAL DATA
(In thousands, except share data and ratios)
The following selected financial data have been derived from the
financial statements of SeaSpecialties. The data as of and for the eight-month
period ended December 31, 1996 and each of the years ended April 30, 1996, 1995
and 1994 are derived from SeaSpecialties's audited Financial Statements. The
data as of and for the eight months ended December 31, 1995, the years ended
April 30, 1993 and 1992, and the six months ended June 30, 1997 and 1996 are
derived from SeaSpecialties's unaudited Financial Statements. In the opinion of
management, this data includes all adjustments (consisting of only normal
recurring adjustments) necessary for a fair presentation of the information set
forth therein. The results of operations for the six months ended June 30, 1997
are not necessarily indicative of the results that may be expected for the full
year. The following data should be read in conjunction with SeaSpecialties's
Consolidated Financial Statements and related notes, "SeaSpecialties
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the other financial information included elsewhere herein.
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31,(2) YEAR ENDED APRIL 30, JUNE 30,
--------------------- -------------------------------------------------- ------------------
1996 1995 1996 1995 1994 1993 1992 1997 1996
--------- --------- ---------- ------- -------- -------- ------- -------- --------
(unaudited) (unaudited)(unaudited)(unaudited)(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL(1)
Net Sales........ $22,655 $19,337 $32,960 $31,216 $30,611 $27,892 $28,141 $18,338 $17,496
Net Income (Loss)
Before Income
Taxes........ (308) 177 240 435 1,006 (234) 718 184 (174)
Net Income (Loss) (192) 114 145 94 393 (130) 487 115 (109)
Net Income (Loss)
per common
share)....... (33.87) 20.00 25.61 16.55 69.25 (22.89) 85.74 20.20 (19.13)
Shares used in
computation.. 5,680 5,680 5,680 5,680 5,680 5,680 5,680 5,680 5,680
OTHER DATA AT
END OF PERIOD
Working capital.. $1,659 $2,028 $1,483 $2,312 $2,189 $2,942 $3,923 $1,845 $1,304
Working capital
ratio........ 1.26 1.26 1.22 1.40 1.42 1.62 2.01 1.32 1.21
Total assets..... 12,454 14,022 12,928 12,068 9,978 9,417 9,327 12,078 12,424
Long-term
obligations.. 1,481 1,363 1,350 1,552 40 525 1,161 1,692 1,371
Stockholders'
equity....... 4,518 4,900 4,932 4,786 4,692 4,137 4,268 4,609 4,695
</TABLE>
- -------------------------
(1) Effective May 1, 1996 SeaSpecialties became an S Corporation for income
tax purposes. As a result, periods subsequent to May 1, 1996 reflect a
pro forma provision (benefit) for income taxes as if SeaSpecialties
were a C Corporation subject to federal and state corporate income
taxes.
(2) In May 1996, SeaSpecialties changed its year end from April 30 to
December 31.
61
<PAGE>
SEASPECIALTIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
SeaSpecialties, Inc., founded in 1954, is a processor and distributor
of fresh, frozen, smoked and pickled seafood products, whose products are
marketed through it own sales staff and by independent sales representatives to
supermarkets and grocery chains, restaurants, cruise lines and bagel shops.
SeaSpecialties has offices and processing and distribution centers in Miami,
Fort Lauderdale and Plantation Key, Florida. SeaSpecialties' products are sold
throughout the United States with a high concentration of sales in Florida,
Southern California and the Northeast region of the United States.
RESULTS OF OPERATIONS
The following table sets forth certain information relating to
SeaSpecialties's operations expressed as a percentage of SeaSpecialties's net
sales:
<TABLE>
<CAPTION>
SEASPECIALTIES, INC.
SUMMARY FINANCIAL INFORMATION
FOR THE SIX MONTHS FOR THE EIGHT MONTHS
FOR THE YEAR ENDED APRIL 30, ENDED JUNE 30, ENDED DECEMBER 31,
------------------------------ ------------------ -------------------
1996 1995 1994 1997 1996 1996 1995
-------- -------- ---------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NET SALES........................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
COST OF SALES....................... 78.9% 77.0% 76.7% 78.5% 79.6% 78.1% 77.7%
-------- -------- ---------- -------- -------- --------- --------
Gross Profit...................... 21.1% 23.0% 23.3% 21.5% 20.4% 21.9% 22.3%
-------- -------- ---------- -------- -------- --------- --------
COSTS AND EXPENSES:
Delivery.......................... 3.7% 3.4% 3.4% 3.4% 3.8% 3.6% 3.8%
Selling........................... 3.4% 3.7% 3.9% 4.2% 3.6% 3.8% 3.7%
General and administrative ....... 12.4% 13.9% 12.0% 12.8% 13.1% 15.3% 13.2%
-------- -------- ---------- -------- -------- --------- --------
Income (loss) from operations... 1.6% 2.0% 4.0% 1.1% (0.1%) (0.8%) 1.6%
-------- -------- ---------- -------- -------- --------- --------
OTHER INCOME (EXPENSES)
Interest income................... 0.3% 0.2% 0.2% 0.2% 0.3% 0.4% 0.3%
Interest expense.................. (1.1%) (0.9%) (0.9%) (0.6%) (1.1%) (1.0%) (1.1%)
Other income...................... 0.0% 0.0% (0.0%) 0.3% (0.1%) (0.0%) 0.2%
Total other income (expenses)... (0.8%) (0.7%) (0.7%) (0.1%) (0.9%) (0.6%) (0.6%)
Income (loss) before provision f
income taxes............ or 0.8% 1.3% 3.3% 1.0% (1.0%) (1.4%) (1.0%)
PROVISION FOR INCOME TAXES 0.3% 1.1% 2.0% 0.0% 0.2% 0.5% 0.3%
Net income (loss) before pro forma 0.5% 0.2% 1.3% 1.0% (1.2%) (1.9%) 0.7%
PRO FORMA ADJUSTMENTS TO
REFLECT INCOME TAXES............ 0.0% 0.0% 0.0% 0.4% (0.5%) 1.0% 0.0%
-------- -------- ---------- -------- -------- --------- --------
Pro Forma net income (loss)....... 0.5% 0.2% 1.3% 0.6% (0.6%) (0.9%) 0.7%
======== ======== ========== ======== ======== ========= ========
</TABLE>
COMPARISON OF SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND 1996
For the 1997 six-month period net sales were $18.3 million as compared
to $17.5 million in the comparable period. This represents an increase of
approximately $840,000, or 4.8%. Management believes that a portion of such
increase may be due to greater efforts to increase sales to targeted customers.
Cost of Sales were $14.4 million, or 78.5% of net sales, for the 1997
six-month period, as compared to $13.9 million, or 79.6% of net sales, for the
comparable 1996 period.
For the 1997 six-month period, gross profit was $3.9 million, or 21.5%
of net sales, as compared to $3.6 million, or 20.4% of net sales, for the
comparable 1996 period.
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<PAGE>
Delivery expenses were $630,000, or 3.4% of net sales, for the six
months ended June 30, 1997, as compared to $665,000, or 3.8% of net sales, for
comparable period. This represents a decrease of $36,000, or 5.3%. During the
six months ended June 30, 1997, truck-leasing costs decreased enabling
SeaSpecialties to reduce delivery expenses while increasing sales volume.
For the six months ending June 30, 1997, selling expenses were
$764,000, or 4.2% of net sales, as compared to $627,000, or 3.6% of net sales,
for the comparable period. This increase of $136,000, or 21.7%, is a direct
result of increased payroll, travel, and brokers commissions. Payroll increased
approximately 10% as a result of an increase in employees.
General and administrative expense was approximately $2.3 million, or
12.8% of net sales, for the first six months of 1997, and $2.3 million, or 13.1%
of net sales, for the comparable 1996 period. During 1997, there was a decrease
in payroll, which was offset with increases in legal and audit expenses, taxes
and licenses, and the reserve for doubtful accounts.
For the six-months ending June 30, 1997, income from operations was
$205,000, or 1.1% of net sales, as compared to a loss of $9,000 for the
comparable 1996 period. Higher sales and gross profit led to the increase in
income from operations.
In 1997, interest expense of $114,000, or 0.6% of net sales, reflects a
reduction of $80,000 from the $194,000, or 1.1% of net sales, of interest
expense in the comparable 1996 period. The reduced interest expense is a direct
result of lower borrowing requirements during the period.
Income before provision for income taxes was $184,000, or 1.0% of net
sales, for the first six months of 1997, as compared to a loss of $174,000 for
the comparable period in 1996. Increased revenues, with higher gross margins and
lower interest costs resulted in a positive change of over $357,000.
As of May 1, 1996, SeaSpecialties elected to be treated as a
sub-chapter S Corporation and therefore does not record any provision, or
benefit, for income taxes. For 1996 comparative statement purposes,
SeaSpecialties has applied an imputed tax rate of 37.5% to the income before
income taxes.
Pro forma net income for the 1997 six-month period of $115,000 is a
$224,000 improvement over the 1996 six-month period pro forma net loss of
$109,000.
COMPARISON OF EIGHT-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1995
For the 1996 eight-month period, net sales were $22.7 million, which
represents a $3.3 million increase, or 17.1%, over the 1995 eight-month period
sales of $19.3 million. This increase was due to a concentrated effort to
increase sales of fresh and frozen product. Also, in 1996 SeaSpecialties
acquired its Casa Mar division.
Cost of sales were $17.7 million, or 78.1% of net sales, for the 1997
eight-month period, as compared to $15.0 million, or 77.7% of net sales, for the
comparable 1996 period.
For the 1996 period, gross profit was $5.0 million, or 21.9% of net
sales, as compared to $4.3 million, or 22.3% of net sales, for the comparable
1995 period. Increased sales volume was the contributing factor to the increase
in gross profit, while gross profit margins decreased by 0.4% mostly due to
product mix between fresh and processed fish.
Delivery expenses were $804,000, or 3.6% of net sales, for the
eight-month period ending December 31, 1996, as compared to $744,000, or 3.8% of
net sales for the comparable 1995 period. Higher sales volume generated a dollar
increase in delivery expenses, although being a lower percentage to sales due to
increased efficiencies.
63
<PAGE>
For the eight-month period ending December 31, 1996, selling costs of
$860,000, or 3.8% of net sales, were $141,000 higher than the comparable 1995
period's of $719,000, or 3.7% of net sales. This is a direct result of the
management's efforts to increase sales and gross margin.
For the 1996 period, general and administrative expenses were $3.5
million, or 15.3% of net sales, as compared to $2.6 million, or 13.2% of net
sales, in the 1995 period. Included in the 1996 results were increased salaries,
the implementation of a new executive non-qualified retirement plan, an increase
in the reserve for doubtful accounts, and a non-recurring expense of $431,000
pertaining to the buy-out of a former owner.
Income from operations for the eight-month period ending December 31,
1996, was a loss of $166,000, as compared to income of $295,000, or 1.6% of net
sales, for the comparable 1995 period. The decrease in income from operations
was generated by the increase in general and administrative costs, including the
above referenced non-recurring charge pertaining to the buy-out.
For the eight months ending December 31, 1996, interest expense was
$216,000, or 1.0% of net sales, as compared to $209,000, or 1.1% of net sales,
for the comparable 1995 period. The Company monitors its receivables, inventory
levels and cash usage to minimize interest expense.
For the eight months ending December 31, 1996, income before provision
for income taxes was a loss of $308,000, as compared to the comparable 1995
period income of $177,000, or 1.0% of net sales due to the nonrecurring expense
pertaining to the buy-out of a former owner.
As of May 1, 1996, SeaSpecialties elected to be treated as an S
Corporation for federal income tax purposes and therefore does not record any
provision, or recovery, for income taxes. For 1996 comparative statement
purposes, SeaSpecialties has applied an imputed tax rate of 37.5% to the income
before income taxes.
Pro forma net income for the 1996 period was a loss of $192,000, as
compared to net income of $114,000, or 0.7% of net sales, the comparable 1995
period due to the nonrecurring expense pertaining to the buy-out of a former
owner.
COMPARISON OF TWELVE-MONTH PERIODS ENDED APRIL 30, 1996 AND 1995
For the twelve-months ending April 30, 1996 net sales were $33.0
million, as compared to $31.2 million for the twelve-months ending April 30,
1995. Management believes that the $1.7 million, or 5.6%, increase in net sales
volume is a result of efforts to increase volume for all products, in all
markets.
For the 1996 period, cost of sales were $26.0 million, or 78.9% of net
sales, as compared to $24.0 million, or 77.0% of net sales, for the comparable
1995 period. The 1996 period increase in cost of sales pertains to the mix of
product as is discussed in the following gross profit paragraph.
For the 1996 period, the gross profit was $6.9 million, or 21.1% of net
sales, as compared to $7.2 million, or 23.0% of net sales. Management believes
that the change in product mix between fresh and processed fish generated the
lower average gross profit percent. Generally the sale of processed fish will
result in a higher gross profit than fresh fish.
Delivery expenses were $1.2 million, or 3.7% of net sales, for the
twelve months ended April 30, 1996, as compared to $1.0 million, or 3.4% of net
sales, for the same time period in the prior year. This represents an increase
of approximately $169,000, or 16.1%. Management believes that the increase in
delivery expenses is attributable to the increase in volume. During this time
period management recognized that delivery expenses were increasing and embarked
upon a more efficient delivery system utilizing less vehicles. The results of
these changes are reflected in the results for subsequent periods.
For the 1996 period, selling expenses were $1.1 million, or 3.4% of net
sales, as compared to $1.1 million, or 3.7% of net sales, for the comparable
1995 period.
64
<PAGE>
General and administrative expenses were $4.1 million, or 12.4% of net
sales, for the twelve months ending April 30, 1996, as compared to $4.4 million,
or 13.9% of net sales, for the comparable 1995 period. During the 1996 period,
reductions were achieved in salary and other expenses and legal and audit
expenses.
For the twelve months ending April 30, 1996, income from operations was
$492,000, or 1.6% of sales, as compared to $643,000, or 2.0% of net sales, for
the comparable 1995 period. Management believes that the decrease in income from
operations is mostly attributable to the change in product mix.
For the 1996 period, interest expense of $351,000, or 1.1% of net
sales, reflects an increase of $69,000 from the $282,000, or 0.9% of net sales,
of interest expense in the comparable 1995 period. The increase in interest
expense was attributable to having higher average cash requirements during the
period.
Income before income taxes for the twelve months ending April 30, 1996,
was $240,000, or 0.8% of net sales, as compared to $435,000, or 1.3% of net
sales, for the comparable 1995 period.
As of May 1, 1996, SeaSpecialties elected to be treated as a
sub-chapter S Corporation and therefore does not record any provision for income
taxes. For the 1996 period, for comparative presentation purposes,
SeaSpecialties has applied an imputed income tax rate 37.5% to the income before
income taxes. For the 1995 period, the provision for income taxes was $341,000,
or 78.4% of income before income taxes. During the 1995 period, SeaSpecialties
recorded a nonrecurring tax expense of approximately $200,000 resulting from a
settlement with the Internal Revenue Service.
Net income for the twelve months ending April 30, 1996 was $145,000, or
0.3% of net sales, as compared with the comparable 1995 period of $94,000, or
0.2% of net sales.
COMPARISON OF TWELVE-MONTH PERIODS ENDED APRIL 30, 1995 AND 1994
For the twelve-months ending April 30, 1995 net sales were $31.2
million, as compared to $30.6 million for the twelve-months ending April 30,
1994.
For the 1995 period, cost of sales were $24.0 million, or 77.0% of net
sales, as compared to $23.5 million, or 76.7% of net sales, for the comparable
1994 period. SeaSpecialties was able to maintain a stable cost of sales.
For the 1995 period, the gross profit was $7.2 million, or 23.0% of net
sales, as compared to $7.1 million, or 23.3% of net sales for the 1994 period.
Delivery expenses were $1.0 million, or 3.4% of net sales, for the
twelve months ended December 31, 1995, as compared to $1.0 million, or 3.4% of
net sales, for the comparative period.
For the 1995 period, selling expenses were $1.1 million, or 3.7% of net
sales, as compared to $1.2 million, or 3.9% of net sales, in the comparable 1994
period. The reduction was attributed to lower payroll costs and the elimination
of a retail store in 1995.
General and administrative expenses were $4.4 million, or 13.9% of net
sales, for the twelve months ending April 30, 1995, as compared to $3.7 million,
or 12.0% of net sales, for the 1994 period. Increases in salary costs, deferred
compensation expenses, legal and audit expenses, and increased rent expense
accounted for the higher general and administrative expenses.
For the twelve months ending April 30, 1995, income from operations was
$643,000, or 2.0% of net sales, as compared to $1.2 million, or 4.0% of net
sales, for the comparable 1994 period. The decrease in income from operations
was attributed to the increase in general and administrative expenses.
For the 1995 period, interest expense of $282,000, or 0.9% of net
sales, was comparable to $280,000, or 0.9% of net sales, for the comparable 1994
period.
65
<PAGE>
Income before provision for income taxes for the twelve months ending
April 30, 1995, was $435,000, or 1.3% of net sales, as compared to $1.0 million,
or 3.3% of net sales, for the comparable 1994 period.
For the twelve months ending April 30, 1995, the provision for income
taxes was $341,000, or 78.4% of income before provision for income taxes. This
compares to the 1994 provision for income taxes of $613,000, or 60.9% of income
before provision for income taxes. During 1995 and 1994, the effective tax rates
were increased because SeaSpecialties recorded additional tax expenses
pertaining to a settlement with the Internal Revenue Service.
Net income for the twelve months ending April 30, 1995 was $94,000, or
0.2% of net sales, as compared with the comparable 1994 period of $393,000, or
1.3% of net sales.
LIQUIDITY AND CAPITAL RESOURCES
Currently SeaSpecialties' financing arrangement with Barnett Bank is
adequate to cover the needs of the business. Since a large concentration of its
business is in Florida, the sales volume increases during the winter months with
the increase in the population to this part of the United States. In fiscal
1997, SeaSpecialties upgraded its corporate offices which capital expenditures
did not exceed $100,000. In connection with the Merger, SeaSpecialties is in the
process of negotiating a new Senior Secured Credit Facility which is expected to
include a revolving line secured by receivables and inventory, and a term debt
secured by other assets, both of which would bear interest at rates lower than
the rates paid by Sun City to its primary lender.
66
<PAGE>
BUSINESS OF SUN CITY
BACKGROUND
As a result of a 1990 Stock Redemption, a new Executive Management team
took over operating control of Sun City. The Executive Team developed a business
plan and began its implementation during fiscal year 1993. The plan concentrated
on Sun City's foodservice operations where Management believed opportunities
existed for growth through mergers and acquisitions as well as geographical and
product line expansion.
1) GENERAL DEVELOPMENT OF THE BUSINESS
a) Sun City was founded in 1949 as an egg distributor. Sun City went
public in 1966 to raise cash to expand its basic business and make
acquisitions. Sun City made its first acquisitions in 1969, an egg
producer located in Florida and an egg processor located in Georgia.
Sun City moved into foodservice distribution in late 1969 with the
acquisition of Certified Poultry & Egg Co. of Miami, Florida. In 1970
and 1971, Sun City made several other acquisitions of egg distribution
and processing companies. During the late 1970's, Sun City acquired its
second egg production company located in Wilson, North Carolina. During
this period, Sun City's primary focus was the production, processing
and marketing of eggs.
b) Sun City's egg operations grew throughout the 1970's and 1980's. Sun
City also experienced rapid internal growth in its sole foodservice
business unit, which revenues grew from approximately $1.5 million in
1969 to over $10 million by 1979. Sun City expanded its foodservice
operations by opening an Orlando foodservice distribution center in
1982. Sun City disposed of all its own egg production operations by
1989 due to the volatile nature of the raw egg supply in the industry.
In the early 1990's, Sun City's new management team began
implementation of a plan to build a network of foodservice companies
serving the Southeastern United States with a primary focus on Florida.
In 1991, Sun City acquired William F. O'Brien, Inc. and Diversified
Foods, Inc., both of Fort Lauderdale, Florida and Gilley's Sausage Co.,
Inc. of Winston, Georgia. In 1993, Sun City acquired Gulf Coast Food
Distributors, Inc. located in Port Richey, Florida.
c) In February 1995, Sun City acquired Sheppard Distributors, Inc. of
Auburndale, Florida.
d) In June 1995, Sun City started its wholesale produce division in
Pompano Beach, Florida. By the fiscal year ending February 1, 1997,
sales had grown to $13.4 million.
e) During fiscal year 1993, Sun City was faced with severe shortages in
its supply of eggs, creating substantial losses in its egg division. In
an attempt to protect the profitability of its egg division, Sun City
developed a program of investing in egg producing joint ventures,
creating a steady supply of eggs for the egg processing operations. Sun
City completed the joint venture program in fiscal year 1993, resulting
in increased profitability in its egg division in 1993 and 1994.
However, the highly cyclical nature of the egg industry led to reduced
profitability during late 1994 and all of 1995. Company management,
realizing that Sun City's competitive position in the egg production
and processing business was declining, made the decision to exit the
egg business allowing management to focus its attention solely on the
egg marketing and foodservice distribution business. By January 1996,
Sun City divested all of its egg production joint ventures and egg
processing businesses.
f) Today, Sun City has a customer base generating annualized sales volume
of approximately $55 million in highly desirable markets. Sun City's
primary areas of distribution span from Naples to the Panhandle on the
west coast of Florida, and from Tampa to Orlando to Daytona in Central
Florida. Sun City's South Florida market area stretches along the east
coast from West Palm Beach to Dade, Broward and Monroe counties.
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<PAGE>
A summary of sales by business segment for the fiscal years 1997, 1996
and 1995 is as follows:
1997 1996 1995
- ---------------------------------------- ---------- ----------- ----------
Foodservice Division 90.7% 71.4% 59.2%
Egg Division and Other 9.3% 28.6% 40.8%
2) Description of segments in developmental stage - None.
3) Sources and Availability of Merchandise - Sun City believes that the
relationship with its suppliers has been adequate but is currently
declining given Sun City's current liquidity problems.
4) Patents, trademarks, licenses, franchises held. Sun City has registered
the trademark "Sunpride" for dairy products and nonalcoholic drinks,
with the United States Patent and Trademark Office.
5) Seasonal impact on Sun City's consolidated business:
The majority of Sun City's business is now located within the
State of Florida and since the state's primary business is
tourism, Sun City's sales and business is affected by the
influx of tourists and visitors that inhabit Florida from
Thanksgiving to Easter each year. As a result, Sun City's
quarterly sales revenues reflect this seasonal variation.
<TABLE>
<CAPTION>
FISCAL
1997 SALES
-----------
<S> <C>
First Quarter (February - April 1996) $19,354,904
Second Quarter (May - July 1996) 15,177,943
Third Quarter (August - October 1996) 16,063,150
Fourth Quarter (November 1996 - January 1997) 17,649,386
</TABLE>
6) Sun City was able to turn its resale inventory 25 times during the
fiscal year ended February 1, 1997 and maintain its outstanding average
receivables at the 31 day level.
Sun City does not maintain large amounts of inventory to meet customer
requirements nor does it provide extended payment terms to its
customers.
7) During the fiscal years ended February 1, 1997, February 3, 1996 and
January 28, 1995, sales to Sun City's major customer were 9.3%, 7.5%
and 9.5%, respectively, of consolidated sales; and sales to the next
leading customer were 6.3%, 5.5% and 7.2%, respectively, of
consolidated sales.
Although Sun City's relationships with many of its major customers are
long standing, Sun City generally does not have contracts with its
customers and, accordingly, such customers have no legal obligation to
continue purchasing from Sun City. Sun City believes that its
relationships with its customers are good and that the loss of one of
its major customers would have only a temporary adverse effect on its
business. During the fiscal year ended February 1, 1997, approximately
91% of Company's total sales were made to about 4,000 institutional
customers located in Florida, Georgia, Pennsylvania, New Jersey, New
York, Washington D.C. and Maryland. During fiscal years ended February
3, 1996 and January 28, 1995, these sales amounted to approximately 71%
and 60%, respectively of its total sales.
8) Sun City has no backlog of orders.
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<PAGE>
9) Government contracts subject to renegotiation or termination - None.
10) The foodservice industry is both highly competitive and is comprised of
a large number of competing entities. Management does not believe Sun
City is a significant factor in any of its lines of business.
11) Sun City had no expenditures for research and development during the
fiscal years ended February 1, 1997, February 3, 1996 and January 28,
1995.
12) Sun City has not had to make any expenditures in connection with
compliance with environmental regulations. However, Oak Crest
Enterprises, Inc., a subsidiary of Sun City has received notification
by the county that are possibly non-compliance issues.
13) Sun City (including its wholly-owned subsidiaries) had 170, 300 and 310
employees at the end of fiscal years 1997, 1996 and 1995, respectively.
PROPERTIES
<TABLE>
<CAPTION>
LOCATION OWNER/TENANT FACILITIES
- -------- ------------ ----------
<S> <C> <C>
1. Miami, Florida Owner Plant complex comprising approximately 10,125 sq. ft.
of land and improvements. Currently, the facility is not
being utilized and is being held for sale.
2. Hawthorne, Florida Owner A 183 acre farm complex remains, consisting of 6 acres
of lakefront property including one residence of 3,350
sq. ft.; 10 acres comprising a 5,041 sq. ft. feed mill
complex including storage tanks, a warehouse and its
own offices; and a 15,400 sq. ft. warehouse. During
the first quarter of fiscal 1993 all operations were
discontinued and the property was listed for sale.
During fiscal 1997, 20 acres were sold.
3. Burgaw, North Owner Plant complex comprising approximately 18,300 sq. ft.
Carolina of land and improvements of which 12,100 sq. ft.
is for general operations, 5,200 sq. ft. is refrigerated, and
1,000 sq. ft. is office space. Sun City was a tenant of
Pender County Industrial Development Corporation
under purchase option lease. During the 1993 fiscal
year, the debt on this facility was paid in full and as
such title to the property was deeded over to Sun City
by the Pender County Industrial Development
Corporation. Operations ceased during December 1995.
This facility is currently being leased out.
4. Jarratt, Virginia Owner Plant complex comprising approximately 17,500 sq. ft.
on 5.72 acres of land of which 12,000 sq. ft. is used for
warehousing and distribution, 4,400 sq. ft. is
refrigeration, and 1,100 sq. ft. is office space.
Operations ceased on January 31, 1996. This property
has been listed for sale.
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<PAGE>
5. Orlando, Florida Tenant Plant complex comprising approximately 7,200 sq. ft. of
warehouse. Sun City is a tenant at a monthly rental of
$1,830 under a lease expiring on November 30, 1997.
This facility is adequate and being fully utilized.
6. Fort Lauderdale, Tenant Plant complex comprising 15,556 sq. ft. including Sun
Florida City's executive and administrative offices and its
Certified Poultry & Egg Foodservice operations. The
plant includes 5,000 sq. ft. of refrigerated space, 4,608
sq. ft of dry warehouse space and 5,942 sq. ft. of
operations and administrative offices. Sun City is a
tenant, at a current monthly rental of $8,982, under a
lease expiring on January 9, 2000. The lease has a 5%
yearly escalation. This facility is adequate for Sun
City's needs.
7. Atlanta, Georgia Owner Plant complex comprising approximately 5,000 sq. ft.
of coolers, freezers and office space on 2.5 acres of
land. This facility is adequate and is being fully
utilized.
8. Port Richey, Florida Tenant The operation of this facility was terminated in August,
1997 in connection with the sale of assets of Gulf Coast
Foodservice, Inc. See Sun City Management's
Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital
Resources."
9. Auburndale, Florida Tenant Plant complex comprising approximately 15,000 sq. ft.
of which 10,000 sq. ft. is refrigerated, 3,000 sq. ft. is
warehouse and 2,000 sq. ft. is office space. Sun City is
a tenant, at a monthly rent of $3,500 under a lease
expiring February 26, 1998. This facility is adequate
and being fully utilized.
10. Burlington, New Tenant Plant complex comprising approximately 14,900 sq. ft.
Jersey of which 7,000 sq. ft. is refrigerated, 5,400 sq. ft. is
warehouse and 2,500 sq. ft. is office space. Sun City is
a tenant, at a monthly rent of $2,607 under a lease
expiring August 31, 1997. This facility is adequate and
being fully utilized.
11. Pompano Beach, Tenant Plant complex comprising of approximately 20,800 sq.
Florida ft. of which approximately 90% is refrigerated. Sun
City is a tenant, at a monthly rent of $13,779 under a
lease expiring May 31, 1999. This facility is adequate and
being fully utilized.
</TABLE>
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<PAGE>
LEGAL PROCEEDINGS
Sun City presently is party to one legal proceeding which could have
had a material adverse effect on Sun City, and Sun City recently settled another
potential legal proceeding. In addition, Sun City and its subsidiary Gulf Coast
Foodservice, Inc. have been sued by several trade creditors of Gulf Coast
Foodservice for amounts due and owing such creditors, as described further
below.
SHEPPARD FOOD SERVICE, INC.
On June 16, 1997, a suit was filed in Broward County, Florida, Circuit
Court against Sun City's subsidiary, Sheppard Foodservice, Inc., and Sun City
alleging a default by Sheppard Foodservice, Inc. in its obligations to make
purchase price payments under the January 31, 1995 Asset Purchase Agreement
under which Sheppard Foodservice, Inc. acquired its business from Sheppard
Distributors, Inc., a Florida corporation now known as Page & McKean, Inc. Sun
City is the guarantor of the obligations of Sheppard Foodservice under the Asset
Purchase Agreement. The plaintiffs also sought a declaratory judgment that the
alleged default released the plaintiffs from certain noncompete agreements given
in connection with the Asset Purchase Agreement.
The deferred purchase price obligation under the above Asset Purchase
Agreement is evidenced only by that Agreement and not by a promissory note. The
Asset Purchase Agreement provides that within 90 days of each anniversary of
closing, starting in 1996 and ending in 1998, a computation is to be made of the
average annual net profit (as defined in the Asset Purchase Agreement) of
Sheppard Foodservice, Inc. since the February, 1995 closing under the Asset
Purchase Agreement. The computed figure is multiplied by a factor of 4.5 (on
average annual net profit up to $400,000) or 5.5 (on average annual net profit
exceeding $400,000), and a percentage of that product, adjusted for amounts paid
at closing and amounts paid at any prior anniversary, is due by the 90th day
after the then current anniversary of closing. Twenty-five percent of the
updated computed balance is due in the years 1996 and 1997, with fifty percent
of the final computed balance due in 1998 and the remainder one year thereafter.
Sheppard Foodservice, Inc. paid $252,500 on this obligation in 1996, and
estimates that the remaining payments will approximate $600,000.
The Asset Purchase Agreement provides for the deferred purchase price
obligation to be secured by a first lien on the tangible personal property
acquired by Sheppard Foodservice, Inc. at the closing under the Asset Purchase
Agreement, including furniture, furnishing, machinery, apparatus, equipment,
fittings and fixtures. The collateral also includes any trademarks, tradenames
or business names used by, and any utility security deposits of Sheppard
Foodservice, Inc. The collateral does not include inventory or accounts
receivable, which are pledged to Sun City's primary lender.
The complaint filed in the above litigation seeks only money damages
relating to the payment due on May 27, 1997, which the plaintiffs estimated to
be in excess of $150,000. Since the deferred portion of the purchase price under
the Asset Purchase Agreement is not a fixed amount, but is computed with
reference only to ongoing average annual net profits of Sheppard Foodservice,
Inc., there is no fixed amount owed that could be accelerated because of the
default, and the complaint does not seek any such remedy.
Since the plaintiffs originally filing the lawsuit are shareholders of
Page & McKean, Inc., the defendants filed a motion to dismiss for failure to
state a cause of action, on grounds that the plaintiffs are not the proper
parties to bring suit for the alleged default. The plaintiffs then filed an
amended complaint substituting Page & McKean, Inc. as the plaintiff, which the
defendants challenged as improper on procedural grounds. The plaintiffs have
filed a second amended complaint, and the defendants have answered admitting the
allegations as to the monetary defaults, but denying that such defaults release
the individual plaintiffs from their noncompete agreements.
Should the plaintiff prevail in the litigation it is likely that the
defendants would be unable to pay such a judgment and that Sheppard Foodservice,
Inc. would suffer the total loss of its business through enforcement of such
judgment and anticipated reaction by Sun City's primary lender, which holds a
first security interest in the inventory
71
<PAGE>
and receivables of Sheppard Foodservice, Inc. In fiscal 1996-1997, Sheppard
Foodservice had sales and operating revenue of $15,160,239, with a net profit of
$300,700.
The parties have entered into settlement negotiations, and Sun City is
hopeful that a settlement will be reached to defer the payment of such amounts
until the closing of the Merger, but there can be no assurance that a settlement
will occur.
GULF COAST FOODSERVICE, INC.
In July, 1997, Sun City and its subsidiary Gulf Coast Foodservice,
Inc. ("Gulf Coast") received from WL & HM, Inc., a Florida corporation which
sold its food service business to Gulf Coast in 1993, notice of default and
intent to sue under a promissory note evidencing the balance of the purchase
price for such business. Sun City was the guarantor of such note. Such matter
has been settled as described in "Sun City Management's Discussion & Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources,"2 which settlement involved the transfer of certain of the Gulf Coast
operations back to the seller.
Also, several trade creditors of Gulf Coast have filed lawsuits in
various courts against Gulf Coast and Sun City for amounts owed them by Gulf
Coast. One of these lawsuits, filed in federal court, involves a claim in excess
of $22,000 under the Perishable Agricultural Commodities Act, for which Sun City
would be liable as the owner of Gulf Coast. The total amounts in controversy in
these lawsuits is approximately $110,000. See "Sun City Management's Discussion
& Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources,"
72
<PAGE>
MANAGEMENT OF SUN CITY
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of Sun City are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ----------------------------------- --------------- -------------------------------------------------------------
<S> <C>
Malvin Avchen 63 Chairman of the Board and Chief Executive Officer
Saul Zalka 62 President, Chief Operating Officer and Director
Syed Jafri 53 Treasurer and Controller
Charles Ostrow 84 Director
</TABLE>
Set forth below is a biographical description of each executive officer
based on information supplied by them:
Malvin Avchen has served as Chairman of the Board and Chief Executive
Officer since 1990. Mr. Avchen served as Vice President and Chief Financial
Officer of Sun City from 1972 to April 1990 and as a Director of Sun City since
1972. Mr. Avchen has been a Certified Public Accountant since 1963 and is
currently a member of the American Institute of C.P.A.'s and Florida Institute
of C.P.A.'s.
Saul Zalka was appointed President of Sun City in June 1997 and has
served as Chief Operating Officer of Sun City since 1990. Mr. Zalka served as
Vice President of Institutional Operations from 1970 to April 1990 and as a
Director of Sun City since 1981. Mr. Zalka's wife, Ivy Zalka, is Administrative
Vice President and Assistant Secretary of Sun City.
Syed Jafri has served as Sun City's Treasurer since 1990 and served as
Sun City's Controller since 1975.
Charles Ostrow has been a member of Sun City's Board of Directors since
1978. He is a retired Certified Public Accountant and a member of the American
Institute of C.P.A.'s and the New York State Society of C.P.A.'s.
Sun City's Bylaws provide that the Sun City Board of Directors shall
consist of not fewer than three nor more than nine members. The Sun City Board
has currently fixed at three the number of directors that will constitute the
Sun City Board. Each director of Sun City is elected for a period of one year
and serves until his successor is duly elected and qualified. If the proposed
Merger is approved by shareholders and consummated, the members of Sun City's
Board of Directors and Sun City's officers will change. See "Operation,
Management and Business of Sun City after the Merger" and "Election of
Directors."
The executive officers of Sun City are elected by the Sun City Board of
Directors and serve at the pleasure of the Sun City Board, subject to the terms
of their respective employment agreements, including severance rights. See "Sun
City Executive Compensation -- Employment Agreements and Termination of
Employment and Change in Control Arrangements."
COMPENSATION OF DIRECTORS
73
<PAGE>
Each director who is not an employee of Sun City receives an attendance
fee of $500 per meeting. In addition, all directors are reimbursed for
out-of-pocket expenses incurred by them in attending Board or committee
meetings.
INFORMATION CONCERNING THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors of the Corporation has standing Audit,
Compensation and Nominating Committees.
AUDIT COMMITTEE: The Audit Committee currently consists of Messrs.
Ostrow and Avchen. Mr. Ostrow serves as Chairman of the Committee. The Audit
Committee held one meeting during the last fiscal year. The Audit Committee is
responsible for reviewing the adequacy of the structure of Sun City's financial
organization and the implementation of its financial and accounting policies.
The Audit Committee reviews the results of operations and the auditors
recommendations for internal control and procedure. In addition, the Audit
Committee reviews the results of the audit performed by Sun City's outside
auditors before the Annual Report to Stockholders is published.
COMPENSATION COMMITTEE; INTERLOCKS AND INSIDER PARTICIPATION: The
Executive Compensation Committee currently consists of Messrs. Zalka and Ostrow.
Mr. Zalka serves as Chairman of the Committee. The Compensation Committee is
responsible for reviewing and making recommendations to the Board on
compensation, incentive programs, stock options and benefit programs for
officers and senior executives of Sun City. During the last fiscal year the
Compensation Committee held one meeting.
NOMINATING COMMITTEE: The Nominating Committee currently consists of
Messrs. Zalka and Avchen. Mr. Avchen serves as Chairman of the Committee. The
Nominating Committee is responsible for receiving and reviewing the
qualifications of potential directors to fill vacancies on the Board of
Directors and/or newly created directorships resulting from an increase in the
authorized number of directors and recommending candidates to the full Board.
The Committee reviews the management slate of directors to be presented to the
stockholders at the Annual Meeting and considers nominees recommended by
stockholders. Stockholders may make such recommendations by submitting them in
writing to the Company, to the attention of the Secretary. During the last
fiscal year the Nominating Committee held one meeting.
EXECUTIVE COMMITTEE: The Executive Committee consists of Messrs. Avchen
and Zalka. The Executive Committee held no formal meetings during fiscal 1997
but took certain actions by written consent.
BOARD MEETINGS AND ATTENDANCE OF DIRECTORS: The Board of Directors held
five meetings during fiscal 1997. All directors attended more than 75% of the
aggregate of (i) the total number of meetings of the Board of Directors held
while they were members and (ii) the total number of meetings held by all
Committees of the Board on which they served.
74
<PAGE>
SUN CITY EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth compensation awarded to, earned by or
paid to each of Sun City's Chief Executive Officer and the most highly
compensated executive officers other than the Chief Executive Officer who were
serving as executive officers at February 1, 1997 for services rendered to Sun
City during the periods indicated and whose total annual salary and bonus for
the year ended February 1, 1997 exceeded $100,000 (the "Named Sun City Executive
Officers").
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------------------------------- ------------------
OTHER ANNUAL AWARDS ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION OPTIONS COMPENSATION
POSITION FISCAL YEAR ($) ($) ($)(1) (#) ($)(1)
- -------------------- ------------ ------------- --------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
MALVIN AVCHEN 1997(2) $125,000 $0 $0 0 $21,102
Chairman and Chief 1996 150,000 0 0 0 49,138
Executive Officer 1995 150,000 0 0 25,000 51,074
SAUL ZALKA 1997(2) $125,000 $0 $0 0 $19,920
Chief Operating 1996 150,000 0 0 0 48,018
Officer 1995 150,000 0 0 25,000 51,687
GUSTAVE MINKIN(3) 1997(2) $125,000 $0 $0 0 $19,617
President and 1996 150,000 0 0 0 37,571
Secretary 1995 150,000 0 0 25,000 49,503
</TABLE>
- -------------
(1) The amounts indicated as "All Other Compensation" include contributions
made under Sun City's Employee Stock Ownership Plan and deferred
compensation plans, the Company's cost of executive automobile
allowances and the value to each executive of the Company's split
dollar life insurance program. The government's one-year term (PS58)
premium rates were used to calculate the value of the split dollar life
insurance to each executive using the rate applicable for each
executive's age and applying same to difference between the Company's
share of the death benefit and the full death benefit payable under
each policy.
(2) The officers voluntarily agreed to temporarily reduce their salaries.
See "Employment Agreements and Termination of Employment and Change in
Control Arrangement."
(3) Mr. Minkin passed away on May 25, 1997.
OPTION GRANTS TABLE
No options were granted in Fiscal 1997.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table sets forth certain information concerning
unexercised stock options held by the Named Sun City Executive Officers as of
February 1, 1997. No stock options were exercised by any of the Named Sun City
Executive Officers during the 1997 fiscal year. No stock appreciation rights
have been granted or are outstanding.
75
<PAGE>
<TABLE>
<CAPTION>
OPTION EXERCISES DURING 1997 FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
VALUE OF UNEXERCISED IN-THE-MONEY
SHARES NUMBER OF UNEXERCISED OPTIONS OPTIONS AT FEBRUARY 1, 1997
ACQUIRED AT FEBRUARY 1, 1997 ($)(1)
ON EXERCISE --------------------------------- ----------------------------------
NAME (#) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ ------------ --------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Malvin Avchen None 55,000 15,000 $- $-
Saul Zalka None 55,000 15,000 - -
Gustave Minkin(2) None 55,000 15,000 - -
</TABLE>
- ---------------
(1) No Options were in the money as of February 1, 1997.
(2) Pursuant to the terms of Sun City's Incentive Stock Option Plans, for a
six month period following the death of Mr. Minkin, the executor of his
estate may exercise options to the extent they were exercisable at the
date of his death, May 25, 1997.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
Messrs. Avchen and Zalka have employment agreements as executive
officers of Sun City through June 30, 2000, at a base salary of $150,000 per
annum, plus a bonus based upon a formula if Sun City's pre-tax earnings exceed
$500,000. Under each agreement, if the executive's employment is terminated: (i)
in the event of a disability, the executive is entitled to receive an amount
equal to 75% of his annual base salary until age 65 and 65% until age 70; (ii)
or not renewed by Sun City without cause, the executive is entitled to receive a
lump sum equal to $12,500 multiplied by the number of years of the executive's
employment with Sun City; (iii) following a change in control, the executive
would be entitled to receive a lump sum equal to four (4) times the average of
his last three (3) years' total compensation. Mr. Minkin's employment agreement
was terminated on February 3, 1996 and he did not enter into a new contract.
Messrs. Avchen and Zalka have agreed to terminate such employment agreements and
have entered into new employment agreements to be effective upon the closing of
the Merger. See "The Merger -- Interests of Certain Persons in the Merger."
Due to the Company's financial difficulties and need for cash, the
named Executive Officers agreed to temporarily reduce their salaries to $125,000
on February 4, 1996 which stayed in effect until February 1, 1997. From February
2, 1997 through June 28, 1997 their salaries were restored to $150,000. On June
29, 1997 their salaries were reduced again to $125,000 and such reduced salaries
continue in effect.
DEFERRED COMPENSATION AGREEMENTS
Sun City terminated its deferred compensation agreements with Messrs.
Avchen, Zalka and Minkin in January 1996.
Messrs. Avchen and Zalka are participants in Sun City's split dollar
life insurance program. In the event of the death of any participant in Sun
City's split dollar life insurance program, Sun City will receive from the
insurance proceeds an amount no less than its net investment in such policies.
Upon the death of Mr. Minkin, Sun City received $57,908 from his split dollar
insurance policy.
CERTAIN TRANSACTIONS
During the course of Sun City's fiscal year ended February 1, 1997, Sun
City's former President and Secretary, Gustave Minkin, owed Sun City as much as
$134,055 as the result of loans and advances made to him by Sun City which
indebtedness was offset by a corresponding deferred compensation liability due
to Mr. Minkin
76
<PAGE>
from Sun City pursuant to the deferred compensation arrangement between Sun City
and its senior executives. The rate of interest charged on Mr. Minkin's debt to
Sun City is equal to the twelve month certificate of deposit rate established at
the beginning of each year. Following his death in May, 1997, Mr. Minkin's debt
was forgiven by Sun City, and the corresponding deferred compensation liability
was eliminated, pursuant to such deferred compensation arrangements.
See "The Merger -- Certain Transactions with Affiliates" for a
description of certain transactions between Sun City and SeaSpecialties.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
PRINCIPLES AND PROGRAM
Sun City's executive compensation program includes both salary and
performance-based components. It is designed to:
* target executive compensation at a level sufficient
to ensure Sun City's ability to attract and retain
executives;
* motivate those executives to advance shareholder
interests with compensation plans that are tied to
Sun City's operating and market performance; and
* provide a compensation package that balances
individual contributions and overall business
results.
To meet those objectives, the program has both cash and equity
elements: base salary, an annual incentive bonus based on operating performance,
and long term equity-based compensation including stock options. In determining
executive compensation, the Executive Compensation Committee (the "Committee")
evaluates both the total compensation package and its individual elements. The
Committee believes that executive compensation should serve the broader
strategic goals of Sun City and thereby promote the creation of long-term
shareholder value.
CASH-BASED COMPENSATION
SALARY - The Committee assesses a number of factors in fixing the
salary of the executive officers (including the Named Executive Officers) such
as the responsibility of the particular position, the individual's performance,
Sun City's overall financial performance, certain non-financial indicators of
corporate performance, and the business and inflationary climate. Non -
financial indicators can include among other things strategic developments for
which an executive officer has responsibility (such as acquisitions or product
approvals and development), or managerial performance (such as succession
planning, resource allocation and social responsibility).
Although his employment contract provides for a $150,000 salary, Malvin
Avchen, Sun City's Chief Executive Officer, received a salary of $125,000 for
the fiscal year ended February 1, 1997, due to Sun City's financial
difficulties. The Committee believes that, given Mr. Avchen's record and his
experience and leadership, his employment contract significantly benefits Sun
City and its stockholders by securing Mr. Avchen's services for the future and
by encouraging him to focus on the long-term strategic interests of Sun City.
ANNUAL INCENTIVE BONUS - Sun City's bonus plan allows for cash awards
to the executive officers based on certain minimum pre-tax earnings of Sun City.
Sun City awards bonuses based solely to the extent to which the pre-established
earnings targets have been achieved or exceeded. Based on the results of the
last fiscal year, no bonuses were awarded.
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<PAGE>
EQUITY-BASED COMPENSATION. Under Sun City's Incentive Stock Option
Plans (the "Plans"), which were adopted pursuant to shareholder approval, the
Stock Option Committee can grant stock options to the executive officers and
other key employees. Under the plan, options are granted at an exercise price of
no less than 100% of the fair market value of the Common Stock at the date of
grant. The options become exercisable as to one-fifth (1/5) of the grant each
year over a five-year period beginning one (1) year from the date of grant. As
such, the options become exercisable in full only after the expiration of five
(5) years and expire ten (10) years from the date of grant. No stock options
were granted during the last fiscal year.
The Committee believes that this long-term equity-based compensation
aligns the interest of the executive officers with that of the stockholders, as
any appreciation in the price of the Common Stock will benefit all stockholders
commensurately; and particularly in the case of the stock options which are
received by the executive officers over time. Additionally, the stock options,
since they vest over a five (5) year period, can serve as an inducement for the
officers to remain with Sun City.
COMMITTEE MEMBERS
The current members of the Committee are Saul Zalka and Charles Ostrow.
See "Information Concerning the Board of Directors and Its Committees."
78
<PAGE>
COMMON STOCK PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change
in the cumulative total stockholder return on Sun City's Common Stock, the
cumulative total return of the S & P Composite-500 Stock Index ("the S & P 500")
and the cumulative total return of the American Stock Exchange ("AMEX") Market
Value Index for the five-year period January 31, 1992 through January 31, 1997.
The graph assumes that: (a) $100 was invested on January 31, 1992 in Sun City's
Common Stock, in the S & P 500 Index, and the AMEX Market Value Index; and (b)
all dividends were reinvested.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG SUN CITY INDUSTRIES, INC., S & P 500 INDEX
AND THE AMEX MARKET VALUE INDEX
1/92 1/93 1/94 1/95 1/96 1/97
---- ---- ---- ---- ---- ----
SUNCITY INDUSTRIES, INC. 100 79 70 124 73 24
S&P 500 100 111 125 125 174 220
AMEX MARKET VALUE 100 100 118 106 135 146
There can be no assurance that Sun City's stock performance will or
will not continue into the future with the same or similar trends depicted in
the above graph. Sun City does not make or endorse any predictions as to future
stock performance.
The Stock Price Performance Graph above shall not be deemed
incorporated by reference by any general statement incorporating this Proxy
Statement (or any part of same) by reference into any filing under the
Securities Act of 1933 or the Securities Exchange Act of 1934, except to the
extent that Sun City specially incorporates this information by reference, and
shall not otherwise be deemed filed under such Acts.
79
<PAGE>
PRINCIPAL SHAREHOLDERS OF SUN CITY
The following table sets forth certain information, as of November 6,
1997, with respect to beneficial ownership of Sun City Common Stock by (i) each
person who is known by Sun City to own beneficially more than 5% of its Common
Stock; (ii) each director of Sun City; (iii) each Named Executive Officer of Sun
City; and (iv) the Named Executive Officers of Sun City and directors of Sun
City as a group:
<TABLE>
<CAPTION>
COMMON STOCK BENEFICIALLY OWNED
--------------------------------------------------
NAME OF BENEFICIAL OWNER(1) SHARES PERCENT(2)
--------------------------- ----------------------- ----------------------
<S> <C> <C>
Sun City Industries, Inc. (ESOP)(3) 252,656 17.4%
Robert M. Neider(4) 140,950(5) 9.2%
Trigran Investments, L.P.(6) 120,138(7) 8.0%
Malvin Avchen 65,851(8) 4.5%
Saul Zalka 44,889(9) 3.1%
Estate of Gustave Minkin 27,899(10) 1.9%
Charles Ostrow 1,500(11) *
All directors and executive officers
as a group (4 persons) 194,898(12) 13.4%
</TABLE>
- -----------------------
(*) Less than 1%.
(1) Unless otherwise indicated, (i) the address of each of the beneficial
owners is 5545 N.W. 35th Avenue, Ft. Lauderdale, Florida 33309; (ii)
all shares are owned directly; and (iii) each person has sole
investment and voting power. Pursuant to the rules of the Securities
and Exchange Commission, certain shares of Sun City Common Stock which
a person has the right to acquire within 60 days of the date hereof
pursuant to the exercise of options or other convertible securities are
deemed to be outstanding for purposes of computing the percentage
ownership but are not deemed outstanding for the purpose of computing
the percentage ownership for any other person.
(2) As of November 6, 1997, 1,447,899 shares of Common Stock were
outstanding.
(3) The shares in the ESOP are allocated to the individual employees for
voting purposes. The unallocated shares (75,000) are voted by the
trustees of the ESOP, Malvin Avchen and Saul Zalka.
(4) The address of Mr. Neider is #8 Glenmoor Circle, Cherry Hills Village,
Colorado 80110-7121.
(5) Includes 81,050 shares which Mr. Neider has the power to acquire
pursuant to conversion of $300,000 principal amount of Senior
Convertible Subordinated Debentures.
(6) The address of Trigran Investments, L.P. is 155 Pfinsten Road, Suite
360, Deerfield, Illinois 60615.
(7) Includes 61,538 shares which Trigran Investments has the power to
acquire pursuant to conversion of $200,000 principal amount of Senior
Convertible Subordinated Debentures.
(8) Includes 22,571 shares held for his benefit in Sun City's ESOP. See
footnote (3)
(9) Includes 18,939 shares held for his benefit in Sun City's ESOP. See
footnote (3)
(10) Includes 9,476 shares held in Sun City's ESOP.
(11) Represents 1,500 shares of Sun City Common Stock subject to presently
exercisable options.
(12) Includes a total of 119,668 shares held in Sun City's ESOP. Includes
9,000 shares of Sun City Common Stock subject to presently exercisable
options.
80
<PAGE>
DESCRIPTION OF SUN CITY CAPITAL STOCK
Sun City's authorized capital stock consists of 3,000,000 shares of Sun
City Common Stock, par value $.10 per share. As of November 6, 1997, an
aggregate of 1,447,899 shares of Sun City Common Stock were outstanding. The
following brief description of capital stock of Sun City does not purport to be
complete and is subject in all respects to (i) applicable Delaware law, and (ii)
the provisions of Sun City's Certificate of Incorporation and Bylaws. See
"Amendments to Certificate of Incorporation" for a description of changes to the
Sun City Common Stock in connection with the Merger. See also "Reverse Stock
Split" for a description of changes that could occur if the Reverse Split is
implemented.
SUN CITY COMMON STOCK
Holders of Sun City Common Stock are entitled to one vote per share on
all matters submitted to a vote of shareholders, including the election of
directors. Sun City Common Stock does not have cumulative voting rights, which
means that the holders of a majority of the shares voting for election of
directors can elect all members of Sun City's Board of Directors. A majority
vote is also sufficient for other actions that require the vote or concurrence
of shareholders. Dividends may be paid to holders of Sun City Common Stock when
and if declared by the Sun City Board out of funds legally available therefor,
subject to contractual or other restrictions on dividends. See "Price Range of
Common Stock." Upon liquidation or dissolution of Sun City, holders of Sun City
Common Stock will be entitled to share ratably in the assets of Sun City legally
available for distribution to shareholders in the event of liquidation or
dissolution. The holders of Sun City Common Stock have no preemptive or
conversion rights and are not subject to further calls or assessments by Sun
City.
ISSUANCE OF SHARES UPON MERGER
Upon consummation of the Merger, a substantial number of new shares of
Sun City Common Stock will be issued, and the currently outstanding shares of
Sun City Common Stock will constitute approximately 3.1% of the outstanding
shares following the Merger. Harvey Oxenberg will become the controlling
shareholder of Sun City. See "Risk Factors" and "The Merger."
CERTAIN PROVISIONS OF DELAWARE LAW AND SUN CITY'S CERTIFICATE OF INCORPORATION
Sun City is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law (the "DGCL"). In general, Section 203 prevents
an "interested shareholder" (defined generally as a person owning 15% or more of
a corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) with a Delaware corporation for three years following
the date such person became an interested shareholder unless: (i) before such
person became an interested shareholder, the board of directors of the
corporation approved the transaction in which the interested shareholder became
an interested shareholder or approved the business combination; (ii) upon
consummation of the transaction that resulted in the interested shareholder
becoming an interested shareholder, the interested shareholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding stock held by directors who are also officers
of the corporation and by employee stock plans that do not provide employees
with the rights to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer); or (iii) on or following
the transaction in which such person became an interested shareholder, the
business combination is approved by the board of directors of the corporation
and approved at a meeting of shareholders by the affirmative vote of the holders
of at least two-thirds of the outstanding voting stock of the corporation not
owned by the interested shareholder. Under Section 203, the restrictions
described above also do not apply to certain business combinations proposed by
an interested shareholder prior to the consummation or abandonment of and
subsequent to the earlier of the announcement or notification of one of certain
extraordinary transactions involving the corporation and a person who had not
been an interested shareholder during the previous three years or who became an
interested shareholder with the approval of a majority of the corporation's
directors, if such extraordinary transaction is
81
<PAGE>
approved or not opposed by a majority of the directors who were directors prior
to any person becoming an interested shareholder during the previous three years
or who were recommended for election or elected to succeed such directors by a
majority of such directors.
The foregoing provisions could delay or frustrate the removal of
incumbent directors or a change in control of Sun City. The provisions could
also discourage or make more difficult a merger, tender offer or proxy contest,
even if such event would be favorable to the interests of shareholders.
Section 145 of the DGCL provides that a corporation may indemnify
officers and directors, subject to certain conditions and limitations, against
certain liabilities and expenses in connection with claims against them in their
capacity as officers or directors, if such person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and with respect to criminal proceedings if he had no
reasonable cause to believe his conduct was unlawful. Sun City's Certificate of
Incorporation generally provides that Sun City's officers and directors shall be
indemnified in such actions to the fullest extent permitted under the DGCL. In
connection with the closing of the Merger, Sun City will enter into
indemnification agreements with the new Sun City officers and directors that
will take office upon the Merger, which agreements will generally provide for
Sun City's indemnification of such persons to the fullest extent permitted by
law.
See "Amendment to Limit Director Liability" for a description of the
proposal to amend Sun City's Certificate of Incorporation to limit certain
liability of Sun City's directors as permitted under Section 102(b)(7) of the
DGCL.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires Sun
City's directors and executive officers, and persons who own more than 10
percent of Sun City's Common Stock, to file with the Securities and Exchange
Commission (the "SEC") initial reports of ownership and reports of changes in
ownership of the Sun City Common Stock. Such persons are required by SEC
regulation to furnish Sun City with copies of all Section 16(a) forms they file.
To Sun City's knowledge, based solely on review of the copies of such
reports furnished to Sun City and representations that no other reports were
required, all Section 16(a) filing requirements applicable to its officers,
directors and greater than 10 percent beneficial owners were complied with
during fiscal 1997.
BUSINESS OF SEASPECIALTIES
SeaSpecialties, Inc., founded in 1954, is a processor and distributor
of fresh, frozen, smoked and pickled seafood products, whose products are
marketed through its own sales staff and by independent sales representatives to
supermarkets and grocery chains, restaurants, cruise lines and bagel shops.
SeaSpecialties has offices and processing and distribution centers in Miami, Ft.
Lauderdale and Plantation Key, Florida. SeaSpecialties' 40,000 square foot
facility located at 1111 N.W. 159th Drive, Miami, Florida 33169 is the
processing and distribution center for its Florida Smoked Fish division and the
corporate headquarters for SeaSpecialties. The primary products processed at
this facility are smoked salmon, whitefish, trout, and mackerel. SeaSpecialties
has a patented process for color enhanced smoked salmon and its products have
Orthodox Union Kosher supervision. The Barnacle Seafood plant in Ft. Lauderdale
and the Casa Mar Sea Specialties dockside facility in Plantation Key are 22,000
square feet and 6,500 square feet, respectively, are used for processing and
distribution, and also include administration and sales offices. The primary
products of these facilities are grouper, mahi-mahi, pompano, salmon, swordfish,
tuna, snapper, stone crab and spiny lobster. SeaSpecialties' products are sold
throughout the United States under the "SeaSpecialties," "Mama's," "Bagel Mate"
and "Richman's" brand names, with a high concentration of sales in
82
<PAGE>
Florida, Southern California and the Northeast region of the United States.
Annually, SeaSpecialties receives, processes and distributes approximately 10
million pounds of fish products. SeaSpecialties presently employs approximately
192 employees, with positions involving processing, deliveries, sales, facility
maintenance and administration. SeaSpecialties has a website on the Internet,
www.seaspecialties.com, which allows customers to order products directly from
the company.
DESCRIPTION OF SEASPECIALTIES CAPITAL STOCK
GENERAL
SeaSpecialties's authorized capital stock consists of 20,000 shares of
Class A Common Stock, par value $2 per share ("Class A Stock"), and 5,000 shares
of Class B Common Non-Voting Stock, par value $2.00 per share ("Class B Stock").
As of the date of this Proxy Statement, an aggregate of 5,679.69 shares of
SeaSpecialties Class A Common Stock were outstanding. No shares of Class B Stock
are outstanding.
The holders of Class A Stock and Class B Stock have the same rights and
preferences, except that all voting power is vested in the Class A Stock and the
holders of Class B Stock are not entitled to vote their shares except as
otherwise required by law.
SHAREHOLDERS OF SEASPECIALTIES
The outstanding shares of Class A Stock are held by Harvey Oxenberg
(74.68%) and the Bernard Oxenberg Trust (the "Trust") (25.32%). SeaSpecialties
Common Stock is not listed or traded on any stock market. Pursuant to the
Merger, the shareholders of SeaSpecialties will become controlling shareholders
of Sun City and SeaSpecialties will become a wholly owned subsidiary of Sun
City. See "Risk Factors" and "The Merger."
DIVIDENDS
In May 1996 SeaSpecialties elected to be treated as a Subchapter S
Corporation for Federal Income Tax Purposes. Prior to the Merger, SeaSpecialties
anticipates paying a dividend to its shareholders in an amount which is
estimated to be approximately $250,000. Any Subchapter S Corporation earnings
not paid out as a dividend will be transferred from the retained earnings
account to the capital surplus account. The Pro Forma financial statements
reflect this proposed transaction.
OTHER BUSINESS
The Board knows of no other business to be brought before the Annual
Meeting. If, however, any other business should properly come before the Annual
Meeting, the persons named in the accompanying proxy will vote proxies as in
their discretion they may deem appropriate unless they are directed by a proxy
to do otherwise.
RELATIONSHIP WITH INDEPENDENT AUDITORS
Sun City's independent auditors for the fiscal year ended February 1,
1997 were Deloitte & Touche. Sun City has also selected such firm for the
current fiscal year, but such selection could change at the discretion of Sun
City's new management that will take office if the Merger is consummated. It is
not expected that representatives of such firm will attend the Annual Meeting.
83
<PAGE>
FUTURE STOCKHOLDER PROPOSALS
A stockholder who desires to submit a proposal to be considered for
inclusion in Sun City's proxy material for the 1998 Annual Meeting of
Stockholders must deliver a proposal in writing to Sun City's principal
executive office on or before July 10, 1998.
LEGAL OPINIONS
The legality of the issuance of shares of Sun City Common Stock in
connection with the Merger will be passed upon by Baker & McKenzie and certain
tax consequences of the Merger will be passed on by Greenberg, Traurig, Hoffman,
Lipoff, Rosen & Quentel, P.A.
84
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
Page
--------
<S> <C>
SUN CITY INDUSTRIES, INC.
Independent Auditors' Report........................................................ F-3
Consolidated Balance Sheets as of February 1, 1997 and February 3, 1996............. F-4
Consolidated Statements of Operations for the years ended February 1, 1997,
February 3, 1996 and January 28, 1995............................................ F-5
Consolidated Statements of Shareholders' Equity for the years ended February 1,
1997, February 3, 1996 and January 28, 1995...................................... F-6
Consolidated Statements of Cash Flows for the years ended February 1, 1997,
February 3, 1996 and January 28, 1995............................................ F-7
Supplemental Schedules of Non-Cash Investing & Financial Activities................. F-8
Notes to Consolidated Financial Statements.......................................... F-9
SUN CITY INDUSTRIES, INC. -- UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Balance Sheets as of August 2, 1997 and F-20
February 1, 1997.................................................................
Unaudited Condensed Consolidated Statements of Operations for the six-month periods
ended August 2, 1997 and August 3, 1996.......................................... F-21
Unaudited Condensed Consolidated Statements of Cash Flows for the six-month
periods ended August 2, 1997 and August 3, 1996.................................. F-22
Notes to Unaudited Consolidated Financial Statements................................ F-23
PRO FORMA CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Introduction to Unaudited Pro Forma Financial Information........................... F-26
Pro Forma Condensed Balance Sheet as of June 30, 1997............................... F-27
Pro Forma Condensed Statements of Operations for the six months ended June 30, 1997
and year ended December 31, 1996................................................. F-29
Notes to Unaudited Pro Forma Condensed Financial Statements......................... F-31
SEASPECIALTIES, INC.
Report of Independent Certified Public Accountants.................................. F-33
Balance Sheets as of December 31, 1996, April 30, 1996 and 1995..................... F-35
Statements of Operations for the eight-month periods ended December 31, 1996 and
1995 (unaudited) and for the years ended April 30, 1996, 1995 and 1994........... F-36
Statements of Shareholders' Equity for the eight-month periods ended December 31,
1996 and for the years ended April 30, 1996, 1995 and 1994....................... F-37
Statements of Cash Flows for the eight-month periods ended December 31, 1996 and
1995 (unaudited) and for the years ended April 30, 1996, 1995 and 1994........... F-38
Notes to Unaudited Condensed Financial Statements................................... F-40
SEASPECIALTIES, INC. -- UNAUDITED CONDENSED FINANCIAL STATEMENTS
Unaudited Condensed Balance Sheets as of June 30, 1997 and December 31, 1996........ F-47
Unaudited Condensed Statements of Operations for the six-month periods ended
June 30, 1997 and 1996........................................................... F-48
Unaudited Condensed Statements of Cash Flows for the six-month periods ended
June 30, 1997 and 1996........................................................... F-49
Notes to Unaudited Condensed Financial Statements................................... F-51
</TABLE>
<PAGE>
SUN CITY INDUSTRIES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Sun City Industries, Inc. and Subsidiaries
Fort Lauderdale, Florida
We have audited the accompanying consolidated balance sheets of Sun City
Industries, Inc. and Subsidiaries as of February 1, 1997 and February 3, 1996
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended February 1, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Sun City Industries, Inc.
and Subsidiaries as of February 1, 1997 and February 3, 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended February 1, 1997 in conformity with generally accepted accounting
principles.
The accompanying financial statements for the year ended February 1,
1997, have been prepared assuming that the Company will continue as a going
concern. As discussed in Note A to the financial statements, the Company's
recurring losses from operations and net stockholders' deficiency raise
substantial doubt about its ability to continue as a going concern. Management's
plans concerning these matters are also described in Note A. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Fort Lauderdale, Florida
May 16, 1997
F-3
<PAGE>
<TABLE>
<CAPTION>
SUN CITY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 1, FEBRUARY 3,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ - $ 760,885
Accounts and notes receivable,
less allowance for doubtful accounts
of approximately $460,000 and $186,000
in 1997 and 1996, respectively 5,521,144 6,779,193
Inventories 2,334,987 2,755,593
Notes receivable - current portion 18,927 14,816
Prepaid expenses 218,838 210,029
----------- -----------
TOTAL CURRENT ASSETS 8,093,896 10,520,516
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements 108,133 108,133
Buildings and improvements 499,917 438,077
Machinery and equipment 2,243,175 2,017,272
----------- -----------
TOTAL PROPERTY, PLANT AND EQUIPMENT 2,851,225 2,563,482
Less accumulated depreciation (1,319,437) (1,025,723)
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, NET 1,531,788 1,537,759
Properties held for sale 504,849 596,318
Long-term notes receivable 88,308 105,930
Excess of purchase price over fair value
of net assets acquired 1,780,836 1,615,611
Other assets 447,340 553,680
----------- -----------
TOTAL $12,447,017 $14,929,814
=========== ===========
FEBRUARY 1, FEBRUARY 3,
1997 1996
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Cash overdraft $ 214,744
Accounts payable 5,003,332 $ 5,318,812
Accrued expenses 734,354 563,584
Current portion of long-term debt 1,720,129 496,056
----------- -----------
TOTAL CURRENT LIABILITIES 7,672,559 6,378,452
----------- -----------
DEFERRED COMPENSATION PAYABLE 123,106 99,028
LONG-TERM DEBT 5,409,828 8,096,798
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.10 par value 3,000,000
shares authorized; 2,276,116 shares
issued in 1997 and 1996 227,612 227,612
Capital in excess of par value 1,041,721 1,070,286
Retained earnings 837,751 2,004,838
----------- -----------
2,107,084 3,302,736
----------- -----------
Less: Treasury stock at cost, 828,214
and 837,164 shares in 1997 and 1996,
respectively (2,653,560) (2,682,200)
Less: Receivable for common stock sold
to ESOP (212,000) (265,000)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (758,476) 355,536
----------- -----------
TOTAL $12,447,017 $14,929,814
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
SUN CITY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
SALES, net $ 68,245,383 $ 91,084,629 $ 69,351,205
COSTS AND EXPENSES:
Cost of sales 64,129,511 86,752,375 64,032,260
Selling, general and administrative expenses 4,446,724 5,941,599 4,759,843
Interest expense 893,135 1,044,443 652,047
Other (income) expense, net (56,900) 107,517 (18,867)
------------ ------------ ------------
TOTAL COSTS AND EXPENSES 69,412,470 93,845,934 69,425,283
LOSS BEFORE INCOME TAXES (1,167,087) (2,761,305) (74,078)
PROVISION FOR INCOME TAXES -- -- 8,000
------------ ------------ ------------
NET LOSS $ (1,167,087) $ (2,761,305) $ (82,078)
============ ============ ============
NET LOSS PER COMMON SHARE $ (.81) $ (1.92) $ (.06)
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
SUN CITY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK TREASURY STOCK
----------------------------------- --------------------
CAPITAL
SHARES IN EXCESS RETAINED LOAN TO
OUTSTANDING AMOUNT OF PAR EARNINGS SHARES AMOUNT ESOP
----------- ------ --------- -------- ------ ------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 29, 1994..... 2,276,116 $ 228,612 $ 1,070,286 $4,852,290 840,414 $(2,692,220) $(371,000)
Exercise of Stock Options..... (4,069) (3,250) 10,020
Payment of ESOP loan
(Note M)..................... 53,000
Net Loss...................... (82,078)
--------- --------- ----------- ---------- ------- ----------- ---------
Balance, January 28, 1995..... 2,276,116 228,612 1,070,286 4,766,143 837,164 (2,682,200) (318,000)
Payment of ESOP loan
(Note M)..................... 53,000
Net loss...................... (2,761,305)
--------- --------- ----------- ---------- ------- ----------- ---------
Balance, February 3, 1996..... 2,276,116 228,612 1,070,286 2,004,838 837,164 (2,682,200) (265,000)
Purchase of Treasury
Shares....................... 9,800 (34,300)
Exercise of Stock Options..... (28,565) (18,750) 62,940
Payment of ESOP loan
(Note M)..................... 53,000
Net Loss...................... (1,167,087)
--------- --------- ----------- ---------- ------- ----------- ---------
Balance, February 1, 1997..... 2,276,116 $ 228,612 $ 1,041,721 $ 837,751 828,214 $(2,653,560) $(212,000)
========= ========= =========== ========== ======= =========== =========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
SUN CITY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(1,167,087) $(2,761,305) $ (82,078)
ADJUSTMENTS TO RECONCILE NET LOSS
TO NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES:
Depreciation and Amortization 521,174 822,516 645,004
Provision for losses on accounts receivable 485,607 324,818 123,549
Loss on sale of fixed assets 33,546 153,885
Change in assets and liabilities net of
effects from acquisitions:
Accounts and trade notes receivable 772,442 (91,790) 119,786
Inventories 420,606 667,844 (300,026)
Prepaid expenses (8,809) 176,912 (2,674)
Other assets (232,498) 944,327 (262,047)
Accounts payable (315,480) 878,721 (611,577)
Accrued expenses 170,770 68,340 (103,128)
Income taxes payable -- (8,000) (8,000)
Deferred compensation payable 24,078 (106,247) 114,400
----------- ----------- -----------
TOTAL ADJUSTMENTS 1,871,436 3,831,326 (284,713)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 704,349 1,070,021 (366,791)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets 168,930 1,214,255
Capital expenditures (452,598) (589,232) (949,100)
Payment for acquisitions (350,000)
Repayment of notes receivable 13,511 14,621
----------- ----------- -----------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (270,157) 289,644 (949,100)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and
subordinated debt 275,384 556,052 1,462,479
Principal payments on notes payable (1,738,280) (1,661,440) (283,539)
Proceeds from loan receivable from ESOP 53,000 53,000 53,000
Proceeds from exercise of options 75 5,951
----------- ----------- -----------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (1,409,821) (1,052,388) 1,237,891
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND
EQUIVALENTS (975,629) 307,277 (78,000)
CASH AND EQUIVALENTS,
Beginning of year 760,885 453,608 531,608
----------- ----------- -----------
CASH AND EQUIVALENTS (CASH OVERDRAFT),
End of year $ (214,744) $ 760,885 $ 453,608
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $ 893,135 $ 1,044,443 $ 652,047
----------- ----------- -----------
Income taxes $ 0 $ 0 $ 17,000
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During fiscal year 1996, the Company acquired Sheppard Food Service, Inc. for
$1,350,000. The cost in excess of the fair value of the net assets acquired was
$450,000. The following is a summary of the net assets acquired:
Accounts Receivable $ 958,671
Inventories 777,652
Prepaid Expenses 16,496
Fixed Assets, net 5,779
Other Assets 3,100
----------
1,761,698
Assumption of Liabilities (861,698)
----------
Cash Paid $ 900,000
==========
During fiscal year 1995, the Company determined the final purchase price for the
business purchased in fiscal year 1994. The Company signed a note payable in the
amount of $731,442 payable over the next five years.
During fiscal year 1995, the Company entered into a capital lease agreement in
the amount of $555,374 for an egg processor.
F-8
<PAGE>
SUN CITY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 1, 1997, FEBRUARY 3, 1996 & JANUARY 28, 1995
A. GENERAL:
NATURE OF OPERATIONS
Sun City Industries, Inc. (referred to herein as "Sun City" or the
"Company") and its subsidiaries distribute a broad line of food and related
products through operating centers in New Jersey, Georgia and principally in
Florida.
GOING CONCERN
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As shown in the accompanying
financial statements, during the years ended February 1, 1997 and February 3,
1996, the Company incurred net losses of $1,167,087 and $2,761,305,
respectively, and as of February 1, 1997 the Company had a stockholders' deficit
of $758,476. These factors among others may indicate that the Company will be
unable to continue as a going concern for a reasonable period of time.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts and classification
of liabilities that might be necessary should the Company be unable to continue
as a going concern. As described in Note F, the Company is not in compliance
with several provisions of its line of credit agreement and the lender has
placed significant operating and financing restrictions on the Company pursuant
to a forbearance agreement. The Company's continuation as a going concern is
dependent upon its ability to generate sufficient cash flow to meet its
obligations on a timely basis, to comply with the terms and covenants of its
financing agreements, to obtain additional financing or refinancing as may be
required, and ultimately to attain successful operations. Management is
continuing its efforts to obtain additional funds from investors so that the
Company can meet its obligations and sustain operations. There can be no
assurance, however, that management's efforts will ultimately be successful.
SIGNIFICANT CUSTOMER
The Company has one significant customer which accounted for 9.3%, 7.5%
and 9.5% of net sales for the fiscal years 1997, 1996 and 1995, respectively.
The Company believes that its vulnerability to risk concentrations related to
significant vendors and sources of its raw materials is not significant. Risk of
geographical concentrations is also not significant.
F-9
<PAGE>
B. SIGNIFICANT ACCOUNTING POLICIES:
1) Principles of Consolidation
The consolidated financial statements include the accounts of Sun City
Industries, Inc. and its wholly-owned subsidiaries. All significant
intercompany profits, transactions and balances have been eliminated.
2) Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amount of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
3) Cash and Equivalents
Cash and equivalents include cash on hand and short-term investments
purchased with a maturity of three months or less.
4) Inventories
All inventories are stated at the lower of cost (using the first-in,
first-out and weighted average methods) or market.
5) Investment in Joint Ventures
Investments in the Company's egg producing joint ventures are recorded
at cost. Amounts received as distributions of the operations of these
joint ventures are recorded as recoveries of such cost. Any gains from
the final settlement of these joint ventures are recorded only after all
cost is recovered; any losses are accrued at the time such losses can be
reasonably estimated.
During fiscal 1996, the Company disposed of its interests in these joint
ventures.
6) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is
computed utilizing the straight-line method over the estimated useful
lives of the assets as follows:
Land improvements 10 to 20 years
Buildings 17 to 33 1/3 years
Building improvements 3 to 20 years
Machinery and equipment 3 to 20 years
Gains and losses arising from disposals of properties are included in
current operations.
7) Unamortized Costs in Excess of Net Assets Acquired
Costs in excess of net assets acquired ("Goodwill") are being amortized
using the straight-line method over 20 to 25 years. Amortization of
Goodwill was $87,173 and $74,890 for the years
F-10
<PAGE>
ended February 1, 1997 and February 3, 1996, respectively. The Company
reviews Goodwill for impairment whenever events or changes in
circumstances indicate that its carrying amount may not be recoverable.
The amount of impairment, if any, in unamortized Goodwill is measured
based on projected future results of operations. Actual results could
differ from those estimates and the differences could be material.
Management believes that there has been no impairment in the carrying
amount of Goodwill.
8) Fair Value of Financial Investments
Statement of Financial Accounting Standards ("SFAS") No. 107,
"Disclosure about Fair Value of Financial Instruments," requires
disclosure of the fair value of financial instruments, both assets and
liabilities, recognized and not recognized in the consolidated balance
sheets of the Company, for which it is practicable to estimate fair
value. The estimated fair values of financial instruments which are
presented herein have been determined by the Company using available
market information and appropriate valuation methodologies. However,
considerable judgement is required in interpreting market data to
develop estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of amounts the Company could
realize in a current market exchange.
The following methods and assumptions were used to estimate fair value:
- the carrying amounts of cash and equivalents, receivables and
accounts payable approximate fair value due to their short term nature;
- the carrying amounts of short-term and long-term debt approximate
fair value as the majority of such debt bears interest based on either a
market interest rate or variable interest rate.
9) Long-Lived Assets
The Company has adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of", in
fiscal year 1997. This standard requires that long-lived assets and
certain identifiable intangibles held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. The adoption of
this standard did not have a significant effect on the Company's
consolidated results of operations or financial position.
10) Stock-Based Compensation
The Company currently accounts for its stock-based compensation plans
using the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25").
In 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation". Under the provisions of SFAS
No. 123, companies can elect to account for stock-based compensation
plans using a fair value based method or continue measuring compensation
expense for those plans using the intrinsic value method prescribed in
APB 25. SFAS No. 123 requires that companies electing to continue using
the intrinsic value method must make pro forma disclosures of net income
and earnings per share as if the fair value based method of accounting
had been applied. The adoption of SFAS No. 123 had no material effect in
the Company's 1997 consolidated financial statements.
F-11
<PAGE>
11) New Accounting Pronouncement
In March 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share". SFAS No. 128 supersedes Accounting Principles
Board Opinion No. 15 and simplifies the accounting standards used in
calculating earnings per share. SFAS No. 128 requires that basic
earnings per share be calculated by a numerator of income available to
common shareholders divided by a denominator of weighted-average shares
outstanding. Diluted earnings per share is calculated by a numerator of
income available to common shareholders plus effects of convertible
securities divided by a denominator of weighted-average shares
outstanding plus potential common shares. SFAS No. 128 will apply to the
Company for the year ended January 31, 1998. The Company does not
believe the adoption of SFAS No. 128 will have a material effect on the
Company's earnings per share.
12) Income Taxes
The Company recognizes certain income and expenses in different periods
for financial reporting and income tax purposes in accordance with SFAS
No. 109, "Accounting for Income Taxes".
13) Reclassifications
Certain amounts in the prior year financial statements have been
reclassified to conform to the current year's presentation.
C. ACCOUNTS AND NOTES RECEIVABLE:
Trade accounts and notes receivable consist of the following:
1997 1996
---------- ----------
Receivables:
Trade $5,400,416 $6,395,496
Other 580,728 569,597
---------- ----------
5,981,144 6,965,093
Less: Allowance for
doubtful accounts (460,000) (185,900)
---------- ----------
$5,521,144 $6,779,193
========== ==========
The following is an analysis of the allowance for doubtful accounts for
the fiscal years 1997 and 1996:
1997 1996
-------- --------
Balance, beginning of year $185,900 $178,619
Provision for doubtful
accounts 485,607 324,818
Uncollectible accounts
written off (211,507) (317,537)
---------- ----------
Balance, end of year $460,000 $185,900
========== ==========
The long-term note receivable consists of a mortgage note bearing
interest at 9% payable monthly. As of February 1, 1997, the carrying
amount of the note receivable approximated its fair value.
Substantially all receivables are pledged as collateral for certain debt
(see Note F).
F-12
<PAGE>
D. INVENTORIES:
The major components of inventories are as follows:
1997 1996
---------- ----------
Dairy and related products $1,424,884 $1,818,022
Produce 291,804 318,717
Seafood 618,299 618,854
---------- ----------
Total $2,334,987 $2,755,593
========== ==========
Substantially all inventories are pledged as collateral for certain debt
(see Note F).
E. OTHER ASSETS:
Other assets consist of the following components:
1997 1996
-------- --------
Officers' Life Insurance $173,084 $128,181
Organizational Costs 100,448 143,628
Recoverable Deposits 70,010 114,612
Other 103,798 167,259
-------- -------
Total $447,340 $553,680
======== ========
The Company pays the premiums on certain life insurance policies that
insure the lives of key executives and are payable to the executives'
designated beneficiaries in the event of their deaths. The policies,
with a total face amount of $1,925,000 have been assigned to the Company
to the extent necessary to repay all premiums.
In addition, the Company pays the premiums for other executives'
policies as a means to fund certain deferred compensation obligations.
F. DEBT:
Debt consists of the following:
1997 1996
---------- ----------
$7,500,000 line of credit, expires
March 1998, interest at 4.25% over prime
(12.50% at February 1, 1997) payable
daily based upon accounts receivable
collections, collateralized by the
Company's accounts receivable, inventory,
machinery and equipment. $4,728,697 $5,950,000
Mortgage note payable, interest at 9.5%
payable quarterly, due in April
1997, collateralized by property. 24,527 117,074
Notes payable, interest at 9.5%
collateralized by machinery and leasehold
improvements. 0 102,200
F-13
<PAGE>
1997 1996
-------- ---------
Notes payable to former Gulf Coast
shareholders, interest at 7.75% payable in
quarterly installments commencing March
1996 through December 1999. 558,865 745,154
Notes payable, interest at 8.0% payable
monthly, due in installments through
December 1998, collateralized by computer
system. 15,521 22,056
Notes payable, bearing interest between
8.5% and 10.25% payable monthly,
due in installments through November 1999,
collateralized by trucks and equipment. 387,802 236,624
Notes payable, interest at 1.5% over prime,
payable monthly, due in installments
through December 1998, collateralized by
equipment. 14,545 19,746
Five year, Senior Subordinated Convertible
Debentures, interest at 8% payable
semi-annually, convertible into common
stock at $3.25 per share. 700,000 700,000
Five year, Senior Subordinated Convertible
Debentures, interest at 9% payable
semi-annually, convertible into common
stock at $5.125 per share. 700,000 700,000
---------- ----------
Total debt 7,129,957 8,592,854
Less current portion 1,720,129 496,056
---------- ----------
Total long-term debt $5,409,828 $8,096,798
========== ==========
The above mortgage and line of credit contain certain restrictive
covenants, the more significant of which require the Company to maintain
certain minimum levels of working capital and net worth. During fiscal
1997, the Company obtained loans from its principal lender in excess of
the amounts allowed under the related agreements and defaulted on other
covenants and provisions of the related lending agreements. On December
16, 1996, the Company and its principal lender executed a Forbearance
Agreement pursuant to which the principal lender agreed to forbear from
exercising its rights and remedies as a consequence of the defaults
until the earlier of March 30, 1998 or the occurrence of any other event
of default. The provisions of the Forbearance Agreement require that:
(a) the Company remit all collections on accounts receivable to the
principal lender, (b) the overadvance resulting from the excess loans
(which amount aggregated $350,000 at February 1, 1997) be repaid in
installments of $10,000 per week, (c) the interest rate for all
obligations to the principal lender be increased to 4.25% over the prime
rate, (d) the Company provide the lender real estate mortgages and deeds
of trust encumbering certain real estate owned by the Company, and (e)
the Company obtain the consent of the principal lender prior to making
any payments on obligations relating to certain of the Company's
acquisitions, among other restrictions and requirements.
F-14
<PAGE>
The Company failed to make the required semi-annual interest payment on
the $1,400,000 Senior Subordinated Convertible Debentures. As a
consequence of this ongoing default, these debentures are classified as
current liabilities. The Company has accrued the related interest
payable.
The above carrying cost approximates the fair market value of long-term
debt as of February 1, 1997.
The aggregate maturities of long-term debt are as follows:
FISCAL YEAR ENDING
------------------
1998 $1,720,129
1999 5,023,970
2000 230,649
2001 28,800
Thereafter 126,409
----------
Total $7,129,957
==========
G. INCOME TAXES:
The Company provides for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". Under SFAS No. 109, deferred tax
liabilities are recognized for future taxable amounts and deferred tax
assets are recognized for future deductions and operating loss
carryforwards. A valuation allowance is recognized to reduce net
deferred tax assets to the amounts that are more likely than not to be
realized.
The provision for income taxes is comprised of the following:
1997 1996 1995
---- ---- ------
Current State Tax $ 0 $ 0 $8,000
==== ==== ======
The net deferred tax balance at February 1, 1997 consisted of:
<TABLE>
<CAPTION>
ASSETS LIABILITIES TOTAL
---------- ----------- ----------
<S> <C> <C> <C>
Tax loss carryforwards $2,110,560 $2,110,560
Accelerated depreciation for
tax purposes $(105,988) (105,988)
Allowance for bad debts 174,807 174,807
Capitalization for tax purposes
of inventory related costs 17,861 17,861
Deferred compensation 46,780 46,780
Other (29,881) (29,881)
Less: Valuation allowance (2,214,139) (2,214,139)
------------ ----------- ------------
Total $ 135,869 $(135,869) $ 0
============ =========== ============
</TABLE>
F-15
<PAGE>
The net deferred tax balance at February 3, 1996 consisted of:
<TABLE>
<CAPTION>
ASSETS LIABILITIES TOTAL
---------- ----------- ----------
<S> <C> <C> <C>
Excess tax amortization
for non-compete agreement $19,267 $19,267
Tax loss carryforwards 1,589,710 1,589,710
Accelerated depreciation for
tax purposes $ (95,661) (95,661)
Allowance for bad debts 63,212 63,212
Capitalization for tax purposes
of inventory related costs 20,401 20,401
Deferred compensation 120,757 120,757
Other (14,905) (14,905)
Less: Valuation allowance (1,702,781) (1,702,781)
----------- ---------- ----------
Total $ 110,566 $(110,566) $ 0
=========== ========== ==========
</TABLE>
Reconciliations of the effective income tax rates to the U.S. statutory
rates are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Statutory rate (34.0%) (34.0%) (34.0%)
Increase (reduction) in valuation
allowance 34.0 35.2 26.0
State income taxes 7.1
Other (1.2) 11.7
------ ------ ------
Total 0% 0% 10.8%
====== ====== ======
</TABLE>
The Company estimates that, after filing its 1997 tax return, it will
have tax loss carryforwards of approximately $5,500,000 expiring in the
years 2009 through 2012.
H. COMMITMENTS:
The Company leases land, building and equipment under operating leases.
As of February 1, 1997, the Company's future minimum rental payments and
sublease rental income for leases having an initial lease term in excess
of one year were as follows:
DELIVERY
BUILDINGS AND OTHER SUBLEASE
FISCAL YEARS ENDING AND LAND EQUIPMENT INCOME
------------------- ---------- --------- --------
1998 $ 573,054 $226,183 $ 60,000
1999 397,886 127,781 60,000
2000 252,704 1,187 60,000
---------- -------- --------
Total $1,223,644 $355,151 $180,000
========== ======== ========
The above amounts include rentals under renewal options where management
contemplates, with a high degree of assurance, that the option will be
exercised. Lease terms require, in certain instances, that the Company
pay property taxes, insurance, mileage charges and maintenance cost on
the leased property. Rent expense for the years ended February 1, 1997,
February 3, 1996 and January 28, 1995 was $895,880, $1,062,407 and
$917,422, respectively, excluding mileage and other executory costs.
These expenses are included in selling, general and administrative
expenses in the accompanying consolidated
F-16
<PAGE>
statements of operations. For the years ended February 1, 1997 and
February 3, 1996, sublease income was $67,500 and $67,175. There was no
sublease income in fiscal year 1995.
During 1995, the Company entered into an employment agreement with Gregg
M. Leslie pursuant to which the employee is paid an annual salary of
$15,000 plus one-third of Sun City Produce, Inc.'s net income before
taxes. The initial term of the agreement ends on June 30, 2000. For the
fiscal year ended 1997 and 1996, salary expense under this employment
agreement was $162,199 and $79,834, respectively. As of February 1,
1997, advances to this employee in excess of his earnings were
approximately $71,000. If the Company terminates Mr. Leslie without
cause, as defined, the Company shall be obligated to pay Mr. Leslie
severance compensation in an amount equal to one-third of an amount
computed as five times the average net income before income taxes of Sun
City Produce, Inc. for the two immediately preceding fiscal years. Also,
Mr. Leslie has the option to forego such severance compensation and
purchase all of the capital stock of Sun City Produce, Inc. from the
Company. The purchase price is two-thirds of an amount computed as five
times the average net income before income taxes of Sun City Produce,
Inc. for the two immediately preceding fiscal years plus the book value
of Sun City Produce, Inc. on the closing date.
I. STOCKHOLDERS' EQUITY:
1982 Stock Option Plan - In June 1982, the stockholders approved an
incentive stock option plan for officers, directors, and key employees.
Under the plan, options for 262,500 common shares may be granted to
purchase common shares at no less than 100% of the fair market value at
date of grant.
1994 Stock Option Plan - In June 1994, the stockholders approved another
incentive stock option plan for officers, directors, and key employees.
Under the plan, options for 225,000 common shares may be granted to
purchase common shares at not less than 100% of the fair market value at
the date of grant.
Options terminate, except to a limited extent, in the event of
retirement, disability, death of the optionee or termination of
employment. Options granted under these plans are exercisable at various
amounts per share and become exercisable at the rate of 20% each year
beginning one year after date of grant and expire ten years after date
of grant.
Activity relating to this option plan is summarized as follows:
<TABLE>
<CAPTION>
1982 PLAN 1994 PLAN
-------------------- ----------------------
<S> <C> <C> <C> <C>
Outstanding at 1/29/94 240,750 $1.833-3.50 -
Granted 20,000 3.00 -5.00 75,000 $3.875
Exercised (3,250) 1.833
Forfeited (1,500) 1.833
-------- ----------- -------- ------------
Outstanding at 1/28/95 256,000 1.833-5.00 75,000 3.875
Granted - 45,000 4.125-5.125
Exercised - -
Forfeited (42,500) 1.833-2.875
-------- ----------- -------- ------------
Outstanding at 2/3/96 213,500 1.833-5.00 120,000 3.875-5.125
Granted - -
Exercised (18,750) 1.833 -
Forfeited (12,500) 3.00-5.00 (10,000) 5.125
-------- ----------- -------- ------------
Outstanding at 2/1/97 182,250 $1.833-5.00 110,000 $3.875-5.125
======== ========
</TABLE>
F-17
<PAGE>
At February 1, 1997, February 3, 1996 and January 28, 1995, options for
217,750, 213,000 and 166,300 shares, respectively, were exercisable.
J. ACQUISITIONS:
Effective February 27, 1995, the Company acquired substantially all the
assets and liabilities of Sheppard Distributors, Inc. ("Sheppard") which
was accounted for using the purchase method of accounting. Sheppard is a
foodservice company serving a broad range of customers. Product lines
include seafood, meats, poultry, produce and various frozen foods. The
initial purchase price consisted of the acquisition of $1,761,698 in
assets, payable $900,000 in cash and the assumption of $861,698 in
liabilities. The results of operations of Sheppard are included in the
consolidated statement of operations from the date of acquisition.
The following unaudited pro-forma consolidated results of operations for
fiscal 1996 give effect to the acquisition of Sheppard as though it had
occurred on January 29, 1995:
Sales and operating revenues $91,876,376
Net loss ($2,797,860)
Loss per common share $(1.94)
The unaudited pro-forma information is not necessarily indicative of
results of operations that would have occurred had the purchase been
made at January 29, 1995, or of future results of operations of the
Company.
The initial purchase price was funded through borrowings under the
Company's revolving credit and term loan agreement. The Company is
obligated to pay an additional amount to the sellers based on net
profits earned by this division computed as four and one-half times the
average annual net profit up to $400,000, and five and one-half times
the average annual net profit over $400,000, generated by this division
over the three year period beginning on the acquisition date. This
amount is payable in annual increments of twenty-five percent of the net
aggregate price at the end of the first and second years after closing,
fifty percent of the recomputed net aggregate price at the end of the
third year after closing and the balance payable one year after the
final computation, secured by fixed assets and guaranteed by the
Company. During fiscal 1997, the Company paid $252,500 based upon this
calculation and recorded this amount as an addition to excess of
purchase price over fair value of net assets acquired. The total
estimated remaining payments will be approximately $750,000.
The excess of the purchase price over the fair value of the tangible and
identifiable intangible net assets acquired is being amortized over
twenty-five years using the straight-line method.
K. DISPOSAL OF ASSETS:
During fiscal 1996, management implemented several strategic measures.
These measures included the disposition of three egg operations and
related egg production joint venture investments.
In September 1995, the Company disposed of its Spring Grove,
Pennsylvania egg operations and related joint venture investment. In
December 1995, the Company disposed of its Burgaw, North Carolina egg
operations and related joint venture investment and in January 1996, the
Company disposed of its Jarratt, Virginia egg operations.
As a result of these sales and the operating losses sustained by these
operations during fiscal 1996, the Company recorded losses of
approximately $1,600,000 of which approximately $720,000 resulted from
the
F-18
<PAGE>
disposition of approximately $3,100,000 of assets. During the year these
operations generated approximately $19,900,000 in sales revenues.
L. LOSS PER COMMON SHARE:
Loss per common share is based on the weighted average number of common
shares outstanding.
The average shares used in calculating loss per common share were
1,447,902, 1,438,952 and 1,437,165 for years ending February 1, 1997,
February 3, 1996 and January 28, 1995, respectively.
Common stock equivalents were excluded from the calculation of loss per
common share for the years ending February 1, 1997, February 3, 1996 and
January 28, 1995 because the effect would have been antidilutive.
M. EMPLOYEE BENEFIT PLANS:
The Company has established an Employee Stock Ownership Plan ("ESOP") to
acquire shares of the Company's stock for the future benefit of its
employees. The ESOP covers all permanent employees who satisfied the age
and length of service requirements. Contributions to the Plan are made
at the discretion of the Board of Directors. During fiscal 1997, 1996
and 1995, the Company contributed $91,000, $120,000 and $120,000,
respectively, to the ESOP.
During fiscal 1991, the Company sold 187,500 shares of its common stock
to the ESOP for $531,125 financed with a ten year $530,000 term loan
with interest at the same rate charged to the Company by its primary
lender.
N. SEGMENT REPORTING:
The Company is principally engaged in the business of distributing basic
food products. Revenues from the Company's customers, which includes
national and regional supermarket chains, were as follows for the three
fiscal years:
1997 1996 1995
---- ---- ----
Foodservice 90.7% 71.4% 59.2%
Egg division & other 9.3% 28.6% 40.8%
O. LEGAL MATTERS:
The Company is engaged in ordinary routine litigation incidental to its
business. The Company does not believe that the ultimate outcome of such
litigation will have a material adverse effect on its consolidated
financial position or results of operations.
F-19
<PAGE>
<TABLE>
<CAPTION>
SUN CITY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
AUGUST 2, FEBRUARY 1,
1997 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Accounts and trade notes receivable, less allowance
for doubtful accounts of approximately $477,000
and $460,000, respectively $ 5,006,703 $ 5,521,144
Inventories 2,028,055 2,334,987
Notes receivable - current portion 16,950 18,927
Prepaid expenses 107,969 218,838
------------ ------------
TOTAL CURRENT ASSETS 7,159,677 8,093,896
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements 108,133 108,133
Buildings and improvements 555,951 499,917
Machinery and equipment 1,568,316 2,243,175
------------ ------------
2,232,400 2,851,225
Less accumulated depreciation (1,258,218) (1,319,437)
974,182 1,531,788
Properties held for sale 512,148 504,849
Long-term notes receivable 81,060 88,308
Excess of purchase price over fair value
of net assets acquired 908,278 1,780,836
Other assets 359,577 447,340
------------ ------------
TOTAL $ 9,994,922 $ 12,447,017
============ ============
AUGUST 2, FEBRUARY 1,
1997 1997
------------ ------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Cash overdraft $ 154,364 214,744
Accounts payable 4,997,092 5,003,332
Accrued expenses 1,236,189 734,354
Current portion of long-term debt 1,886,177 1,720,129
------------ ------------
TOTAL CURRENT LIABILITIES 8,273,822 7,672,559
DEFERRED COMPENSATION PAYABLE -- 123,106
LONG-TERM DEBT 4,256,540 5,409,828
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value 3,000,000
shares authorized; 2,276,116 shares
issued 227,612 227,612
Capital in excess of par value 1,041,721 1,041,721
Retained earnings (979,213) 837,751
------------ ------------
290,120 2,107,084
Less: Treasury stock at cost, 828,214
shares (2,653,560) (2,653,560)
Less: Receivable for common stock sold to ESOP (172,000) (212,000)
TOTAL STOCKHOLDERS' DEFICIT (2,535,440) (758,476)
------------ ------------
TOTAL $ 9,994,922 $ 12,447,017
============ ============
</TABLE>
See notes to consolidated financial statements.
F-20
<PAGE>
<TABLE>
<CAPTION>
SUN CITY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
SIX MONTHS ENDED THREE MONTHS ENDED
------------------------- ------------------------
AUGUST 2, AUGUST 3, AUGUST 2, AUGUST 3,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $34,326,102 $34,532,847 $15,005,833 $15,177,943
Costs and Expenses
Cost of goods sold 29,650,798 29,343,376 13,007,924 12,931,538
Operating expenses 2,396,385 2,496,561 1,045,673 1,066,217
Selling, general and
administrative expenses 2,331,218 2,150,080 1,187,905 964,029
Provision for loss on planned
disposal of subsidiary 1,280,967 1,280,967
Interest expense 467,362 418,041 228,925 201,784
Other expense, net 16,336 8,024 15,042 14,154
----------- ----------- ----------- -----------
Total Cost and Expenses 36,143,066 34,416,082 16,766,436 15,177,722
(Loss) Earnings
Before Income Taxes (1,816,964) 116,765 (1,760,603) 221
Provision For Income Taxes -0- -0- -0- -0-
----------- ----------- ----------- -----------
Net (Loss) Earnings $(1,816,964) $ 116,765 $(1,760,603) $ 221
=========== =========== =========== ===========
Net (Loss) Earnings Per
Common Share $(1.25) $.08 $(1.22) -
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-21
<PAGE>
<TABLE>
<CAPTION>
SUN CITY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
-------------------------------
AUGUST 2, AUGUST 3,
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings $(1,816,964) $ 116,765
ADJUSTMENTS TO RECONCILE NET EARNINGS
TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Depreciation 206,652 184,797
Amortization of excess of purchase price
over fair market value of net assets
acquired 45,797 83,213
Provision for losses on accounts receivable 123,898 118,980
Change in assets and liabilities:
Decrease in trade accts receivable 390,543 2,392,042
Decrease in inventories 306,932 22,281
Decrease (increase) in prepaid expenses 110,869 (147,319)
Decrease (increase) in other assets 914,524 (302,026)
Decrease in accounts payable (6,240) (1,183,108)
Increase (decrease) in accrued expenses 501,835 (286,760)
(Decrease) increase in deferred comp payable (123,106) 12,000
------------ ------------
TOTAL ADJUSTMENTS 2,471,704 894,100
============ ============
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 654,740 $ 1,010,865
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets 343,655 5,950
------------ ------------
CASH PROVIDED BY
INVESTING ACTIVITIES 343,655 5,950
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 307,352 60,000
Repayments on notes receivable 9,225 5,148
Principal payments on notes payable (1,294,592) (1,468,890)
Proceeds from receivable from ESOP 40,000 53,000
Proceeds from exercise of options - 75
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (938,015) (1,350,667)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 60,380 (333,852)
(CASH OVERDRAFT) CASH AND EQUIVALENTS, Beginning of Year (214,744) 760,885
------------ ------------
(CASH OVERDRAFT) CASH AND EQUIVALENTS, End of Year $ (154,364) $ 427,033
========== ===========
</TABLE>
See notes to consolidated financial statements.
F-22
<PAGE>
SUN CITY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED AUGUST 2, 1997 AND AUGUST 3, 1996
(UNAUDITED)
A. BASIS 0F PRESENTATION
INTERIM FINANCIAL INFORMATION
The accompanying unaudited condensed consolidated financial statements of Sun
City Industries, Inc. and Subsidiaries have been prepared by the Company without
audit pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information related to the Company's organization,
significant accounting policies and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These unaudited condensed
consolidated financial statements reflect, in the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
fairly state the financial position and the results of operations for the
periods presented and the disclosures herein are adequate to make the
information presented not misleading. Operating results for the interim periods
presented are not indicative of the results that can be expected for a full
year.
GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities and in the normal course of business. As shown in the accompanying
financial statements, during the six months ended August 2, 1997, the Company
incurred a net loss of $1,816,964 and as of August 2, 1997 the Company had a
stockholder's deficit of $2,535,440. These factors among others may indicate
that the Company will be unable to continue as a going concern for a reasonable
period of time.
The financial statements do not included any adjustments relating to the
recoverability and classification of recorded asset amounts and classification
of liabilities that might be necessary should the Company be unable to continue
as a going concern. The Company is not in complianc with several provisions of
its line of credit agreement and the lender has placed significant operating and
financing restrictions on the Company pursuant to a forebearance agreement. The
Company's continuation as a going concern is dependent upon its ability to
generate sufficient cash flow to meet its obligations on a timely basis, to
comply with the terms and covenants of its financing agreements, to obtain
additional financing or refinancing as may be required, and ultimately to attain
successful operations.
B. NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards Number 128, "Earnings per Share" ("SFAS 128")
which changes the method of calculating earnings per share. SFAS 128 requires
the presentation of "basic" earnings per share and "diluted" earnings per share
on the face of the income statement. Basic earnings per share is computed by
dividing the net income available to common shareholders by the weighted average
shares of outstanding common stock. The calculation of diluted earnings per
share is similar to basic earnings per share except that the denominator
includes dilutive common stock equivalents such as stock options and warrants.
The statement is effective for financial statements for periods ending after
December 31, 1997. The Company will adopt SFAS 128 in the fourth quarter of
fiscal 1998, as early adoption is not permitted. The adoption of SFAS 128 is not
expected to have an impact on the Company's earnings per share.
C. REVERSE ACQUISITION
On June 17, 1997, the Company entered into an Agreement and Plan of Merger (the
"Agreement") with SeaSpecialties, Inc. ("SeaSpecialties"), a private company.
Under the terms of the Agreement, upon completion of the merger, the
shareholders of SeaSpecialties will own approximately 83% of the common stock of
the combined entities. The transaction will be accounted for as a reverse
acqusition and upon consummation SeaSpecialties will be the surviving entity.
Also, SeaSpecialties entered into a Management Agreement to manage the Company
until the merger is completed.
F-23
<PAGE>
D. PROVISION FOR LOSS ON PLANNED DISPOSAL OF SUBSIDIARY
On August 31, 1997, the Company closed its subsidiary, Gulf Coast Foodservice,
Inc. Management anticipates that as a consequence of terminating the operations
of this subsidiary and disposing of its assets, the Company will incur a loss of
approximately $1,300,000. Such loss has been provided for and the related
impaired assets have been written down to estimated fair value in the
accompanying condensed consolidated financial statements.
E. LITIGATION
On June 16, 1997, a suit was filed in Broward County, Florida, Circuit Court
against Sun City's subsidiary, Sheppard Foodservice, Inc., and Sun City alleging
a default by Sheppard Foodservice, Inc. in its obligations to make purchase
price payments under the Jnauary 31, 1995 Asset Purchase Agreement under which
Sheppard Foodservice, Inc. acquired its business from Sheppard Distributors,
Inc., a Florida corporation now known as Page & McKean, Inc. Sun City is the
guarantor of the obligations of Sheppard Foodservice under the Asset Purchase
Agreement. The plaintiffs also sought a declaratory judgement that the alleged
default released the plaintiffs from certain noncompete agreements given in
connection with the Asset Purchase Agreement.
The complaint filed in the above litigation seeks only money damages relating to
the payment due on May 27, 1997, which the plaintiffs estimated to be in excess
of $150,000. Since the deferred portion of the purchase price under the Asset
Purchase Agreement is not a fixed amount, but is computed with reference only to
ongoing average annual net profits of Sheppard Foodservice, Inc., there is no
fixed amount owed that could be accelerated because of the default, and the
complaint does not seek any such remedy.
Should the plaintiff prevail in the litigation it is likely that the defendants
would be unable to pay such a judgement and that Sheppard Foodservice, Inc.
would suffer the total loss of its business through enforcement of such
judgement and anticipated reaction by Sun City's primary lender, which holds a
first security interest in the inventory and receivables of Sheppard
Foodservice, Inc. In fiscal 1996-1997, Sheppard Foodservice had sales and
operating revenue of $15,160,239, with a net profit of $300,700.
The parties have entered into settlement negotiations, and Sun City is hopeful
that a settlement will be reached to defer the payment of such amounts until the
closing of the Merger, but there can be no assurance that a settlement will
occur.
F-24
<PAGE>
PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
F-25
<PAGE>
SUN CITY INDUSTRIES, INC.
INTRODUCTION TO UNAUDITED PRO FORMA
FINANCIAL INFORMATION
Pursuant to the Merger, shares of common stock of SeaSpecialties will be
converted into 38,335,320 shares of common stock of Sun City. Upon consummation,
SeaSpecialties will be the surviving entity. The transaction will be accounted
for as a reverse acquisition and SeaSpecialties will be the acquiring entity.
Concurrent with the Merger, Sun City will change its name to "SeaSpecialties,
Inc." and will change its year-end to December 31. In conjunction with the
Merger, Sun City agreed to sell the assets of Gulf Coast Foodservices, Inc.
("Gulf Coast"), a wholly owned subsidiary of Sun City, to the former
shareholders of Gulf Coast in exchange for the cancellation of amounts owed to
these shareholders.
The unaudited pro forma condensed balance sheet includes the financial position
of SeaSpecialties as of June 30, 1997 and of Sun City as of August 2, 1997. The
unaudited pro forma condensed statements of operations include the results of
operations for the year ended December 31, 1996 and the six months ended June
30, 1997 for SeaSpecialties and the year ended February 1, 1997 and the six
months ended August 2, 1997 for Sun City.
The historical financial statements have been adjusted to give effect to the
Merger as if the Merger and sale of Gulf Coast had occurred as of June 30, 1997
for the pro forma condensed balance sheet and as of the beginning of the periods
presented for the pro forma condensed statements of operations. Such pro forma
adjustments are described in the accompanying notes to the pro forma financial
statements, which should be read in conjunction with the pro forma financial
statements. Such pro forma financial statements should also be read in
conjunction with SeaSpecialties' and Sun City's historical financial statements
and notes thereto appearing elsewhere herein.
The pro forma financial statements presented herein do not purport to be
indicative of the actual financial position or results of operations had the
Merger actually been consummated on the applicable dates, or of the future
financial position or future results of operations which will result from the
consummation of the Merger.
F-26
<PAGE>
<TABLE>
<CAPTION>
SUN CITY INDUSTRIES, INC.
PRO FORMA CONDENSED BALANCE SHEET
JUNE 30, 1997
(Unaudited)
SUN CITY
AS OF SEASPECIALTIES
AUGUST 2, AS OF JUNE 30, PRO FORMA
1997 1997 ADJUSTMENTS PRO FORMA
----------- --------------- ------------- -----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ - $ 89,041 $ 190,418 (c) $ 279,459
Accounts receivable, net 5,006,703 3,879,609 - 8,886,312
Inventories 2,028,005 3,544,313 - 5,572,368
Prepaid expenses and other current
assets 124,919 108,811 - 233,730
----------- ----------- ---------- -----------
Total current assets 7,159,677 7,621,774 190,418 14,971,869
PROPERTY AND EQUIPMENT, net 974,182 1,383,799 2,357,981
PROPERTIES HELD FOR SALE 512,148 - - 512,148
DUE FROM SHAREHOLDER - 1,111,936 - 1,111,936
EXCESS OF PURCHASE PRICE OVER FAIR 908,278 - 594,522 (a) 2,002,800
VALUE OF NET ASSETS ACQUIRED 500,000 (b)
DUE FROM RELATED PARTIES - 872,095 - 872,095
NONCOMPETE AGREEMENT, net - 852,546 - 852,546
OTHER ASSETS 440,637 235,998 676,635
----------- ----------- ----------- -----------
Total assets $ 9,994,922 $12,078,148 $ 1,284,940 $23,358,010
=========== =========== =========== ===========
</TABLE>
(Continued)
F-27
<PAGE>
<TABLE>
<CAPTION>
SUN CITY INDUSTRIES, INC.
PRO FORMA CONDENSED BALANCE SHEETS
JUNE 30, 1997
(UNAUDITED)
SUN CITY
AS OF SEASPECIALTIES
AUGUST 2, AS OF JUNE 30, PRO FORMA
1997 1997 ADJUSTMENTS PRO FORMA
----------- --------------- ------------- -----------
<S> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to bank $ - $3,177,532 $(3,177,532) (d) $ -
Current portion of long-term debt 1,886,177 - (1,400,000) (e) 528,574
42,397 (d)
Accounts payable 5,151,456 2,078,096 186,628 (f) 7,416,180
Accrued expenses 1,236,189 521,221 (178,500) (e) 2,078,910
500,000 (b)
----------- ----------- ----------- -----------
Total current liabilities 8,273,822 5,776,849 (4,027,007) 10,023,664
----------- ----------- ----------- -----------
DEFERRED COMPENSATION - 516,226 - 516,226
----------- ----------- ----------- -----------
LONG-TERM DEBT 4,256,540 - 3,135,135 (d) 7,391,675
----------- ----------- ----------- -----------
NONCOMPETE AGREEMENT - 1,175,649 - 1,175,649
----------- ----------- ----------- -----------
SHAREHOLDERS' EQUITY:
Common stock 227,612 11,359 453,560 (h) 464,919
(227,612) (g)
Additional paid-in capital 1,041,721 246,495 97,474 (f) -
(343,969) (h)
(1,041,721) (g)
Retained earnings (979,213) 4,351,570 (284,102) (f) 3,957,877
(109,591) (h)
979,213 (g)
----------- ----------- ----------- -----------
290,120 4,609,424 (476,748) 4,422,796
----------- ----------- ----------- -----------
Less- Treasury stock (2,653,560) - 2,653,560 (g) -
Less- Receivable for common stock sold
to ESOP (172,000) - - (172,000)
----------- ----------- ----------- -----------
Total liabilities and
shareholders' equity $ 9,994,922 $12,078,148 $ 1,284,940 $23,358,010
=========== =========== =========== ===========
</TABLE>
The accompanying notes to pro forma condensed financial statements
are an integral part of these balance sheets.
F-28
<PAGE>
<TABLE>
<CAPTION>
SUN CITY INDUSTRIES, INC.
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(Unaudited)
SUN CITY SEASPECIALTIES
FOR THE YEAR FOR THE YEAR
ENDED ENDED
FEBRUARY 1, DECEMBER 31, PRO FORMA
1997 1996 ADJUSTMENTS PRO FORMA
------------ -------------- ------------- -----------
<S> <C> <C> <C> <C>
NET SALES $68,245,383 $35,020,777 $(10,062,851) (c) $93,203,309
COST OF SALES 64,129,511 27,426,266 (8,142,272) (c) 83,413,505
----------- ----------- ------------ -----------
Gross profit 4,115,872 7,594,511 (1,920,579) (i) 9,789,804
SELLING, GENERAL AND 3,909,974 6,668,120 (490,690) 8,076,998
ADMINISTRATIVE EXPENSES (2,010,406) (c)
NONRECURRING CHARGES 479,850 430,629 - 910,479
----------- ----------- ------------ -----------
Income (loss) from operations (273,952) 495,762 580,517 802,327
INTEREST EXPENSE 893,135 357,160 (338,506) (j) 841,924
(69,865) (c)
----------- ----------- ------------ -----------
Income (loss) before (1,167,087) 138,602 988,888 (39,597)
provision for
income taxes
PROVISION FOR INCOME TAXES - 199,772 (199,772) (n) -
----------- ----------- ------------ -----------
Net income (loss) before
pro forma adjustments to (1,167,087) (61,170) 1,188,660 (39,597)
reflect income taxes
PRO FORMA ADJUSTMENTS TO
REFLECT INCOME TAXES (l) - (147,796) 147,796 (n) -
----------- ----------- ------------ -----------
Net income (loss) $(1,167,087) $ 86,626 $ 1,040,864 $ (39,597)
=========== =========== ============ ===========
NET LOSS PER SHARE $ (0.81) $ (0.00)
=========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING 1,447,889 46,491,900 (m)
=========== ===========
</TABLE>
The accompanying notes to pro forma financial statements are
an integral part of these statements.
F-29
<PAGE>
<TABLE>
<CAPTION>
SUN CITY INDUSTRIES, INC.
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
(UNAUDITED)
SEASPECIALITES
SUN CITY FOR THE SIX
FOR THE SIX MONTHS
MONTHS ENDED ENDED
AUGUST 2, JUNE 30, PRO FORMA
1997 1997 ADJUSTMENTS PRO FORMA
------------ ------------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $34,326,102 $18,338,230 $(3,937,568) (c) $48,726,764
COST OF SALES 32,047,183 14,397,057 (3,377,900) (c) 43,066,340
----------- ----------- ----------- -----------
Gross profit 2,278,919 3,941,173 (559,668) 5,660,424
SELLING, GENERAL AND 2,347,554 3,644,092 (231,666) (i) 4,933,633
ADMINISTRATIVE EXPENSES (826,347) (c)
NONRECURRING CHARGES 1,280,967 - (1,280,967) (c) -
----------- ----------- ----------- -----------
Income (loss) from operations (1,349,602) 297,081 1,779,312 726,791
INTEREST EXPENSE 467,362 113,512 (197,557) (j)
(47,741) (c) 335,576
----------- ----------- ----------- -----------
Income (loss) before provision for
income taxes (1,816,964) 183,569 743,643 391,215
PROVISION FOR INCOME TAXES - - 72,676 (k) 72,676
----------- ----------- ----------- -----------
Income (loss) before pro forma
adjustments to reflect income
taxes (1,816,964) 183,569 670,967 318,539
PRO FORMA ADJUSTMENTS TO
REFLECT INCOME TAXES (l) - 68,838 - 68,838
----------- ----------- ----------- -----------
Net income (loss) $(1,816,964) $ 114,731 $ 670,967 $ 249,701
=========== =========== =========== ===========
PRO FORMA NET INCOME (LOSS)
PER SHARE $ (1.25) $ 0.01
=========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING 1,447,889 46,491,900 (m)
=========== ===========
</TABLE>
The accompanying notes to pro forma condensed financial statements
are an integral part of these statements.
F-30
<PAGE>
SUN CITY INDUSTRIES, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED FINANCIAL STATEMENTS
(a) Represents the net impact of eliminating "excess purchase price" previously
reflected in the books and records of Sun City and the recording of the
fair value of the assets received and liabilities assumed in connection
with the Merger. The value of the acquisition was based on the fair value
of the net assets acquired, as this method is most indicative of fair value
of the acquired Company.
(b) Represents estimated costs incurred in connection with the Merger.
(c) Represents the impact of the sale of Gulf Coast on the financial position
and results of operations.
(d) Represents reclassification of long-term debt based on the terms of new
financing offered in connection with the Merger.
(e) Represents conversion of bonds, together with accrued interest, to equity
in connection with the Merger.
(f) Upon completion of the Merger, SeaSpecialties will terminate its S
Corporation status. Adjustments represent final S Corporation distributions
and reclassification of undistributed amounts to additional paid-in
capital.
(g) Represents the elimination of Sun City's shareholders' equity to reflect
the Merger.
(h) Represents the conversion of bonds and SeaSpecialties common stock into the
common stock of Sun City.
(i) Represents the impact of contractually reducing Sun City's officers
salaries, benefits and deferred compensation in connection with the Merger.
(j) Represents reduction of interest expense related to the conversion of bonds
to equity and new financing entered into in connection with the Merger.
(k) Represents the tax effects of pro forma adjustments noted in Notes c, i and
j, above.
(l) Prior to the Merger, SeaSpecialties was an S Corporation under the
applicable provisions of the Internal Revenue Code. Accordingly, applicable
taxable income was taxed directly to SeaSpecialties' shareholders. The
financial statements reflect a provision (benefit) for income taxes at an
estimated effective rate of 37.5% as if operations were taxable during the
period.
(m) Net income (loss) per share and weighted average shares outstanding are
determined based on the effects of an additional 45,044,001 shares of Sun
City common stock issued in connection with the Merger.
(n) Represents the reversal of the tax effects as a result of the Merger.
F-31
<PAGE>
SEASPECIALTIES, INC.
FINANCIAL STATEMENTS
F-32
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
SeaSpecialties, Inc.:
We have audited the accompanying balance sheets of SeaSpecialties, Inc. (a
Florida corporation) as of December 31, 1996 and April 30, 1996 and 1995 and the
related statements of operations, shareholders' equity and cash flows for the
eight-month period ended December 31, 1996 and each of the three years in the
period ended April 30, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SeaSpecialties, Inc. as of
December 31, 1996 and April 30, 1996 and 1995 and the results of its operations
and its cash flows for the eight-month period ended December 31, 1996 and each
of the three years in the period ended April 30, 1996 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Miami, Florida,
April 4, 1997 (except with respect to the
matters discussed in Note 12, as to which
the date is September 19, 1997).
F-33
<PAGE>
<TABLE>
<CAPTION>
SEASPECIALTIES, INC.
BALANCE SHEETS
APRIL 30,
DECEMBER 31, ----------------------------
1996 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 40,484 $ 182,658 $ 377,602
Accounts receivable, net of allowances for
doubtful accounts of $61,338, $55,918,
$25,066 at December 31, 1996 and
April 30, 1996 and 1995, respectively 3,359,970 2,943,005 2,551,857
Accounts receivable-related parties 1,053,000 941,000 612,000
Inventories 3,482,116 3,875,563 4,279,517
Prepaid expenses and other current assets 179,071 68,815 103,837
Deferred income taxes - 118,418 116,026
----------- ----------- -----------
Total current assets 8,114,641 8,129,459 8,040,839
----------- ----------- -----------
PROPERTY AND EQUIPMENT, net 1,123,377 998,271 1,197,059
DEFERRED INCOME TAXES - 144,976 63,472
DUE FROM SHAREHOLDERS 1,184,827 1,477,137 1,169,319
DUE FROM RELATED PARTIES 1,035,495 891,162 337,874
NONCOMPETE AGREEMENT, net 879,627 915,734 970,346
OTHER ASSETS 116,034 371,579 288,986
----------- ----------- -----------
Total assets $12,454,001 $12,928,318 $12,067,895
=========== =========== ===========
</TABLE>
(Continued)
F-34
<PAGE>
<TABLE>
<CAPTION>
SEASPECIALTIES, INC.
BALANCE SHEETS
(Continued)
APRIL 30,
DECEMBER 31, ----------------------------
1996 1996 1995
------------ ---------- -----------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to bank $3,732,340 $3,453,218 $ 2,950,000
Current portion of long-term debt - 162,500 150,000
Accounts payable 2,185,120 2,346,268 1,692,796
Accrued expenses 538,017 341,415 542,933
Income tax payable - 235,376 275,361
Due to shareholder - 108,057 118,196
----------- ----------- ------------
Total current liabilities 6,455,477 6,646,834 5,729,286
----------- ----------- ------------
LONG-TERM DEBT, net of current portion - - 162,500
----------- ----------- ------------
DEFERRED COMPENSATION 354,606 286,904 405,981
----------- ----------- ------------
NONCOMPETE AGREEMENT 1,126,396 1,062,638 983,649
----------- ----------- ------------
COMMITMENTS AND CONTINGENCIES
(Note 10)
SHAREHOLDERS' EQUITY:
Common stock, Class B, $2 par value,
5,000 shares authorized; none issued
and outstanding - - -
Common stock, Class A, $2 par value,
20,000 shares authorized, 5,679.69
shares issued and outstanding 11,359 11,359 11,359
Additional paid-in capital 246,495 246,495 246,495
Retained earnings 4,259,668 4,674,088 4,528,625
----------- ----------- ------------
4,517,522 4,931,942 4,786,479
----------- ----------- ------------
Total liabilities and shareholders'
equity $12,454,001 $12,928,318 $12,067,895
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these balance sheets.
F-35
<PAGE>
<TABLE>
<CAPTION>
SEASPECIALTIES, INC.
STATEMENTS OF OPERATIONS
EIGHT-MONTH PERIOD ENDED YEAR ENDED
DECEMBER 31 APRIL 30,
---------------------------- -------------------------------------------------
1996 1995 1996 1995 1994
----------- ----------- ------------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES:
Sales $18,438,754 $11,818,140 $26,590,488 $25,715,906 $26,610,620
Related party sales 4,216,000 7,519,123 6,370,000 5,500,000 4,000,000
----------- ----------- ----------- ----------- -----------
Total net sales 22,654,754 19,337,263 32,960,488 31,215,906 30,610,620
COST OF SALES 17,687,101 15,025,616 26,021,986 24,022,958 23,487,425
----------- ----------- ----------- ----------- -----------
Gross profit 4,967,653 4,311,647 6,938,502 7,192,948 7,123,195
----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Delivery 803,740 744,460 1,219,107 1,049,897 1,027,669
Selling 860,124 719,170 1,124,324 1,149,841 1,180,016
General and administrative 3,469,889 2,552,827 4,103,300 4,350,029 3,669,478
----------- ----------- ----------- ----------- -----------
Income (loss) from operations (166,100) 295,190 491,771 643,181 1,246,032
----------- ----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income 85,493 61,181 97,014 53,060 45,018
Interest expense (215,582) (209,288) (350,866) (282,011) (279,585)
Other (11,578) 29,876 1,919 21,142 (5,154)
----------- ----------- ----------- ----------- -----------
Total other income (expense) (141,667) (118,231) (251,933) (207,809) (239,721)
----------- ----------- ----------- ----------- -----------
Income (loss) before provision for
income taxes (307,767) 176,959 239,838 435,372 1,006,311
PROVISION FOR INCOME TAXES 106,653 63,335 94,375 341,374 613,018
----------- ----------- ----------- ----------- -----------
Net income (loss) before pro forma
adjustments to reflect income taxes (414,420) 113,624 145,463 93,998 393,293
PRO FORMA ADJUSTMENTS TO REFLECT
INCOME TAX BENEFIT (Note 2) (222,066) - - - -
----------- ----------- ----------- ----------- -----------
Net income (loss) $ (192,354) $ 113,624 $ 145,463 $ 93,998 $ 393,293
=========== =========== =========== =========== ===========
NET INCOME (LOSS) PER SHARE $ (33.87) $ 20.00 $ 25.61 $ 16.55 $ 69.25
============ =========== ============ =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 5,679.69 5,679.69 5,679.69 5,679.69 5,679.69
============ ============ ============ =========== ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these statements.
F-36
<PAGE>
<TABLE>
<CAPTION>
SEASPECIALTIES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE EIGHT-MONTH PERIOD ENDED DECEMBER 31, 1996 AND
FOR THE YEARS ENDED APRIL 30, 1996, 1995 AND 1994
COMMON STOCK ADDITIONAL
-------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------- ------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, April 30, 1993 5679.69 $11,359 $ 84,602 $ 4,041,334 $ 4,137,295
Forgiveness of related-party debt (see Note 10) -- -- 161,893 -- 161,893
Net income -- -- -- 393,293 393,293
------- ------- -------- ----------- -----------
BALANCE, April 30, 1994 5679.69 11,359 246,495 4,434,627 4,692,481
Net income -- -- -- 93,998 93,998
------- ------- -------- ----------- -----------
BALANCE, April 30, 1995 5679.69 11,359 246,495 4,528,625 4,786,479
Net income -- -- -- 145,463 145,463
------- ------- -------- ----------- -----------
BALANCE, April 30, 1996 5679.69 11,359 246,495 4,674,088 4,931,942
Net loss -- -- -- (414,420) (414,420)
------- ------- -------- ----------- -----------
BALANCE, December 31, 1996 5679.69 $11,359 $246,495 $ 4,259,668 $ 4,517,522
======= ======= ======== =========== ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these statements.
F-37
<PAGE>
<TABLE>
<CAPTION>
SEASPECIALTIES, INC.
STATEMENT OF CASH FLOWS
EIGHT-MONTH PERIOD ENDED YEAR ENDED
DECEMBER 31, APRIL 30,
---------------------------- --------------------------------------------
1996 1995 1996 1995 1994
--------- ----------- ----------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(414,420) $ 113,624 $ 145,463 $ 93,998 $ 393,293
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities-
Depreciation of property and equipment 175,295 176,720 273,379 254,958 239,715
Forgiveness of due from former shareholder 430,629 -- -- -- --
Amortization of intangibles 41,771 66,792 88,415 54,711 50,560
Deferred income taxes 263,394 (34,985) (83,896) (44,504) 2,799
Accretion of discounts related to buy-out 131,455 106,609 159,913 44,394 --
Change in assets and liabilities affecting
cash flows from operating activities-
(Increase) decrease in:
Accounts receivable (528,965) (1,724,950) (652,921) (80,283) (457,568)
Inventories 393,447 (298,193) 431,010 (708,832) 761,436
Prepaid expenses and other current
assets (110,256) (99,664) 35,022 28,881 139,136
Other assets 249,881 (107,176) (115,396) 37,330 (192,439)
Increase (decrease) in:
Accounts payable (161,143) 822,812 653,471 602,393 (500,303)
Accrued expenses 196,602 (370,110) (201,518) 185,462 144,417
Income tax payable (235,376) (98,990) (39,985) 1,780 273,581
Deferred compensation -- (133,334) (200,000) 361,586 --
--------- ----------- ----------- --------- -----------
Net cash provided by (used in)
operating activities 432,314 (1,580,845) 492,957 831,874 854,627
--------- ----------- ----------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment acquisitions (300,401) (81,881) (3,206) (556,104) (262,716)
Acquisition, net of cash acquired -- -- (166,668) -- --
Advances to shareholder (138,319) -- (307,818) (220,196) (518,966)
Advances to related parties (144,333) (323,315) (553,288) (7,263) (226,242)
Collection on advances to shareholders -- 99,907 -- -- --
--------- ----------- ----------- --------- -----------
Net cash used in investing
activities (583,053) (305,289) (1,030,980) (783,563) (1,007,924)
--------- ----------- ----------- --------- -----------
</TABLE>
(Continued)
F-38
<PAGE>
<TABLE>
<CAPTION>
SEASPECIALTIES, INC.
STATEMENTS OF CASH FLOWS
(Continued)
EIGHT-MONTH PERIOD ENDED YEAR ENDED
DECEMBER 31, APRIL 30,
-------------------------- -----------------------------------------
1996 1995 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable to bank $ 3,000,000 $ 3,500,000 $ 3,000,000 $ 2,800,000 $ 4,000,000
Repayment of notes payable to bank (2,720,878) (1,822,368) (2,496,782) (2,700,050) (3,199,900)
Repayment of long-term debt (162,500) (162,500) (150,000) (150,000) (276,218)
Obligation under capital lease -- -- -- -- (36,906)
Advances from shareholders -- -- -- (16,413) 79,467
Payments on advances from shareholders (108,057) (1,299) (10,139) (116,967) --
Payments on advances from related parties -- -- -- -- (219,058)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities 8,565 1,513,833 343,079 (183,430) 347,385
Net increase (decrease) in cash
and cash equivalents (142,174) (372,301) (194,944) (135,119) 194,088
CASH AND CASH EQUIVALENTS, beginning of period 182,658 377,602 377,602 512,721 318,633
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 40,484 $ 5,301 $ 182,658 $ 377,602 $ 512,721
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 233,103 $ 223,938 $ 350,907 $ 282,011 $ 284,585
----------- ----------- ----------- ----------- -----------
Income taxes $ 80,000 $ 260,980 $ 217,000 $ 210,000 $ --
=========== =========== =========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Certain related party payables were forgiven
in fiscal year 1994 (see Note 10).
Effective April 4, 1995, the Company entered
into a noncompete agreement with a certain
shareholder (see Note 3).
</TABLE>
The accompanying notes to financial statements are an
integral part of these statements.
F-39
<PAGE>
SEASPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND APRIL 30, 1996 AND 1995
1. ORGANIZATION:
SeaSpecialties, Inc. ("SeaSpecialties" or the "Company", formerly Florida Smoked
Fish Company) is engaged in the processing and distribution of raw, smoked and
pickled fish products and fresh seafood. The Company's market is principally in
Florida and its customers include retailers, restaurants, hotel chains, cruise
lines and an out-of-state affiliate. In May 1996, Florida Smoked Fish Company
changed its name to SeaSpecialties and its year-end from April 30 to December
31.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH EQUIVALENTS-
The Company considers all highly liquid investments with a maturity of three
months or less as of the date of purchase to be cash equivalents. At December
31, 1996 and April 30, 1996 and 1995, the Company had no cash equivalents.
INVENTORIES-
Inventories consist primarily of unprocessed seafood and are stated at the lower
of cost (first-in, first-out) or market. Processed fish accounted for
approximately $350,000, $306,000 and $711,000 of the inventory balance at
December 31, 1996 and April 30, 1996 and 1995, respectively.
PROPERTY AND EQUIPMENT-
Property and equipment are carried at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided using the straight-line
method over the estimated useful lives of the assets as follows:
YEARS
-------------
Machinery and equipment 5-7
Furniture and fixtures 5-7
Autos and trucks 5
Leasehold improvements Life of lease
F-40
<PAGE>
INCOME TAXES-
The provision for income taxes is based on the estimated tax rates for the
applicable year. The Company follows Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 utilizes the
liability method and deferred taxes are determined based on the estimated future
tax effects of differences between the financial statement and tax basis of
assets and liabilities given the provisions of enacted tax laws. Deferred income
tax provisions and benefits are based on the changes in the deferred tax asset
or tax liability from period to period.
Effective May 1, 1996, the Company became an S Corporation for income tax
purposes. Accordingly, income, losses and related timing differences which arise
in the recording of income and expense items for financial reporting and tax
reporting purposes are included in the individual tax returns of the
shareholders. The impact on the Company of becoming an S Corporation was an
additional charge of $106,653, for the year ended December 31, 1996, reflecting
the reversal of deferred income taxes.
The pro forma adjustment to reflect income taxes in the accompanying statements
of operations is for informational purposes only. Income taxes have been
provided at the estimated effective rate of 37.5% during the period in which the
Company was an S Corporation. The pro forma adjustment includes an estimated
income tax benefit and the reversal of the $106,653 charge discussed above.
FINANCIAL INSTRUMENTS-
The carrying amount of cash and cash equivalents, accounts receivable, other
assets, accounts payable, notes payable to bank, and long-term debt approximates
fair value as of December 31, 1996 and April 30, 1996 and 1995.
USE OF ESTIMATES-
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NET INCOME (LOSS) PER SHARE-
Net income (loss) per common share and pro forma loss per common share have been
computed by dividing net income (loss) by the weighted average number of common
shares. The Company has no common stock equivalents.
AMORTIZATION-
The noncompete is being amortized on a straight-line basis over 18 years,
representing the term of the noncompete agreement. The Company continually
evaluates whether later events and circumstances have occurred that indicate the
remaining net book value may warrant revision or may not be recoverable.
NEW ACCOUNTING PRONOUNCEMENT-
In March 1995, Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed
of ("SFAS 121") was issued. SFAS 121 establishes accounting standards for
recording the impairment of long-lived assets, certain identifiable intangibles
and goodwill. The Company adopted the provisions of SFAS 121 for the eight-month
period ended December 31, 1996, as required, which did not have an impact on its
results of operations and financial position.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards Number 128, "Earnings per Share" ("SFAS 128")
which changes the method of calculating earnings per share. SFAS 128 requires
the presentation of "basic" earnings per share and "diluted" earnings per share
on the face of the income statement. Basic earnings per share is computed by
dividing the net income available to common shareholders by the weighted average
shares of outstanding common stock. The calculation of diluted earnings per
share is similar to basic earnings per share except that the denominator
includes dilutive common stock equivalents such as stock options and warrants.
The statement is effective for financial statements for periods ending after
December 31, 1997. The Company will adopt SFAS 128 in the fourth quarter of
1997, as early adoption is not permitted. The adoption of SFAS 128 is not
expected to have an impact on the Company's earnings per share.
F-41
<PAGE>
3. BUY-OUT TRANSACTION:
On April 4, 1995, the Company and its three shareholders (all members of the
same family) entered into a series of agreements to transfer ownership and
control of the Company from two of the shareholders to its current
shareholder-President. The President entered into an Option Agreement to
purchase all of the shares held by one of the shareholders. The other
shareholder contributed his entire ownership to a trust and upon his death, the
President becomes the sole beneficiary of the trust. The Company also entered
into various compensation, consulting, noncompete and transfer agreements (the
"Agreements") with both former shareholders. As a part of the buy-out
transaction, the selling shareholder resigned as an officer and director of the
Company and retired from active management and currently serves in a consulting
capacity. The other shareholder resigned as Chairman of the Board of Directors
but remains an employee of the Company. Effective May 1, 1996, the President
exercised his rights under the Option Agreement. The Company will make total
annual payments under the Agreements as follows as of December 31, 1996:
AGGREGATE
YEARS AMOUNT
----------- ----------
1997 $ 636,120
1998 586,120
1999 2,061,120
2000 561,120
2001 479,793
2002 - 2014 2,967,120
The present value of the future payments due under the deferred compensation and
noncompete agreements have been reflected as liabilities in the accompanying
balance sheets. The deferred compensation related to past services rendered and
has been included in "General and Administrative" expense in the accompanying
statement of operations for the fiscal year ended April 30, 1995. The noncompete
agreement was recorded as an intangible asset and is being amortized over the
18-year term of the agreement.
As a result of the Agreements, the statements of operations include
compensation, amortization and other related expenses. These expenses totaled
approximately $592,000, $412,830 (unaudited), $1,127,000, $420,000 for the
eight-month periods ended December 31, 1996 and 1995 and the years ended April
30, 1996 and 1995, respectively.
Also, in connection with the Agreements, the Company forgave certain amounts
owed by a former shareholder. As a result, during the eight-month period ended
December 31, 1996 the Company recorded a nonrecurring compensation expense of
approximately $431,000, which has been included in "General and Administrative"
expense in the accompanying combined statement of operations.
4. PROPERTY AND EQUIPMENT, NET:
Property and equipment consist of the following:
APRIL 30,
DECEMBER 31, ---------------------------
1996 1996 1995
----------- ----------- -----------
Equipment $ 2,567,920 $ 2,366,420 $ 2,389,533
Leasehold improvements 279,225 279,225 279,225
Construction in progress 102,204 - -
----------- ----------- -----------
2,949,349 2,645,645 2,668,758
Less- Accumulated depreciation
and amortization (1,825,972) (1,647,374) (1,471,699)
----------- ----------- -----------
$ 1,123,377 $ 998,271 $ 1,197,059
=========== =========== ===========
F-42
<PAGE>
5. ACCRUED EXPENSES:
Accrued expenses consist of the following:
APRIL 30,
DECEMBER 31, ----------------------------
1996 1996 1995
----------- ----------- -----------
Payroll and related accruals $ 381,334 $ 281,004 $ 511,416
Other 156,683 60,411 31,517
----------- ----------- -----------
$ 538,017 $ 341,415 $ 542,933
=========== =========== ===========
6. NOTES PAYABLE TO BANK:
The Company has a line of credit available through May 31, 1997, which provides
for borrowings of up to $4,750,000 and includes a sub-limit of up to $1,500,000
to finance bankers acceptances as described below. Borrowings under this
facility bear interest at the prime rate and are personally guaranteed by the
Company's shareholders. As of December 31, 1996 and April 30, 1996 and 1995, the
Company had approximately $2,232,000, $1,950,000 and $1,450,000, respectively,
outstanding under this facility. The Company has agreed not to encumber any of
its assets under the terms of this facility. Under the terms of the line of
credit, the Company is required to, among other things, maintain certain
financial ratios and minimum specified levels of tangible net worth and debt
service coverage. As of December 31, 1996, the Company was in compliance with
the debt covenants or had obtained waivers for events of noncompliance.
In addition to the borrowings discussed above, as of December 31, 1996 and April
30, 1996 and 1995, the Company had $1,500,000 in bankers acceptances
outstanding. The acceptances are unsecured and bear interest at rates ranging
from 6.88% to 7.11%, 6.55% to 7.15% and 7.90% to 8.05% as of December 31, 1996
and April 30, 1996 and 1995, respectively, and have maturities of six months
from the date of issuance. The Company has agreed not to encumber inventories
under the terms of these acceptances.
7. RELATED-PARTY TRANSACTIONS:
DUE TO/FROM SHAREHOLDERS-
Due to/from shareholders represents amounts that are unsecured, noninterest
bearing and have no specified repayment term and, as a result, have been
reflected as current liabilities or long-term assets as applicable. During the
eight-month period ending December 31, 1996, the Company paid $108,057 to a
former shareholder as repayment of his advance to the Company.
DUE FROM RELATED PARTIES-
Due from related parties consists of the following:
APRIL 30,
DECEMBER 31, ------------------------
1996 1996 1995
----------- --------- ---------
PSF Acquisition Corporation $ 300,000 $ 294,094 $ 226,914
Purity Products, Inc. 425,000 256,221 -
Suncoast Seafood Trading 199,900 230,660 -
Affiliated Company 100,595 100,595 100,595
Other 10,000 9,592 10,365
---------- --------- ---------
Total due from related
parties $1,035,495 $ 891,162 $ 337,874
========== ========= =========
During fiscal year 1994, the Company made a $400,000 advance to PSF Acquisition
Corp. ("PSF"), an affiliated company. The advance is unsecured, bears interest
at prime plus 1% per annum (9.25% at December 31, 1996) and is due on written
demand by SeaSpecialties. It has been reflected as a long-term asset as the
repayment has not been scheduled. Also, the Company performs certain
administrative functions on behalf of PSF. PSF reimburses the Company for these
services on a monthly basis. The expenses are allocated based on time incurred
on this affiliate by Company personnel. Management believes this allocation
method is reasonable. Charges to PSF totaled approximately $172,000, $143,016
(unaudited), $219,000, $27,000 and $0 during the eight-month periods ended
December 31, 1996 and 1995, and the years ended April 30, 1996, 1995, and 1994,
respectively, and have been reflected as a reduction to "General and
Administrative" expenses in the accompanying statements of operations.
F-43
<PAGE>
The Company has advances to Purity Products, Inc. ("Purity") and to Suncoast
Seafood Trading ("Suncoast"), both affiliated companies. The advance to Purity
is unsecured and noninterest bearing. The advance to Suncoast is also unsecured
and bears interest at 9.75%. Both are due on written demand by SeaSpecialties
and have been reflected as long-term assets as no repayment dates have been
scheduled.
Also, the Company has made advances to Hobojo Investment Company, an affiliated
company. This advance is noninterest bearing and unsecured. The advance has no
specified repayment terms and has been reflected as a long-term asset.
SALES-
Sales to affiliates of the Company totaled approximately $4,216,000, $7,519,123
(unaudited), $6,370,000, $5,500,000 and $4,000,000 for the eight-month periods
ended December 31, 1996 and 1995, and the years ended April 30, 1996, 1995 and
1994, respectively. Approximately $1,053,000, $941,000 and $612,000 of these
sales remained outstanding as accounts receivable as of December 31, 1996 and
April 30, 1996 and 1995, respectively.
ROYALTIES-
The Company paid approximately $21,000, $30,667 (unaudited), $46,000, $50,000
and $50,000 in royalties to an affiliate for the use of a patented fish coloring
procedure for the eight-month periods ended December 31, 1996 and 1995 and the
years ended April 30, 1996, 1995 and 1994, respectively. The royalty agreement
calls for certain payments to the affiliate based on the percentage of fish
processed by the Company under the patented procedure.
LEASES-
See Note 10 for a discussion of related party lease arrangements.
8. EMPLOYEE BENEFIT PLANS:
The Company has a qualified 401(k) profit-sharing plan covering substantially
all of its employees. Company contributions are discretionary in nature and
approximated $10,000, $8,667 (unaudited), $13,000, $13,000 and $78,120 for the
eight-month periods ended December 31, 1996 and 1995 and the years ended April
30, 1996, 1995 and 1994, respectively.
9. INCOME TAXES:
The provision for income taxes consists of the following:
EIGHT-MONTHS
ENDED YEAR ENDED APRIL 30,
DECEMBER 31, -----------------------------------------
1995 1996 1995 1994
------------- ---------- ---------- ----------
(UNAUDITED)
Current-
Federal $ 94,282 $ 141,423 $ 367,569 $ 562,043
State 24,565 36,848 58,090 48,176
---------- ---------- ---------- ----------
118,847 178,271 425,659 610,219
Deferred (55,512) (83,896) (84,285) 2,799
---------- ---------- ---------- ----------
$ 63,335 $ 94,375 $ 341,374 $ 613,018
========== ========== ========== ==========
A reconciliation of the difference between provision for income taxes using the
statutory federal tax rate and the Company's actual provision is as follows:
F-44
<PAGE>
<TABLE>
<CAPTION>
EIGHT-MONTHS
ENDED YEAR ENDED APRIL 30,
DECEMBER 31, -----------------------------------------
1995 1996 1995 1994
------------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Provision using the statutory
federal rate $ 61,936 $ 83,943 $ 152,380 $ 352,209
Effect of state income taxes 10,652 15,978 38,920 31,130
Effect of nondeductible expenses
for income tax purposes 11,900 17,850 130,904 44,643
Revenue agent review settlement - - - 175,298
Other (21,153) (23,396) 19,170 9,738
---------- ---------- ---------- ----------
$ 63,335 $ 94,375 $ 341,374 $ 613,018
========== ========== ========== ==========
</TABLE>
Deferred taxes arise due to differences in the timing in reporting of certain
income and expense items for book purposes and income tax purposes. A detail of
the significant components of the deferred tax balances is as follows:
APRIL 30,
----------------------------
1996 1995
---------- ----------
Allowance for doubtful accounts $ 21,042 $ 9,525
Accruals 3,579 10,465
Difference in capitalization of inventory
costs 93,797 96,036
---------- ----------
Amount included in current assets $ 118,418 $ 116,026
========== ==========
Book/tax basis depreciation differences
in fixed assets $ 7,298 $ (90,823)
Book/tax differences in capital lease - -
Deferred compensation 107,954 154,295
Noncompete agreement 29,724 -
---------- ----------
Amount included in long-term assets $ 144,976 $ 63,472
========== ==========
10. COMMITMENTS AND CONTINGENCIES:
LEASES-
The Company leases a building, which comprises its Dade County, Florida,
facility from an affiliate. On August 1, 1996, the affiliate refinanced its
mortgage payable through the United States Fisheries Obligation Guarantee
Program (the "Program"). In connection with the refinancing arrangement, the
Company entered into a new lease with the affiliate, which calls for payments by
the Company to the affiliate to cover the affiliate's obligation under the terms
of the mortgage payable. Under the Program, the affiliate entered into a
promissory note to a bank in the amount of $988,209. The mortgage payable is due
in sixty quarterly installments through August 1, 2001. The interest rate is
equal to LIBOR plus .48% (6.0% at December 31, 1996). The promissory note is
guaranteed by the United States of America. A guarantee fee of 1% is due
annually. The obligation is also guaranteed by SeaSpecialties, Inc. and its
shareholder. Collateral include the facility and certain equipment. As of
December 31, 1996 and April 30, 1996 and 1995, the obligation under the mortgage
payable amounted to $979,210, $949,061 and $991,310, respectively.
The Company also leases a building and equipment, which comprise its Broward
County, Florida, facility from another affiliate. Effective August 1, 1994, the
affiliate refinanced the balance outstanding under its Industrial Revenue Bond.
In connection with the refinancing arrangement, the Company entered into a new
lease with the affiliate, which calls for payments by the Company to the
affiliate to cover the affiliate's obligations under the terms of the refinanced
bond. Under the terms of the new agreement, the bond continues to bear interest
at 70% of the prime rate. Commencing on September 1, 1994, the bond is payable
in monthly equal principal installments of $7,200 plus interest. The principal
amount of the bond, if any, outstanding on July 19, 1999, shall be payable in
full on such date. The obligations under the bond continue to be guaranteed by
SeaSpecialties and its shareholder.
F-45
<PAGE>
As of December 31, 1996 and April 30, 1996 and 1995, the obligation under the
bond amounted to $711,900, $769,500 and $855,900, respectively.
As of April 30, 1993, certain amounts related to this lease had not been paid.
Such amounts were forgiven effective May 1, 1993. The forgiveness of this
related party payable is reflected as a contribution to capital in the
accompanying financial statements and amounted to $161,893.
In addition to the related party leases, the Company leases transportation
equipment under various operating leases. The future minimum lease payments
under noncancelable leases with initial or remaining terms of one year or more
were as follows as of December 31, 1996:
OPERATING
YEAR LEASES
----------- ----------
1997 $ 589,468
1998 417,941
1999 301,622
2000 197,313
2001 15,134
Thereafter 473,100
----------
$1,994,578
==========
Total rent expense under operating leases was approximately $235,000, $178,000
(unaudited), $267,000, $274,000 and $200,000 during the eight-month periods
ended December 31, 1996 and 1995 and the years ended April 30, 1996, 1995 and
1994, respectively. Rent paid to related parties amounted to approximately
$162,000, $190,667 (unaudited), $286,000, $255,000 and $178,000 for the
eight-month periods ended December 31, 1996 and 1995 and the years ended April
30, 1996, 1995 and 1994, respectively.
OTHER-
The Company has an employment agreement with one of its employees. The agreement
expires April 30, 1998 and provides for annual compensation of approximately
$140,000, as well as annual performance bonuses and severance payments.
11. DEFERRED COMPENSATION PLAN:
The Company has deferred compensation agreements with several of its employees
for the deferral of compensation until after retirement. The liability under
these agreements is being funded through the purchase of term life insurance
contracts on each of the employees.
12. SUBSEQUENT EVENTS:
On September 19, 1997, the maturity date of the Company's line of credit was
extended through December 31, 1997.
On June 20, 1997, SeaSpecialties entered into an Agreement and Plan of Merger
(the "Agreement") with Sun City Industries, Inc. ("Sun City"), a public company.
Under the terms of the Agreement, upon completion of the merger, the
shareholders of the Company will own approximately 83% of the common stock of
the combined entities. The transaction will be accounted for as a reverse
acquisition and upon consummation SeaSpecialties will be the surviving entity.
Also, SeaSpecialties entered into a Management Agreement to manage Sun City
until the merger is completed.
F-46
<PAGE>
<TABLE>
<CAPTION>
SEASPECIALTIES, INC.
CONDENSED BALANCE SHEETS
JUNE 30, DECEMBER 31,
1997 1996
----------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 89,041 $ 40,484
Accounts receivable, net of allowances for
doubtful accounts of $79,757 and $61,338,
respectively 2,450,266 3,359,970
Accounts receivable - related parties 1,429,343 1,053,000
Inventories 3,544,313 3,482,116
Prepaid expenses and other current assets 108,811 179,071
----------- -----------
Total current assets 7,621,774 8,114,641
----------- -----------
PROPERTY AND EQUIPMENT, net 1,383,799 1,123,377
DUE FROM SHAREHOLDER 1,111,936 1,184,827
DUE FROM RELATED PARTIES 872,095 1,035,495
NONCOMPETE AGREEMENT, net 852,546 879,627
OTHER ASSETS 235,998 116,034
----------- -----------
Total assets $12,078,148 $12,454,001
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to bank $ 3,177,532 $ 3,732,340
Accounts payable 2,078,096 2,185,120
Accrued expenses 521,221 538,017
----------- -----------
Total current liabilities 5,776,849 6,455,477
----------- -----------
DEFERRED COMPENSATION 516,226 354,606
----------- -----------
NONCOMPETE AGREEMENT 1,175,649 1,126,396
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock, Class B, $2 par value,
5,000 shares authorized; none issued and outstanding -- --
Common stock, Class A, $2 par value,
20,000 shares authorized, 5,679.69 shares
issued and outstanding 11,359 11,359
Additional paid-in capital 246,495 246,495
Retained earnings 4,351,570 4,259,668
----------- -----------
4,609,424 4,517,522
----------- -----------
Total liabilities and shareholders' equity $12,078,148 $12,454,001
=========== ===========
</TABLE>
The accompanying notes to condensed financial statements are
an integral part of these balance sheets.
F-47
<PAGE>
<TABLE>
<CAPTION>
SEASPECIALTIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
THREE-MONTH PERIOD ENDED SIX-MONTH PERIOD ENDED
JUNE 30, JUNE 30,
--------------------------- -----------------------------
1997 1996 1997 1996
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
NET SALES:
Sales $ 6,807,590 $ 6,526,965 $ 15,547,030 $ 14,859,191
Related party sales 1,407,661 1,416,232 2,791,200 2,636,604
----------- ----------- ------------ ------------
Total net sales 8,215,251 7,943,197 18,338,230 17,495,795
COST OF SALES 6,493,585 6,439,811 14,397,057 13,922,758
----------- ----------- ------------ ------------
Gross profit 1,721,666 1,503,386 3,941,173 3,573,037
----------- ----------- ------------ ------------
COSTS AND EXPENSES:
Delivery 303,608 303,439 629,641 665,218
Selling 400,572 324,593 763,837 627,417
General and administrative 1,171,752 1,232,554 2,343,125 2,289,797
----------- ----------- ------------ ------------
Income (loss) from operations (154,266) (357,200) 204,570 (9,395)
----------- ----------- ------------ ------------
OTHER INCOME (EXPENSE):
Interest income 14,115 30,787 37,205 54,033
Interest expense (50,271) (94,839) (113,512) (193,515)
Other 17,202 (77,225) 55,306 (24,932)
----------- ----------- ------------ ------------
Total other income (expense) (18,954) (141,277) (21,001) (164,414)
----------- ----------- ------------ ------------
Income (loss) before provision for
income taxes (173,220) (498,477) 183,569 (173,809)
PROVISION FOR INCOME TAXES -- -- -- 31,040
----------- ----------- ------------ ------------
Net income (loss) before pro forma
adjustments to reflect income taxes (173,220) (498,477) 183,569 (204,849)
PRO FORMA ADJUSTMENTS TO REFLECT INCOME
TAXES (64,958) (186,929) 68,838 (96,218)
----------- ----------- ------------ ------------
Pro Forma net income (loss) $ (108,262) $ (311,548) $ 114,731 $ (108,631)
=========== =========== ============ ============
PRO FORMA NET INCOME (LOSS) PER SHARE $ (19.06) $ (54.85) $ (20.20) $ (19.13)
=========== =========== ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 5,679.69 5,679.69 5,679.69 5,679.69
=========== =========== ============ ============
</TABLE>
The accompanying notes to condensed financial statements are
an integral part of these statements.
F-48
<PAGE>
<TABLE>
<CAPTION>
SEASPECIALTIES, INC.
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
SIX-MONTHS ENDED JUNE 30,
-------------------------
1997 1996
--------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 183,569 $ (204,849)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities-
Depreciation of property and equipment 106,872 129,452
Amortization of intangibles 31,328 28,155
Deferred income taxes -- (48,911)
Accretion of discounts related to buy-out 100,297 75,125
Change in assets and liabilities affecting cash flows
From operating activities-
(Increase) decrease in:
Accounts receivable 533,361 1,153,916
Inventories (62,197) 964,763
Prepaid expenses and other current assets 70,260 141,041
Other assets (13,635) (89,815)
Increase (decrease) in:
Accounts payable (82,024) (662,946)
Accrued expenses (41,796) 263,752
Income tax payable -- 59,005
Deferred compensation -- (62,682)
--------- -----------
Net cash provided by operating activities 826,035 1,746,006
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment acquisitions (367,294) (30,096)
Acquisition, net of cash acquired -- (166,668)
Advances to shareholder -- (320,011)
Advances to related parties -- (134,406)
Collection on advances to shareholders 72,891 --
Collection on advances to related parties 163,400 --
--------- -----------
Net cash used in investing activities (131,003) (651,181)
--------- -----------
</TABLE>
(Continued)
F-49
<PAGE>
<TABLE>
<CAPTION>
SEASPECIALTIES, INC.
STATEMENTS OF CASH FLOWS
(Continued)
SIX-MONTHS ENDED JUNE 30,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable to bank $ 1,000,000 $ 1,500,000
Repayment of notes payable to bank (1,554,808) (2,552,615)
Payments on advances from shareholders -- (8,840)
Distributions to shareholder (91,667) --
----------- -----------
Net cash used in financing activities (646,475) (1,061,455)
----------- -----------
Net increase in cash and cash equivalents 48,557 33,370
CASH AND CASH EQUIVALENTS, beginning of period 40,484 5,301
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 89,041 $ 38,671
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 91,913 $ 180,918
----------- -----------
Income taxes $ -- $ 20,946
=========== ===========
</TABLE>
The accompanying notes to condensed financial statements are
an integral part of these statements.
F-50
<PAGE>
SEASPECIALTIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997
1. ORGANIZATION:
SeaSpecialties, Inc. ("SeaSpecialties" or the "Company", formerly Florida Smoked
Fish Company) is engaged in the processing and distribution of raw, smoked and
pickled fish products and fresh seafood. The Company's market is principally in
Florida and its customers include retailers, restaurants, hotel chains, cruise
lines and an out-of-state affiliate. In May 1996, Florida Smoked Fish Company
changed its name to SeaSpecialties and its year-end from April 30 to December
31.
2. INTERIM FINANCIAL STATEMENTS:
The accompanying unaudited condensed financial statements of SeaSpecialties have
been prepared by the Company without audit pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information related to the
Company's organization, significant accounting policies and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. These unaudited
condensed financial statements reflect, in the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
fairly state the financial position and the results of operations for the
periods presented and the disclosures herein are adequate to make the
information presented not misleading. Operating results for the interim periods
presented are not indicative of the results that can be expected for a full
year.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INCOME TAX STATUS-
Effective May 1, 1996, the Company became an S Corporation for income tax
purposes. Accordingly, income, losses and related timing differences which arise
in the recording of income and expense items for financial reporting and tax
reporting purposes are included in the individual tax returns of the
shareholders.
The pro forma adjustment to reflect income taxes included in the accompanying
statements of operations is for informational purposes only. Income taxes have
been provided at the estimated effective rate of 37.5%.
PRO FORMA NET INCOME (LOSS) PER SHARE-
Pro forma net income (loss) per common share has been computed by dividing pro
forma net income (loss) by the weighted average number of common shares. The
Company has no common stock equivalents.
4. NEW ACCOUNTING PRONOUNCEMENT:
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards Number 128, "Earnings per Share" ("SFAS 128")
which changes the method of calculating earnings per share. SFAS 128 requires
the presentation of "basic" earnings per share and "diluted" earnings per share
on the face of the income statement. Basic earnings per share is computed by
dividing the net income available to common shareholders by the weighted average
shares of outstanding common stock. The calculation of diluted earnings per
share is similar to basic earnings per share except that the denominator
includes dilutive common stock equivalents such as stock options and warrants.
The statement is effective for financial statements for periods ending after
F-51
<PAGE>
December 31, 1997. The Company will adopt SFAS 128 in the fourth quarter of
1997, as early adoption is not permitted. The adoption of SFAS 128 is not
expected to have an impact on the Company's earnings per share.
5. REVERSE MERGER:
On June 17, 1997, SeaSpecialties entered into an Agreement and Plan of Merger
(the "Agreement") with Sun City Industries, Inc. ("Sun City"), a public company.
Under the terms of the Agreement, upon completion of the merger, the
shareholders of the Company will own approximately 83% of the common stock of
the combined entities. The transaction will be accounted for as a reverse
acquisition and upon consummation SeaSpecialties will be the surviving entity.
Also, SeaSpecialties entered into a Management Agreement to manage Sun City
until the merger is completed.
F-52
<PAGE>
APPENDIX A - AGREEMENT AND PLAN OF MERGER
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER ("AGREEMENT"), dated as of June 17, 1997,
by and among Sun City Industries, Inc., a Delaware corporation ("SCI"),
Specialties Acquisition Corp., a Florida corporation and a wholly-owned
subsidiary of SCI ("ACQUISITION"), and SeaSpecialties, Inc., a Florida
corporation ("SSI"). The parties hereto are sometimes hereinafter referred to
collectively as the "COMPANIES" or the "CONSTITUENT CORPORATIONS," or
individually as a "COMPANY" or a "CONSTITUENT CORPORATION."
WHEREAS, the respective Boards of Directors of the Companies deem it
advisable and in the best interests of their respective stockholders that SCI
and SSI combine their businesses by SCI's acquisition of SSI pursuant to a
merger of Acquisition with and into SSI upon the terms and subject to the
conditions set forth herein (the "MERGER"); and
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "CODE");
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. Subject to the terms and conditions of this Agreement,
at the Effective Time (as defined in Section 1.2 hereof) Acquisition shall be
merged with and into SSI, with SSI being the surviving corporation in the Merger
(the "SURVIVING CORPORATION") and the separate existence of Acquisition shall
thereupon cease. The Merger shall have the effects set forth in Section 607.1106
of the Florida Business Corporation Act (the "FBCA").
1.2 EFFECTIVE TIME OF THE MERGER. The Merger shall become effective
upon the completion of the filing of properly executed Articles of Merger with
the Department of State of the State of Florida, which filing shall be made on
the Closing Date (as hereinafter defined in Section 3.7) after satisfaction of
the conditions set forth in Section VIII. When used in this Agreement, the term
"EFFECTIVE TIME" shall mean the date and time at which such Articles of Merger
are successfully filed.
A-1
<PAGE>
ARTICLE II
SCI AND THE SURVIVING CORPORATION
2.1 ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION. The
Articles of Incorporation of SSI shall be the Articles of Incorporation of the
Surviving Corporation until thereafter amended in accordance with such Articles
and applicable law.
2.2 BYLAWS OF THE SURVIVING CORPORATION. The Bylaws of SSI as in effect
at the Effective Time shall be the Bylaws of the Surviving Corporation until
thereafter amended in accordance with applicable law.
2.3 DIRECTORS AND OFFICERS OF SCI.
(a) At or prior to the Effective Time, the Companies shall
take or cause to be taken all necessary action so that, at the Effective Time,
the number of directors constituting SCI's Board of Directors shall be five and
the persons listed below shall constitute all of the directors of SCI, each of
whom shall serve as a director of SCI until reelection in accordance with SCI's
Certificate of Incorporation:
NAME
----
Harvy Oxenberg
David H. Fleischman
Lawrence J. Oxenberg
Two additional directors to be selected by SSI prior to the filing of SCI's
Proxy Statement relating to the Merger.
(b) At or prior to the Effective Time, the Companies shall
take or cause to be taken all necessary action such that, at the Effective Time,
SCI's officers shall include the following:
Harvey Oxenberg - President and Chief Executive Officer
David H. Fleischman - Senior Vice President, Chief Financial Officer,
Treasurer and Secretary
(c) Notwithstanding the foregoing provisions of this Section
2.3, SSI shall have the right in its sole discretion to increase or decrease the
number of directors and officers of SCI required at the Effective Time as
provided above and to make changes in the persons designated to hold such
positions, and the respective offices to be held by such officers.
A-2
<PAGE>
ARTICLE III
CONVERSION OF SHARES AND DEBENTURES
3.1 CONVERSION OF SSI SHARES. At the Effective Time (and subject to the
effectiveness of the reverse split of SCI's stock contemplated by Section 7.13
hereof (the "REVERSE SPLIT")), by virtue of the Merger and without any action on
the part of the holders thereof:
(a) The shares of common stock of SSI (the "SSI SHARES")
issued and outstanding immediately prior to the Effective Time shall be
converted at the Effective Time into an aggregate number of shares of common
stock of SCI determined as provided below in this paragraph (a) (collectively,
the "SCI Shares"), which SCI Shares shall be allocated pro rata among the
holders of the SSI Shares in accordance with such holders' respective
Proportionate Shares as set forth in EXHIBIT 3.1 hereto. The SCI Shares shall be
that number of shares which, when issued pursuant to the Merger, shall
constitute eighty percent (80.0%) of the sum of (i) the aggregate number of
shares of SCI's outstanding common stock after consummation of the Reverse Split
and upon consummation of the Merger (including, without limitation, the SCI
Shares, and the Debenture Shares issued upon the exchange of the Debentures as
provided below), plus (ii) the aggregate number of shares of SCI's common stock
then issuable upon exercise, conversion, exchange or otherwise pursuant to
outstanding derivative securities or other rights to acquire common stock
(including, without limitation, options, warrants, convertible securities, etc.,
whether or not exercisable as of the Closing Date) (the sum of the foregoing
clauses (i) and (ii) is referred to herein as the "TOTAL SCI SHARES"). SCI
hereby warrants and agrees that, except as otherwise specifically provided in
this Agreement, SCI shall in no event declare or pay any stock dividend or other
distribution or issue any shares of its common stock or other capital stock of
any nature or any securities or rights or options of any nature to acquire any
capital stock of SCI, (i) prior to the Effective Time and the consummation of
the Merger as provided herein, or (ii) after the Effective Time without the
approval of SCI's Board of Directors consisting of the persons named in Section
2.3 hereof (or any successor Board established in accordance with applicable
law); it being the intent and agreement of the parties that the SCI Shares shall
constitute not less than 80.0% of the Total SCI Shares upon consummation of the
Merger. If, however, prior to the Effective Time SCI should split or combine its
common stock (other than pursuant to the Reverse Split), or pay or declare a
stock dividend or other stock distribution or issue any shares of capital stock
or any securities or rights or options to acquire any capital stock (whether or
not permitted under this Agreement), then the number (and type, if applicable)
of shares constituting the SCI Shares will be appropriately adjusted to reflect
such split, combination, dividend or other distribution, including any necessary
adjustment such that immediately following the Closing of the Merger the SCI
Shares shall constitute 80.0% of the Total SCI Shares.
(b) At the Effective Time, each certificate previously
representing any SSI Shares shall thereafter represent the SCI Shares into which
such SSI Shares have been converted.
A-3
<PAGE>
Certificates representing SSI Shares shall be exchanged for certificates
representing whole SCI Shares issued in consideration therefor upon the
surrender of such certificate in accordance with the provisions hereof.
3.2 EXCHANGE OF SSI CERTIFICATES.
(a) Not later than the Effective Time, SCI shall make
available and deliver, and each holder of SSI Shares will be entitled to
receive, upon surrender to SCI of one or more certificates representing such SSI
Shares for cancellation, certificates representing the number of SCI Shares into
which such SSI Shares are converted in the Merger. The SCI Shares into which the
SSI Shares shall be converted in the Merger shall be deemed to have been issued
at the Effective Time.
(b) In the event that any stock certificate representing SSI
Shares shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such certificate to be lost,
stolen or destroyed, SCI will issue or cause to be issued in exchange for such
lost, stolen or destroyed certificate the number of SCI Shares into which such
SSI Shares are converted in the Merger in accordance with this Article III. When
authorizing such issuance in exchange therefor, the Board of Directors of SCI
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate to give SCI a
reasonable bond in such sum as it may direct as indemnity, or such other
reasonable form of indemnity, as it shall direct, against claims that may be
made against SCI with respect to the certificate alleged to have been lost,
stolen or destroyed.
(c) At and after the Effective Time, the holders of SSI
Shares to be exchanged for SCI Shares pursuant to this Agreement shall cease to
have any rights as stockholders of SSI except for the right to surrender such
stock certificates in exchange for SCI Shares as provided hereunder.
3.3 CONVERSION OF ACQUISITION SHARES. Each share of common stock of
Acquisition issued and outstanding at the Effective Time shall be converted into
one share of the common stock of the Surviving Corporation.
3.4 CONVERSION OF DEBENTURES. At the Effective Time (and subject to the
effectiveness of the Reverse Split), by virtue of the Merger and without any
action on the part of the holders thereof, and in accordance with and pursuant
to the Debenture Exchange Agreements contemplated by Section 7.12 hereof:
(a) SCI's "DEBENTURES" (as defined in Section 4.2 hereof)
and all accrued and unpaid interest thereon shall be converted at the Effective
Time into an aggregate number of shares of common stock of SCI determined as
provided below in this paragraph (a) (collectively, the "DEBENTURE SHARES"),
which Debenture Shares shall be allocated among the holders of the Debentures in
accordance with such holders' respective Proportionate Shares as set forth in
A-4
<PAGE>
EXHIBIT 3.6 hereto. The Debenture Shares shall be that number of shares which,
when issued as provided herein, shall constitute fourteen percent (14.0%) of the
Total SCI Shares. If, however, prior to the Effective Time SCI should split or
combine its common stock (other than pursuant to the Reverse Split), or pay or
declare a stock dividend or other stock distribution (whether or not permitted
under this Agreement), then the number (and type, if applicable) of shares
constituting the Debenture Shares will be appropriately adjusted to reflect such
split, combination, dividend or other distribution.
(b) At the Effective Time, each Debenture shall thereafter represent
the Debenture Shares into which such Debenture (including accrued interest
thereon) is converted. Debentures shall be exchanged for certificates
representing whole Debenture Shares issued in consideration therefor upon the
surrender of such Debentures in accordance with the provisions hereof.
(c) Not later than the Effective Time, SCI shall make available and
deliver, and each holder of Debentures will be entitled to receive, upon
surrender to SCI or SCI's agent of one or more such Debentures for cancellation,
certificates representing the number of Debenture Shares into which such
Debentures (including accrued interest thereon) are converted in the Merger. The
Debenture Shares into which the Debentures shall be converted in the Merger
shall be deemed to have been issued at the Effective Time.
(d) In the event that any Debenture shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Debenture to be lost, stolen or destroyed, SCI will issue or cause to be
issued in exchange for such lost, stolen or destroyed Debenture the number of
Debenture Shares into which such Debenture (and interest thereon) is converted
in the Merger in accordance with this Article III and the Debenture Exchange
Agreements. When authorizing such issuance in exchange therefor, the Board of
Directors of SCI may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed Debenture
to give SCI a reasonable bond in such sum as it may direct as indemnity, or such
other reasonable form of indemnity, as it shall direct, against claims that may
be made against SCI with respect to the Debenture alleged to have been lost,
stolen or destroyed.
(e) At and after the Effective Time, the holders of Debentures to be
exchanged for Debenture Shares pursuant to this Agreement shall cease to have
any rights pursuant to the Debentures or as a holder thereof except for the
right to surrender such Debentures (including accrued interest thereon) in
exchange for Debenture Shares as provided hereunder.
3.5 DIVIDENDS; TRANSFER TAXES. No dividends that are declared on SCI
Shares or Debenture Shares will be paid to persons entitled to receive SCI
Shares or Debenture Shares until such persons surrender their certificates for
SSI Shares or Debentures, as the case may be. Upon such surrender, there shall
be paid to the person in whose name the certificates representing such SCI
Shares or Debenture Shares shall be issued any dividends which shall have become
payable
A-5
<PAGE>
with respect to such SCI Shares or Debenture Shares between the Effective Time
and the time of such surrender. In no event shall the person entitled to receive
such dividends be entitled to receive interest on such dividends. If any
certificates for any SCI Shares or Debenture Shares are to be issued in a name
other than that in which the certificate surrendered in exchange therefor is
registered, it shall be a condition of such exchange that the person requesting
such exchange shall pay any transfer or other taxes required by reason of the
issuance of certificates for such SCI Shares or Debenture Shares in a name other
than that of the registered holder of the certificate surrendered, or shall
establish to the satisfaction of SCI's stock transfer agent that such tax has
been paid or is not applicable. Notwithstanding the foregoing, neither SCI's
stock transfer agent nor any party hereto shall be liable to a holder of SSI
Shares or Debentures for any SCI Shares or Debenture Shares or dividends thereon
or, in accordance with Section 3.4 hereof, the cash payment for fractional
interests, delivered to a public official pursuant to applicable escheat laws.
3.6 NO FRACTIONAL SECURITIES. No certificates or scrip representing
fractional SCI Shares or Debenture Shares shall be issued upon the surrender for
exchange of certificates for SSI Shares or Debentures pursuant to this Article
III and no dividend, stock split or other change in the capital structure of SCI
shall relate to any fractional security, and such fractional interests shall not
entitle the owner thereof to vote or to any rights of a security holder. In lieu
of any such fractional securities, each holder of SSI Shares or Debentures who
would otherwise have been entitled to a fraction of an SCI Share or Debenture
Share upon surrender of certificates for exchange pursuant to this Article III
shall be paid cash upon such surrender in an amount equal to the product of such
fraction multiplied by the average closing price for a share of SCI common stock
on the American Stock Exchange, or if such shares are not listed thereon, on any
other stock exchange or stock price quotation system on which SCI's common stock
is listed, for the five (5) trading days immediately following the Closing Date
(as defined in Section 3.7 below).
3.7 CLOSING. The closing of the transactions contemplated by this
Agreement (the "CLOSING") shall take place at the offices of Greenberg, Traurig,
Hoffman, Lipoff, Rosen & Quentel, P.A., 1221 Brickell Avenue, Miami, Florida
33131, at 10:00 am., local time, on the first business day (the "CLOSING DATE")
after the later of (a) the day on which the SCI stockholders' meeting referred
to in Section 7.4 hereof shall have occurred, and (b) the day on which all of
the conditions set forth in Article VIII hereof are satisfied or waived, or at
such other date, time and place as the Companies shall agree.
3.8 SUPPLEMENTARY ACTION. If at any time after the Effective Time, any
further assignments or assurances in law or any other things are necessary or
desirable to vest or to perfect or confirm of record in the Surviving
Corporation the title to any property or rights of any Constituent Corporation,
or otherwise to carry out the provisions of this Agreement, the officers and
directors of the Surviving Corporation are hereby authorized and empowered on
behalf of the Constituent Corporations, in the name of and on behalf of any
Constituent Corporation as appropriate, to execute and deliver any and all
things necessary or proper to vest or to perfect or
A-6
<PAGE>
confirm title to such property or rights in the Surviving Corporation, and
otherwise to carry out the purposes and provisions of this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SCI AND SSI
As used in this Agreement, (i) the term "MATERIAL ADVERSE EFFECT"
means, with respect to SCI or SSI, as the case may be, a material adverse effect
on the business, assets, results of operation or financial condition of such
party and its subsidiaries taken as a whole or in the ability of such party to
perform its obligations hereunder, and (ii) the word "SUBSIDIARY" when used with
respect to any party means any corporation or other organization, whether
incorporated or unincorporated, of which such party or any other subsidiary of
such party is a general partner or of which at least a majority of the
securities or other interests having by their terms ordinary voting power to
elect a majority of the Board of Directors or others performing similar
functions with respect to such corporations or other organizations is directly
or indirectly owned or controlled by such party and/or by any one or more of the
subsidiaries.
Each of SCI and SSI represents and warrants, with respect to itself and
its subsidiaries, to the other and to Acquisition, except as disclosed to the
other and to Acquisition by SCI in the SCI Disclosure Schedule attached hereto
or by SSI in the SSI Disclosure Schedule attached hereto (collectively, the
"DISCLOSURE Schedules"), as follows:
4.1 ORGANIZATION. Such Company is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has the corporate power to carry on its business as it is now
being conducted. Such Company is duly qualified as a foreign corporation to do
business and is in good standing in each jurisdiction where the character of its
properties owned or held under lease or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified will not
have a Material Adverse Effect. Each corporate subsidiary of such Company is a
corporation duly organized, validly existing and in good standing (to the extent
the concept of good standing exists) under the laws of its jurisdiction of
incorporation or organization, has the corporate power to carry on its business
as it is now being conducted and is duly qualified to do business and is in good
standing (to the extent the concept of good standing exists) in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities makes such qualification necessary, except where
the failure to be so duly organized, validly existing and in good standing, to
have such corporate power or to be so qualified will not have a Material Adverse
Effect. Attached to SCHEDULE 4.1 of SCI's and SSI's Disclosure Schedule is a
true and complete copy of such Company's Articles or Certificate of
Incorporation and Bylaws, as amended and in effect as of the date hereof.
4.2 CAPITALIZATION. As of the date hereof, the authorized capital stock
of such Company is as set forth in SCHEDULE 4.2 of its Disclosure Schedule
hereto. As of the date hereof,
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the number of shares of capital stock of such Company which are issued and
outstanding (or which constitute treasury shares) is as set forth in such
Company's SCHEDULE 4.2 hereto, and EXHIBIT 3.1 hereto sets forth a list of all
holders of SSI's common stock, including the number of shares held by each such
holder. All of the issued and outstanding Shares of such Company are (and SCI
represents and warrants that the SCI Shares and the Debenture Shares, when
issued, will be) validly issued, fully paid and nonassessable and free of
preemptive rights or similar rights created by statute, the Articles or
Certificate of Incorporation or Bylaws of such Company or any agreement by which
such Company or any of its subsidiaries is a party or by which it is bound.
Except as disclosed in its SCHEDULE 4.2 hereto, there are not as of the date of
this Agreement any options, warrants, subscriptions, calls, rights, convertible
securities or other agreements or commitments (whether or not currently
exercisable) obligating such Company or any subsidiary to issue, transfer or
sell any shares of its capital stock (or to register any sale thereof under the
Securities Act); and as to each outstanding option, SCHEDULE 4.2 sets forth the
date of grant, exercise price, termination date, name of optionee, number of
shares subject to the option, type of option (non-qualified stock option or
incentive stock option within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code")), vesting terms, and name of option plan
under which granted. As of the date hereof, and except for the Debentures, no
bonds, debentures, notes or other indebtedness having the right to vote (or
convertible into or exercisable for securities having the right to vote) on any
matters on which stockholders of such Company may vote ("VOTING DEBT") were
issued and outstanding with respect to such Company.
SCI hereby further represents and warrants that (i) SCI has outstanding
an aggregate of $1.4 million principal amount of Senior Convertible Subordinated
Debentures as reflected in SCI's financial statements (the "DEBENTURES"),
consisting of $700,000 aggregate principal amount of 8% Senior Convertible
Subordinated Debentures due 1999 and $700,000 aggregate principal amount of 9%
Senior Convertible Subordinated Debentures due 2000, (ii) all of the Debentures
are owned of record and beneficially by the holders set forth on EXHIBIT 3.6
hereto, which EXHIBIT 3.6 reflects the principal amount of each such class of
Debentures owned by each such holder, (iii) SCI has provided to SSI true and
complete copies of all documents, instruments and agreements governing or
relating to the Debentures and the rights of the holders thereof, including,
without limitation, forms of Debentures, Debenture purchase agreements,
indentures and the like, and (iv) the Debentures were issued, and upon Closing
of the Merger the Debenture Shares will be issued in exchange therefor, without
violation of the Securities Act of 1933, as amended (the "SECURITIES ACT"), or
any state securities laws.
4.3 AUTHORITY RELATIVE TO THIS AGREEMENT. Such Company has the
corporate power to enter into this Agreement and to carry out its obligations
hereunder. The execution and delivery of this Agreement by such Company and the
consummation by such Company of the transactions contemplated hereby have been
duly authorized by the Board of Directors of such Company, and, except for
approval by the requisite votes cast by such Company's stockholders at the
meeting provided for in Section 7.4, no other corporate proceedings on the part
of such Company are necessary to approve this Agreement or the transactions
contemplated hereby. This Agreement
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has been duly and validly executed and delivered by such Company and constitutes
a valid and binding agreement of such Company, enforceable against such Company
in accordance with its terms.
4.4 CONSENTS AND APPROVALS; NO VIOLATIONS. Except as set forth on
SCHEDULE 4.4(A) hereto and except for applicable requirements of the Securities
Act of 1933, as amended (the "SECURITIES ACT"), the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"), state or foreign laws relating to
takeovers, if applicable, state securities or blue sky laws, and, as applicable,
filing and recordation of Articles of Merger under the FBCA, no filing with, and
no permit, authorization, consent or approval of, any public body or
governmental authority is necessary for the consummation by such Company of the
transactions contemplated by this Agreement. Neither the execution and delivery
of this Agreement by such Company, nor the consummation by such Company of the
transactions contemplated hereby (including consummation of the Merger after the
required shareholder approval), nor compliance by such Company with any of the
provisions hereof, will (a) result in any breach of the Articles or Certificate
of Incorporation or Bylaws of such Company, (b) result in a violation or breach
of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation or acceleration)
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, contract, agreement or other instrument or obligation to
which such Company or any of its subsidiaries is a party or by which any of them
or any of their properties or assets may be bound, or (c) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to such
Company, any of its subsidiaries or any of their properties or assets, except in
the case of clauses (b) and (c) for violations, breaches or defaults that would
not have a Material Adverse Effect.
4.5 REPORTS AND FINANCIAL STATEMENTS. SCI hereby represents and
warrants that it has made all filings and filed all reports required to be filed
by it with the Securities and Exchange Commission (the "SEC") pursuant to the
Exchange Act, including, without limitation, an Annual Report on Form 10-K for
the fiscal year ended February 1, 1997 (collectively, the "SEC REPORTS"), and
has previously furnished or made available to SSI true and complete copies of
all such SEC Reports. None of such SEC Reports, as of their respective dates (as
amended through the date hereof), contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Each of the balance sheets (including the
related notes) included in the SEC Reports fairly presents in all material
respects the consolidated financial position of SCI and its subsidiaries as of
the respective dates thereof, and the other related statements (including the
related notes) included therein fairly present in all material respects the
results of operations and cash flows of SCI and its subsidiaries for the
respective periods or as of the respective dates set forth therein, all in
conformity with generally accepted accounting principles consistently applied
during the periods involved, except as otherwise noted therein and subject, in
the case of the unaudited interim financial statements, to
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normal year-end adjustments and any other adjustments described therein and the
absence of any notes thereto.
4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) SCI hereby represents and warrants that except as
disclosed in the SEC Reports filed prior to the date of this Agreement or its
SCHEDULE 4.6 hereto, since February 1, 1997 neither SCI nor any of its
subsidiaries has: (i) taken any of the actions set forth in Sections 6.1(b),
6.1(c) or 6.1(e) hereof; (ii) incurred any liability material to such Company
and its subsidiaries on a consolidated basis, except in the ordinary course of
its business, consistent with past practices; (iii) suffered a change, or
any event involving a prospective change, in the business, assets, financial
condition or results of operation of such Company or any of its subsidiaries
which has had, or is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect; or (iv) conducted its business and
operations other than in the ordinary course of business and consistent with
past practices.
(b) SSI hereby represents and warrants that except as
disclosed in its SCHEDULE 4.6 hereto, since December 31, 1996 SSI has not
suffered a change, or any event involving a prospective change, in the business,
assets, financial condition or results of operation of such Company or any of
its subsidiaries which has had, or is reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect.
4.7 INFORMATION IN PROXY STATEMENT. None of the information to be
supplied by such Company to be included in SCI's proxy statement to be prepared
and distributed in accordance with the Exchange Act in connection with the
meetings of stockholders of the Companies to vote upon this Agreement (the
"PROXY STATEMENT"), will, in the case of the Proxy Statement or any amendments
thereof or supplements thereto, at the time of the mailing of the Proxy
Statement and any amendments or supplements thereto, and at the time of each of
the meetings of stockholders to be held in connection with the Merger, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement insofar as it pertains to such Company will
comply as to form in all material respects with the provisions of the Exchange
Act and the rules and regulations promulgated thereunder.
4.8 LITIGATION. As of the date of this Agreement, except as disclosed
in the SEC Reports filed prior to the date of this Agreement or SCHEDULE 4.8 of
its Disclosure Schedule, (i) there is no action, suit, judicial or
administrative proceeding, arbitration or investigation pending or, to the
knowledge of such Company, threatened, against or involving such Company or any
of its subsidiaries, or any of their properties or rights, before any court,
arbitrator, or administrative or governmental body, (ii) there is no judgment,
decree, injunction, rule or order of any court, governmental department,
commission, agency, instrumentality or arbitrator outstanding against
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such Company or any of its subsidiaries, and (iii) such Company and its
subsidiaries are not in violation of any term of any judgments, decrees,
injunctions or orders outstanding against them. Such Company has furnished in
SCHEDULE 4.8 of its Disclosure Schedule a description of all such litigations,
actions, suits, proceedings, arbitrations, investigations known to it,
judgments, decrees, injunctions or orders pending, or to its knowledge,
threatened against or involving such Company or any of its subsidiaries, or any
of their properties or rights as of the date hereof, except in each case for any
matter reflected in the SEC Reports.
4.9 CONTRACTS.
(a) Each of the material contracts, instruments, mortgages,
notes, security agreements, leases, agreements or understandings, whether
written or oral, to which such Company or any of its subsidiaries is a party
that relates to or affects the assets or operations of such Company or any of
its subsidiaries or to which such Company or any of its subsidiaries or their
respective assets or operations may be bound or subject is a valid and binding
obligation of such Company and is in full force and effect (with respect to such
Company or such subsidiary), except (i) as set forth in SCHEDULE 4.9(A)(I)
hereto or (ii) where the failure to be in full force and effect would not
individually or in the aggregate have a Material Adverse Effect. Except to the
extent that the consummation of the transactions contemplated by this Agreement
may require the consent of third parties as disclosed in SCHEDULE 4.9(A)(II) of
its Disclosure Schedule, this Agreement and such transactions will not result in
any defaults by such Company or its subsidiaries thereunder and there are no
existing defaults by such Company or any of its subsidiaries thereunder or, to
the knowledge of such Company, by any other party thereto, which defaults,
individually or in the aggregate, would have a Material Adverse Effect; and no
event of default has occurred, and no event, condition or occurrence exists,
that (whether with or without notice, lapse of time or the happening or
occurrence of any other event) would constitute a default by such Company or any
of its subsidiaries thereunder which default would, individually or in the
aggregate, have a Material Adverse Effect.
(b) SCI further represents and warrants that except as
disclosed in SCHEDULE 4.9(B) of SCI's Disclosure Schedule hereto, as of the date
of this Agreement neither SCI nor any of its subsidiaries is a party to any oral
or written (i) agreement, instrument, commitment, plan or arrangement of the
type described in paragraphs (b)(4), (b)(9) or (b)(10) of Item 601 of Regulation
S-K under the Exchange Act, (ii) agreement upon which the success or continued
operation of SCI's business is substantially or materially dependent, or the
termination or other loss of which could reasonably be expected to result in a
Material Adverse Effect, (iii) loan or other agreement or arrangement for the
borrowing or lending of money, (iv) consulting agreement, (v) partnership or
joint venture agreement, (vi) noncompetition or similar agreements that
restricts such Company or its subsidiaries from engaging in a line of business
either in total or in a particular territory or for a particular period, (vii)
agreement with any executive officer, director or employee of such Company or
any subsidiary the benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction involving such
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Company of the nature contemplated by this Agreement, (viii) agreement with
respect to any executive officer, director or employee of such Company or any
subsidiary providing any term of employment or other engagement beyond one year
or compensation in excess of $75,000 per annum, or (ix) agreement or plan,
including any stock option plan, stock appreciation rights plan, restricted
stock plan or stock purchase plan, any of the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement; and true and complete copies of
all such agreements and other items described in SCHEDULE 4.9(B) have been
provided by SCI to SSI.
4.10 EMPLOYEE BENEFIT PLANS.
(a) Such Company has previously delivered to the other
Companies a true and complete list of each written or formal employee benefit
plan (including, without limitation, any "EMPLOYEE BENEFIT PLAN" as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) policy or agreement that is maintained (all of the foregoing the
"BENEFIT PLANS"), or is or was contributed to by such Company or pursuant to
which such Company or any trade or business, whether or not incorporated (an
"ERISA AFFILIATE"), which together with such Company would be deemed a "single
employer" within the meaning of Section 4001 of ERISA, is still potentially
liable for payments, benefits or claims. A copy of each Benefit Plan as
currently in effect and, if applicable, the most recent Annual Report, Actuarial
Report or Valuation, Summary Plan Description, Trust Agreement and a
Determination Letter issued by the IRS for each Benefit Plan have heretofore
been delivered to the other Companies. No Benefit Plan was or is subject to
Title IV of ERISA or Section 412 of the Code (including any "multiemployer
plan," as defined in Section 3(37) of ERISA).
(b) Except as set forth in SCHEDULE 4.10(B) hereto, each of
the Benefit Plans that are subject to ERISA is in substantial compliance with
ERISA; each of the Benefit Plans intended to be "qualified" within the meaning
of Section 401 (a) of the Code is so qualified; and no event has occurred, and
to such Company's knowledge, there exists no condition or set of circumstances,
in connection with which such Company or any ERISA Affiliate is or could be
subject to liability (except liability for benefit claims and funding
obligations payable in the ordinary course) under ERISA, the Code, or any other
applicable law with respect to any Benefit Plan.
(c) Except as set forth in SCHEDULE 4.10(C) hereto, all
contributions or other amounts payable by such Company or its subsidiaries
through (i) February 1, 1997 as to SCI, and (ii) December 31, 1996 as to SSI,
with respect to each Benefit Plan in respect of current or prior plan years have
been either paid or accrued on the most recent financial statements of such
Company made available to the other Companies. Any contributions or other
amounts payable by such Company or its subsidiaries for periods between (i)
February 2, 1997 and the Effective Time
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as to SCI, and (ii) January 1, 1997 and the Effective Time as to SSI, with
respect to each Benefit Plan in respect of current or prior plan years have been
or will be either paid or accrued in the normal course of business on the books
and records of such Company at or prior to the Effective Time. There are no
pending, or, to the knowledge of such Company, threatened or anticipated claims
(other than routine claims for benefits) by or on behalf of or against any of
the Benefit Plans or any trusts or other funding vehicles related thereto.
(d) Except as set forth in SCHEDULE 4.10(D) hereto, no
Benefit Plan provides benefits, including without limitation death or medical
benefits (whether or not insured), with respect to current or former employees
for periods extending beyond their retirement or other termination of service
(other than (i) coverage mandated by Part 6 of Subtitle B of Title I of ERISA,
Section 4980B of the Code or any comparable state law, (ii) death benefits or
retirement benefits under any "EMPLOYEE PENSION PLAN," as that term is defined
in Section 3(2) of ERISA, (iii) deferred compensation benefits accrued as
liabilities on the books of such Company or the ERISA Affiliates, or (iv)
benefits the full cost of which is borne by the current or former employee or
his or her beneficiary).
4.11 TAXES. (a) For the purposes of this section, the term "tax"
shall include all taxes, charges, withholdings, fees, levies, penalties,
additions, interest or other assessments imposed by any United States federal,
state or local authority or any other taxing authority on such Company or any of
its Tax Affiliates (as hereinafter defined) as to its or their respective
income, profit, franchise, gross receipts, payroll, sales, employment, worker's
compensation, use, property, withholding, excise, occupancy, environmental or
other taxes, duties or assessments of any nature, whatsoever. Such Company has
filed or caused to be filed timely (and within the time required by any
applicable extension) all material federal, state, local and foreign tax
returns, reports and statements ("Returns") required to be filed by each of it
and any member of any consolidated, combined, unitary or similar group of which
it is a member (each such member a "TAX AFFILIATE"). Such Returns are accurate
and complete in all material respects. Such Company has paid or caused to be
paid or has made adequate provision or set up an adequate accrual or reserve for
the payment of all taxes due in respect of the periods for which Returns are
due, and has established (or will establish at least quarterly) an adequate
accrual or reserve for the payment of all taxes payable in respect of the period
subsequent to the last of said periods required to be so accrued or reserved.
Neither such Company nor any of its Tax Affiliates has any material liability
for taxes in excess of the amount so paid or accruals or reserves so
established. Neither such Company nor any of its Tax Affiliates is delinquent in
the payment of any tax in excess of the amount reserved or provided therefor,
and no deficiencies for any tax, assessment or governmental charge in excess of
the amount reserved or provided therefor have been threatened, claimed, proposed
or assessed. No waiver or extension of time to assess any taxes has been given
or requested.
(b) Except as otherwise disclosed in its SCHEDULE 4.11
hereto, neither the Company nor any Tax Affiliate is subject to any pending tax
audit; has been subject to an audit
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adjustment that could be expected to result in any increased tax in a later
year; has received any written ruling of a tax authority or entered into any
binding agreement with a tax authority; has any tax lien on any of its assets;
has filed any consent under Code section 341(f); is subject to any Code section
481 adjustment; has taken any action that would defer taxes to a period after
the Closing Date; is reporting any gain on the installment method; is a party to
any notional principal contract as defined in Treasury Regulation section
1.446-3; owns any asset that, if disposed of, would be subject to investment
credit recapture; has any excess loss account; has any deferred gain or loss
from an intercompany transaction or from a transaction involving stock or debt
of a group member; is a party to any tax sharing or tax allocation agreement or
is otherwise liable for the taxes of any other person pursuant to regulations,
as a transferee or successor, by contract or otherwise; has made any Code
section 1504(d) election; has issued any debt subject to Code section 279; has
any "non-recaptured net section 1231 losses" as defined in Code section 1231(c);
is or could become obligated to make any golden parachute payment described in
Code section 280G; is a foreign corporation; has incurred an overall foreign
loss as defined in Code section 904(f); has participated in or cooperated with
an international boycott; owns any interest in an entity or activity that would
be treated as a partnership for tax purposes; has any indemnification or similar
liability with respect to any tax-exempt debt; or will have outstanding after
the Closing Date any power of attorney relating to any tax matter, in each of
the foregoing cases for purposes of Federal tax and any corresponding provision
of any state, local or other tax. All net operating loss carryovers of the
Company and its Tax Affiliates will be as set forth on its SCHEDULE 4.11 hereto;
none of those loss carryovers is subject to any limitation under Code section
382 or 384 or under any consolidated return regulation. The Company has
furnished copies of all revenue agent's reports, audit reports, deficiency
notices, settlement agreements or other agreements with any tax authority with
respect to it or any Tax Affiliate.
4.12 COMPLIANCE WITH APPLICABLE LAW. Except as disclosed in the SEC
Reports filed prior to the date of this Agreement or SCHEDULE 4.12 of its
Disclosure Schedule, such Company and each of its subsidiaries holds all
licenses, franchises, permits, variances, exemptions, orders, approvals and
authorizations necessary for the lawful conduct of its business under and
pursuant to, and the business of each of such Company and its subsidiaries is
not being conducted in violation of, any provision of any federal, state, local
or foreign statute, law, ordinance, rule, regulation, judgment, decree, order,
concession, grant, franchise, permit or license or other governmental
authorization or approval applicable to such Company or any of its subsidiaries
(including, but not limited to, laws relating to the protection of the
environment), except to the extent that the failure to hold any such licenses,
franchises, permits or authorizations, or any such violation, would not,
individually or in the aggregate, have a Material Adverse Effect.
4.13 SUBSIDIARIES. SCHEDULE 4.13 of such Company's Disclosure Schedule
lists all the subsidiaries of, and other entities of any nature controlled by,
such Company as of the date of this Agreement and indicates for each such
corporate subsidiary the jurisdiction of incorporation or organization. All of
the outstanding shares of capital stock or other equity interests of each of the
subsidiaries or other such controlled entities are (i) held by such Company or
one of such wholly
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owned subsidiaries, (ii) fully paid and nonassessable, and (iii) owned by such
Company or one of such wholly owned subsidiaries free and clear of any claim,
lien or encumbrance.
4.14 LABOR AND EMPLOYMENT MATTERS. Except as disclosed in SCHEDULE 4.14
of its Disclosure Schedule, (a) such Company and its subsidiaries are and have
been in compliance in all material respects with all applicable laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours, including, without limitation the Immigration Reform and
Control Act ("IRCA"), the Worker Adjustment and Retraining Notification Act
("WARN"), and such laws respecting employment discrimination, equal opportunity,
affirmative action, worker's compensation, occupational safety and health
requirements and unemployment insurance and related matters, and are not engaged
in and have not engaged in any unfair labor practice; (b) to the knowledge of
such Company, no investigation or review by or before any governmental entity
concerning any violations of any such applicable laws is pending nor, to the
knowledge of such Company is any such investigation threatened or has any such
investigation occurred during the last three years, and no governmental entity
has provided any notice to such Company or any of its subsidiaries or otherwise
asserted an intention to conduct any such investigation; (c) to the knowledge of
such Company, there is no labor strike, dispute, slowdown or stoppage actually
pending or threatened against such Company or any of its subsidiaries; (d) to
the knowledge of such Company, no union representation question or union
organizational activity exists respecting the employees of such Company or any
of its subsidiaries; (e) no collective bargaining agreement exists which is
binding on such Company or any of its subsidiaries; (f) neither such Company nor
any of its subsidiaries has experienced any material work stoppage or other
material labor difficulty; and (g) in the event of termination of the employment
of any of the current officers, directors, employees or agents of such Company
or any of its subsidiaries, neither such Company, any of its subsidiaries, any
other Company, nor the Surviving Corporation will, pursuant to any agreement or
by reason of anything done prior to the Effective Time by such Company or any of
its subsidiaries, be liable to any of said officers, directors, employees or
agents for so-called "severance pay" or any other similar payments or benefits,
including, without limitation, post-employment healthcare (other than pursuant
to COBRA) or insurance benefits.
4.15 INSURANCE. As of the date hereof, such Company and each of its
subsidiaries are insured by insurers reasonably believed by such Company to be
of recognized financial responsibility against such losses and risks and in such
amounts as are customary in the businesses in which they are engaged. All
material policies of insurance and fidelity or surety bonds insuring such
Company or any of its subsidiaries or their respective businesses, assets,
employees, officers and directors are in full force and effect. As of the date
hereof, there are no material claims by such Company or any of its subsidiaries
under any such policy or instrument as to which any insurance company is denying
liability or defending under a reservation of rights clause.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUISITION
Acquisition represents and warrants to SCI and SSI as follows:
5.1 ORGANIZATION. Acquisition is a corporation duly organized, validly
existing and in good standing under the laws of Florida and has the corporate
power to carry on its business as it is now being conducted or presently
proposed to be conducted. Acquisition has delivered to the other Companies
complete and correct copies of its Articles of Incorporation and Bylaws.
Acquisition has not engaged in any business since the date of its incorporation
other than as contemplated hereby and Acquisition has no subsidiaries .
5.2 CAPITALIZATION. The authorized capital stock of Acquisition
consists of one million (1,000,000) shares of common stock, par value $0.01 per
share. As of the date hereof, 1,000 shares of Acquisition's common stock
("ACQUISITION SHARES") are issued and outstanding, and all of which shares are
owned of record and beneficially only by SCI. All of the issued and outstanding
Acquisition Shares are validly issued, fully paid, nonassessable and free of
preemptive rights or similar rights created by statute, the Articles of
Incorporation or Bylaws of Acquisition or any agreement to which Acquisition is
a party or by which it is bound. There are not now, and at the Effective Time
there will not be, any other shares of capital stock of Acquisition issued or
outstanding or any options, warrants, subscriptions, calls, rights, convertible
securities or other agreements or commitments obligating Acquisition to issue,
transfer or sell any shares of its capital stock except pursuant to this
Agreement.
5.3 AUTHORITY RELATIVE TO THIS AGREEMENT. Acquisition has the corporate
power to enter into this Agreement and to carry out its obligations hereunder.
The execution and delivery of this Agreement by Acquisition and the consummation
by Acquisition of the transactions contemplated hereby have been duly authorized
by Acquisition's Board of Directors and stockholders, and no other corporate
proceedings on the part of Acquisition are necessary to approve this Agreement
or the transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by Acquisition and constitutes a valid and
binding agreement of Acquisition, enforceable against Acquisition in accordance
with its terms.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
6.1 CONDUCT OF BUSINESS PENDING THE MERGER. Each Company agrees on its
own behalf and on behalf of its subsidiaries that, during the period from the
date of this Agreement and continuing until the Effective Time (and EXCEPT (i)
as specifically provided otherwise in this Agreement, (ii) for the permitted
transactions set forth on SCHEDULE 6.1 hereto, (iii) for transactions by SCI
at the specific direction of SSI under the Management Agreement referenced
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in paragraph 6.1(g) below, or (iv) as otherwise permitted upon the written
agreement of SCI and SSI):
(a) the respective businesses of each Company and its
subsidiaries shall be conducted only in the ordinary and usual course of
business and consistent with past practices;
(b) such Company and its subsidiaries shall not (i) sell or
pledge or agree to sell or pledge any stock owned by it in any of its
subsidiaries; (ii) amend its Articles or Certificate of Incorporation, as
applicable, or Bylaws; or (iii) split, combine or reclassify any shares of its
outstanding capital stock or declare, set aside or pay any dividend or other
distribution payable in cash, stock or property in respect of its capital stock,
or directly or indirectly redeem, purchase or otherwise acquire any shares of
its capital stock or other securities or shares of the capital stock or other
securities of any of its subsidiaries;
(c) such Company and its subsidiaries shall not, directly or
indirectly, (i) authorize for issuance, issue, sell, pledge, dispose of,
encumber, deliver or agree or commit to issue, sell, pledge, or deliver any
additional shares of, or rights of any kind to acquire any shares of, its
capital stock of any class or exchangeable into shares of stock of any class or
any Voting Debt (whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise), except that the
Company may issue shares required to be issued upon exercise of existing stock
options, warrants or similar plans, or under other contractual commitments
previously made, which options, warrants, plans or commitments have been
disclosed in such Company's DISCLOSURE SCHEDULE hereto; (ii) make or commit
to make any capital expenditures (a) in the case of SCI, in excess of $5,000, or
$15,000 in the aggregate, or (b) in the case of SSI, other than in the ordinary
course of business or in an amount not exceeding $100,000; (iii) sell,
dispose or transfer, lease, license, mortgage, pledge or encumber any fixed or
other material assets or property rights (tangible or intangible) other than in
the ordinary course of business and consistent with past practices (but in no
event in an aggregate amount exceeding $5,000 in the case of SCI without the
prior written consent of SSI) or enter into any merger or share exchange or
other business combination; (iv) incur, assume or prepay any material
indebtedness, liability or obligation or any other material liabilities or issue
any debt securities other than in the ordinary course of business and consistent
with past practices; (v) assume, guarantee, endorse or otherwise become liable
or responsible (whether directly, contingently or otherwise) for the obligations
of any other person (other than a subsidiary); (vi) make any material loans,
advances or capital contributions to, or investments in, any other person, other
than to subsidiaries, other than in the ordinary course of business and
consistent with past practices; (vii) fail to maintain adequate insurance
consistent with past practices for their businesses and properties; (viii)
alter the manner of keeping its books, accounts or records, or change in any
manner the accounting practices therein reflected; or (ix) enter into any
contract, agreement, commitment or arrangement to do any of the foregoing
prohibited items;
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(d) such Company shall use its reasonable efforts to
preserve intact the business organization of such Company and its subsidiaries,
to keep available the services of its and their present officers and key
employees, and to preserve the goodwill of those having business relationships
with it and their respective subsidiaries;
(e) such Company and its subsidiaries shall not knowingly
take or allow to be taken or fail to take any action which act or omission would
jeopardize qualification of the Merger as a "reorganization" within the meaning
of Section 368(a) of the Code;
(f) such Company and its subsidiaries shall use all reasonable
efforts to prevent any representation or warranty of such Company herein from
becoming untrue or incorrect in any material respect; and
(g) Notwithstanding any provisions contained herein to the
contrary, SCI (and its subsidiaries) shall regularly consult with SSI with
respect to all operational and other aspects of the business of SCI (and its
subsidiaries), including without limitation, the day-to-day operations of SCI
and its subsidiaries. In addition, SCI shall cause its chief executive officer
and its chief financial officer to confer on a regular basis with officers of
SSI and to report on the status of SCI's ongoing operations. Furthermore, SCI
and SSI have executed on the date hereof a Management Agreement providing for
SSI to manage SSI's business and operations prior to the Merger upon the terms
set forth therein.
6.2 CONDUCT OF BUSINESS OF ACQUISITION. During the period from the date
of this Agreement to the Effective Time, Acquisition shall not engage in any
activities of any nature except as provided in or contemplated by this
Agreement.
6.3 COMPENSATION PLANS. During the period from the date of this
Agreement and continuing until the Effective Time, SCI agrees as to itself and
its subsidiaries that it will not, without the prior written consent of SSI
(except as required by applicable law or pursuant to existing contractual
arrangements or other plans or commitments as otherwise disclosed in SCI's
DISCLOSURE SCHEDULE) (a) enter into, adopt or amend any new or existing bonus,
profit sharing, compensation, stock option, pension, retirement, deferred
compensation, employment, severance or other employee welfare or benefit plan,
agreement, trust, plan, fund or other arrangement between SCI (or one of its
subsidiaries) and one or more of its officers, directors or employees
(collectively "COMPENSATION PLANS"), in each case so as to establish or increase
the benefits thereunder (other than an increase in the compensation of any
person with total compensation in the last fiscal year under $40,000 so long as
the total annual compensation as increased will not exceed $50,000), (b) grant
or become obligated to grant any increase in the compensation or fringe benefits
of directors, officers or employees (including any such increase pursuant to any
Compensation Plan) or any increase in the compensation payable or to become
payable to any officer, except, with respect to employees other than officers
for increases in compensation in the ordinary course of business consistent with
past practice and which increases shall be in
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accordance with the increases permitted under the parenthetical at the end of
the foregoing clause (a), or enter into any contract, commitment or arrangement
to do any of the foregoing, or (c) enter into or renew any contract, agreement,
commitment or arrangement providing for the payment to any director, officer or
employee of such Company of compensation or benefits contingent, or the terms of
which are altered in favor of such individual, upon the occurrence of any of the
transactions contemplated by this Agreement.
6.4 CURRENT INFORMATION. From the date of this Agreement to the
Effective Time, each Company will cause one or more of its designated
representatives to confer on a regular and frequent basis (not less than
semi-monthly) with representatives of the other Companies and to report the
general status of its ongoing operations and to deliver to the other Companies
(not less than quarterly) unaudited consolidated balance sheets and related
consolidated statements of income, stockholders equity and cash flows for the
period since the last such report. Each Company will promptly notify the others
of any material change in the normal course of business or in its or its
subsidiaries' properties or of any of other event that would render any
representation set forth in Article IV inaccurate in any material respect.
6.5 LEGAL CONDITIONS TO MERGER. Each Company shall, and shall cause its
subsidiaries to, use all reasonable efforts (a) to take, or cause to be taken,
all actions necessary to comply promptly with all legal requirements which may
be imposed on such party or its subsidiaries with respect to the Merger and to
consummate the transactions contemplated by this Agreement, subject to the
appropriate vote or consent of stockholders, and (b) to obtain (and to cooperate
with the other party to obtain) any consent, authorization, order or approval
of, or any exemption by, any governmental entity and or any other public or
private third party which is required to be obtained or made by such party or
any of its subsidiaries in connection with the Merger and the transactions
contemplated by this Agreement; PROVIDED, HOWEVER, that a party shall not be
obligated to take any action pursuant to the foregoing if the taking of such
action or such compliance or the obtaining of such consent, authorization,
order, approval or exemption would, in such party's reasonable opinion, (i) be
materially burdensome to such party and its subsidiaries taken as a whole or
impact in such a materially adverse manner the economic or business benefits of
the transactions contemplated by this Agreement as to render inadvisable the
consummation of the Merger, or (ii) result in the imposition of a condition or
restriction on such party or on the Surviving Corporation of the type referred
to in Section 8.1(d). Each Company will promptly cooperate with and furnish
information to the other in connection with any such burden suffered by, or
requirement imposed upon, any of them or any of their subsidiaries in connection
with the foregoing.
6.6 AFFILIATES AGREEMENTS. Prior to the mailing of the Proxy Statement
to the stockholders of SCI, each of SCI and SSI shall deliver to the other a
letter identifying all persons who are, at the time this Agreement is submitted
for approval to the stockholders of such Company, "affiliates" of such Company,
for purposes of Rule 145 under the Securities Act. Each Company shall use all
reasonable efforts to cause each person named in the letter delivered by it
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to deliver to the other Companies, at least 10 days prior to the Closing Date, a
written "affiliates" agreement, in customary form, restricting the disposition
by such person of the SCI Shares or Debenture Shares to be received by such
person in the Merger, as contemplated by Rule 145 under the Securities Act (if
and to the extent applicable) and to the extent required or appropriate to
qualify the Merger for tax-free reorganization treatment under the Code.
Certificates surrendered for exchange by any person constituting an "affiliate"
of a Company within the meaning of Rule 145 under the Securities Act shall not
be exchanged for SCI Shares or Debenture Shares pursuant to Article III hereof
until SSI has received such person's agreement described in the preceding
sentence, if applicable to such person.
6.7 ADVICE OF CHANGES; GOVERNMENT FILINGS. Each party shall confer on a
regular and frequent basis with the other, report on operational matters and
promptly advise the other orally and in writing of any change or event having,
or which, insofar as can reasonably be foreseen, could have, a Material Adverse
Effect on such party or which would cause or constitute a material breach of any
of the representations, warranties or covenants of such party contained herein.
Each Company shall file all reports required by regulation to be filed by it
with the SEC between the date of this Agreement and the Effective Time and shall
deliver to the other party copies of all such reports promptly after the same
are filed. Each such SEC report filed by such Company (i) will comply in all
material respects with applicable SEC rules regarding the form, content and time
of filing, and (ii) will not contain any untrue statement of any material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. Except where prohibited by applicable statutes
and regulations, each party shall promptly provide the other (or its counsel)
with copies of all other filings made by such party with any state or federal
government entity in connection with this Agreement or the transactions
contemplated hereby.
6.8 ACCOUNTING METHODS. No Company shall change its methods of
accounting in effect at (i) February 1, 1997 in the case of SCI and (ii)
December 31, 1996 in the case of SSI, except as required by changes in generally
accepted accounting principles as concurred in by such party's independent
auditors, all of which changes shall promptly be disclosed to the other
Companies. No Company will change its fiscal year.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 ACCESS AND INFORMATION.
(a) Each Company and their respective subsidiaries shall
each afford to the other and to the other's financial advisors, legal counsel,
accountants, consultants and other representatives access during normal business
hours throughout the period from the date hereof to the Effective Time to all of
its books, records, agreements, properties, facilities, personnel,
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commitments and records (including but not limited to Tax Returns) and, during
such period, each shall furnish promptly to the other all information concerning
its business, properties and personnel as such other party may reasonably
request. No investigation pursuant to this Section 7.1 shall affect any
representations or warranties made herein or the conditions to the obligations
of the respective parties to consummation of the Merger.
(b) All information furnished by any Company to another
Company pursuant hereto shall be treated as the sole property of the party
furnishing the information until consummation of the Merger contemplated hereby.
The parties will hold any such information that is nonpublic in confidence to
the extent required by, and in accordance with, the Confidentiality and
Non-Disclosure Agreement (the "CONFIDENTIALITY AGREEMENT"), between SCI and SSI,
and such Confidentiality Agreement shall survive the termination of this
Agreement.
7.2 ACQUISITION PROPOSALS. (a) Each Company and their respective
subsidiaries will not, and will use their best efforts to cause their respective
directors, officers, employees, financial advisors, legal counsel, accountants
and other agents and representatives (for purposes of this Section 7.2 only,
being referred to as "affiliates") not to, initiate, solicit or knowingly
encourage, directly or indirectly, or take any other action knowingly to
facilitate any inquiries or the making of any proposal with respect to, or
except to the extent required in the exercise of the fiduciary duties of its
Board of Directors under applicable law as advised by independent counsel,
engage or participate in negotiations concerning, provide any nonpublic
information or data to or knowingly have any discussions with any person other
than a party hereto or their affiliates relating to, any acquisition, tender
offer (including a self-tender offer), exchange offer, merger, consolidation,
acquisition of beneficial ownership of or the right to vote securities
representing 10% or more of the total voting power of such entity or any of its
subsidiaries, dissolution, business combination, purchase of all or any
significant portion of the assets or any division of, or any equity interest in,
such entity or any subsidiary, or similar transaction other than the Merger
(such proposals, announcements, or transactions being referred to as
"ACQUISITION PROPOSALS"). Each Company will promptly notify the others orally
and in writing if any such Acquisition Proposal (including the terms thereof and
identity of the persons making such proposals) is received and furnish to the
other parties hereto a copy of any written proposal.
(b) Notwithstanding the foregoing, in the event a Company receives
any Superior Proposal (as defined below), the Board of Directors of the Company,
to the extent required by the fiduciary obligations thereof under applicable
corporate law as determined in good faith by the Board based on the advice of
outside counsel, may withdraw or modify its approval or recommendation of this
Agreement or the transactions contemplated hereby, approve or recommend such
Superior Proposal, participate in negotiations and discussions regarding such
Superior Proposal, enter into an agreement with respect to such Superior
Proposal, approve the solicitation of additional Third Party Acquisition
Proposals or other investment proposals, and/or approve such Company's
termination of this Agreement pursuant to and in accordance with the terms of
Section 9.1 hereof. For purposes of this Agreement, a "Superior Proposal" means
a
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bona fide Acquisition Proposal that the recipient Company's Board determines
in its good faith reasonable judgment to be more favorable to such Company
and/or its stockholders than the transactions contemplated by this Agreement.
Each Company agrees that neither such recipient Company nor any of its
directors, officers, employees, representatives or agents acting in good faith
and in accordance with their respective fiduciary obligations to the Company,
nor any person or entity who shall make an Acquisition Proposal shall be deemed,
solely by reason of the making of such proposal or any actions taken in good
faith in connection with it as required under their corporate fiduciary
obligations, to have tortuously or otherwise wrongfully interfered with or
caused a breach of this Agreement, or any other agreements, instruments and
documents executed in connection herewith or therewith, or to have tortuously or
otherwise wrongfully interfered with the transactions contemplated hereby or
thereby, or the rights of any other Company or any of their affiliates hereunder
or thereunder.
(c) Nothing contained in this Section 7.2 shall prohibit a Company
from (i) taking and disclosing to its shareholders a position contemplated by
Rule 14e-2(a) promulgated under the Exchange Act; (ii) subject to the provisions
of Section 7.9, issuing a press release or otherwise publicly disclosing the
terms of this Agreement, including without limitation this Section 7.2, and
(iii) making any disclosure to such Company's shareholders if, in the good faith
judgment of the Board of Directors of such Company, after consultation with
outside counsel, failure to take any such action referenced in the foregoing
clauses (i), (ii) and (iii) would be inconsistent with applicable laws
(including, without limitation, laws relating to the fiduciary duties of
directors); PROVIDED, HOWEVER, that the parties hereby agree that except to the
extent required by the fiduciary obligations of the Board of Directors of such
Company determined in good faith by the Board based upon the advice of outside
counsel, a Company may not withdraw or modify its approval or recommendation of
this Agreement or the transactions contemplated hereby.
7.3 NEW CREDIT FACILITY. In connection with the procurement of the new
credit facility for the Surviving Corporation contemplated by Section 8.3
hereof, each of SCI and SSI shall cooperate in providing the information and
documents requested by any proposed lender and each of SCI and SSI shall provide
and pay for appraisals of its respective assets that may be required by such
prospective lender.
7.4 PROXY STATEMENTS; STOCKHOLDER APPROVALS. SCI and SSI, acting
through their respective Boards of Directors, shall in accordance with
applicable law and their Articles or Certificate of Incorporation (as
applicable) and Bylaws:
(a) promptly and duly call, give notice of, convene and hold
as soon as practicable following the date hereof a meeting of their respective
stockholders for the purpose of voting to approve and adopt this Agreement and
the consummation of the transactions contemplated hereby, and shall use their
reasonable efforts, except to the extent the Board of Directors reasonably
believe is otherwise required by its fiduciary duty, to obtain such
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stockholders approval (provided that in the case of SSI such shareholder
approval may be obtained through written consent in accordance with law);
(b) except to the extent the Board of Directors reasonably
believes is otherwise required by its fiduciary duty, recommend approval and
adoption of this Agreement by the stockholders of such Company, and include in
the Proxy Statement such recommendations, and take all lawful action to solicit
such approvals; and
(c) as promptly as practicable, prepare and file with the
SEC a preliminary Proxy Statement for distribution to SCI's shareholders (which
shall be prepared by SCI's counsel, with the assistance of SSI's counsel as to,
among other things, disclosures relating to SSI) and, after consultation with
each other, respond to any comments of the SEC with respect to the preliminary
Proxy Statement and cause the definitive Proxy Statement to be mailed to SCI's
stockholders. Whenever any event occurs which should be set forth in an
amendment or a supplement to the Proxy Statement or any filing required to be
made with the SEC, each party will promptly inform the other and will cooperate
in filing with the SEC and/or mailing to stockholders such amendment or
supplement. The Proxy Statement, and all amendments and supplements thereto,
shall comply with applicable law and be in form and substance reasonably
satisfactory to each such Company.
7.5 STOCK EXCHANGE LISTING. SCI shall take such commercially reasonable
action as may be necessary or desirable to timely list the SCI Shares and
Debenture Shares to be issued pursuant to the Merger on the American Stock
Exchange, if such shares are eligible for listing thereon, or on The Nasdaq
Stock Market if not eligible for American Stock Exchange Listing.
7.6 At or prior to the Closing Date, SCI shall adopt a new stock option
plan for the purpose of providing for the grant of stock options to SCI's
directors, officers and other employees, which plan shall be in form
satisfactory to SSI.
7.7 [Intentionally Deleted]
7.8 DIRECTOR AND OFFICER INDEMNIFICATION. All rights to indemnification
and advancement of expenses existing in favor of the directors, officers and
agents of any Company (the "INDEMNIFIED PARTIES") under the provisions existing
on the date hereof of any Company's Articles or Certificate of Incorporation,
Bylaws and indemnification agreements of any Company shall survive the Effective
Time for at least six years thereafter and SCI agrees to indemnify and advance
expenses to the Indemnified Parties to the full extent required or permitted by
any Company under the provisions existing on the date hereof of any Company's
Articles or Certificate of Incorporation, Bylaws and indemnification agreements
of any Company.
7.9 PUBLIC ANNOUNCEMENTS. So long as this Agreement is in effect and
until the Closing Date, each of the Companies agrees that it will obtain the
approval of each of the other Companies prior to issuing any press release and
will use its reasonable efforts to consult with
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each of the other Companies before otherwise making any public statement or
responding to any press inquiry with respect to this Agreement or the
transactions contemplated hereby, except as may be required by law or any
governmental agency or by the American Stock Exchange or other exchange on which
the common stock of SCI may be listed (it being agreed that the approval of SCI
or consultation with SCI shall constitute the approval of or consultation with
Acquisition, as the case may be).
7.10 EXPENSES. Subject to Section 9.3 hereof, whether or not the Merger
is consummated, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby and thereby shall be paid by
the party incurring such expenses.
7.11 ADDITIONAL AGREEMENTS.
(a) Subject to the terms and conditions herein provided,
including without limitation those set forth in the proviso to Section 6.5
hereof, each of the parties hereto agrees to use all reasonable efforts to take,
or cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
including using all reasonable efforts to obtain all necessary waivers, consents
and approvals, and to effect all necessary registrations and filings. In case at
any time after the Effective Time any further action is necessary or desirable
to carry out the purposes of this Agreement, the proper officers and/or
directors of SCI and the Surviving Corporation shall be authorized to take all
such necessary action.
(b) Subject to the terms and conditions herein provided,
including without limitation those set forth in the proviso to Section 6.5
hereof, each Company will cooperate with the others and use all reasonable
efforts to prepare all necessary documentation to effect promptly all necessary
filings and to obtain all necessary permits, consents, approvals, orders and
authorizations of or any exemptions by, all third parties and governmental
bodies necessary to consummate the transactions contemplated by this Agreement.
(c) Each party will keep the other party apprised of the
status of any inquiries made of such party by the SEC or any other governmental
agency or authority or members of their respective staffs with respect to this
Agreement or the transactions contemplated herein.
7.12 DEBENTURE EXCHANGE AGREEMENTS. Prior to June __, 1997, SCI shall
obtain and deliver to SSI the written agreement of each holder of Debentures to
exchange such Debentures into Debenture Shares in accordance with this
Agreement, in form satisfactory to SSI (collectively, the "DEBENTURE EXCHANGE
AGREEMENTS"), which agreements shall include, among other things, (i) a
prohibition against the sale of Debenture Shares for a period of one year
following the Closing Date and (ii) appropriate investment representations
consistent with the
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exemption of such exchange from the registration requirements of the Securities
Act and applicable state securities laws.
7.13 REVERSE STOCK SPLIT. Prior to the Effective Time, SCI shall
consummate a reverse stock split (the "REVERSE SPLIT") of its outstanding shares
of common stock by amending its Certificate of Incorporation (which amendment
may include other changes unrelated to the consummation of the Reverse Split)
and taking other necessary or appropriate actions to consummate the Reverse
Split, all in form satisfactory to SSI and in accordance with applicable law and
stock exchange requirements. The parties acknowledge and agree that the Reverse
Split shall be a "reverse" stock split, meaning a combination of shares
resulting in a decrease in the number of outstanding shares (such as, for
example, a "one-for-five" reverse stock split, by which each 5 outstanding
shares would be automatically combined and converted into 1 share). The parties
acknowledge and agree that the exact "ratio" for the Reverse Split (e.g., "one
for five", "one for ten", etc.) will be determined by mutual agreement of SCI
and SSI within 45 days after execution of this Agreement, but not later than the
date of initial filing of SCI's proxy statement relating to the Merger. The
parties agree to use their good faith best efforts to promptly agree on the
ratio for the Reverse Split.
7.14 SSI INVESTMENT LETTERS. Prior to the Closing Date, SSI shall
obtain and deliver to SCI the written representation of each shareholder of SSI
to the effect that such shareholder is an "accredited investor" within the
meaning of Regulation D under the Securities Act and/or other appropriate
investment representations consistent with the exemption of the Merger from the
registration requirements of the Securities Act and applicable state securities
laws.
7.15 LOAN REPAYMENTS TO OFFICERS. Within three months following the
Closing Date, SCI shall repay the amounts borrowed from its officers in August
1996 (which amounts aggregate $100,000 as reflected in SCI's financial
statements), and such repayments shall be made in accordance with the terms of
any new employment agreements with such officers to be entered into as
contemplated by Section 8.3(a) hereof.
7.16 COMPLETION OF SCHEDULES AND EXHIBITS; AMEX LISTING. The parties
acknowledge and agree that certain Schedules and Exhibits hereto were not
finalized as of the date of this Agreement and, accordingly, are not included
herein. The parties each agree to use their respective best efforts in good
faith to promptly finalize all Schedules and Exhibits hereto that are not
included herewith, and, when all such Exhibits and Schedules are in form
mutually agreed upon by SSI and SCI, such Exhibits and Schedules shall be deemed
incorporated into this Agreement and shall have the same force and effect as if
set forth herein on the date hereof. If the Exhibits and Schedules are not
agreed upon by SCI and SSI on or prior to June 27, 1997, then this Agreement
shall automatically terminate on such date (unless extended by the parties) and
upon such termination the parties shall have no rights or obligations hereunder
except as provided in Section 9.2 hereof. In addition, if the American Stock
Exchange ("AMEX") indicates in writing to SCI or SSI that upon the Merger the
Surviving Corporation will not (or that AMEX
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anticipates that the Surviving Corporation probably will not) qualify for the
listing of its common stock on the AMEX, then SSI shall have 30 days after such
notice from AMEX to terminate this Agreement which termination shall be
effective upon receipt by SCI of SSI's notice of such termination, and the
parties shall have no rights or obligations hereunder except as provided in
Section 9.2 hereof.
ARTICLE VIII
CONDITIONS TO CONSUMMATION OF THE MERGER
8.1 CONDITIONS TO ALL COMPANIES' OBLIGATION TO EFFECT THE MERGER. The
respective obligations of all Companies to effect the transactions contemplated
herein shall be subject to the satisfaction at or prior to the Effective Time of
the following conditions, any one of which may be waived by all, but not less
than all, Companies:
(a) This Agreement and the transactions contemplated hereby
shall have been approved and adopted by the requisite vote of the stockholders
of each of SCI, Acquisition and SSI in accordance with applicable law and stock
exchange requirements.
(b) No preliminary or permanent injunction or other order by
any federal, state or foreign court of competent jurisdiction which prohibits
the consummation of the Merger shall have been issued and remain in effect. No
statute, rule, regulation, executive order, stay, decree, or judgment shall have
been enacted, entered, issued, promulgated or enforced by any court or
governmental authority which prohibits or restricts the consummation of the
Merger. Other than the filing of Articles of Merger with the Department of State
for the State of Florida, all authorizations, consents, orders or approvals of,
or declarations or filings with, and all expirations of waiting periods imposed
by, any governmental entity (all of the foregoing, "CONSENTS") which are
necessary for the consummation of the Merger, other than Consents the failure to
obtain which would not prevent the Merger and/or have a Material Adverse Effect
on the Surviving Corporation and its subsidiaries taken as a whole, or SCI and
its subsidiaries taken as a whole, shall have been filed, occurred or been
obtained (all such permits, approvals, filings and consents and the lapse of all
such waiting periods being referred to as the "REQUISITE REGULATORY APPROVALS")
and all such Requisite Regulatory Approvals shall be in full force and effect.
All state securities or blue sky permits and other authorizations necessary to
issue the SCI Shares and the Debenture Shares hereunder and to consummate the
Merger shall have been received.
(c) There shall not be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Merger, by any federal or state governmental entity which, in connection with
the grant of a Requisite Regulatory Approval imposes any condition or
restriction upon any Company or its subsidiaries, including, without limitation,
requirements relating to the disposition of assets, which in any such case would
so
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materially adversely impact the economic or business benefits of the
transactions contemplated by this Agreement as to render inadvisable the
consummation of the Merger.
8.2 CONDITIONS TO OBLIGATION OF EACH OF SCI AND SSI TO EFFECT THE
MERGER. The obligation of each of SCI and SSI to effect the Merger shall be
further subject to the satisfaction at or prior to the Effective Time of the
following additional conditions, which may be waived by such Company:
(a) Each of the other Companies shall have performed in all
material respects its obligations under this Agreement required to be performed
by it at or prior to the Effective Time and the representations and warranties
of the other Companies contained in this Agreement shall be true and correct in
all material respects at and as of the Effective Time as if made at and as of
such time, except as contemplated by this Agreement, and each of SCI and SSI
shall have received a certificate of the Chairman of the Board, the President or
an Executive Vice President of the other such Company as to the satisfaction of
this condition.
(b) [Intentionally deleted]
(c) Each of SCI and SSI shall have received (i) the opinion
of its, and the other such Company's respective, outside counsel dated the
Closing Date and addressed to itself and such other Company covering the matters
set forth in SCHEDULE 8.2(C), and (ii) as to each holder of Debentures, the
opinion (in form reasonably acceptable to SSI) of counsel to SCI (or of counsel
to such Debenture holder reasonably acceptable to SSI) to the effect that such
holder of Debentures has duly executed and delivered a Debenture Exchange
Agreement and such agreement has been duly authorized by all necessary action on
the part of such holder and constitutes a valid binding obligation of such
holder, enforceable against such holder in accordance with its terms.
(d) Each Company shall have obtained the consent or approval
of each person whose consent or approval shall be required in connection with
the transactions contemplated hereby under any loan or credit agreement, note,
mortgage, indenture, lease, license or other agreement or instrument, except
those for which failure to obtain such consents and approvals would not,
individually or in the aggregate, have a Material Adverse Effect on the
Surviving Corporation and its subsidiaries taken as a whole or on SCI and its
subsidiaries taken as a whole, or prevent the consummation of the Merger.
(e) Each of SCI and SSI shall have received an opinion of an
investment banker or other financial consultant to be mutually agreed upon by
SCI and SSI, dated on or before the date of SCI's definitive Proxy Statement
relating to the Merger, to the effect that the terms of the Merger as provided
herein, including the consideration to be received by the holders of the
Debentures and SSI's common stock, are fair, from a financial point of view, to
the shareholders of SCI.
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(f) [Intentionally deleted]
(g) SCI and SSI shall have received a signed Debenture
Exchange Agreement as contemplated by Section 7.12 hereof, from each holder of
Debentures, in form and substance satisfactory to SSI.
(h) The Reverse Split shall have been effected in accordance
with Section 7.13 hereof.
8.3 CONDITIONS TO OBLIGATION OF SSI TO EFFECT THE MERGER. The
obligation of SSI to effect the Merger shall be further subject to the
satisfaction at or prior to the Effective Time of the following additional
conditions, which may be waived by such Company:
(a) SCI's current employment agreements shall be amended,
terminated and/or replaced as and to the extent requested by and to the
reasonable satisfaction of SSI, if such request is made by SSI no later than 20
days prior to the Closing Date.
(b) SCI shall enter into employment agreements, at or prior
to the Closing Date, with each of Harvey Oxenberg, who is SSI's President, and
David Fleischman, who is SSI's Chief Financial Officer, and also with Robert
Hooker and Jim Nunneley, and shall also enter into indemnification agreements
with such persons relating to, among other things, indemnification of such
persons as permitted under applicable corporate and other law, all of which
agreements shall be in form and substance satisfactory to SSI.
(c) [Intentionally deleted]
(d) SCI and SSI shall have obtained a new credit facility
that will fund advances beginning not later than the Closing Date in such
amounts and on such terms as are satisfactory to SSI.
(e) All of (i) SCI's outstanding shares of common stock, and
(ii) all shares of SCI's common stock to be issued pursuant to the Merger or
pursuant to options or other commitments to issue shares, including, without
limitation, the SCI Shares and the Debenture Shares, shall be listed on the
American Stock Exchange.
(f) Gregg M. Leslie's Employment Agreement with Sun City
Produce, Inc., one of SCI's subsidiaries, shall be amended or replaced to the
satisfaction of SSI, including termination of any option or right therein of
Gregg M. Leslie to acquire the stock of Sun City Produce, Inc.
(g) SSI shall have received an opinion, dated the Closing
Date, of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., counsel to
SSI, to the effect that the Merger will be treated for Federal income tax
purposes as a reorganization within the meaning of section
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368(a) of the Code and that SCI, Acquisition and SSI each will be a party to the
reorganization within the meaning of section 368(b) of the Code. This opinion
shall be based on (i) representation letters and stockholder certificates dated
on or about the Closing Date substantially in the forms of the three Exhibits
8.3(g) to this Agreement and (ii) those other facts, representations and
assumptions as counsel reasonably may deem relevant (concerning, among other
things, the actions of the stockholders of the Companies).
(h) SSI shall have received a signed "lockup" agreement in
form satisfactory to SSI from each of the current officers and directors of SCI
to the effect that for a period of one year following the Closing of the Merger
such persons will not, without the prior written consent of SSI, sell, offer to
sell, solicit an offer to buy, contract to sell, grant any option to purchase or
otherwise transfer or dispose of, any shares of SCI's common stock, or any
securities convertible into or exercisable or exchangeable for shares of SCI's
common stock.
(i) No shareholder of SSI or SCI shall have any "dissenter's
rights" or "appraisal rights" under Section 262 of the Delaware General
Corporation Law or Section 607.1302 of the Florida Business Corporation Act or
other similar law, and no transactions contemplated by this Agreement including
the Merger shall be prohibited or delayed under Section 203 of the Delaware
General Corporation Law.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 TERMINATION. This Agreement may be terminated and the Merger
contemplated hereby abandoned at any time prior to the Effective Time, whether
before or after approval by the stockholders of the Companies:
(a) By mutual written consent of SCI and SSI.
(b) By either of SCI or SSI if the Merger shall not have been
consummated on or before October 31, 1997.
(c) By either of SCI or SSI if there shall have been any
material breach of an obligation, representation or warranty of another Company
hereunder and, if such breach is curable, such default shall have not been
remedied within 10 days after receipt by the other Company, as the case may be,
of notice in writing from such Company specifying such breach and requesting
that it be remedied; provided, that such 10-day period shall be extended for so
long as the other Company shall be making diligent attempts to cure such default
and such default shall be reasonably capable of being cured.
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(d) By either of SCI or SSI if the Board of Directors of the
other such Company shall have withdrawn or modified in a manner adverse to the
others its approval or recommendation of this Agreement or the Merger, or shall
have resolved to do the same; provided, however, that neither SCI nor SSI may
terminate this Agreement pursuant to this clause if, as a result of the other
such Company's receipt of an Acquisition Proposal from a third party, such other
recipient Company withdraws or modifies its approval or recommendation of this
Agreement or the Merger but thereafter (and prior to termination by the
non-recipient Company) the recipient Company publicly reconfirms its
recommendation of the transactions contemplated hereby and notifies the
non-recipient Company of such reconfirmation prior to termination of this
Agreement by the non-recipient Company pursuant to this clause.
(e) By any Company if any court of competent jurisdiction in
the United States or other United States governmental body shall have issued an
order, decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the Merger and such order, decree, ruling or any other
action shall have become final and non-appealable.
(f) By either of SCI or SSI upon written notice to the other
such Company if any approval of the stockholders of a Company required for the
consummation of the Merger submitted for their approval shall not have been
obtained by reason of the failure to obtain the required vote at a duly held
meeting of stockholders or at any adjournment thereof.
(g) By either of SCI or SSI if it shall receive any
Acquisition Proposal after the date hereof from a third party or parties and the
Board of Directors of such recipient Company shall have determined in good faith
that in the exercise of its fiduciary duties to the stockholders of such
recipient Company that such Company must pursue such Acquisition Proposal;
provided, however, that such recipient Company may only terminate this Agreement
pursuant to this clause if it simultaneously with such termination delivers to
the non-recipient Company the termination fee provided for in Section 9.3
hereof.
(h) By SSI if (i) SCI's common stock ceases to be listed
on the American Stock Exchange at any time after the date hereof, or if the
shares to be issued pursuant to the Merger are not approved for listing on such
exchange prior to the Closing Date, or (ii) if SSI reasonably determines (A)
that SCI's business or financial condition has materially deteriorated since
February 1, 1997 (other than deteriorations through the date of this Agreement
as reflected in the Schedules to this Agreement or which are clearly
attributable to normal recurring seasonal fluctuations in SCI's business), or
(B) that SCI is or will likely be unable to pay its material debts or other
material obligations as they become due (other than the debts listed on SCHEDULE
9.1(H) HEREOF), or (iii) if SCI or any of its creditors commences bankruptcy
proceedings applicable to SCI or other proceedings applicable to SCI involving
insolvency, reorganization or similar debtor or creditor relief laws under state
or federal law, and such proceedings, if instituted by third parties against
SCI, shall not be dismissed within thirty (30) days after such institution,
provided, however, that in the event any such proceedings are commenced against
SCI, SSI shall not be
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obligated to close this Agreement or the Merger during such 30-day period, or
(iv) if any one or more of SCI's creditors commences one or more lawsuits
against SCI for the collection of debts or liabilities of SCI and all such suits
are not dismissed within 30 days after the first commencement of any such suit
(but such dismissals during such period shall not prevent SSI from terminating
this Agreement under this clause (iv) if at the end of such 30-day period there
remains any outstanding suits against SCI in respect of unpaid debts and
liabilities of SCI), provided, however, that SSI shall not be obligated to close
this Agreement or the Merger during such 30-day period. The parties hereby agree
that in the event of any proceeding by or against SCI under the federal
bankruptcy laws, upon the demand of SSI, SCI shall assume or reject this
Agreement as permitted under such bankruptcy laws within 10 days after such
demand (or if SCI does not have such right to so reject or assume this Agreement
during such 10-day period, then SCI shall do so immediately upon the
effectiveness of its right to do so), and if SCI does not assume or reject this
Agreement as herein required, then SSI shall have the right, in its sole
discretion, to (i) treat this Agreement for any and all purposes as if it were
so rejected (and the parties agree that this Agreement shall thereupon be deemed
rejected by SCI for all purposes), or (ii) compel SCI to promptly assume or
reject this Agreement.
9.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided above, this Agreement shall forthwith become of no further
effect and, except for a termination resulting from a breach by a party of any
of its material obligations under this Agreement, there shall be no liability or
obligation on the part of any Company or their respective officers or directors
(except as set forth in Section 7.1(b) hereof and except for Sections 7.10, 9.3,
10.2 and 10.6 hereof which shall survive the termination). Nothing contained in
this Section 9.2 shall relieve any party from liability for willful breach of
this Agreement that results in termination of this Agreement. Upon request
therefor, each party shall redeliver all documents, work papers and other
material of any other party relating to the transactions contemplated hereby,
whether obtained before or after the execution hereof, to the party furnishing
same.
9.3 CERTAIN TERMINATION FEES. If either of SCI or SSI (an "OPERATING
COMPANY") either (A) violates its obligations set forth in Section 7.2 hereof
in any material respect or otherwise breaches in any material respect any of its
other material obligations hereunder and this Agreement is thereafter terminated
pursuant to Section 9.1 (c), or (B) prior to termination of this Agreement
receives any Acquisition Proposal, and this Agreement is thereafter terminated
pursuant to Sections 9.1 (d) or 9.1 (g) as a result of receipt of such
Acquisition Proposal, then the Operating Company which has so violated or
breached its obligations as aforesaid or which was in receipt of such
Acquisition Proposal shall pay to the other Operating Company a fee of $350,000.
9.4 AMENDMENT. This Agreement may be amended by action taken at any
time before or after approval hereof by the stockholders of Acquisition and SSI,
but, after either such approval, no amendment shall be made which materially
adversely affects the rights of such
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stockholders, without the further approval of such stockholders. This Agreement
may not be amended except by an instrument in writing signed on behalf of each
of the parties hereto.
9.5 WAIVER. At any time prior to the Effective Time, the parties hereto
may (a) extend the time for the performance of any of the obligations or other
acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto, and (c) except as may be required by law, waive compliance with
any of the agreements or conditions contained herein. 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. Such waiver
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure.
ARTICLE X
GENERAL PROVISIONS
10.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. No
representations, warranties or agreements contained herein shall survive beyond
the Effective Time except that the agreements contained in Sections 2.3, 3.1,
3.2, 3.3, 3.4, 3.5., 3.6, 3.8, 7.8, 7.10, 7.11, 7.15, 9.3, 10.1, 10.6 and 10.7
hereof, and all other agreements of SCI, shall survive beyond the Effective
Time.
10.2 BROKERS. SCI represents and warrants to the other Companies that
no broker, finder or financial advisor is entitled to any brokerage, finder's or
other fee or commission in connection with the Merger or the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
SCI. SSI represents and warrants to the other Companies that no broker, finder
or financial advisor is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger or the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of SSI.
10.3 NOTICES. All notices, claims, demands and other communications
hereunder shall be in writing and shall be deemed given if delivered personally
or by telex or telecopy or mailed by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) If to SSI, to:
SeaSpecialties, Inc.
1111 N.W. 159th Drive
Miami, Florida 33169
Attention: Harvey Oxenberg and David Fleischman
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<PAGE>
with a copy to:
Greenberg, Traurig, Hoffman, Lipoff,
Rosen & Quentel, P.A.
1221 Brickell Avenue
Miami, Florida 33131
Attention: Bruce E. Macdonough, Esq.
(b) If to SCI or Acquisition, to:
Sun City Industries, Inc.
5545 N.W. 35th Avenue
Fort Lauderdale, Florida 33309
Attention: Malvin Avchen
with a copy to:
Baker & McKenzie
701 Brickell Avenue
Miami, Florida 33131
Attention: Jonathan H. Warner
10.4 DESCRIPTIVE HEADINGS. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.5 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement (including the
Disclosure Schedules, Exhibits and other documents and instruments referred to
herein) and the Confidentiality Agreement (a) constitute the entire agreement
and supersedes all other prior agreements and understandings, both written and
oral, among the parties or any of them, with respect to the subject matter
hereof; (b) are not intended to confer upon any other person any rights or
remedies hereunder, and (c) shall not be assigned by operation of law or
otherwise.
10.6 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Florida without giving effect to the
provisions thereof relating to conflicts of law, except to the extent that
Delaware corporate law applies.
10.7 PARTIES IN INTEREST. Except for Section 7.8 hereof, nothing in
this Agreement, express or implied, is intended to or shall confer upon any
other person any rights, benefit or remedies of any nature whatsoever or by
reason of this Agreement.
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10.8 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement.
10.9 VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not effect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
10.10 INVESTIGATION. The respective representations and warranties of
each Company contained herein or in the certificates or other documents
delivered at or prior to the Closing shall not be deemed waived or otherwise
affected by any investigation made by any party hereto.
10.11 CONSENTS. For purposes of any provision of this Agreement
requiring, permitting or providing for the consent of any or Company, the
written consent of the Chief Executive Officer or President of a Company shall
be sufficient to constitute such consent.
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IN WITNESS WHEREOF, each Company has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
SUN CITY INDUSTRIES, INC.
By:/S/ MALVIN AVCHEN
-------------------------------
Name: MALVIN AVCHEN
Title: CHIEF EXECUTIVE OFFICER
SPECIALTIES ACQUISITION CORP.
By:/S/ MALVIN AVCHEN
-------------------------------
Name: MALVIN AVCHEN
Title: CHIEF EXECUTIVE OFFICER
SEASPECIALTIES, INC.
By:/S/ HARVEY OXENBERG
-------------------------------
Name: HARVEY OXENBERG
Title: PRESIDENT
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<PAGE>
APPENDIX B - OPINION OF MESIROW FINANCIAL, INC.
<PAGE>
October 22, 1997
The Board of Directors
Sun City Industries, Inc.
5545 N.W. 35th Avenue #15
Fort Lauderdale, FL 33309
Gentlemen:
Sun City Industries, Inc. ("Sun City") has entered into a merger
agreement with SeaSpecialties, Inc. ("SeaSpecialties") with conversion formulas
(the "Conversion Formulas") whereby the existing common shareholders ("Common
Shareholders") of Sun City will own approximately 3.11% of the outstanding
common stock of Sun City after the merger (the "Merger"). You have asked Mesirow
Financial, Inc. ("Mesirow") to render its opinion (the "Opinion") as to whether
or not the proposed Merger and the Conversion Formulas are fair, from a
financial point of view, to Sun City and the Common Shareholders of Sun City.
In connection with rendering this Opinion we have, among other things,
reviewed certain financial and other information with respect to Sun City and
SeaSpecialties that was publicly available or furnished to Mesirow by or on
behalf of Sun City and SeaSpecialties, including certain internal financial
analyses, financial forecasts, reports and other information prepared by their
respective managements and representatives. Mesirow held discussions with the
management and representatives of each of Sun City and SeaSpecialties concerning
their respective historical and current operations, financial condition and
prospects as well as the strategic and operating benefits anticipated from the
Merger. In arriving at its opinion, Mesirow, among other things: (i) reviewed
the Merger Agreement and all Schedules and Exhibits thereto; (ii) met with the
officers and certain members of the managements of Sun City and SeaSpecialties
to discuss their respective businesses, financial conditions, operating results,
and future prospects assuming that the Merger is consummated and assuming that
the Merger is not consummated; (iii) reviewed annual audited financial
statements and interim unaudited financial statements through August 2, 1997 for
Sun City and through August 31, 1997 for SeaSpecialties as had been provided to
Mesirow as of September 30, 1997; (iv) reviewed publicly available information
including recent SEC filings and shareholder communications for Sun City; (v)
compared certain financial and stock market data of Sun City with similar data
for selected publicly-held foodservice distribution companies; (vi) reviewed
projected financial statements through 1998 for Sun City and for SeaSpecialties
as prepared by the respective managements of each company; (vii) considered the
estimated earnings dilution to Sun City shareholders resulting from consummation
of the Merger; (viii) reviewed historical market price and volume data for the
Sun City Common Stock; and (ix) made such other financial studies, analyses, and
investigations as Mesirow deemed appropriate.
In arriving at our opinion, we have assumed and relied, without
independent verification, upon the accuracy and completeness of the information
obtained from public sources or provided to us by Sun City or SeaSpecialties. In
addition, we have assumed that Sun City's and SeaSpecialties' forecasts and
projections furnished to us have been reasonably prepared on bases reflecting
the best currently available estimates and judgments of management as to the
future financial condition and operating results of the companies. In addition,
we have not made an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of Sun City or SeaSpecialties, nor have we
been furnished with any such evaluations or appraisals.
Our opinion is necessarily based upon general economic, financial,
market and other conditions as they exist and can be evaluated on the date
hereof. We were not requested to, and did not, solicit third party indications
of interest in acquiring all or any part of, or merging with, or into, Sun City.
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Mesirow is a full service securities firm and, therefore, in the
ordinary course of our trading and brokerage activities, Mesirow or any of our
affiliates may at any time hold long or short positions, and may trade or
otherwise effect transactions, for our own account or the accounts of customers,
in securities of Sun City. Mesirow will receive a fee for rendering this
opinion.
Based upon and subject to the foregoing, including the various
assumptions and limitations set forth herein, it is our opinion that, as of the
date hereof, the proposed Merger and Conversion Formulas are fair, from a
financial point of view, to Sun City and the Common Shareholders of Sun City.
This opinion is for the use and benefit of the Board of Directors of
Sun City and may not be reproduced, summarized, described or referred to or
given to any other person except in connection with Sun City's initial public
announcement of the proposed merger, Schedule 14D-9 and any amendment thereof,
or proxy statement regarding the merger.
Very truly yours,
Mesirow Financial, Inc.
B-2
<PAGE>
APPENDIX C - 1997 STOCK OPTION PLAN
<PAGE>
---------------------------------------
SUN CITY INDUSTRIES, INC.
1997 STOCK OPTION PLAN
---------------------------------------
1. PURPOSE. The purpose of this Plan is to advance the interests of SUN
CITY INDUSTRIES, INC., a Delaware corporation (the "Company"), and its
Subsidiaries by providing an additional incentive to attract and retain
qualified and competent persons who provide services to the Company and its
Subsidiaries, and upon whose efforts and judgment the success of the Company and
its Subsidiaries is largely dependent, through the encouragement of stock
ownership in the Company by such persons.
2. DEFINITIONS. As used herein, the following terms shall have the
meaning indicated:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Committee" shall mean the committee appointed by the Board
pursuant to Section 13(a) hereof.
(c) "Common Stock" shall mean the Company's Common Stock, par value
$.10 per share.
(d) "Director" shall mean a member of the Board.
(e) "Fair Market Value" of a Share on any date of reference shall mean
the "Closing Price" (as defined below) of the Common Stock on such date, unless
the Committee or the Board in its sole discretion shall determine otherwise in a
fair and uniform manner. For the purpose of determining Fair Market Value, the
"Closing Price" of the Common Stock on any business day shall be (i) if the
Common Stock is listed or admitted for trading on any United States national
securities exchange, or if actual transactions are otherwise reported on a
consolidated transaction reporting system, the last reported sale price of
Common Stock on such exchange or reporting system, as reported in any newspaper
of general circulation, (ii) if the Common Stock is quoted on the National
Association of Securities Dealers Automated Quotations System ("NASDAQ"), or any
similar system of automated dissemination of quotations of securities prices in
common use, the last reported sale price of Common Stock on such system or, if
sales prices are not reported, the mean between the closing high bid and low
asked quotations for such day of Common Stock on such system, as reported in any
newspaper of general circulation or (iii) if neither clause (i) or (ii) is
applicable, the mean between the high bid and low asked quotations for the
Common Stock as reported by the National Quotation Bureau, Incorporated if at
least two securities dealers have inserted both bid and asked quotations for
Common Stock on at least five of the ten preceding days. If neither (i), (ii),
or (iii) above is applicable, then Fair Market Value shall be determined in good
faith by the Committee or the Board in a fair and uniform manner.
(f) "Incentive Stock Option" shall mean an incentive stock option as
defined in Section 422 of the Internal Revenue Code.
(g) "Internal Revenue Code" shall mean the Internal Revenue Code of
1986, as amended from time to time.
(h) "Non-Qualified Stock Option" shall mean an Option which is not an
Incentive Stock Option.
(i) "Officer" shall mean the Company's Chairman of the Board,
President, Chief Executive Officer, principal financial officer, principal
accounting officer, any vice-president of the Company in charge of
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a principal business unit, division or function (such as sales, administration
or finance), any other officer who performs a policy-making function, or any
other person who performs similar policy-making functions for the Company.
Officers of Subsidiaries shall be deemed Officers of the Company if they perform
such policy-making functions for the Company. As used in this paragraph, the
phrase "policy-making function" does not include policy-making functions that
are not significant. If pursuant to Item 401(b) of Regulation S-K (17 C.F.R. ss.
229.401(b)) the Company identifies a person as an "executive officer," the
person so identified shall be deemed an "Officer" even though such person may
not otherwise be an "Officer" pursuant to the foregoing provisions of this
paragraph.
(j) "Option" (when capitalized) shall mean any option granted under
this Plan.
(k) "Optionee" shall mean a person to whom a stock option is granted
under this Plan or any person who succeeds to the rights of such person under
this Plan by reason of the death of such person.
(l) "Outside Director" shall mean a member of the Board who qualifies
as an "outside director" under Section 162(m) of the Internal Revenue Code and
the regulations thereunder and as a "Non-Employee Director" under Rule 16b-3
promulgated under the Securities Exchange Act.
(m) "Plan" shall mean this 1997 Stock Option Plan for the Company.
(n) "Securities Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.
(o) "Share" shall mean a share of Common Stock.
(p) "Subsidiary" shall mean any corporation (other than the Company) in
any unbroken chain of corporations beginning with the Company if, at the time of
the granting of the Option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50 percent or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.
3. SHARES AVAILABLE FOR OPTION GRANTS. The Committee or the Board may
grant to Optionees from time to time Options to purchase an aggregate of up to
Two Million Five Hundred Thousand (2,500,000) Shares from the Company's
authorized and unissued Shares. If any Option granted under the Plan shall
terminate, expire, or be canceled or surrendered as to any Shares, new Options
may thereafter be granted covering such Shares.
4. INCENTIVE AND NON-QUALIFIED OPTIONS.
(a) An Option granted hereunder shall be either an Incentive Stock
Option or a Non-Qualified Stock Option as determined by the Committee or the
Board at the time of grant of such Option and shall clearly state whether it is
an Incentive Stock Option or a Non-Qualified Stock Option. All Incentive Stock
Options shall be granted within 10 years from the effective date of this Plan.
Incentive Stock Options may not be granted to any person who is not an employee
of the Company or any Subsidiary.
(b) Options otherwise qualifying as Incentive Stock Options hereunder
will not be treated as Incentive Stock Options to the extent that the aggregate
fair market value (determined at the time the Option is granted) of the Shares,
with respect to which Options meeting the requirements of Section 422(b) of the
Internal Revenue Code are exercisable for the first time by any individual
during any calendar year (under all plans of the Company and its parent and
subsidiary corporations as defined in Section 424 of the Internal Revenue Code),
exceeds $100,000.
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5. CONDITIONS FOR GRANT OF OPTIONS.
(a) Each Option shall be evidenced by an option agreement that may
contain any term deemed necessary or desirable by the Committee or the Board,
provided such terms are not inconsistent with this Plan or any applicable law.
Optionees shall be (i) those persons selected by the Committee from the class of
all regular employees of , or persons who provide consulting or other services
as independent contractors to, the Company or its Subsidiaries, including
Directors and Officers who are regular employees, and (ii) Directors who are not
employees of the Company or of any Subsidiaries. Any person who files with the
Committee or the Board, in a form satisfactory to the Committee or the Board, a
written waiver of eligibility to receive any Option under this Plan shall not be
eligible to receive any Option under this Plan for the duration of such waiver.
(b) In granting Options, the Committee or the Board shall take into
consideration the contribution the person has made to the success of the Company
or its Subsidiaries and such other factors as the Committee or the Board shall
determine. The Committee or the Board shall also have the authority to consult
with and receive recommendations from officers and other personnel of the
Company and its Subsidiaries with regard to these matters. The Committee or the
Board may from time to time in granting Options under the Plan prescribe such
other terms and conditions concerning such Options as it deems appropriate,
including, without limitation, (i) prescribing the date or dates on which the
Option becomes exercisable, (ii) providing that the Option rights accrue or
become exercisable in installments over a period of years, or upon the
attainment of stated goals or both, or (iii) relating an Option to the continued
employment of the Optionee for a specified period of time, provided that such
terms and conditions are not more favorable to an Optionee than those expressly
permitted herein.
(c) The Options granted to employees under this Plan shall be in
addition to regular salaries, pension, life insurance or other benefits related
to their employment with the Company or its Subsidiaries. Neither the Plan nor
any Option granted under the Plan shall confer upon any person any right to
employment or continuance of employment by the Company or its Subsidiaries.
(d) Notwithstanding any other provision of this Plan, an Incentive
Stock Option shall not be granted to any person owning directly or indirectly
(through attribution under Section 424(d) of the Internal Revenue Code) at the
date of grant, stock possessing more than 10% of the total combined voting power
of all classes of stock of the Company (or of its parent or subsidiary
corporation [as defined in Section 424 of the Internal Revenue Code] at the date
of grant) unless the option price of such Option is at least 110% of the Fair
Market Value of the Shares subject to such Option on the date the Option is
granted, and such Option by its terms is not exercisable after the expiration of
five years from the date such Option is granted.
(e) Notwithstanding any other provision of this Plan, and in addition
to any other requirements of this Plan, the aggregate number of Options granted
to any one Optionee may not exceed One Million (1,000,000), subject to
adjustment as provided in Section 10 hereof.
6. OPTION PRICE. The option price per Share of any Option shall be any
price determined by the Committee or the Board but shall not be less than the
par value per Share; provided, however, that in no event shall the option price
per Share of any Incentive Stock Option be less than the Fair Market Value of
the Shares underlying such Option on the date such Option is granted.
7. EXERCISE OF OPTIONS. An Option shall be deemed exercised when (i)
the Company has received written notice of such exercise in accordance with the
terms of the Option, (ii) full payment of the aggregate option price of the
Shares as to which the Option is exercised has been made, and (iii) arrangements
that are satisfactory to the Committee or the Board in its sole discretion have
been made for the Optionee's payment to the Company of the amount that is
necessary for the Company or Subsidiary employing the Optionee to withhold in
accordance with applicable Federal or state tax withholding requirements. Unless
further limited by the Committee or the Board in any Option, and subject to such
guidelines as the Committee or the Board may establish, the option price of any
Shares purchased shall be paid (1) in cash, (2) by certified or official bank
check, (3) by money order, (4) with
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Shares, (5) by the withholding of Shares issuable upon exercise of the Option or
by any other form of cashless exercise procedure approved by the Committee or
the Board , or (6) in such other consideration as the Committee or the Board
deems appropriate, or by a combination of the above. The Committee or the Board
in its sole discretion may accept a personal check in full or partial payment of
any Shares. If the exercise price is paid in whole or in part with Shares, or
through the withholding of Shares issuable upon exercise of the Option, the
value of the Shares surrendered or withheld shall be their Fair Market Value on
the date the Option is exercised. the Company in its sole discretion may, on an
individual basis or pursuant to a general program established in connection with
this Plan, lend money to an Optionee, guarantee a loan to an Optionee, or
otherwise assist an Optionee to obtain the cash necessary to exercise all or a
portion of an Option granted hereunder or to pay any tax liability of the
Optionee attributable to such exercise. If the exercise price is paid in whole
or part with Optionee's promissory note, such note shall (i) provide for full
recourse to the maker, (ii) be collateralized by the pledge of the Shares that
the Optionee purchases upon exercise of such Option, (iii) bear interest at the
prime rate of the Company's principal lender, and (iv) contain such other terms
as the Board in its sole discretion shall reasonably require. No Optionee shall
be deemed to be a holder of any Shares subject to an Option unless and until a
stock certificate or certificates for such Shares are issued to such person(s)
under the terms of this Plan. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to the date
such stock certificate is issued, except as expressly provided in Section 10
hereof.
8. EXERCISABILITY OF OPTIONS. Any Option shall become exercisable in
such amounts, at such intervals and upon such terms as the Committee or the
Board shall provide in such Option, except as otherwise provided in this Section
8.
(a) The expiration date of an Option shall be determined by the
Committee at the time of grant, but in no event shall an Option be exercisable
after the expiration of 10 years from the date on which the Option is granted.
(b) Unless otherwise provided in any Option, each outstanding Option
shall become immediately fully exercisable in the event of a "Change in Control"
or in the event that the Committee or the Board exercises its discretion to
provide a cancellation notice with respect to the Option pursuant to Section
9(b) hereof. For this purpose, the term "Change in Control" shall mean:
(i) Approval by the shareholders of the Company of a reorganization,
merger, consolidation or other form of corporate transaction or series of
transactions, in each case, with respect to which persons who were the
shareholders of the Company immediately prior to such reorganization, merger or
consolidation or other transaction do not, immediately thereafter, own more than
50% of the combined voting power entitled to vote generally in the election of
directors of the reorganized, merged or consolidated company's then outstanding
voting securities, or a liquidation or dissolution of the Company or the sale of
all or substantially all of the assets of the Company (unless such
reorganization, merger, consolidation or other corporate transaction,
liquidation, dissolution or sale is subsequently abandoned); or
(ii) Individuals who, as of the date hereof, constitute the Board
(as of the date hereof the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board, provided that any person becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board (other than an election or
nomination of an individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the election of the
Directors of the Company, as such terms are used in Rule 14a-11 of Regulation
14A of Regulation 14A promulgated under the Securities Exchange Act) shall be,
for purposes of this Agreement, considered as though such person were a member
of the Incumbent Board.
Notwithstanding the foregoing, a Change in Control shall not be deemed to have
occurred as a result of any merger of the Company or any Subsidiary with or into
SeaSpecialties, Inc. or any affiliate thereof (the "SeaSpecialties
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Merger") and for purposes of this clause (ii) of this Section 8(b), the Board of
the Company, as comprised immediately following the SeaSpecialties Merger shall
be deemed the Incumbent Board immediately following the SeaSpecialties Merger.
(c) The Committee or the Board may in its sole discretion accelerate
the date on which any Option may be exercised and may accelerate the vesting of
any Shares subject to any Option or previously acquired by the exercise of any
Option.
9. TERMINATION OF OPTION PERIOD. The unexercised portion of any Option
shall automatically and without notice terminate and become null and void at the
time of the earliest to occur of the following:
(i) three months after the date on which the Optionee's employment
is terminated or, in the case of a Non-Qualified Stock Option, and unless the
Committee or the Board shall otherwise determine in writing in its sole
discretion, the date on which the Optionee's employment is terminated, in either
case for any reason other than by reason of (A) Cause, which, solely for
purposes of this Plan, shall mean the termination of the Optionee's employment
by reason of the Optionee's willful misconduct or gross negligence, (B) a mental
or physical disability (within the meaning of Internal Revenue Code Section
22(e)) as determined by a medical doctor satisfactory to the Committee, or (C)
death;
(ii) immediately upon the termination of the Optionee's employment
for Cause;
(iii) twelve months after the date on which the Optionee's
employment is terminated by reason of a mental or physical disability (within
the meaning of Internal Revenue Code Section 22(e)) as determined by a medical
doctor satisfactory to the Committee or the Board;
(iv) (A) twelve months after the date of termination of the
Optionee's employment by reason of death of the Optionee, or if later (B) three
months after the date on which the Optionee shall die if such death shall occur
during the one year period specified in Subsection 9(a)(iii) hereof.
All references herein to the termination of the Optionee's employment
shall, in the case of a Optionee who is not an employee of the Company or a
Subsidiary, refer to the termination of the Optionee's service with the Company.
(b) The Committee or the Board in its sole discretion may by giving
written notice ("cancellation notice") cancel, effective upon the date of the
consummation of any corporate transaction described in Subsections 8(b)(i)
hereof or of any reorganization, merger, consolidation or other form of
corporate transaction in which the Company does not survive, any Option that
remains unexercised on such date. Such cancellation notice shall be given a
reasonable period of time prior to the proposed date of such cancellation and
may be given either before or after approval of such corporate transaction.
10. ADJUSTMENT OF SHARES.
(a) If at any time while the Plan is in effect or unexercised Options
are outstanding, there shall be any increase or decrease in the number of issued
and outstanding Shares through the declaration of a stock dividend or through
any recapitalization resulting in a stock split-up, combination or exchange of
Shares, then and in such event:
(i) appropriate adjustment shall be made in the maximum number of
Shares available for grant under the Plan, or available for grant to any person
under the Plan, so that the same percentage of the Company's issued and
outstanding Shares shall continue to be subject to being so optioned; and
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(ii) appropriate adjustment shall be made in the number of Shares
and the exercise price per Share thereof then subject to any outstanding Option,
so that the same percentage of the Company's issued and outstanding Shares shall
remain subject to purchase at the same aggregate exercise price.
(b) Unless otherwise provided in any Option, the Committee or the Board
may change the terms of Options outstanding under this Plan, with respect to the
option price or the number of Shares subject to the Options, or both, when, in
the Committee's or Board's sole discretion, such adjustments become appropriate
so as to preserve but not increase benefits under the Plan.
(c) Except as otherwise expressly provided herein, the issuance by the
Company of shares of its capital stock of any class, or securities convertible
into shares of capital stock of any class, either in connection with a direct
sale or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made to, the number of or exercise price for Shares then subject to
outstanding Options granted under the Plan.
Without limiting the generality of the foregoing, the
existence of outstanding Options granted under the Plan shall not affect in any
manner the right or power of the Company to make, authorize or consummate (i)
any or all adjustments, recapitalizations, reorganizations or other changes in
the Company's capital structure or its business; (ii) any merger or
consolidation of the Company; (iii) any issue by the Company of debt securities,
or preferred or preference stock that would rank above the Shares subject to
outstanding Options; (iv) the dissolution or liquidation of the Company; (v) any
sale, transfer or assignment of all or any part of the assets or business of the
Company; or (vi) any other corporate act or proceeding, whether of a similar
character or otherwise.
11. TRANSFERABILITY OF OPTIONS AND SHARES.
(a) No Incentive Stock Option, and unless the prior written consent of
the Committee or the Board is obtained and the transaction does not violate the
requirements of Rule 16b-3 promulgated under the Securities Exchange Act no
Non-Qualified Stock Option, shall be subject to alienation, assignment, pledge,
charge or other transfer other than by the Optionee by will or the laws of
descent and distribution, and any attempt to make any such prohibited transfer
shall be void. Each Option shall be exercisable during the Optionee's lifetime
only by the Optionee, or in the case of a Non-Qualified Stock Option that has
been assigned or transferred with the prior written consent of the Committee or
the Board, only by the permitted assignee.
(b) Unless the prior written consent of the Committee or the Board is
obtained and the transaction does not violate the requirements of Rule 16b-3
promulgated under the Securities Exchange Act, no Shares acquired by an Officer
or Director pursuant to the exercise of an Option may be sold, assigned, pledged
or otherwise transferred prior to the expiration of the six-month period
following the date on which the Option was granted.
12. ISSUANCE OF SHARES.
(a) Notwithstanding any other provision of this Plan, the Company shall
not be obligated to issue any Shares unless it is advised by counsel of its
selection that it may do so without violation of the applicable Federal and
State laws pertaining to the issuance of securities, and may require any stock
so issued to bear a legend, may give its transfer agent instructions, and may
take such other steps, as in its judgment are reasonably required to prevent any
such violation.
(b) As a condition to any sale or issuance of Shares upon exercise of
any Option, the Committee or the Board may require such agreements or
undertakings as the Committee or the Board may deem necessary or advisable to
facilitate compliance with any applicable law or regulation including, but not
limited to, the following:
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Option is exercised, that he is acquiring the Shares to be issued to him for
investment and not with a view to, or for sale in connection with, the
distribution of any such Shares; and
(ii) a representation, warranty and/or agreement to be bound by any
legends endorsed upon the certificate(s) for such Shares that are, in the
opinion of the Committee or the Board, necessary or appropriate to facilitate
compliance with the provisions of any securities laws deemed by the Committee or
the Board to be applicable to the issuance and transfer of such Shares.
13. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Board, or by a committee
appointed by the Board (the "Committee") composed of two or more Directors all
of whom shall be Outside Directors. The membership of the Committee shall be
constituted so as to comply at all times with the applicable requirements of
Rule 16b-3 promulgated under the Securities Exchange Act and Section 162(m) of
the Internal Revenue Code. The Committee shall serve at the pleasure of the
Board and shall have the powers designated herein and such other powers as the
Board may from time to time confer upon it. In the absence of a Committee, the
Plan shall be administered by the Board.
(b) The Committee or the Board may grant Options pursuant to this Plan
to Directors who are not employees of the Company or any Subsidiary and/or other
persons to whom Options may be granted under Section 5(a) hereof.
(c) The Committee or the Board, from time to time, may adopt rules and
regulations for carrying out the purposes of the Plan. The determinations by the
Committee or the Board, and the interpretation and construction of any provision
of the Plan or any Option by the Committee or the Board, shall be final and
conclusive.
(d) Any and all decisions or determinations of the Committee shall be
made either (i) by a majority vote of the members of the Committee at a meeting
or (ii) without a meeting by the unanimous written approval of the members of
the Committee.
14. WITHHOLDING OR DEDUCTION FOR TAXES. If at any time specified herein
for the making of any issuance or delivery of any Option or Common Stock to any
Optionee or beneficiary, any law or regulation of any governmental authority
having jurisdiction in the premises shall require the Company to withhold, or to
make any deduction for, any taxes or take any other action in connection with
the issuance or delivery then to be made, such issuance or delivery shall be
deferred until such withholding or deduction shall have been provided for by the
Optionee or beneficiary, or other appropriate action shall have been taken.
15. INTERPRETATION.
(a) As it is the intent of the Company that the Plan comply in all
respects with Rule 16b-3 promulgated under the Securities Exchange Act ("Rule
16b-3"), any ambiguities or inconsistencies in construction of the Plan shall be
interpreted to give effect to such intention, and if any provision of the Plan
is found not to be in compliance with Rule 16b-3, such provision shall be deemed
null and void to the extent required to permit the Plan to comply with Rule
16b-3. The Committee or the Board may from time to time adopt rules and
regulations under, and amend, the Plan in furtherance of the intent of the
foregoing.
(b) The Plan shall be administered and interpreted so that all
Incentive Stock Options granted under the Plan will qualify as Incentive Stock
Options under section 422 of the Internal Revenue Code. If any provision of the
Plan should be held invalid for the granting of Incentive Stock Options or
illegal for any reason,
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such determination shall not affect the remaining provisions hereof, but instead
the Plan shall be construed and enforced as if such provision had never been
included in the Plan.
(c) This Plan shall be governed by the laws of the State of Delaware.
(d) Headings contained in this Plan are for convenience only and shall
in no manner be construed as part of this Plan.
(e) Any reference to the masculine, feminine, or neuter gender shall be
a reference to such other gender as is appropriate.
16. AMENDMENT AND DISCONTINUATION OF THE PLAN. The Committee or the
Board may from time to time amend, suspend or terminate the Plan or any Option;
provided, however, that, any amendment to the Plan shall be subject to the
approval of the Company's shareholders if such shareholder approval is required
by any federal or state law or regulation (including, without limitation, Rule
16b-3 or to comply with Section 162(m) of the Internal Revenue Code) or the
rules of any Stock exchange or automated quotation system on which the Common
Stock may then be listed or granted. Except to the extent provided in Sections 9
and 10 hereof, no amendment, suspension or termination of the Plan or any Option
issued hereunder shall substantially impair the rights or benefits of any
Optionee pursuant to any Option previously granted without the consent of the
Optionee.
17. EFFECTIVE DATE AND TERMINATION DATE. The effective date of the Plan
is the date on which the Board adopts this Plan, and the Plan shall terminate on
the tenth anniversary of the effective date.
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FORM OF PROXY
SUN CITY INDUSTRIES, INC.
THIS PROXY IS SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS
The undersigned, a shareholder of SUN CITY INDUSTRIES, INC., a Delaware
corporation ("Sun City"), hereby appoints Harvey Oxenberg and David H.
Fleischman, and each of them, acting alone, as proxies for the undersigned, each
with full power of substitution, and hereby authorizes them to represent and to
vote, as designated below, all of the shares of common stock of Sun City held of
record by the undersigned at the close of business on November 10, 1997 at the
Annual Meeting of Shareholders of Sun City to be held on December 17, 1997 at
the offices of Greenberg Traurig, et al., 515 East Las Olas Boulevard, Suite
1500, Ft. Lauderdale, Florida, and at any adjournments thereof.
The Board of Directors unanimously recommends a vote FOR Proposals 1
through 6. THE MERGER AND OTHER TRANSACTIONS CONTEMPLATED BY PROPOSALS 1 AND 2
WILL NOT BE COMPLETED UNLESS BOTH PROPOSALS 1 AND 2 ARE APPROVED BY THE
SHAREHOLDERS.
1. Proposal to approve the Agreement and Plan of Merger, dated as
of June 17, 1997, as amended, by and among Sun City,
Specialties Acquisition Corp., a wholly-owned subsidiary of
Sun City, and SeaSpecialties, Inc., providing for the Merger
of Specialties Acquisition Corp.
with SeaSpecialties, Inc.
| | VOTE FOR | | VOTE AGAINST | | ABSTAIN
2. Proposal to approve amendments to Sun City's Certificate of
Incorporation in connection with the Merger to (i) increase
the authorized number of shares of Sun City's common stock
from 3,000,000 to 75,000,000 and (ii) decrease the par value
per share of Sun City's Common Stock from $.10 to $.01, and
(iii) change Sun City's name to SeaSpecialties, Inc.
| | VOTE FOR | | VOTE AGAINST | | ABSTAIN
3. Proposal to approve the adoption of Sun City's 1997 Stock
Option Plan.
| | VOTE FOR | | VOTE AGAINST | | ABSTAIN
4. ELECTION OF DIRECTORS*: Malvin Avchen
Saul Zalka
Charles Ostrow
*If the Merger is consummated, different persons will
become the directors of Sun City as described in the
Proxy Statement.
| | VOTE FOR all nominees listed above, except authority to
vote withheld from the following nominees (if any):
__________________________________________
| | AUTHORITY TO VOTE WITHHELD from all nominees.
5. Proposal to amend Sun City's Certificate of Incorporation to
limit certain liability of directors of Sun City as permitted
by law.
| | VOTE FOR | | VOTE AGAINST | | ABSTAIN
<PAGE>
6. Proposal to approve an amendment to Sun City's Certificate of
Incorporation to implement a reverse stock split of Sun City's
Common Stock in the range between one-for-two and one-for-ten,
inclusive.
| | VOTE FOR | | VOTE AGAINST | | ABSTAIN
7. In their discretion, the proxies are authorized to vote upon
such other business as may properly come before the Annual
Meeting and any adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED "FOR" PROPOSALS 1 THROUGH 6.
(See reverse side)
<PAGE>
(Continued from other side)
The undersigned hereby acknowledges receipt of (1) the Notice of Annual
Meeting for the 1997 Annual Meeting, (2) the Proxy Statement, and (3) the 1997
Annual Report to Shareholders.
Dated: _____________________, 1997
- -----------------------------------
(Signature)
- -----------------------------------
(Signature if held jointly)
IMPORTANT: Please sign exactly as your name appears hereon and mail it promptly
even though you now plan to attend the meeting. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such.
When shares are held by joint tenants, both should sign. If a corporation,
please sign in full corporate name by president or other authorized officer. If
a partnership, please sign in partnership name by authorized person.
PLEASE MARK, SIGN, DATE AND MAIL THIS PROXY PROMPTLY USING THE ENVELOPE
PROVIDED. NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES.
