<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 11, 1996
REGISTRATION NO. -
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
BEVERAGE WORKS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CALIFORNIA 2000 95-4550937
(STATE OF JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
9800 SOUTH SEPULVEDA BLVD., SUITE 720 2431 WEST COAST HIGHWAY, SUITE 204
LOS ANGELES, CALIFORNIA 90045 NEWPORT BEACH, CALIFORNIA 92663
(310) 642-5643 (ADDRESS OF PRINCIPAL PLACE
(ADDRESS AND TELEPHONE NUMBER OF BUSINESS OR INTENDED
OF PRINCIPAL EXECUTIVE OFFICES) PRINCIPAL PLACE OF BUSINESS)
</TABLE>
LYLE MAUL
9800 SOUTH SEPULVEDA BLVD., SUITE 720
LOS ANGELES, CALIFORNIA 90045
(310) 642-5643
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
CHARLES J. HECHT, ESQ. MITCHELL LAMPERT, ESQ.
HECHT & STECKMAN, P.C. LAMPERT & LAMPERT
60 EAST 42ND STREET, SUITE 5101 10 EAST 40TH STREET, 44TH FLOOR
NEW YORK, NEW YORK 10165-5101 NEW YORK, NEW YORK 10016
</TABLE>
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
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<S> <C> <C> <C> <C>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SECURITY(2) OFFERING PRICE FEE
- ----------------------------------------------------------------------------------------------------------------------------
Units(3)................................................... 1,150,000 $ 8.00 $ 9,200,000 $ 3,172.41
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Common Stock, no par value(4).............................. 1,150,000 -- -- $ 0.00
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Class A Warrants to purchase Common Stock(5)............... 1,150,000 -- -- $ 0.00
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock, no par value, underlying Class A Warrants
included in the Units.................................... 1,150,000 $ 8.25 $ 9,487,500 $ 3,271.55
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock, no par value, offered by Selling
Securityholders.......................................... 520,745 $ 8.00 $ 4,165,960 $ 1,436.54
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Class A Warrants to purchase Common Stock offered by
Selling Securityholders.................................. 3,000,000 $ 8.25 $ 24,750,000 $ 8,534.48
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock, no par value, underlying Class A Warrants
offered by Selling Securityholders(6).................... 3,000,000 -- -- $ 0.00
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Class B Warrants to purchase Common Stock offered by
Selling Securityholders.................................. 35,000 $ 4.50 $ 157,500 $ 54.31
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock, no par value, underlying Class B Warrants
offered by Selling Securityholders....................... 35,000 $ 4.75 $ 166,250 $ 57.33
- ----------------------------------------------------------------------------------------------------------------------------
Representative's Unit Purchase Option...................... 100,000 $12.80 $ 1,280,000 $ 441.38
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock, no par value, in Representative's Unit
Purchase Option.......................................... 100,000 -- -- $ 0.00
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Representative's Warrants in Representative's Unit Purchase
Option................................................... 100,000 -- -- $ 0.00
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Common Stock, no par value, underlying Class G Warrants in
Representative's Unit Purchase Option.................... 100,000 $ 8.25 $ 825,000 $ 284.48
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Total....................................................................................... $ 50,032,210 $ 17,252.48
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</TABLE>
(Continued on following page)
<PAGE> 2
(1) Pursuant to Rule 416 under the Securities Act of 1933, this Registration
Statement covers such additional indeterminate number of shares of Common
Stock as may be issued by reason of adjustments in the number of shares of
Common Stock pursuant to anti-dilution provisions contained in the
Representative's Unit Purchase Option and the Class A Warrant, Class B
Warrant and Representative's Warrant Agreements.
(2) Estimated for purposes of computing the registration fee in accordance with
Rule 457(c) and Rule 457(g) under the Securities Act of 1933.
(3) Each Unit consists of one share of Common Stock and one Class A Warrant
immediately separable upon commencement of trading. Includes 150,000 Units
pursuant to the Representative's over-allotment option.
(4) Includes 150,000 shares of Common Stock issuable pursuant to the
Representative's over-allotment option. These shares are included in the
Units. No additional registration fee is required.
(5) Includes 150,000 Class A Warrants issuable pursuant to the Representative's
over-allotment option. These Class A Warrants are included in the Units. No
additional registration fee is required.
(6) Fee for Class A Warrants offered by Selling Securityholders determined under
Rule 457(g)(1). No additional fee required.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 3
CROSS REFERENCE TABLE
<TABLE>
<CAPTION>
ITEM INFORMATION REQUIRED IN PROSPECTUS LOCATION OR CAPTION
NO. UNDER FORM SB-2 IN PROSPECTUS
- ---- ------------------------------------------- -------------------------------------------
<C> <S> <C>
1 Front of Registration Statement and Outside
Front Cover Page of Prospectus........... Outside Front Cover Page
2 Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside Front Cover Page; Outside Back Cover
Page
3 Summary Information and Risk Factors....... "Prospectus Summary"; "Risk Factors"
4 Use of Proceeds............................ "Use of Proceeds"
5 Determination of Offering Price............ "Underwriting -- Offering Price"
6 Dilution................................... "Dilution"
7 Selling Security Holders................... Not Applicable
8 Plan of Distribution....................... "Underwriting"
9 Legal Proceedings.......................... "Business -- Legal Proceedings"
10 Directors, Executive Officers, Promoters
and Control Persons...................... "Management"
11 Security Ownership of Certain Beneficial
Owners and Management.................... "Principal Stockholders"
12 Description of Securities.................. "Description of Securities"
13 Interest of Named Experts and Counsel...... "Experts"
14 Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. "Undertakings" (Part II)
15 Organization within Last Five Years........ "Management -- Certain Transactions"
16 Description of Business.................... "Business"
17 Management's Discussion and Analysis or
Plan of Operations....................... "Business -- Management's Discussion and
Analysis of Financial Condition and
Results of Operations"; "Business -- Plan
of Operation/Business Strategy"
18 Description of Property.................... "Business -- Properties"
19 Certain Relationships and Related
Transactions............................. "Management -- Certain Transactions"
20 Market for Common Equity and Related
Stockholder Matters...................... "Risk Factors -- Shares and Class A
Warrants Available for Future
Sale; -- Dividend Policy"; "Description
of Securities"
21 Executive Compensation..................... "Management -- Executive Compensation"
22 Financial Statements....................... "Selected Financial Data"; "Financial
Statements"
23 Changes In and Disagreements with
Accountants on Accounting and Financial
Disclosure............................... Not Applicable
</TABLE>
<PAGE> 4
EXPLANATORY NOTE
This Registration Statement covers the registration of (i) 1,000,000 shares
of Common Stock and 1,000,000 Class A Warrants ("Class A Warrants") to be
offered by the Company, plus 150,000 shares of Common Stock and 150,000 Class A
Warrants available from the Company pursuant to the Underwriters' over-allotment
option (the "Offering"); (ii) 1,000,000 shares of Common Stock, plus 150,000
shares of Common Stock pursuant to the Underwriters' over-allotment option,
issuable upon exercise of the Class A Warrants ("Class A Warrant Shares"); (iii)
3,000,000 Class A Warrants issued by the Company in December 1995 ("Issued Class
A Warrants"); (iv) 3,000,000 shares of Common Stock issuable upon exercise of
the Issued Class A Warrants (the "Issued Class A Warrant Shares"); (v) 520,745
shares of Common Stock previously issued by the Company ("Issued Shares"); (vi)
35,000 Class B Warrants issued by the Company in April 1996 ("Class B
Warrants"); (vii) and 35,000 shares of Common Stock issuable upon exercise of
the Class B Warrants (the "Class B Warrant Shares"). The Issued Shares (the
"Selling Shareholders"), the Issued Class A Warrants and Issued Class A Warrant
Shares (the "Class A Warrantholders"), the Class B Warrants and Class B Warrants
Shares (the "Class B Warrantholders") are being offered by certain holders of
such securities (collectively the "Selling Securityholders") and not for the
account of the Company. See "Certain Transactions" and "Underwriting." Following
the Prospectus included in this Registration Statement are certain pages of the
Prospectus relating to the Issued Shares, the Issued Class A Warrants and Issued
Class A Warrant Shares, the Class B Warrants and Class B Warrant Shares,
including alternate front and back cover pages, an alternate "The Offering"
section of the "Prospectus Summary," and sections entitled "Selling
Securityholders." All other sections of the Prospectus for this Offering, other
than "Underwriting," are used in the Prospectus relating to the Issued Shares,
the Issued Class A Warrants, Issued Class A Warrant Shares, Class B Warrants and
Class B Warrant Shares. All references in this Prospectus to the "Offering" will
be changed to the "Company Offering" in the Prospectus relating to the Issued
Shares, the Issued Class A Warrants and Issued Class A Warrant Shares, and the
Class B Warrants and Class B Warrant Shares. In addition, cross-references in
this Prospectus shall be adjusted to refer to the appropriate alternate
Prospectus pages.
<PAGE> 5
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED , 1996
1,000,000 UNITS
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK AND
ONE REDEEMABLE CLASS A WARRANT TO PURCHASE COMMON STOCK
BEVERAGE WORKS, INC.
Beverage Works, Inc., a California corporation (the "Company"), is offering
("Offering") 1,000,000 Units, each Unit consisting of one share ("Shares") of
its common stock, no par value ("Common Stock") and one Class A Warrant to
purchase one share of its Common Stock. Each Unit is immediately separable. See
"Description of Securities." Each Class A Warrant entitles the holder to
purchase one share of the Company's Common Stock at an exercise price of $8.25,
subject to adjustment during the five-year period commencing from the date of
this Prospectus. At any time that the Class A Warrants are exercisable, the
Class A Warrants are also subject to redemption by the Company on not less than
30 days notice at $0.10 per Class A Warrant, provided the closing bid price of
the Common Stock exceeds $15.00 per share for thirty consecutive trading days
ending within fifteen days prior to the date on which notice is sent. This
Prospectus also relates to the shares of Common Stock issuable upon exercise of
the Class A Warrants. See "Description of Securities." Prior to the Offering,
there has been no public market for the Common Stock or the Class A Warrants of
the Company. The price and other terms of the Offering have been determined by
negotiation between the Company and State Capital Markets Corp., as
Representative of the Underwriters. See "Underwriting."
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK
FACTORS" AND
"DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
- --------------------------------------------------------------------------------
ESTIMATED UNDERWRITING
MAXIMUM DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(2) COMPANY(3)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit.................................. $8.00 $0.80 $7.20
- ------------------------------------------------------------------------------------------------
Total(1).................................. $8,000,000.00 $800,000.00 $7,200,000.00
</TABLE>
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(1) The Company has granted to the Representative a 30-day option to purchase up
to 150,000 additional Units solely to cover over-allotments, if any. If the
Representative exercises its option in full, the Price to Public will total
$9,200,000, Underwriting Discounts and Commissions will be $920,000 and
Proceeds to Company will be $8,280,000. See "Underwriting."
(2) The Company has agreed to pay the Representative a non-accountable expense
allowance equal to 3% of the gross proceeds of the Offering to the Company.
The Company will also sell to the Representative 100,000 units, each unit
consisting of one share of Common Stock and one Representative's Warrant at
a price per unit equal to 160% of the initial public offering price. The
Company also has agreed to indemnify the Underwriters for certain
liabilities, including liabilities under the Securities Act of 1933, as
amended ("1933 Act"). See "Underwriting."
(3) Before deduction of expenses payable by the Company estimated at $569,752.
The Units are offered by the several Underwriters named herein when, as and
if delivered to and accepted by the Underwriters and subject to their right to
reject any order in whole or in part. It is expected that delivery of
certificates representing the Units will be made against payment therefor on or
about , 1996.
------------------------
STATE CAPITAL MARKETS CORP.
The date of this Prospectus is , 1996
<PAGE> 6
The Company is not a reporting company under the Securities Exchange Act of
1934. The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent certified public
accountants and such other reports as the Company deems appropriate.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S
SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety and should be read in
conjunction with the more detailed information and Financial Statements,
including the Notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise indicated, all share and financial information in this Prospectus
assumes no exercise of the Representative's over-allotment option to purchase up
to 150,000 shares of Common Stock, no exercise of any warrants previously issued
by the Company or the Class A Warrants made in this Offering, no exercise of the
Representative's Unit Purchase Option to purchase up to 100,000 shares of Common
Stock and 100,000 Representative's Warrants, no issuance of Shares to Orange
Empire Brewing Company shareholders under certain agreements to issue shares
based on specific contingencies and no exercise of stock options by employees
and others to purchase up to 2,433,500 shares of Common Stock. See "The Company"
"Management -- Executive Compensation," "Description of Securities,"
"Management -- Incentive Stock Option Plan," "Management -- Nonqualified Stock
Option Plan" and "Underwriting."
THE COMPANY
Beverage Works, Inc. ("the Company") was formed on August 2, 1995 as a
California corporation, for the purpose of acquiring and operating craft
breweries. Craft breweries are mostly small to medium sized independent brewing
companies that generally use only traditional brewing process and ingredients.
These include regional specialty brewers, micro-brewers and brewpub restaurants.
The Company's strategy is to purchase craft breweries and to transform them into
a professionally managed, integrated producer & marketer of high quality craft
beers. Craft beers are enjoying a substantial increase in popularity in the
United States. Where appropriate to its strategy, the Company will acquire and
operate other specialty beverage companies.
As soon as practicable after the date of this Prospectus, the Company will
have acquired Heritage Brewing Co. of Lake Elsinore, California, and Orange
Empire Brewing Company, the parent of Riverside Brewing Co. of Riverside,
California and has become a majority partner with Prost Partners L.P. in
BWI-Prost Partners, doing business as St. Stan's Brewing Company of Modesto,
California (collectively the "Breweries"). The Company has entered into a
reciprocal production and marketing agreement with Chicago Brewing Company of
Chicago, Illinois. The Company will market a total of 26 different beers, a
number of which have won awards, utilizing a combined brewing capacity of
approximately 62,000 barrels per year. Where an acquisition is not appropriate
or available, the Company will enter into mutual marketing and production
agreements with other craft breweries.
3
<PAGE> 8
THE OFFERING
Securities Offered............... 1,000,000 Units, each Unit consisting of
one share of Common Stock, no par value
(the "Shares") and one Class A Warrant to
purchase one share of Common Stock at an
exercise price of $8.25 subject to
adjustment. Each Unit is immediately
separable.
Price per Unit................... $8.00
Common Stock and Class A Warrants
Outstanding Prior to the
Offering(1).................... 2,767,085 shares and 3,000,000 Class A
Warrants
Common Stock to be Outstanding
Upon Completion of the
Offering(1)(2)................. 3,767,085 shares and 4,000,000 Class A
Warrants
Use of Proceeds.................. Acquisition of Orange Empire Brewing
Company, Formation of St. Stan's
Partnership; Expansion of product lines;
Marketing and sales; Repayment of notes and
other indebtedness; Acquisition of capital
equipment; and Working capital. See "Use of
Proceeds."
Proposed Nasdaq Common Stock
Symbol...........................
Proposed Nasdaq Class A
Warrant Symbol.................
- ---------------
(1) Includes 309,222 shares of Common Stock issuable to shareholders and
debtholders of Orange Empire pursuant to the Share Purchase Agreement and
other agreements.
(2) Excludes 150,000 shares and 150,000 Class A Warrants issuable pursuant to
the Underwriter's overallotment option.
4
<PAGE> 9
SUMMARY OF HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following summary of financial data is derived from and should be read
in conjunction with the historical and pro forma financial statements of the
Company, Orange Empire Brewing Company and the St. Stan's Brewery and Brewpub
Operations, as listed on the "Index to Financial Statements" included elsewhere
in this Prospectus. See also "Selected Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------------------- -----------------------------
FOUR FOUR
MONTHS ENDED AUGUST 2, 1995 TO MONTHS ENDED YEAR ENDED
APRIL 30, DECEMBER 31, APRIL 30, DECEMBER 31,
1996 1995 1996 1995
------------ ----------------- ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales................ $ 100,076 $ 44,810 $1,822,611 $ 4,975,962
========== ========== ========== ==========
Net loss................. $ (641,484) $ (490,984) $ (925,690) $(1,806,144)
========== ========== ========== ==========
Net loss per share....... $ ( 0.21) $ (0.16) $ (0.21) $ (0.41)
========== ========== ========== ==========
Common Shares and
equivalents
outstanding......... 3,094,874 3,094,874 4,434,096 4,434,096
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL
------------------------------- PRO FORMA
DECEMBER 31, --------------
1995 APRIL 30, 1996
------------ --------------
APRIL 30, 1996 (UNAUDITED)
--------------
(UNAUDITED)
<S> <C> <C> <C>
Working Capital............................ $ 326,525 $ 822,381 $ 4,160,507
Total Assets............................... 2,307,565 2,455,131 15,081,186
Total Liabilities.......................... 1,128,332 1,003,244 6,292,598
Stockholders' equity....................... 1,179,233 1,451,887 8,788,588
</TABLE>
5
<PAGE> 10
RISK FACTORS
INVESTMENT IN THE COMPANY IS HIGHLY SPECULATIVE AND INVOLVES A HIGH DEGREE
OF RISK. PRIOR TO THE PURCHASE OF ANY UNITS, A PROSPECTIVE INVESTOR SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, AS WELL AS OTHER INFORMATION
CONTAINED IN THIS PROSPECTUS, INCLUDING THE FINANCIAL STATEMENTS AND NOTES
THERETO CONTAINED ELSEWHERE HEREIN:
Absence of Combined Operating History and Future Combined Operating
Results. Simultaneously with the completion of the Offering, the Company will
consummate and finalize the transactions with the Breweries. Although each of
the Breweries has been in business for some time, the Company has no operating
history and there can be no assurance that the Company will be able to
successfully integrate the Breweries, operations or assets of the Breweries or
of any other businesses it may subsequently acquire. See "Business --
Breweries." Furthermore, results of operations of the Breweries for the year
ended December 31, 1995 and four months ended April 30, 1996, which are
reflected in the historical and pro forma financial statements included
elsewhere herein, will likely significantly change as the Breweries are
integrated into the Company's strategy. There can be no assurance that the
actual results of operations will not reflect adverse developments in revenues,
expenses or net loss of any of the Breweries. There can be no assurance that,
following any transaction, the Company will be able to operate the Breweries on
a profitable basis.
Determination of Offering Price. The public Offering price of the Units
has been determined by negotiation between the Company and the Representative
and is not necessarily related to the Company's asset value, net worth or other
established criteria of value. See "Underwriting."
No Prior Trading Market. Prior to this Offering, there has been no public
market for the Company's Common Stock or Class A Warrants and there can be no
assurance that an active market will develop or be sustained. The Company
believes factors such as announcements of financial condition, liquidity,
results of operations and new products by the Company and its competitors may
cause the market price of the Common Stock and Class A Warrants to fluctuate,
perhaps substantially. In addition, in recent years the stock market in general,
and the securities of first time public issuers in particular, have experienced
extreme price fluctuations. These broad market and industry fluctuations may
adversely affect the market price of the Company's Common Stock and Class A
Warrants.
Ability to Manage Growth; Expansion Into New Markets. The Company's future
success will depend in part on its ability to manage potentially rapid growth as
it attempts to increase its production capacity and broaden distribution of its
products to new markets. In attempting to expand distribution, the Company will
be required to establish and manage relationships with distributors, retailers
and consumers in numerous new markets. Consumer tastes may vary from market to
market and, therefore, there can be no assurance that the Company will be
successful in entering new markets or in maintaining its share of existing
markets. Continued expansion of the Company's business will require recruiting
and hiring several additional key employees, such as sales and brewery managers,
and will require further upgrading of the Company's information systems. There
can be no assurance that the Company will be able to hire such persons when
needed or on favorable terms, that any such new employees will be successfully
assimilated into the Company's management, or that any such information systems
upgrade would be successfully accomplished.
Increased Competition for Specialty Beers. The beer industry is highly
competitive. Although there is an overall trend of declining beer sales in the
United States, domestic sales of craft beers have increased at an average annual
rate of 39% from 1990 through 1994, and in 1995 sales for the U.S. craft-brewing
industry grew by 50% (The New Brewer, May-June, 1996). The Company expects
competition in the craft segment of the beer industry to increase as new craft
brewers emerge and existing craft brewers expand their capacity. In addition,
the large national domestic brewers are expected to increase efforts to position
products in the craft brew category. Although the sale and consumption of craft
brewed beer has increased dramatically in recent years, there can be no
assurance that the demand for craft brewed beer will continue to grow at present
rates or at all. Many of the Company's competitors, including national and
regional domestic brewers, foreign brewers and more established craft and
microbrewers, have greater financial, production, distribution and marketing
resources than the Company.
6
<PAGE> 11
Acquisitions; Need for Capital; Construction of New Regional
Breweries. The Company's expansion strategy involves both acquisitions and
internal growth. There can be no assurance that suitable acquisition candidates
will be found, that acquisitions will be consummated on favorable terms or that
any such acquisitions will be successfully integrated into the Company's
operations. The Company intends to finance future acquisitions, if any, by using
cash and debt or equity securities, including shares of its Common Stock. The
Company will need additional debt or equity financing to implement its
acquisition strategy. There can be no assurance that the Company will be able to
obtain financing for such purposes on terms acceptable to the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Business -- Acquisitions."
Successful expansion of the Company's production capacity will require careful
management of various factors associated with the construction of new, or the
expansion of existing, facilities, including site selection, local land use
requirements, adequacy of municipal infrastructure, environmental uncertainties,
possible cost estimation errors or overruns, construction delays, the
availability or cost of financing and other factors, many of which are beyond
the Company's control. The Company believes it will also be faced with various
organizational challenges typically associated with commissioning new brewing
facilities and increasing production to maximum designed capacity levels, as
well as the challenges of establishing and maintaining management control over
numerous geographically separated facilities.
St. Stan's Brewing Company Partnership. BWI-St. Stan's, Inc. ("BWISS"), a
wholly-owned subsidiary of the Company has entered into a partnership agreement
with Prost Partners, L.P. ("Prost") doing business as St. Stan's Brewing
Company. The partnership is named BWI-Prost Partners ("Partnership"). In
addition to the initial capital contribution to the Partnership, which includes
assumption of approximately $1,136,000 of Prost's debt, BWISS is required to
contribute to the Partnership approximately $1,159,000 within the next 36
months. In the event BWISS fails to make such payments, Prost may acquire
BWISS's interest in the Partnership which would likely be for a sum
substantially less than the amount contributed by BWISS. BWISS may buy-out
Prost's interest in the Partnership by paying $2,205,000 within three years,
plus any of the approximately $1,159,000 required additional capital
contribution not made at the date of the buy-out (the "Option"). By making such
payment, BWISS will acquire all of Prost's interest in the Partnership. If BWISS
does not exercise the Option within three years, Prost has the first right to
acquire BWISS's interest in the Partnership based on the appraised value of the
Partnership's tangible assets plus a predetermined formula of the Partnership's
earnings. If Prost does not exercise its right of first refusal, BWISS shall
have the right to buy-out Prost on the same terms. If neither Prost or BWISS
exercises its right to buy-out the other party, the Partnership shall be
dissolved. There can be no assurance that the Company or BWISS will be able to
make the Option payment or otherwise acquire Prost's interest in the
Partnership. In such case, the assets of the Partnership will be sold and the
return to BWISS will likely be substantially less than its contribution. In
addition, the Partnership will obtain nearly all of its future working capital
from BWISS, unless generated from other sales. The Partnership Agreement
provides for either partner to loan money to the Partnership. However, repayment
of such loans shall be made only from the assets of the Partnership and the
lending partner may not seek repayment from the other partner. As such,
repayment of any advance made by BWISS to the Partnership, which will likely be
substantial, is subject to the Partnership's assets exceeding its other
liabilities.
Product Liability Risk. The Company's operations are subject to certain
hazards and liability risks faced by all brewers, such as potential
contamination of ingredients or products by bacteria or other external agents
that may be wrongfully or accidentally introduced into products or packaging.
The occurrence of such a problem could result in a costly product recall and
serious damage to the Company's reputation for product quality. There is no
assurance that any such contamination will not occur and, if it does, the
Company's business will likely be materially and adversely affected. Although
the breweries have product liability insurance, such insurance may not fully
cover losses that may be incurred from such contamination and may have a
material adverse effect on the Company because of the potential impact on market
share and other factors. The Company's operations are also subject to certain
injury and liability risks normally associated with the operation and possible
malfunction of brewing and other equipment. Although the Company maintains
insurance against certain risks under various general liability and product
liability insurance policies, there can be no assurance that the Company's
insurance will be adequate.
7
<PAGE> 12
Government Regulation; Taxation. The manufacture and sale of alcoholic
beverages is regulated by both federal and state authorities. Brewery, wholesale
and retail operations require various federal, state and local licenses, permits
and approvals. Violation of such regulations can result in the loss or
revocation of existing licenses. The loss or revocation of any existing
licenses, permits or approvals, failure to obtain any additional or new
licenses, permits or approvals or the failure to obtain approval for the
transfer of any existing permits or licenses could have a material adverse
effect on the ability of the Company to conduct its business. Because of the
many and various state and federal licensing and permitting requirements, there
is a risk that one or more regulatory authorities could determine that the
Company has not complied with applicable licensing or permitting regulations or
does not maintain the approvals necessary for it to conduct business within
their jurisdictions. There can be no assurance that any such regulatory action
would not have a material adverse effect upon the Company or its operating
results. Congress and many state legislatures are considering various proposals
to impose additional excise taxes on the production and sale of alcoholic
beverages including beer. Any increase in the taxes imposed on beer can be
expected to have an adverse impact on overall sales of such products. Each of
the Breweries enjoy the benefit of the small brewers exemption from the $18 per
barrel federal excise tax. See "Business -- Taxation." There is no assurance
that federal regulators will not consider the Company as a single brewer and
that it will not lose the small brewers exemption.
Public Attitudes. The alcoholic beverage industry has become the subject
of considerable societal and political attention in recent years due to
increasing public concern over alcohol-related social problems, including drunk
driving, underage drinking, and health consequences from the misuse of alcohol,
including alcoholism. As an outgrowth of these concerns, the possibility exists
that advertising by beer producers could be restricted, that additional
cautionary labeling or packaging requirements might be imposed, or that there
may be renewed efforts to impose increased excise or other taxes on beer sold in
the United States. If beer consumption in general were to come into disfavor
among domestic consumers, or if the domestic beer industry were subjected to
significant additional governmental regulations, the Company's business could be
materially adversely affected.
Dependence on Management. The Company is dependent on the efforts of its
management. See "Management." As of the date of this Prospectus, the Company has
obtained key person life insurance, in an amount of $1 million each, covering
its chief executive officer and chief financial officer. However, the Company
cannot determine if the coverage is sufficient to offset the financial loss to
the Company in the event of the loss of such officers.
History of Losses, Going Concern Considerations. The Company, since its
inception, and its acquisition target, Orange Empire Brewing Company and its
proposed joint venture partner, Prost Partners, L.P., doing business as St.
Stan's Brewing Company, have, and continue to incur, substantial losses from
operations. The report of the Company's certified public accountants includes an
explanatory paragraph which expresses substantial doubt concerning the Company's
and Orange Empire Brewing Company's ability to continue as a going concern.
Management's plans are described elsewhere in this prospectus. See "Managements
Discussion and Analysis of Financial Condition and Results of Operations." There
are no assurances that Management's plans can be effected within a reasonable
period of time.
Dependence on Distributors. The Company sells its products to independent
distributors for distribution to retailers and ultimately consumers. Sustained
growth will require it to maintain such relationships and possibly enter into
agreements with additional distributors. See "Business -- Distribution." No
assurance can be given that the Company will be able to maintain or secure
additional distributors on terms favorable to the Company. The Company's
distribution agreements are generally terminable by the distributor on short
notice. While these distribution agreements contain provisions regarding the
Company's enforcement and termination rights, some state laws prohibit the
Company from exercising these contractual rights. The Company's ability to
maintain existing distribution agreements or enter new distribution agreements
may be adversely affected by the fact that many distributors are reliant on one
of the major beer producers for a large percentage of their revenue and,
therefore, they may be influenced by such producers.
Principal Shareholder in a Position to Control the Company. After the
consummation of this Offering, Adam B. Wachtel will own more than thirty-five
percent (35%) of the Company's outstanding Common Stock (thirty-four percent
(34%) if the over-allotment is exercised in full). (See "Dilution" and "Manage-
8
<PAGE> 13
ment"). As a result of this ownership of Common Stock, Mr. Wachtel will be able
to effectively control the Company. The Company has sold warrants to Imafina,
S.A., a Swiss investment management company, of which Mr. Wachtel is a
consultant/director, to purchase 2,810,000 shares of Common Stock at $8.25 per
share. Imafina, S.A. currently owns 2,710,000 warrants and, if it were to
exercise its rights to purchase 2,710,000 shares of Common Stock, it would, as a
result of its ownership interest, be in a position to elect a majority of the
Company's directors. To the Company's knowledge, neither Mr. Wachtel nor any of
the officers, directors or principals of Imafina, S.A. has experience in owning,
operating or marketing the products of specialty craft breweries.
Shares and Class A Warrants Eligible For Future Sale. The 1,000,000 Shares
and Class A Warrants being sold in the Offering (without giving effect to any
exercise of the over-allotment option) will be freely tradeable unless acquired
by affiliates of the Company. The market price of the Common Stock and Class A
Warrants could be adversely affected by the sale of substantial amounts of
Common Stock and Class A Warrants in the public market following this Offering.
Of the Company's 3,767,085 shares of Common Stock that will be outstanding upon
completion of this Offering, 2,246,340 shares are "restricted securities" under
Rule 144 promulgated under the Securities Act of 1933, as amended (the
"Securities Act"). Ordinarily, under Rule 144, a person who has held restricted
securities for a period of two years may, every three months, sell in ordinary
brokerage transactions or in transactions directly with a market maker an amount
equal to the greater of one percent of the Company's then-outstanding Common
Stock or the average weekly trading volume during the four calendar weeks prior
to such sale. Rule 144 also permits the sale of shares without any quantity
limitations by a person who is not an affiliate of the Company and has satisfied
a three-year holding period. Of the 2,246,340 restricted shares, executive
officers and directors hold an aggregate of 1,642,370 shares. Of the remaining
restricted securities, shares will be eligible for sale under Rule 144
within days from the date of this Prospectus. Sale of Common Stock pursuant
to Rule 144 may have a depressive effect on the market price of the Common
Stock.
The Company has reserved 2,433,500 shares of Common Stock for issuance to
key employees and officers, pursuant to the Company's Nonqualified Stock Option
Plan and Incentive Stock Option Plan, and options for 933,500 and 955,000,
respectively of such shares are outstanding as of the date of this Prospectus.
See "Management -- Nonqualified Stock Option Plan" and " -- Incentive Stock
Option Plan." The Company has further reserved 3,000,000 shares of Common Stock
issuable upon exercise of the Issued Class A Warrants, 35,000 shares of Common
Stock for issuable upon exercise of the Class B Warrants, 200,000 shares of
Common Stock issuable upon the Representatives exercise of the Unit Purchase
Option and Representative's Warrants, 80,583 shares of Common Stock issuable
upon exercise of other outstanding options and warrants, and 130,000 shares for
issuance to certain former stockholders of Orange Empire Brewing Company,
subject to Riverside Brewing Company's achievement of certain financial goals.
Other than the Company's $8.25 warrants, substantially all of these options and
warrants have an exercise price that is substantially less than the offering
price of the Common Stock in this Offering. The existence of such options and
warrants may hinder future equity financing by the Company. Further, the holders
of such warrants and options may exercise them at a time when the Company would
otherwise be able to obtain additional equity capital on terms more favorable to
the Company. See "Description of Securities" and "Underwriting."
Holders of approximately 13% of the shares of Common Stock to be
outstanding immediately following completion of this Offering (or just under 13%
if the over-allotment option is exercised in full) which are registered along
with the Common Stock have agreed with the Company and the Underwriters not to
sell or otherwise dispose of any such shares of Common Stock or securities
convertible into or exercisable for shares of Common Stock for a period of 13
months after the date of this Prospectus without the prior written consent of
the Representative of the managing Underwriter. Upon expiration of this period
or if consent is given, all such shares shall be freely transferable and may be
sold. 30,000 shares of Common Stock (less than 1% of outstanding shares after
the Offering) previously issued will be tradeable 120 days after the date of
this Prospectus. See "Description of Securities -- Registration Rights." The
Company expects that it will issue shares of Common Stock in connection with
future acquisitions. Additional shares of Common Stock, including shares
issuable upon exercise of warrants, will also become eligible for sale in the
public market from time to time in the future. See "Business-Plan of
Operation/Business Strategy -- Acquisitions."
9
<PAGE> 14
Dividend Policy. The Company has never paid dividends and does not
anticipate paying dividends in the foreseeable future. See "Dividend Policy."
The Company intends to retain all of its earnings in the business and does not
anticipate paying any dividends in the foreseeable future.
Preferred Stock Authorized. The Company's Articles of Incorporation
authorizes the issuance of 5,000,000 shares or preferred stock which rights,
preferences and privileges are to be determined by the Company's Board of
Directors. Although the Company has no intention at the present to issue any
preferred shares, the Company may issue and sell preferred shares which will
likely have dividend, distribution and liquidation preferences senior to common
shareholders and voting rights which may dilute the common shareholder voting
rights. See "Description of Securities -- Preferred Stock."
Effect of Anti-Takeover Provisions. Certain provisions of the Company's
Articles of Incorporation, By-Laws and certain executive employment agreements
could, together or separately, discourage potential acquisition proposals, delay
or prevent a change in control of the Company, and limit the price that certain
investors might be willing to pay in the future for the Company's Common Stock.
In addition, the provisions of certain executive employment agreements and stock
option agreements may result in economic benefits to the holders thereof upon
the occurrence of a change in control. See "Management -- Employment
Agreements," " -- Nonqualified Stock Option Plan," and " -- Incentive Stock
Option Plan."
Part of Net Proceeds From This Offering Not Specifically
Allocated. Approximately 24% of the net proceeds which are to be derived from
this offering are allocated to working capital reserves, and their uses have not
been specifically identified by management. These proceeds will be applied to
cover negative cash flow from operations, and as business exigencies arise, none
of which management may presently anticipate. Decisions as to the application of
these funds will be made without shareholder input; thus, investors in this
offering will be entrusting this portion of their funds to management without
any commitment as to their use. See "Use of Proceeds."
Business and Revenues of Company are Seasonal in Nature. The Company's
business is seasonal in nature and is subject to economic fluctuations. As a
result of this seasonality, the Breweries have historically reported lower sales
and larger losses in the first and second quarters and higher sales and smaller
losses in the third and fourth quarters. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Inability to Exercise Warrants May Result In Loss of Value In
Warrants. The Company must have an effective registration statement on file
with the Commission before any Warrant may be exercised or redeemed. It is
possible that the Company may be unable to cause a registration statement
covering the Common Stock underlying the Warrants to be effective. It is also
possible that the Warrants could be acquired by persons residing in states where
the Company is unable to qualify the Common Stock underlying the Warrants for
sale. In either event the Warrants may expire unexercised, which would result in
the holders losing all of the value of the Warrants. See "Description of
Securities -- Class A Warrants."
Immediate and Substantial Dilution Will Be Suffered By Investors In This
Offering. Purchasers of Units will suffer an immediate, substantial dilution of
approximately 85% in the net tangible book value of their shares of Common Stock
since the purchase price of the Units substantially exceeds the current tangible
book value per share of Common Stock. See "Dilution."
Disclosure Relating to Penny Stocks. The Securities may be subject to the
"penny stock rules" adopted pursuant to Section 15 (g) of the Securities
Exchange Act of 1934. The "penny stock rules" apply to companies whose common
stock trades at less than $5.00 per share or which have a tangible net worth of
less than $5,000,000 ($2,000,000 if the Company has been operating for three or
more years). Such rules require, among other things, that brokers who trade
"penny stock" to persons other than "established customers" complete certain
documentation, make suitability inquiries of investors and provide investors
with certain information concerning trading in the security, including a risk
disclosure document and quote information under certain circumstances. Many
brokers have decided not to trade "penny stocks" because of the requirements of
the penny stock rules and, as a result, the number of broker-dealers willing to
act as market makers in such securities is limited.
10
<PAGE> 15
Limited Protection For Intangible Assets; Realization of Goodwill. The
Company has limited protection for its intangible assets, such as tradename or
trademark protection. Thus, the Company is relying upon common law protection
for these assets, including the trademarks for many of the Breweries' products.
There is no assurance the Company would be successful in any suit to protect its
intangible assets. Any loss of the exclusive right to the use of these assets
would result in increased competition to the Company and have a negative effect
on cash flows and revenues. See "Business -- Trademarks." In addition, the
Company will have Substantial goodwill relating to its acquisition of Orange
Empire Brewing Company and future acquisitions. There can be no assurances that
the Company will be able to realize such goodwill through future operations.
11
<PAGE> 16
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
April 30, 1996, (i) on a historical basis (unaudited) and (ii) on a pro forma
condensed consolidated basis (unaudited) to reflect: (A) the Offering (based on
an initial Offering price of $8.00 per unit), (B) the issuance of 247,479 shares
of Common Stock to acquire Orange Empire Brewing Company (which includes the
assumption of certain indebtedness) valued at $1,286,890, the payment of
$301,000 in cash and the issuance of 51,743 shares of Common Stock in
satisfaction of $824,466 of indebtedness and the issuance of 10,000 shares
pursuant to a management agreement in connection with the related agreements,
(C) the assumption of $676,836 and the related partial repayment of $176,836 of
certain notes payable, the assumption and full repayment of notes payable to
related parties totaling $459,153, and to establish minority interest of
$346,819 and distribution payable of $1,159,011 in connection with the
consummation of the BWI-Prost Partners', (D) the establishment and repayment of
$500,000 of Bridge Notes used for working capital purposes, (E) the
establishment and repayment of $175,000 of a note payable to related party used
for working capital purposes, (F) the establishment and repayment of advances up
to $150,000 from a related party used for working capital purposes, and (G) the
issuance of 30,000 shares of Common Stock under purchase units for $150,000 used
for working capital purposes. The information with the consummation of the
BWI-Prost Partners'. The information set forth in the following table should be
read in conjunction with the financial statements and notes thereto, listed on
the "Index to Financial Statements" elsewhere in this Prospectus and the
discussion set forth in "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
APRIL 30, 1996
------------------------
ACTUAL AS ADJUSTED
---------- -----------
<S> <C> <C>
Short-term debt...................................................... $ 131,524 $ 467,302
========= ==========
Long-term obligations................................................ $ 385,086 $ 3,194,428
---------- -----------
Minority interest.................................................... -- 346,819
---------- -----------
Stockholders' equity:
Preferred Stock, no par value;
5,000,000 shares authorized; no
shares issued or outstanding.................................... -- --
Common Stock, no par value;
20,000,000 shares authorized;
2,427,863 shares issued and outstanding
(and 3,767,085 shares as adjusted)(1)........................... 2,311,701 10,796,586
Accumulated deficit................................................ (1,132,468) (2,007,998)
---------- -----------
Net stockholders' equity................................... 1,179,233 8,788,588
---------- -----------
Total capitalization....................................... $1,564,319 $12,329,835
========= ==========
</TABLE>
- ---------------
(1) Excludes 1,500,000 shares of Common Stock reserved for future issuance under
the Company's Incentive Stock Option Plan. See "Management -- Incentive
Stock Option Plan." Excludes 933,500 shares of Common Stock reserved for
future issuance under the Company's Non-Qualified Stock Option Plan. See
"Management -- Nonqualified Stock Option Plan." Excludes 130,000 shares of
Common Stock reserved for future issuance under the earnout provisions and
50,000 shares of Common Stock reserved for issuance in the debt repayment
provisions in the acquisition of Orange Empire Brewing Company. See
"Business -- Breweries -- Riverside Brewing Company." Excludes 3,000,000
shares of Common Stock reserved for issuance under certain warrant
agreements, 15,583 shares of Common Stock reserved for issuance under
options to legal counsel, 35,000 shares of Common Stock reserved for
issuance under the Bridge Units, 15,000 shares of Common Stock reserved for
issuance under the warrants pursuant to the purchase units sold in the
private placement, and 1,000,000 shares of Common Stock reserved for
issuance under the warrants included in this Offering. Also excludes up to
150,000 units reserved for issuance under the Underwriter overallotment and
200,000 Shares for issuance under the Representative Unit Purchase Option.
See "Underwriting."
12
<PAGE> 17
DILUTION
The net tangible book value of the Company on a historical cost basis as of
April 30, 1996 was approximately $1,060,551, or $0.44 per share of Common Stock.
Net tangible book value per share represents the amount of total tangible assets
less total liabilities, divided by the number of shares of Common Stock then
outstanding. After giving effect to (A) the sale by the Company of the 1,000,000
Units offered by the Company herein (after deduction of underwriting discounts
and commissions, and estimated offering expenses payable by the Company), (B)
the issuance of 247,479 shares of Common Stock to acquire Orange Empire Brewing
Company, the issuance of 51,743 shares of Common Stock in satisfaction of
$486,612 of indebtedness and the issuance of 10,000 shares pursuant to a
management agreement in connection with the related agreements, and (C) the
issuance of 30,000 shares of Common Stock under purchase units for $150,000. The
Company's pro forma tangible book value at April 30, 1996 would have been
$4,458,647 (which consists of pro forma stockholders' equity of $8,788,588 less
goodwill and other intangible assets of $4,233,543 and less other assets of
$96,398), or $1.18 per share of Common Stock. This represents an immediate
increase in net tangible book value of $0.74 per share to existing stockholders
and an immediate dilution of $6.82 per share to new public investors. The
following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share.................................... $ 8.00
Net tangible book value per share before offering........................ $ 0.44
Increase in net tangible book value per share attributable to new
investors............................................................. 0.74
-----
Pro forma net tangible book value per share after offering................. 1.18
-----
Dilution per share to new public investors................................. $ 6.82
=====
</TABLE>
The following table summarizes, on a pro forma basis as of April 30, 1996,
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
the existing and other stockholders and by new public investors purchasing
shares in this Offering (before deduction of underwriting discounts and
commissions and estimated offering expense payable by the Company):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATIONS AVERAGE
------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders......................... 2,427,863 64.4% $ 2,523,000 20.5% $1.04
New public investors.......................... 1,000,000 26.6 8,000,000 65.2 8.00
Stockholders as a result of acquisition....... 309,222 8.2 1,608,000 13.1 5.20
Stockholders in second private placement...... 30,000 0.8 150,000 1.2 5.00
--------- ----- ----------- -----
Total....................................... 3,767,085 100.0% $12,281,000 100.0%
========= ===== =========== =====
</TABLE>
The foregoing computations assume no exercise of stock options or warrants
after April 30, 1996. Accordingly it excludes 1,500,000 shares of Common Stock
reserved for future issuance under the Company's Incentive Stock Option Plan.
See "Management -- Incentive Stock Option Plan." Excludes 933,500 shares of
Common Stock reserved for future issuance under the Company's Non-Qualified
Stock Option Plan. See "Management -- Nonqualified Stock Option Plan." Excludes
130,000 shares of Common Stock reserved for future issuance under the earnout
provisions, and 50,000 shares of Common Stock reserved for issuance under the
debt repayment provisions under the acquisition of Orange Empire Brewing
Company. See "Business -- Breweries." Excludes 3,000,000 shares of Common Stock
reserved for issuance upon exercise of previously issued warrants, 15,583 shares
of Common Stock reserved for issuance under options to legal counsel, 35,000
shares of Common Stock reserved for issuance under the Class B Warrants, 200,000
shares reserved for issuance under the Representative's Unit Purchase Option,
15,000 shares of Common Stock reserved for issuance under the warrants pursuant
to the purchase units sold in the Private Placement, and 1,000,000 shares of
common stock reserved for issuance under the warrants included in this Offering.
Also excludes up to 150,000 units reserved for issuance under the
Representative's overallotment. See "Underwriting."
13
<PAGE> 18
USE OF PROCEEDS
The net proceeds of this offering, after deduction of underwriting
commissions and offering expenses, will be approximately $6,630,248. The Company
expects to apply the net proceeds of the offering as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENT
---------- -------
<S> <C> <C>
BWI-Prost Partners Partnership(1)........................... $ 636,000 10%
Riverside Acquisition(2).................................... 451,000 7
Sales and Marketing(3)...................................... 1,000,000 15
Notes Payable(4............................................. 500,000 7
Short-Term Line of Credit(5)................................ 175,000 3
Accounts Payable............................................ 500,000 7
Property and Equipment(6)................................... 800,000 12
Expansion of Product Line(7)................................ 1,000,000 15
Working Capital............................................. 1,568,248 24
---------- ----
Total............................................. $6,630,248 100%
========== ====
</TABLE>
The Company anticipates that the proceeds of this offering will be
sufficient to finance its working capital requirements for at least 12 months
following this offering. Pending application, the net proceeds will be invested
in deposits with banks, investment grade securities and short-term income
producing investments, including U.S. Treasury securities and other money market
instruments. In the event of the exercise of the Representative's over-allotment
option, the net proceeds from such exercise will also be applied to working
capital.
- ---------------
(1) See "Business -- Breweries-St. Stan's Brewing Company." Approximately
$176,000 will be used to pay a portion of the Owens Financial Note down to a
principal balance of $500,000 in accordance with the agreement with Owens
Financial to refinance such note. Approximately $460,000 will be paid to
Romy Angle as repayment of advances made by her to Prost Partners. At the
consummation of the BWI-Prost Partners Partnership, Ms. Angle will become
the Company's Purchasing and Restaurant Manager.
(2) See "Business -- Breweries -- Riverside Brewing Company." Up to $150,000 of
non-interest bearing advances will be paid to Michael Hagerman, a former
shareholder of RBC, for working capital provided to RBC and $301,000 will be
paid to Orange Empire Brewing Company debtholders as part of refinancing
approximately $644,000 of Orange Empire debts. The advances were used for
the Company's working capital needs.
(3) The net proceeds allocated to marketing and sales are expected to be applied
towards the promotion of the Breweries' main brands in their respective key
markets over the next 18 months. The proceeds are intended to be applied to
product development, market research, point of sale materials, event
participation and sponsorships, paid media advertising, post-offs,
distributor incentive programs and sales person incentive programs.
(4) This is a secured promissory note in the aggregate principal amount of
$500,000. The note accrues interest on the principal amount at the rate of
eighteen percent (18%) per annum and matures on December 31, 1996. The
proceeds of the note was used for working capital purposes.
(5) Up to $175,000 will be paid to Brewery Leasing Company, a company controlled
by Michael Hagerman, under a line of credit with the Company. The line of
credit, the proceeds of which were used for the Company's working capital
needs, provides for interest at 11% with a maturity date of June 30, 1997.
(6) The net proceeds allocated to property and equipment in the next 18 months
are expected to be applied towards the expansion and improvement of the
Company's brewing capacity.
(7) Expansion of the Company's product lines may be by one or more means,
including internal development, joint ventures, strategic alliances, and
acquisition of product lines or complementary businesses. See
"Business -- Plan of Operations/Business Strategy."
14
<PAGE> 19
SELECTED FINANCIAL DATA
The following selected financial data is derived from and should be read in
conjunction with the historical and pro forma financial statements of the
Company, Orange Empire Brewing Company and the St. Stan's Brewery and Brewpub
Operations, as listed on the "Index to Financial Statements" included elsewhere
in this Prospectus. The historical statement of operations data for the period
August 2, 1995 to December 31, 1995, and the balance sheet data as of December
31, 1995, are derived from the consolidated financial statements of the Company
which have been audited by Corbin & Wertz, independent certified public
accountants, whose report thereon is included elsewhere herein. The historical
statements of operations data for the four months ended April 30, 1996, and the
historical balance sheet data as of April 30, 1996 are unaudited, and have been
derived from the Company's books and records. Such unaudited data has been
prepared on the same basis as the audited financial data and, in the opinion of
management, reflects all adjustments (consisting only of normally recurring
adjustments) which are necessary for a fair presentation in accordance with
Generally Accepted Accounting Principles. The operating data is derived from
unaudited information maintained by the Company. The results of operations for
the four months ended April 30, 1996 are not necessarily indicative of results
to be expected for any future periods.
The pro forma statements of operations data for the year ended December 31,
1995 and the four months ended April 30, 1996, and the pro forma balance sheet
data as of April 30, 1996 is presented, giving effect to the following:
(1) The consummation of the Beverage Works, Inc. Initial Public Offering
and the application of the proceeds therefrom as described in "Use of
Proceeds."
(2) The consummation of the Beverage Works, Inc. and Orange Empire Brewing
Company Share Purchase Agreement and related agreements.
(3) The consummation of the BWI-Prost Partners Contribution and Partnership
Agreements and related agreements.
The unaudited pro forma balance sheet data has been prepared as though the
transactions and arrangements described above had taken effect on April 30,
1996, and the unaudited pro forma statements of operations data have been
prepared as though the transactions and arrangements had taken effect at the
beginning of each period presented. In management's opinion, all adjustments
have been made necessary to reflect the effects of the consummation of the
Initial Public Offering and the application of the proceeds therefrom, the
consummation of the Orange Empire Brewing Company Share Purchase Agreement, and
the consummation of the BWI-Prost Partners Contribution and Partnership
Agreements.
The unaudited pro forma financial data does not purport to be indicative of
the financial condition or results of operations of the Company that would have
been obtained for the periods presented had the transactions and arrangements
taken effect on the assumed dates, nor does it purport to represent the
financial condition or results of operations of the Company for any future
period.
15
<PAGE> 20
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------------ -------------------------------
FOUR MONTHS AUGUST 2, 1995 TO FOUR MONTHS YEAR ENDED
ENDED DECEMBER 31, ENDED DECEMBER 31,
APRIL 30, 1996 1995(1) APRIL 30, 1996 1995
-------------- -------------------- --------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................... $ 100,076 $ 44,810 $1,822,611 $ 4,975,962
Cost of sales....................... 169,029 81,627 1,429,736 3,860,276
---------- ---------- ---------- ----------
Gross profit...................... (68,953) (36,817) 392,875 1,115,686
Selling, general and administrative
expenses.......................... 566,548 433,553 1,335,306 2,999,285
---------- ---------- ---------- ----------
Operating loss.................... (635,501) (470,370) (942,431) (1,883,599)
Interest and other expenses
(income), net..................... 23,398 28,320 64,834 118,714
Minority interest in loss of
consolidated partnership.......... -- -- (27,195) (34,631)
---------- ---------- ---------- ----------
Loss before income tax benefit...... (658,899) (498,690) (980,070) (1,967,682)
Income tax benefit.................. 17,415 7,706 54,380 161,538
---------- ---------- ---------- ----------
Net loss............................ $ (641,484) $ (490,984) $ (925,690) $ (1,806,144)
========== ========== ========== ==========
Net loss per common share........... $ (0.21) $ (0.14) $ (0.21) $ (0.41)
========== ========== ========== ==========
Common shares and equivalents
outstanding....................... 3,094,874 3,094,874 4,434,096 4,434,096
========== ========== ========== ==========
OPERATING DATA (IN BARRELS):
Barrels shipped(2).................. 879 154 6,380 12,684
========== ========== ========== ==========
Production capacity, end of
period(3)......................... 12,000 6,500 62,000 59,500
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL
------------------------------- PRO FORMA
DECEMBER 31, --------------
1995 APRIL 30, 1996
------------ --------------
APRIL 30, 1996 (UNAUDITED)
--------------
(UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA (END OF PERIOD):
Current assets......................... $ 781,178 $1,121,377 $ 5,070,742
Working Capital........................ 326,525 822,381 4,160,507
Property and equipment................. 1,407,705 1,296,434 5,680,503
Total assets........................... 2,307,565 2,455,131 15,081,186
Current liabilities.................... 454,653 298,996 910,235
Total liabilities...................... 1,128,332 1,003,244 6,292,598
Stockholders' equity................... 1,179,233 1,451,887 8,788,588
</TABLE>
- ---------------
(1) The Company was incorporated August 2, 1995 and acquired Heritage on
November 8, 1995. The historical statement of operations for 1995 reflects
the operations of the Company and Heritage for the periods beginning August
2, 1995 and November 8, 1995, respectively.
(2) A barrel is equivalent to 31 gallons, two American kegs of 13.8 cases of
twenty-four 12-ounce bottles of beer.
(3) Based on the Company's estimate of the Breweries' production capacity, as of
the end of such period. The Company's estimate of production capacity should
not be considered indicative of actual production levels for any period. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
16
<PAGE> 21
The Breweries' capacity or output is derived from a combination of
equipment, in particular the breweries' brewhouse, fermentation tanks and
packaging line. The capacity also depends on the type of brews produced,
some of which require a longer fermentation period than others. All
breweries operate a brewhouse that can potentially support an output of
approximately 40,000 barrels per year, but their fermentation capacity
varies.
Heritage's capacity has increased from approximately 6,500 barrels per year
to approximately 12,000 barrels per year by adding additional fermentation
tanks and other support equipment to the existing equipment. See also
"Business -- Brewing Facilities."
17
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was founded August 2, 1995, for the purpose of acquiring and
operating craft breweries. According to the Institute for Brewing Studies, The
New Brewer, May-June 1995 issue, the craft brewing industry has grown 30% to 50%
annually since 1988, and is expected to grow in excess of 30% annually. The
craft beer market is very fragmented, and distribution channels are getting
crowded from the proliferation of brands. The large craft brewers are becoming
increasingly dominant and Budweiser, Miller and Coors have all recently
introduced product entries, and are focussing their main brand advertising
campaigns to appeal to craft brew consumers. The Company believes that craft
brewing is entering a phase of development, characterized increasingly by
consolidation, requiring marketing and sales skills, operating efficiencies,
integrated production and appropriate distribution capabilities and access to
capital to enable the craft brewers to effectively compete with the dominant
companies in this industry.
The Company saw an opportunity in acquiring craft brewers with promising
brands and strategically located craft breweries. This could enable the Company
to obtain distribution strength and production efficiencies necessary to compete
in the craft brew industry.
Beverage Works, Inc. has been funded, to date, with two private placements
and a bridge financing. The Company has insufficient capital and inadequate cash
flows from operations to continue as an operating entity without additional
working capital in the immediate future and will not be able to implement its
plan without completing the planned Offering.
The Company's profitability will be adversely affected at least initially
as the result of its acquisition and financing strategies. The Company has
incurred, and will continue to incur, substantial legal and accounting fees
pursuant to its acquisition strategy. Until such time that a certain number of
craft breweries are acquired or joint ventured, and functioning according to the
Company's operating performance standards, the Company's profitability will be
adversely affected.
The Company's initial acquisitions and operating agreements are primarily
with smaller breweries that have not been operating profitably and in all
likelihood could not operate profitably without financial and marketing
assistance from an entity like the Company. Furthermore, the Company will need
to spend heavily on sales and marketing in order to increase sales volume and
upgrade the distribution channels. It will also need to expend substantial funds
on brewing facilities, equipment and improvements in order to increase
production capacity, reduce operating costs and improve operating efficiencies.
Pro forma financial information is presented for the year ended December
31, 1995 and the four months ended April 30, 1996, both of which are unaudited.
Consolidated information for the Company is presented only on a historical basis
and cannot be compared for the period August 2, 1995 to December 31, 1995 and
for the four months ended April 30, 1996, as BWI was only established as a
California corporation in August, 1995. The financial data and analysis
pertaining to its proposed acquisition of Orange Empire Brewing Co. (Riverside
Brewing Company) and St. Stan's Brewing Company are presented, comparing
December 31, 1994 with December 31, 1995, and the four months ending April 30,
1995 with April 30, 1996.
PROFORMA RESULTS OF OPERATIONS
The following tables set forth the unaudited proforma condensed
consolidated results of operations for the periods indicated as a percentage of
net sales. Such information includes the accounts of the Company, Orange Empire
Brewing Company and the St. Stan's Brewery as if the acquisition, the joint
venture and Offering were consummated during the beginning of the respective
periods. Such information is not
18
<PAGE> 23
necessarily indicative of the results which may have been achieved had the
transactions been consummated at the beginning of such periods. Such information
is as follows:
PERCENTAGE OF SALES
FOUR MONTHS ENDED APRIL 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ORANGE
BEVERAGE EMPIRE ST. STAN'S PROFORMA
WORKS BREWERY BREWERY ADJUSTMENTS(1) PROFORMA TOTAL
-------- ------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net Sales................................. 100.0% 100.0% 100.0% 100.0%
Cost of Sales............................. 168.9 73.9 69.0 78.4
Gross Profit.............................. (68.9) 26.1 31.0 21.6
Selling, General and Administrative....... 566.1 38.7 34.8 73.3
Interest.................................. 23.4 7.8 4.9 3.6
Other (Income) Expense.................... -- -- -- --
Minor Interest in loss of consolidated
Partnership............................. -- -- -- -- (1.5)
Tax Provision (Benefit)................... (17.4) -- -- (3.0)
------ ----- ----- -----
Net Income (Loss)......................... (641.0)% (20.4)% (8.7)% (50.8)%
====== ===== ===== =====
</TABLE>
- ---------------
(1) Refer to Unaudited Proforma Condensed Consolidated Statement of Operations.
PERCENTAGE OF SALES
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
ORANGE
BEVERAGE EMPIRE ST. STAN'S PROFORMA
WORKS BREWERY BREWERY ADJUSTMENTS(1) PROFORMA TOTAL
-------- ------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net Sales................................ 100.0% 100.0% 100.0% 100.0%
Cost of Sales............................ 182.2 71.4 68.8 77.6
Gross Profit............................. (82.2) 28.6 31.2 22.4
Selling, General and Administrative...... 967.5 38.8 28.8 60.3
Interest................................. 63.2 6.77 4.8 2.4
Other (Income) Expense................... -- -- -- --
Minor Interest in Loss of Consolidated
Partnership............................ -- -- -- (.1)
Tax Provision (Benefit).................. (17.2) .1 -- (3.2)
-------- ----- ----- -----
Net Income (Loss)........................ (1,095.7)% (16.7)% (2.4)% (36.3)%
======== ===== ===== =====
</TABLE>
- ---------------
(1) Refer to Unaudited Proforma Condensed Consolidated Statement of Operations.
Sales: Consolidated pro forma sales for the first four months of 1996
totaled $1,822,611, which is typically the slow sales period, when annualized
are substantially higher than sales in 1995; however, there are no assurances
that the companies will actually have higher sales in 1996 as management does
not believe that the companies have sufficient working capital to sustain the
growth without financial assistance from the Company.
Cost of Sales: The consolidated pro forma cost of sales of 77.6% and 78.4%
of net sales for the year ending December 31, 1995 and the four months ended
April 30, 1996, respectively, is substantially above industry levels for
breweries of this size. The Company estimates that it must lower cost of sales
to approximately 67% in order to be competitive. Lowering cost of sales ten
percentage points to 66.3% equates to a reduction on cost of sales of
approximately $600,000 based on $6 million annual sales level. The Company
believes that it can substantially reduce cost of sales through consolidation of
operations, centralized purchasing, improved quality control, increased plant
utilization and greater automation. The Company has
19
<PAGE> 24
already initiated this process by combining certain operations of Heritage and
Riverside Brewing Company. Even if the Company is successful in lowering cost of
sales, it can not accurately forecast the potential effect of competitive
pressures on pricing which could have the effect of lowering the gross profit
and possibly offsetting all or a portion of the cost savings realized, if any.
There are no assurances that management's plans to reduce their cost of sales
will be successful.
Selling, General and Administrative Expenses: Pro forma consolidated
selling, general and administrative expenses for the year ended December 31,
1995 was 60.3% of net sales and for the four months ended April 30, 1996 was
73.3% of net sales which is high in comparison to the industry leaders that
range from 16% to 45%. The Company's SG&A for the four months ended April 30,
1996 included substantial costs associated with the administration of these
companies on a decentralized basis. In addition, these expenses included
$302,000 for goodwill amortization and certain noncash transactions. The Company
expects to increase selling expense from historical levels, but, such expenses
through consolidation of management salaries and administrative overhead as a
percent of net sales.
Net Income(Loss): The pro forma net loss of $1,806,144 and $925,690 for
the year ending December 31, 1995 and the four months ended April 30, 1996,
respectively, is attributable to a number of important factors as described
above. A significant portion of the loss can be attributed to acquisition and
financing related activities; however, the Company still incurred a substantial
loss and has negative cash flow.
RESULTS OF OPERATIONS -- BEVERAGE WORKS, INC. AND SUBSIDIARY
The following tables set forth for the periods indicated certain items
included in the Company's historical consolidated statements of operations as a
percentage of net sales. (The Company's consolidated statements of operations on
a historical basis include financial data for Beverage Works, Inc., excluding
proposed acquisitions, but, including operations for Heritage for the period
November 8, 1995 (acquisition date) and thereafter.)
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
---------------------------------------
AUGUST 2, 1995
FOUR MONTHS ENDED TO
APRIL 30, 1996 DECEMBER 31, 1995
----------------- -----------------
(UNAUDITED)
<S> <C> <C>
Net Sales.......................................... 100.0% 100.0%
Cost of Sales...................................... 168.9 182.2
------ --------
Gross Profit....................................... (68.9) (82.2)
Selling, General and Administrative................ 566.1 967.5
Interest........................................... 23.4 63.2
Benefit for Income Taxes........................... (17.4) (17.2)
------ --------
Net Loss........................................... (641.0%) (1,095.7%)
====== ========
</TABLE>
Sales: Net sales of $44,800 for the period August 2, 1995 to December 31,
1995 only reflect sales for Heritage beginning from the November 8, 1995
acquisition date; Beverage Works, the parent company, had no sales. Net sales of
$100,076 for the four month period ending April 30, 1996 were adversely affected
as a result of quality control problems and construction interruptions
associated with improving and expanding the brewery. Sales for Heritage suffered
because of these factors during January through April 1996. Heritage has
completed the brewery expansion, and upon consummating the Offering and the
commencement of product sales under the Hussongs license agreement, management
believes that sales will increase significantly. There are no assurances that
such sales will improve in a reasonable period of time.
Cost of Sales: Cost of sales was adversely affected as a result of
production inefficiencies caused by construction and reduced sales volume.
Accordingly, the Company was unable to absorb fixed costs of its manufacturing
facility.
20
<PAGE> 25
Selling, General Administrative Expenses: Selling, general and
administrative costs were high in both periods as the result of costs associated
with the establishment of the infrastructure necessary to operate a public
company and expand its operations.
PERIOD TO PERIOD COMPARISON OF RESULTS -- ORANGE EMPIRE BREWING COMPANY
(RIVERSIDE BREWING COMPANY)
The following table sets forth certain items included in the Company's
statements of operations as a percentage of net sales:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
-----------------------------------------
FOUR MONTHS ENDED YEARS ENDED
APRIL 30, DECEMBER 31,
----------------- -----------------
1995 1996 1994 1995
----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales............................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales......................................... 65.3 73.9 74.4 71.4
----- ----- ----- -----
Gross profit.......................................... 34.7 26.1 25.6 28.6
Selling, general and administrative................... 55.1 38.7 45.2 38.8
Interest.............................................. 7.6 7.8 6.9 6.8
Other (income) expense................................ (.3) .0 .3 (.4)
Income Taxes provision................................ .0 .0 .1 .1
----- ----- ----- -----
Net Loss.............................................. (27.7%) (20.4%) (26.9%) (16.7%)
===== ===== ===== =====
</TABLE>
FOUR MONTHS ENDED APRIL 30, 1995 AND FOUR MONTHS ENDED APRIL 30, 1996 -- ORANGE
EMPIRE BREWING COMPANY (RIVERSIDE BREWING COMPANY)
Sales: Sales, net of excise taxes, increased 67.2% from $634,607 for the
four months ended April 30, 1995 to $1,061,072for the four months ended April
30, 1996. Excise taxes for the four months ended April 30, 1995 were $10,407
compared to $33,912 for the comparable period in 1996. The increase in sales can
be primarily attributed to increased shipments of bottled product from the
brewery division and to a lesser extent from increased sales at the brewpub.
Gross Profit: Gross profit increased by $369,298 from $414,558 for the
four-month period ending April 30, 1995 to $783,856 for the four-month period
ending April 30, 1996. However, as a percentage of sales gross profit decreased
8.6% from 34.7% for the four-month period ending April 30, 1995 to 26.1% for the
four-month period ending April 30, 1996. The decrease in gross profit as a
percentage of sales is primarily attributable to production inefficiencies,
distributor discounts, and increases in freight associated with shipping product
to other states. In addition, competition caused management to lower the per
unit sale prices in order to increase its market share.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses increased in actual dollars, but decreased as a
percentage of net sales for the comparable periods. Selling, general and
administrative expenses increased by $61,597 from $349,507 for the four-month
period ending April 30, 1995 to $411,104 for the four-month period ending April
30, 1996. However, selling, general and administrative expenses decreased 16.4%
as a percentage of sales from 55.1% for the four-month period ending April 30,
1995 to 38.7% for the four-month period ending April 30, 1996. Selling, general
and administrative expenses increased primarily as a result of supporting the
67.2% increase in sales. Certain selling costs were variable in nature and
increased proportionately with sales while general and administrative expenses
were more fixed in nature and grew more slowly. The decrease in selling, general
and administrative expense as a percentage of sales is primarily the result of
those expenses being relatively fixed in nature and the 67.2% increase in sales.
Interest: Interest expense increased by 70.5% from $48,227 for the
four-month period ending April 30, 1995 to $82,240 for the four-month period
ending April 30, 1996. Interest expense increased primarily as the result of
interest charges associated with increased equipment leases and notes payable to
related parties.
21
<PAGE> 26
Net Loss: The net loss increased in actual dollars, but decreased as a
percentage of net sales for the comparable periods. The net loss increased
$40,503 from $176,037 for the four-month period ending April 30, 1995 to
$216,540 for the four-month period ending April 30, 1996. The net loss decreased
as a percentage of sales by 7.3% from 27.7% for the four-month period ending
April 30, 1995 to 20.4% for the four-month period ending April 30, 1996.
YEARS ENDED DECEMBER 31, 1995 AND 1994 -- ORANGE EMPIRE BREWING COMPANY
(RIVERSIDE BREWING COMPANY)
Sales: Net sales increased by $1,175,507 or 85.3% from $1,378,470 (net of
$21,045 in excise taxes) for 1994 to $2,553,997 (net of $52,596 in excise taxes)
for 1995. The increase in sales can be primarily attributed to increased
shipments of bottled product from the brewery division and to a lesser extent
from increased sales at the brewpub. Distribution was expanded not only in
California with the appointment of Wine Warehouse as distributor for California,
but distribution was also expanded into approximately 27 other states.
Gross Profits: Gross Profit increased in terms of dollars and as a
percentage of net sales for the comparable periods. Gross profit increased
106.6% from $353,279 in 1994 to $729,912 in 1995. Gross profit increased 3% as a
percentage of sales from 25.6% in 1994 to 28.6% in 1995. Gross profit improved
as a result of the Company's ability to cover fixed overhead through increased
sales.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses increased, but decreased as a percentage of sales for
the comparable periods. Selling, general and administrative expenses increased
46.2% from $624,209 in 1994 to $990,701 in 1995. However, as a percentage of
sales decreased 6.4% from 45.2% in 1994 to 38.8% in 1995. The increase is
primarily attributable to the 85.3% increase in sales. The decrease and a
percentage of sales is primarily attributable to the fact that some selling,
general and administrative expenses are relatively fixed and did not increase
proportionately with increase in sales.
Interest Expense: Interest expense increased 83% or $78,408 from $94,516
in 1994 to $172,924 in 1995. The increase is primarily the result of leasing (at
approximately 14% per annum) additional brewing equipment for the brewery which
commenced operation in its expanded facility in October 1995.
Income Tax Provision: The Company has a $1,600 provision for income taxes
in both 1994 and 1995 related to California minimum state taxes. The Orange
Empire Brewing Company has substantial net operating loss carryforwards, and it
does not expect to pay taxes for the foreseeable future. A valuation allowance
for such net operating losses has been recorded, therefore, no benefit for
income taxes has been reflected in operations.
Net Loss: The net loss increased 14.6% or $54,363, from 1994 to 1995, but
decreased as a percentage of sales by 10.2% from 26.9% in 1994 to 16.7% in 1995.
22
<PAGE> 27
PERIOD TO PERIOD COMPARISON OF RESULTS -- ST. STAN'S BREWERY AND BREWPUB
OPERATIONS
The following table sets forth certain items included in the Company's
statements of operations as a percentage of net sales:
PERCENTAGE OF NET SALES
<TABLE>
<CAPTION>
FOUR MONTHS ENDED YEAR ENDED
APRIL 30, DECEMBER 31,
----------------- -----------------
1995 1996 1994 1995
----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales............................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales......................................... 65.4 69.0 72.7 68.8
----- ----- ----- -----
Gross profit.......................................... 34.6 31.0 27.3 31.2
Selling, general and administrative................... 28.6 34.8 27.4 28.8
Income (loss) from operations......................... 6.0 (3.8) (.1) 2.4
Interest.............................................. 4.6 4.9 5.5 4.8
----- ----- ----- -----
Net income (loss)..................................... 1.4% (8.7%) (5.6%) (2.4%)
===== ===== ===== =====
</TABLE>
FOUR MONTHS ENDED APRIL 30, 1995 AND FOUR MONTHS ENDED APRIL 30, 1996 -- ST.
STAN'S BREWERY AND BREWPUB OPERATIONS
Sales: Net sales increased by 2.3% from $646,276 for the four-month period
ending April 30, 1995 to $661,463 for the fourmonth period ending April 30,
1996. Sales growth was slowed as the result of competitive pressures and
insufficient working capital to fund marketing and selling programs.
Gross Profit: Gross profits decreased by 8.3% from $223,623 for the four
months ended April 30, 1995 to $205,067 for the four months ended April 30,
1996. Gross profit decreased in terms of actual dollars and as a percentage of
sales primarily as the result of competitive pressures that required the Company
to lower prices to distributors faster than the Company could lower production
costs and increase sales.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses increased 24.6% from $185,021 or 28.6% of sales for the
four months ended April 30, 1995 to $230,490 or 34.8% of sales for the four
months ended April 30, 1996. The increase can be attributed primarily to the
increased cost for distributor marketing and selling programs that were required
to maintain good working relationships with distributors and remain competitive
in the market.
Interest: Interest expense increased 9.3% from $29,412 for the four months
ended April 30, 1995 to $32,137 for the four months ended April 30, 1996. Such
increase is due to an increase in related party notes payable.
Net Income (Loss): Net income was $9,190 for the four months ended April
30, 1995 versus a net loss of $57,560 for the period ended April 30, 1996.
Overall competition has significantly affected margins, and coupled with
increased selling and interest costs, caused the Company to incur a loss in
early 1996.
YEARS ENDED DECEMBER 31, 1995 AND 1994 -- ST. STAN'S BREWERY AND BREWPUB
OPERATIONS
Sales: Volume increased by 7.3% from $1,891,554 in 1994 to $2,029,424 in
1995. The increase in sales was primarily attributable to the introduction of
new products.
Gross Profit: Gross profit increased by 22.4% from $517,236 or 27.3% in
1994 to $633,207 or 31.2% in 1995. The improvement in gross profit is primarily
attributable to price increases in 1995, improved operating efficiencies and
lower costs of raw materials.
23
<PAGE> 28
Selling, General and Administrative Expenses: Selling, general and
administrative expenses increased by 12.5% from $518,763 or 27.4% in 1994 to
$583,568 or 28.8% in 1995. In general, this increase can be attributed primarily
to an increase in sales, marketing and promotional activities.
Interest: Interest expense decreased by 5.7% from $104,351 in 1994 to
$98,398 in 1995.
Net Income (Loss): The net loss decreased by 53.9% from $105,878 or 5.6%
of sales in 1994 to $48,759 or 2.4% of sales.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has funded operations primarily from the
private sale of stock netting approximately $1.57 million after costs of the
offerings, and $500,000 in debt financings. The Company's operations provided
minimal cash in the November 8 to December 31, 1995, post acquisition period and
for the four month period ending April 30, 1996. The Company has insufficient
capital and inadequate cash flow from operations to continue as an operating
entity without additional working capital in the immediate future and cannot
implement its acquisition plan without completing the planned Offering.
The Company's profitability will be adversely affected at least initially
as the result of its acquisition and financing strategies. The Company has
incurred, and will continue to incur, substantial legal and accounting fees
pursuant to its acquisition strategy. Until such time that an adequate
infrastructure of craft breweries are acquired and functioning according to the
Company's operating performance standards, the Company's profitability will be
adversely affected.
The Company's initial acquisitions and operating agreements are primarily
with smaller breweries that have not been operating profitably, and in all
likelihood, could not operate profitably without financial and marketing
assistance from an entity like the Company. Furthermore, the Company will need
to invest substantial funds on sales and marketing in order to increase sales
volume and upgrade the distribution channel. It will also need to invest in
brewing facilities, equipment and improvements in order to increase production
capacity and reduce production costs and improve operating efficiencies. These
factors raise substantial doubt about the Company's ability to continue as a
going concern.
The Company currently has approximately $300,000 cash on hand a credit
facility for $175,000 with approximately $163,000 credit available, and it
recently closed its second private placement issuing Common Stock for net
proceeds of $130,000 in September 1996 which the Company believes will enable it
to sustain operations until completion of the initial public offering. However,
the Company has insufficient cash flow to remain current with certain trade
vendors for a prolonged period of time as a result of launching its Hussong's
brands in September, 1996, and costs incurred with its acquisition and
arrangements and its Offering.
The Company expects to net approximately $4.4 million from the Offering net
of closing cost, commissions, paying bridge and short-term debt obligations and
cash outlays associated with completing the acquisition and joint venture. Even
though the Company has plans to improve cash flow through increased sales and
reduction in cost of sales through improved operating efficiencies, it does not
expect to have positive cash flow until at least 1998. The craft brew industry
is seasonal with sales lower in the first and second calendar quarters and
higher in the third and fourth calendar quarters. The timing of the Offering
will dictate that the Company initiate consolidated operations in the slowest
sales period.
The Company also anticipates spending heavily on sales and marketing, with
planned expenditures for the first 18 months after the offering totaling
approximately $1 million. The Company will also invest approximately $800,000 to
increase capacity, quality control and consolidate and standardize brewing
operations. The Company will also seek additional acquisition candidates to
expand its product lines, through cash proceeds from the Offering or the
issuance of its Common Stock. General and administrative costs will increase as
a result of new expenses associated with operating as a public company, and
legal and accounting costs involved with subsequent acquisitions. The Company
will try to utilize debt and equipment financing as may be available to the
Company to extend working capital.
24
<PAGE> 29
Since the Company cannot forecast with certainty the cost associated with
implementing its growth strategy, management intends to maintain as much
flexibility as reasonably possible in regards to managing capital expenditures
and operations, so as to more effectively manage cash.
The Company believes that the net proceeds from this Offering, together
with cash flow from operations will be sufficient to support the Company's
capital expenditures and working capital requirements for the next 12 months.
However, the craft brew industry is undergoing significant changes and
management can make no assurance that they will be able to implement marketing
and sales changes fast enough or consolidate operations and improve operating
efficiencies fast enough in the face of increased competitive pressures in order
to stabilize operations and improve cash flow adequately to be a viable entity.
Furthermore, the Company cannot make any assurance that it will be able to
acquire additional breweries or brands at reasonable prices or terms. If the
Company cannot implement its growth strategy in a timely manner, then there can
be no assurance that additional capital will be available, or it available that
such financing will be available on terms favorable to the Company or its
shareholders. To the extent the Company raises additional capital by issuing
equity convertible debt securities, ownership dilutions to the Company's
shareholders will result. In the event that adequate funds are not available,
the Company's business may be adversely affected.
25
<PAGE> 30
BUSINESS
The Company was formed on August 2, 1995 as a California corporation, for
the purpose of acquiring and operating craft breweries. Upon the closing of this
offering, the Company will have acquired Heritage Brewing Company of Lake
Elsinore, California, Riverside Brewing Company of Riverside, California, have
become a majority partner with St. Stan's Brewing Company of Modesto,
California, and have entered into a reciprocal production and marketing
agreement with Chicago Brewing Company of Chicago, Illinois.
BREWERIES
Heritage Brewing Company
On November 8, 1995, The Company acquired approximately 95% of all of the
issued and outstanding shares of common stock of Heritage in exchange for
142,276 shares of the Company's Common Stock. Heritage shareholders are
permitted to call their Heritage stock in the event the Company does not
complete a public offering of securities raising gross proceeds of at least
$5,000,000 prior to December 31, 1996. The exercise of the call option requires
Heritage to repay all monies advanced by the Company for payments of its SBA
loan and Liberty National loan, and advances for brewery capital equipment and
leasehold improvements. Repayment shall be made in a note which is payable
without interest over 36 months. Heritage shall return all shares of the
Company's common stock initially issued to its former shareholders. The
completion of this Offering terminates Heritage's shareholders' call option. At
least 50% of the former Heritage stockholders have agreed to extend the call
option until March 31, 1997.
Heritage was established in 1989 as one of the first microbrewers in
California. Heritage markets Mulligan Lager and Red Fox Ale, its own craft
brewed brands. Catalina Red Ale and Catalina Golden Ale are produced under
license. Heritage also currently acts as a contract brewer for other craft
brands.
Heritage has a brewery in Lake Elsinore, California in a building
containing approximately 5,400 square feet with a warehouse of 4,000 square feet
located across the street. The brewery's production capacity was recently
expanded to 12,000 barrels per year, which was financed by the Company with the
proceeds of its November 1995 private placement. The annual rent for the brewery
facility, which expires in March, 1998, is currently $39,600, and the warehouse
is leased month to month at $1,200 per month. After the consummation of the
offering or the expiration of its lease, the Company intends to consolidate the
Heritage production facility into the Riverside Brewing Company facility.
Riverside Brewing Company
The Orange Empire Brewing Company ("Orange Empire") is the parent of
Riverside Brewing Company. The Company has agreed to acquire at least 90% of the
outstanding shares of Orange Empire in exchange for (i) 247,479 shares of the
Company's common stock and (ii) up to an additional 130,000 shares based on a
specified number of barrels of beer produced and sold over two years. A $644,000
note due Riverside Brewing Company's noteholders will be repaid with $301,000 in
cash and 24,125 shares of Common Stock and 50,000 Class A Warrants to purchase
the Company's Common Stock at $5.00 per share. In addition, these noteholders
have agreed to assume approximately $220,000 of Riverside Brewing Company's debt
for 27,618 shares of Common Stock, and guarantee brewpub cashflow to at least
break even for two years. The Company has entered into a Brewpub Management
Agreement with Mike Hagerman and Norm Kretschmar, former principals of Orange
Empire Brewing Company, whereby the Company will issue 10,000 shares of its
Common Stock to these individuals.
RBC, which started in 1993 as a brewpub and restaurant with a production
capacity of 1,500 barrels a year, is located in the historic Mission Inn
district of Riverside, California. Riverside Brewing Company then began to sell
a full line of specialty craft beers outside its brewpub. In October 1995,
Riverside Brewing Company began additional production in a new 18,000 square
feet leased facility, independent of its brewing facilities at the pub, which
has an initial production capacity of 30,000 barrels per year and can be
expanded to 80,000 barrels per year. Riverside Brewing Company currently brews
five styles of craft beer. Riverside Brewing Company's beers have won numerous
awards in local, state, national and international competitions.
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The brewery sells its products in draught and bottled package (both 12-oz. and
22-oz. bottles). The majority of Riverside Brewing Company's beers are sold in
California. To a limited extent, Riverside Brewing Company's beers are sold in
27 other states and Japan. In addition, the brewery produces a number of private
label brands under contract brewing agreements with various distributors and
companies, including the Claim Jumper restaurant chain in California.
St. Stan's Brewing Company
BWI-St. Stan's, Inc. ("BWISS"), a wholly-owned subsidiary of the Company,
has entered into a partnership agreement to Form BWI-Prost Partners
("Partnership") with Prost Partners, L.P. ("Prost") doing business as St. Stan's
Brewing Company, which closes upon the consummation of this Offering. BWISS,
through a wholly-owned subsidiary, and Prost will shares profits, losses,
distributions, and capital 51% and 49% respectively, except that Prost will
receive priority distributions of $2,500 quarterly to meet certain minimum
financial obligations. The Partnership will be managed by a five member
committee, three of whom are appointed by BWISS.
Prost is contributing to the partnership all of its assets, which is the
St. Stan's Brewing Company operations, and the Partnership will assume the St.
Stan's operating obligations. In addition, the Partnership will assume two
demand notes executed by Prost totaling approximately $460,000 owed to Romy
Angle, who is an officer and a controlling shareholder of Stanislaus Brewing
Company, Inc. ("Stanislaus"), Prost's general partner, and, as of the close of
this Offering, the Purchasing Manager of the Company. As part of BWISS' initial
capital contribution, BWISS will pay these notes owed to Ms. Angle upon the
consummation of this Offering. The Partnership will also assume the note owed to
Owens Financial Group in the principal amount of $676,000. The note is secured
by the Partnership's fixed assets and ground lease for the Partnership's
building. As part of BWISS' initial capital contribution, BWISS will assume the
Owens' Note. The Company has obtained written assurance from Owens Financial to
amend, after a principal reduction payment of $176,000, the terms of the note to
allow for principal and interest payable to be based on a 15 year amortization
period and the extension of the maturity date to five years, at a variable
interest rate ranging from 11% to 16% per annum and for prepayment without
penalty.
The Partnership is not assuming Prost's obligations to Stanislaus. In
addition to the initial capital contribution to the Partnership, BWISS is
required to contribute to the Partnership approximately $1,150,000 payable
quarterly over 18 months commencing 18 months after the consummation of this
Offering. In the event BWISS fails to make such payments, Prost may acquire
BWISS's interest in the Partnership based on the appraised value of the
Partnership which will likely be substantially less than the amount paid by
BWISS. Furthermore, BWISS may buy-out Prost's interest in the Partnership by
paying $2,205,000 within three years, plus that portion of the required capital
contribution not made as of the date of the buy-out (the "Option"). By making
such payment, BWISS will acquire all of Prost's interest in the Partnership. If
BWISS fails to make such payment within three years, Prost has the initial right
to acquire BWISS's interest in the Partnership based on the appraised value of
the Partnership's tangible assets plus a predetermined formula of modified
earnings. If Prost does not exercise its right, BWISS has the right to buy-out
Prost on the same terms. If neither Prost or BWISS exercises its right to
buy-out the other party, the Partnership shall be dissolved. See "Risk
Factors -- St. Stan's Brewing Company Partnership."
St. Stan's Brewing Company was the first "altbier" brewery in the United
States. Altbiers are made in the old German pre-1700's tradition, before lager
beers. Thus the name "alt" (old/old fashioned) beer. The difference between
altbier and lager beer is that altbier has a cold storage period in the
fermentation tanks, and unlike a lager, uses a top fermenting yeast, rather than
a bottom fermenting yeast. Since this style of beer was not found in the United
States, St. Stan's was developed to fill this niche.
The brewery will be owned by the Partnership, is subject to a ground lease
and is located in a custom-built facility in the downtown area of Modesto,
California. The brewery was completed in October 1990 and is part of a 14,500
sq. ft. facility which includes a brewpub and gift shop. The two-story pub
facility has a contemporary European appearance with classic European touches.
Seating is more than 300, including the biergarten and pub. The brewery
currently has an annual capacity of approximately 20,000 barrels per year.
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St. Stan's currently sells its products in kegs and in twelve ounce bottles. It
produces four beer types on a regular basis and produces several seasonal and
specialty brews from time to time.
INDUSTRY BACKGROUND
The terms micro brew, craft brew and specialty brew are used
interchangeably by consumers and within the industry to describe the products
made by small, independent brewers, who generally use only traditional brewing
processes and ingredients. Craft brewers include contract brewers which use
third party's brewing facilities), regional specialty brewers, microbrewers and
brewpub/restaurants. Craft beers are full-flavored beers brewed with quality
hops, malted barley, yeast and water, without adjuncts such as rice, corn,
stabilizers or water dilution.
The craft beer market is still very small in the context of the overall
U.S. beer industry. In 1995, this segment accounted for approximately 2% of
domestic beer sales. However, the category has become one of the fastest growing
niche markets in the U.S. beverage industry. According to a recent publication
of the Institute for Brewing Studies (May-June 1996 issue of The New Brewer),
since 1988, craft beer shipments have grown 30%-50% annually, while total
domestic beer industry shipments have basically remained flat. The rapid growth
of the craft brewing industry is related to an increased consumer awareness of
and demand for high quality, high end and high priced consumer food products in
general, and consumers' discovery and continued education of more traditional,
fresh brewed, full flavored and premium priced beers. Prior to prohibition, the
U.S. beer industry consisted of hundreds of small breweries that brewed
distinctive, full flavored beers, delivered fresh to local markets. Following
prohibition, U.S. brewers have narrowed production to lighter, milder beers, to
appeal to the broadest market segment. These beers use lower cost ingredients
and can be mass produced, while taking advantage of economies of scale in
production and marketing. Competition among the industrial brewers has been
primarily through costly mass advertising and pricing, rather than through
flavor and quality. Mass production has coincided with industry consolidation.
At present, more than 75% of domestic beer shipments are controlled by three
major brewers.
Since the early eighties, domestic per capita beer consumption has
declined. At the same time, consumers increasingly focussed their consumption on
more flavorful beer. Initially this demand was met by beers imported from
Europe, Canada and Mexico. However, in the late 1980's, as state laws began to
allow pubs and restaurants to brew and sell beer on premise, a number of
domestic specialty brewers began to offer a variety of more flavorful,
traditionally brewed beers. In response to consumer demand, the number of craft
brewed beers has increased in the last five years. Certain craft brewers have
quickly grown from microbreweries into regional craft breweries, some with
operations in multiple locations. Contract brewers, such as Samuel Adams and
Pete's Wicked Ale, have taken advantage of this growing demand by retaining
industrial brewers to perform contract brewing at otherwise under-utilized
brewing facilities. At present, there are more than 800 craft breweries in the
U.S. In addition, the major brewers have introduced their own fuller flavored
specialty beers, and have acquired or established partnerships with existing
craft brewers.
PLAN OF OPERATION/BUSINESS STRATEGY
Industry forecasts (according to the Institute for Brewing Studies, The New
Brewer, May-June 1996 issue) report continuing rapid growth of the craft brewing
industry in excess of 30% annually. The craft beer market is very fragmented,
and distribution channels are getting crowded from the proliferation of brands.
The large craft brewers are becoming increasingly dominant and Budweiser, Miller
and Coors have all recently introduced product entries, and are focussing their
main brand advertising campaigns to appeal to craft brew consumers. The Company
believes that craft brewing is entering a phase of development, characterized
increasingly by consolidation requiring marketing and sales skills, operating
efficiencies, integrated production and appropriate distribution capabilities
and access to capital to enable the craft brewers to effectively compete with
the dominant companies in this industry.
The Company is looking to position itself as an industry leader in the
craft brewing industry with regional strongholds and nationwide access to the
major markets, through a combination of acquisitions, brand strategies,
highprofile introduction of new products and strategic alliances. Although the
Company plans to
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utilize the proceeds from this Offering, current brands, distributor
relationships, strategically located brewing operations, and experience in the
brewing, marketing, and finance field, to expand the Company's brewing capacity,
revenue and income base, these is no assurance that its strategy will be
successful.
Acquisitions
The Company's initial acquisition strategy focussed on smaller,
undercapitalized craft breweries located in or close to craft brew growth
markets, with proven, award winning products and a potential to expand their
market share and gain strong regional and/or national distribution.
A second phase of the Company's acquisition & joint venture strategy will
focus on acquiring medium sized regional craft breweries (25,000 to 50,000
barrels annually). The Company believes that it will become increasingly
difficult for these breweries to successfully compete independently in an
increasingly consolidating, competitive market. The Company's strategy is
designed to acquire and provide such companies with the resources and tools
needed to professionally and rapidly expand their businesses. Factors critical
to implement the Company's acquisition strategy are discussed below:
Capital: The craft brew industry has always been capital intensive in
terms of equipment and has now become capital intensive for marketing and
sales as well. The dual strain of these capital requirements prevents many
of the craft breweries from achieving their true growth potential in an
increasingly competitive industry. The ability of the Company to
successfully implement its business strategy is dependent on the Company
obtaining the necessary capital to increase production, improve quality,
lower production cost, implement the necessary management and operating
systems and provide the professional marketing programs that are essential
to gaining and maintaining strong sales and distribution networks. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Operating Efficiencies: An essential element of competing
successfully in a high growth, consolidating industry is the ability to
constantly improve operating efficiencies at a faster rate than competitive
pressures lower margins. A fundamental aspect of the Company's strategy is
to realize these operating efficiencies, while preserving the traditional
aspects of craft brewing.
STANDARDIZED PRODUCTION AND CENTRALIZED PURCHASING. The Company plans
to aggressively standardize production methods and equipment throughout its
breweries while setting the highest quality assurance standards,
implementing cost efficient production techniques, optimizing production
utilization and gaining savings through centralized purchasing and
centralized production planning.
CENTRALIZED ACCOUNTING & ADMINISTRATION. The Company expects to
realize significant manpower savings and efficiencies by centralizing all
accounting, order processing, inventory management, scheduling, legal,
compliance, licensing and M.I.S. functions and activities. The Company is
centralizing its accounting department in charge of all its functions and
its customer service department in charge of order processing, inventory
management, scheduling and shipping.
CENTRALIZED MARKETING PLANNING AND SUPPORT. The Company expects to
benefit from available resources, efficiencies and cost savings in the
field of marketing planning, advertising & promotion. The Company's
marketing department coordinates all marketing planning, product
development and ATF and ABC compliance activities for all brands. It
manages point of sale materials development, purchasing and inventory,
events planning, promotion and advertising campaign development and
scheduling.
Distribution Network: Combined, the Breweries utilize more than 100
distributors in 35 states. With some of these distributors, the Breweries
have a multi-faceted relationship which may include several of the
Company's brands, private label and contract brewing. The Company also
maintains a sales support organization to properly support and service
these distributors, make joint retail account calls and be involved in
events and promotions in the distributors' territories.
Management: The Company has assembled a management team skilled in
managing entrepreneurial growth companies and consumer food products
marketing. The Breweries provide additional
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brewing expertise and sales manpower. The Company has started the process
of coordinating sales & marketing, production and administrative activities
of the Breweries in anticipation of the closing of the transactions.
Brewing Capacity Expansion
The Company plans to substantially increase combined brewing and bottling
capacity within the first 18 months after the close of this Offering, up to
approximately 150,000 barrels per year. In the twelve month period following
thereafter, the Company plans to increase its production capacity up to 240,000
barrels per year. The increases in capacity assume the acquisition of additional
breweries and the availability of capital, of which no assurances can be
provided.
Key to the Company's short to medium term strategy is to be the first to
expand its regional brewing operations in Southern California, and to expand its
brewing operations in the South-East United States. As a first step to improving
its Southern California operating efficiency, the Company is considering plans
to integrate Heritage Brewing Company's brewing operation and Riverside Brewing
Company. brewery into a single facility.
The Company plans to become a low cost operator through the implementation
of uniform, state-of-the-art operating systems, economies of scale, and creating
a truly integrated nationwide multi-location operation. The Company plans to
aggressively standardize and increase overall production capacity while setting
the highest possible quality assurance standards, implementing cost efficient
production techniques, and optimizing production utilization. Implementing these
plans depend on the availability of capital.
Both flash and tunnel pasteurization are planned for all the Breweries. The
Company plans to utilize pasteurization on selected products to provide
additional assurances for product stability and extended shelf life. Two of the
Company's products lines, "Hussong's Cerveza" and "Red Pig" are presently
pasteurized.
Marketing Strategies
The Company's marketing and marketing communication strategies focus on
developing strong local brand awareness and following of the Company's brands,
in particular in those markets in which the Breweries currently are located. The
Company wants to emphasize the advantage of consuming fresh locally produced
beer over beer imported from out-of-state. At the same time it plans to utilize
its multi-location brewing capacity and comprehensive distribution network to
establish a nationwide presence for some of its brands. The Company plans to
grow its contract brew business from medium sized contract brewers, to optimize
the Company's competitive position and use of brewing capacity.
Products/New Products
The Company is involved in the ongoing development of unique quality brews
aimed at high growth niche market segments. It utilizes the combined experience
of eight experienced and acclaimed brewmasters whose brews have won numerous
awards.
PRODUCTS
The Company, upon the closing of the Offering, will market a total of 26
different beers on a regular basis. Although most of these brews are sold
year-round, some are seasonal. All of the Company's beers are hand-crafted in
100 to 200 barrel batches using traditional European brewing methods. The
Breweries brew their beers using only high quality hops, malted barley, wheat,
rye and other natural ingredients, and do not use any corn, rice, syrups or
other adjuncts.
In addition to its own brands, the Breweries operate as contract breweries
for various contract brew brands, and produce private label contract brews for
several well-known restaurant chains such as Claim Jumper and Elephant Bars,
both of which are in California. Some of the Company's beer products are
pasteurized (Hussong's, Red Pig) to provide for additional assurance of product
stability and freshness under extreme distribution and storage conditions. All
brews are marketed on the basis of quality, freshness and unique, distinctive
flavor profiles.
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Riverside Brewing Company
Golden Spike Pilsner: A European style pilsner, with a hoppy aroma and a
dry crisp Czech hop flavor and long dry hop aftertaste (Bronze Certificate-1996
California State Fair, World Champion-1995 World Beer Championships, Gold
Medal-1995 Colorado State Fair, Silver Medal-1995 California State Fair, Silver-
1995 California State Fair, Silver-1995 Karnival of Beers, Bronze Medal-1993
Great American Beer Festival).
Pullman Pale Ale: A deep gold, pleasantly hopped ale with a malty aroma
and unique flavor (Silver Medal-1996 World Beer Championships, Silver Medal-1996
World Beer Cup, Silver Certificate-1996 California State Fair, Gold Medal-1995
California Beer Festival, Gold Medal-1995 Karnival of Beers, Silver Medal-1995
World Beer Championships, Silver Medal-1995 Great American Beer Festival).
Victoria Avenue Amber Ale: Deep amber colored (Scottish) ale with a malt
aroma and a medium dry malt aftertaste, made with English Goldings hops (Bronze
Medal-1996 World Beer Championships, Gold Medal-1995 California State Fair,
Silver Medal-1995 Karnival of Beers, Silver Medal-1995 Colorado State fair,
Bronze Medal-1995 California Beer festival, Bronze Medal-1995 World Beer
Championships, Gold Medal-1994 Great American Beer Festival).
Raincross Cream Ale: A beautiful gold-colored brew with a well-hopped
aroma and flavor (World Champion-1995 World Beer Championships, Silver
Medal-1996 World Beer Championships, Bronze Certificate-1996 California State
Fair, Silver Medal-1995 California Beer Festival, Gold Medal-1995 California
State Fair, Bronze Medal-1995 Colorado State Fair).
7th Street Stout: A sophisticated, deep brown stout with a very pleasant
aftertaste (Silver Medal-1996 World Beer Championships, Gold Medal-1995 Karnival
of Beers, Bronze Medal-1994 Great American Beer Festival).
#119 Maybock: A traditional, malty maybock with slightly more hop flavor
(Bronze Medal-1996 World Beer Championships, Silver Certificate-1996 California
State Fair, Bronze-1996 BTI).
#119 Seasonal: (Silver Medal-1996 World Beer Championships).
St. Stan's Brewing Co.
St. Stan's Red Sky Ale: This red-hued pale ale with a medium body is St.
Stan's top selling brew (Silver Medal-1996 World Beer Championships, Gold
Medal-1994 Malt Advocate, Silver Medal-1994 Wine Enthusiast).
St. Stan's Amber Alt: An amber colored, smooth beer made in the "Altbier"
style of Dusseldorf, Germany (Silver Medal-1996 World Beer Championships, Silver
Medal-1995 World Beer Championships, Bronze Medal-1987 Great American Beer
Festival).
St. Stan's Dark Alt: A dark colored brew with a chocolate roasted malt
flavor, made in the "Altbier" style of Dusseldorf, Germany (Gold Medal-1995
World Beer Championships, Bronze Medal-1993 Karnival of Beers).
St. Stan's Whistlestop Ale: A light and clean traditional British Pale Ale
with a golden straw color.
St. Stan's Fest Beer: A copper colored winter brew (Silver Medal-1994
Karnival of Beers, Gold Medal-1991 Beer Connoisseur Guide).
St.Stan's Graffiti Wheat: A light and slightly hazy, refreshing and fruity
summer wheat brew, with a unique "American Graffiti" marketing theme.
Heritage Brewing Company
Hussong's Cerveza Extra: Hussong's (produced under license of Hussong's
Cantina in Ensenada, Mexico) is a uniquely positioned lifestyle type of
specialty beer. The Hussong's product line include two beer types: Hussong's
Extra, a high-end, light, crisp Mexican Style beer, and
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Hussong's Cerveza Negra: A very smooth, deep amber ale. Hussong's beers
are pasteurized to guarantee product stability and extended shelf life under all
circumstances.
Mulligan: An easy to drink, light colored brew with a crisp, well-hopped
aroma and flavor.
Red Fox: A robust, flavorful, classic American pale ale, generously dry
hopped (Bronze Medal-1993 Great American Beer Festival).
Chicago Brewing Company
The following brands are marketed by the Company under the reciprocal
production and marketing agreement with Chicago Brewing Company.
Legacy Lager: A bright amber brew with a smooth malt taste and subtle hop
aroma, formulated to recreate the rich, full flavored beer brewed in Chicago
prior to the Prohibition (Gold Medal-1996 World Beer Championships, Silver
Medal-1995 World Beer Championships, Bronze Medal-1995 Colorado State Fair, Gold
Medal-1994 Denver International Beer Tasting, Silver Medal-1994 World Beer
Championships, Gold Medal-1992 Great American Beer Festival, Gold Medal-1991
Great American Festival).
Legacy Red Ale: Brewed after the Celtic brewers of Ireland. Has a deep red
hue, fresh aroma and a rich malt body (Silver Medal-1996 World Beer
Championships, Silver Medal-1995 Colorado State Fair, Bronze Medal-1995 World
Beer Championships, Best Irish Ale-1993).
Heartland Weiss: Made after a traditional German wheat beer. Is a
refreshing brew with a light body, and is available seasonally from April to
October (Gold Medal-1994 World beer Championships, Bronze Medal-1992 Great
American Beer Festival).
Big Shoulders Porter: An authentic English style Porter with a smooth body
and a creamy chocolate & caramel malt taste (Silver Medal-1995 World Beer
Championships, Bronze Medal-1995 Colorado State Fair, Best Porter-1995 USA
Today, Silver Medal-1994 Denver International Beer Tasting, Silver Medal-1994
World Beer Championships).
Big Shoulders Bock: A true German style bock beer with a rich and smooth
malty flavor (Gold Medal-1996 World Beer Championships, Bronze Medal-1995
Colorado State Fair).
Contract Brews/Private Label Brands/Other
Claimjumper Honey Blond Ale: Private label brew for Claimjumper
restaurants, brewed at Riverside Brewing Co.
Claimjumper Original Red Ale: Private label brew for Claimjumper
restaurants, brewed at Riverside Brewing Co. (Silver Medal-1996 World Beer
Championships).
Red Pig Ale: Contract brew for Cabo Distributing, California, brewed at
Heritage Brewing Co., Riverside Brewing Co. and Chicago Brewing Co.
BREWING FACILITIES
Heritage Brewing Company, Lake Elsinore, California
Heritage operates a 12,000 barrels per year brewery in a 5,400 square feet
brewing facility and 4,000 square feet warehouse in Lake Elsinore, California.
The brewery has a 50 barrel brewhouse and twelve 50 barrel fermentation tanks.
The brewery has a 120 bottles per minute bottling line for 12 ounce and 22 ounce
bottles and a kegging line that can clean and fill 15 kegs per hour.
Riverside Brewing Company, Riverside, California
The brewpub is located in a leased, 75 year old brick building in the
historic Mission Inn district of Riverside, California. The production capacity
of the brewpub facility is 4,500 barrels per year. The brewpub has a 14 barrel
brewhouse, four 14-barrel fermentation tanks, twelve 7 barrel bright beer tanks
and other
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brewing equipment. It has no bottling line. The brewpub consists of a bar area
that seats 175, a restaurant that seats 148, and outside seating locations that
seat 220. The brewpub mainly serves its own brews and features a variety of food
items on its menu. From time to time the brewpub features live music or other
events such as cigar and beer tasting nights. The brewpub employs 30 full time
and 40 part time staff, including a full-time brewmaster.
The brewery is located in an industrial park in Riverside in a 18,000
square feet leased facility which has an initial production capacity of up to
30,000 barrels per year which can be expanded to 80,000 barrels per year. The
brewery has a 50-barrel capacity brewhouse and ten 100-barrel fermentation
tanks. The brewery has a bottling line with a throughput of approximately 160
bottles per minute, with the ability to produce both 22-fluid oz. and 12-fluid
oz. bottles. The brewery's kegging line can clean and fill approximately 30 kegs
per hour.
The Company had purchased tunnel pasteurization equipment, which was
initially planned for installation at Heritage, but which can be put to use more
effectively at Riverside Brewing Company's operation. The pasteurizer has an
initial capacity of 60 bottlers per minute at a rate of 12 pasteurization units,
and can be upgraded to 120 or 180 bottles per minute.
St. Stan's Brewing Company, Modesto, California
St. Stan's Brewing Company is located in a custom-built facility in the
downtown area of Modesto, California. The facility was completed in October 1990
and is part of a 14,500 sq. ft. which includes the brewery, a brewpub and gift
shop. The brewery currently has an annual capacity of approximately 20,000
barrels per year. The brewery has a 60-barrel capacity brewhouse and eight
120-barrel fermentation tanks and certain other equipment. The divisions's
kegging machine is staff built and has a production capacity of approximately 30
kegs per hour. Its bottling line has throughput of approximately 180 bottles per
minute. The brewery can be expanded to an annual capacity of approximately
50,000 barrels through the addition of fermentation tanks. The two-story brewpub
has a contemporary European appearance, and has a combined seating of
approximately 300 in its restaurant and bar area. The brewpub mainly serves
beers brewed in the brewery and features a variety of food items on its menu.
From time to time the brewpub features live music. The brewpub employs 28 full
time and part time staff. The brewpub and brewery share management,
administrative and office resources.
Chicago Brewing Company, Chicago, Illinois
The Company has entered into a reciprocal production and marketing
agreement with Chicago Brewing Company. The brewery was completed in 1990 and
occupies 21,000 sq. ft. in a 110,000 sq. ft. facility. The brewery currently has
an annual capacity of approximately 24,000 barrels per year; assuming the
company maintains its current product mix-production capacity increases to
30,000 barrels by producing all ale products. The brewery has a 50-barrel
capacity brewhouse and twelve 130 barrel tanks and three 110 barrel tanks. The
brewery's kegging machine is staff built, manually operated with a throughput of
approximately 65 kegs per hour. The brewery recently installed a new bottling
line which has a throughput of approximately 125 bottles per minute. The brewery
has flash pasteurization capability.
BREWING OPERATIONS
Brewing Ingredients
The Company's beers, which follow the German food purity law, are made only
from four natural ingredients: malted barley, hops, yeast, and water. The most
commonly used source of sugars for beer fermentation is provided by barley
grain. The grain contains complex sugars which, after processed in the malting
plant, provide the simple sugars for fermentation. The barley variety used by
the Company is two-row which provides fewer undesirable components than the
six-row varieties used by many large US breweries. Selected world class hops,
including many European varieties, provide bitterness, aromatics and flavor.
Yeast is a single-celled organism whose metabolism converts sugar into alcohol
and carbon dioxide. The yeast ferments the sugar water, known as "wort," which
is derived from the malted barley.
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Malting
The maltster steeps the barley grain in water to induce a controlled
germination followed by air drying and in some cases roasting via kilning. This
process, known as "malting", prepares the malt, through the creation of enzymes,
so that upon mashing, simple sugars are easily obtained from the complex sugars.
The malting process also imparts color and flavor characteristics to the grain.
The malted barley, referred to as "malt" is then sold to the brewery.
Mash/Lautering
The purpose of the mashing process is to create food for the yeast. Various
roasted and non-roasted malts are milled, and mixed with hot water in the mash
tun. Mashing is performed at either a constant temperature, or a series of
rising temperatures, depending on the brewing equipment, the raw materials being
used and the type of beer being brewed. During the mash, the complex
carbohydrates are converted into fermentable sugars. Enzymes, created in the
malting process, facilitate this conversion. The mash is then rinsed either in
the lauter tun or the mash tun to produce the wort which is high in fermentable
sugars. The mash system variables are controlled to determine the composition of
the wort and, ultimately, the taste and type of beer being brewed.
Brew Kettle Boiling
Before entering fermentation, the wort flows into a brew kettle to be
boiled, concentrated and clarified. Hops are added during the boil to impart
bitterness, aroma and flavor balance. The specific mixture of hops and the
timing of their addition is critical to produce the desired type beer. The
Company selects its hops from specific growing areas around the world and from
among a number of specific varieties cultivated within those growing areas.
Fermentation
After the boil, the wort is strained, cooled, aerated and then transferred
to the fermentation cellar. Here a controlled amount of a proprietary yeast
strain, at a selected temperature, is added ("pitched") to create fermentation.
Some of the carbon dioxide is recaptured and absorbed back into the beer,
providing a natural source of carbonation. The yeast may be either saccharomyces
carlsbergensis (used in lager beers) or saccharomyces cervisiae (used in alts,
ales, porters and stouts). Primary fermentation can take up to five days during
which time the yeast multiplies a number of time by "budding". At the end of
fermentation, a quantity of yeast is removed and stored for re-pitching. At the
conclusion of the fermentation, the beer is usually transferred to another tank.
The selection of krausening and/or lagering storage processes is an
important choice of the brewer as it determines the length of time required to
produce each batch of beer and therefore, the capacity of a brewery as well as
the cost of producing the beer. Krausening is a process which adds about one
week to the normal brewing cycle and is an important step in producing quality
beers. Many of the Company's beers undergo the kruasening process. During
Krausening, a small portion of young, still actively fermenting beer and yeast
is added to a tank of beer at the end of primary fermentation to produce a
second fermentation. Krausening produces a smoother, balanced beer flavor and
body. The carbon dioxide is produced is allowed to naturally carbonate the beer.
Lagering is a process, used with beers fermented with bottom yeasts, during
which the temperature of the beer is slowly reduced. This helps reduce harsh
flavor products resulting from this type of yeast, as well as clarifying and
mellowing the beer. Lagering may take from one week to several months.
Maturation/Finishing
After fermentation, the beer is cooled for several days while the beer is
clarified and full flavor develops. Depending on the style of product, the fully
conditioned beer may be filtered for clarity and/or carbonated for bottling or
keg racking. Filtration removes unwanted protein, yeast and bacteria. At this
point, the beer is in its
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peak condition and ready for bottling or keg racking. The entire brewing process
of ales, from mashing through filtration, is typically completed in 10 to 17
days, depending on the formulation and style of the product being brewed. For
lager beers the period ranges from one to six months.
Quality Control
The Company currently monitors its beer production with in-house analytical
and micro biological tests. These tests monitor product quality, retail shelf
stability, CO(2), color and bitterness, oxidation, yeast condition and unwanted
bacteria. The Company also utilizes independent laboratories for further product
analysis.
Kegging and Bottling
The Company packages its craft beers in both bottles and kegs. The
packaging of beer is mechanically complex requiring the beer be handled under
pressure, with minimal loss of its carbonation, while being sanitary packaged
into a variety of packages, some with specific labeling for various states. The
Company has a variety of options for packaging its bottle and keg
configurations.
SUPPLIERS
The Company deals with a variety of suppliers for the sourcing and
purchasing of raw materials for the Breweries. No one supplier accounts for more
than 10% or more of total purchases for the four month period ended April 30,
1996 (unaudited). St. Stan's Brewing Company purchased certain products from two
companies which accounted for approximately 27.3% and 12.0% of total purchases
in 1995, and 26.0% and 11.3% of total purchases in 1994. Two companies accounted
for approximately 26.8% and 17.9% of total purchases for the four months ending
April 30, 1996 (unaudited). Riverside Brewing Company purchased certain products
from three companies which accounted for approximately 13% (unaudited) and two
companies which accounted for approximately 69% (unaudited) of total purchases
for the four months ended April 30, 1996 and 1995, respectively. One company
accounted for approximately 40% and 38% of product purchases for the years ended
December 31, 1995 and 1994, respectively. Accounts payable to one company
accounted for 30% (unaudited) and 26% as of April 30, 1996 and December 31,
1995, respectively.
DISTRIBUTION
The Breweries' products are currently distributed through a network of
independent beer and liquor wholesale distributors. These products are generally
sold in bottles and kegs to restaurants, brewpubs, bars and taverns, as well as
in bottles to supermarkets, warehouse clubs, convenience stores and liquor
stores. The Company's distribution strategy is to select its distributors on the
basis of who it believes is best able to promote a variety if not all of the
Company's products in a given market. In each of its targeted markets, the
Company selects its distributors based on certain criteria, including: (i)
market strength measured in terms of financial resources and number and size of
accounts served, (ii) commitment to expend resources to educate consumers and
retailers about the high quality and unique tastes of craft beer, (iii) ability
to properly execute marketing and promotions programs, and (iv) reputation for
customer service, including the ability to frequently service retail accounts,
rotate stock to maintain freshness, monitor tap lines and beer storage.
Distributors selected to date include distributors whose primary products are
produced by Anheuser-Busch, Miller and Coors and wine and spirits makers. The
Company spends considerable time and effort to establish, maintain and support
its relationship with distributors. The Company also offers its products
directly to consumers at the Company's brewpub-restaurants in Modesto and
Riverside, California. Chicago Brewing Company, with which the Company has
entered a reciprocal production and marketing agreement, self-distributes in the
city of Chicago.
The Company demonstrates its commitment to the Breweries' independent
distributors in many ways, including its refusal to sell directly to retail
accounts within the appointed distributors' territories and, where permitted by
law, involving distributors' sales representatives in the Company's distributor
incentive programs.
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Each of the Breweries' distribution agreements appoints the distributor as
the exclusive distributor for one or more of the Breweries' products in a
specific geographic area, subject in certain cases to the Breweries' rights to
engage in certain limited retailing activities. The distribution agreements
provide that payment shall be made in full not less than 30 days after the date
of delivery. The distribution agreements also provide for general cooperation
among the distributors and the Breweries' in marketing, merchandising and
promotional efforts. These distribution agreements may be terminated by either
party 30 or 60 days after written notice of dissatisfaction with performance
specifying the grounds for such dissatisfaction if the specified deficiencies
have not been cured by the end of the 30 or 60-day period. In some states, the
terms of the Breweries' contracts with its distributors may be affected by laws
that restrict enforceability of some contract terms, especially those related to
the Breweries' right to terminate the services of its distributors.
At the time of this offering, the Breweries' products are not necessarily
distributed through the same wholesale distributors in certain markets.
Riverside Brewing Company has appointed 40 distributors in 28 states. St. Stan's
Brewing Co. has appointed 35 distributors in 19 states. Chicago Brewing Company
has appointed 52 primary distributors in 21 states. The Company may consolidate
distribution of the Breweries' brands through the same distributors in certain
markets if efficiencies and marketing advantages can be obtained. Such plans may
be subjected to or constrained by state regulations.
Three distributors accounted for 37%, 23% and 17% of Heritage net sales
(unaudited), respectively, for the four-month period ended April 30, 1996. For
St. Stan's Brewing Co. five distributors accounted for 35.4% and 28.9% of sales,
of which one distributor accounted for 10.1% of 1995 sales, during the years
ended December 31, 1995 and 1994, respectively. For the four months ended April
30, 1996 (unaudited), five distributors accounted for 26.5% of sales. Five
distributors accounted for 69.5% and 42.5%, of which one distributor accounted
for 33.6% of the accounts receivable balance at December 31, 1995, of the
accounts receivable balance at December 31, 1995 and April 30, 1996 (unaudited),
respectively.
For Riverside Brewing Company one distributor accounted for approximately
23% (unaudited) of consolidated net sales for the four months ended April 30,
1996. No one distributor made up 10% or more of net sales for the four months
ended April 30, 1995 (unaudited). Two distributors accounted for approximately
18% of consolidated net sales for the year ended December 31, 1995 and one
distributor accounted for approximately 18% of consolidated net sales for the
year ended December 31, 1994.
SALES AND MARKETING
Marketing Strategies
The Company's marketing and marketing communication strategies focus on
developing strong local brand awareness and consumer following for the Company's
brands, in particular in those markets in which the Breweries are currently
located, while assisting further volume throughput, broader account penetration
and encouraging an increased level of trial purchases. The Company wants to
emphasize the advantage of consuming fresh locally produced beer over beer
imported from out-of-state. At the same time it plans to utilize its
multi-location brewing capacity and comprehensive distribution network to
establish a nationwide presence for some of its brands. At the same time the
Company plans to grow its contract brew business from medium sized contract
brewers to optimize Company's competitive position and utilization of brewing
capacity and resources. This will be achieved through effective regional
communications campaigns, retail and distributor incentive programs.
Advertising & Promotion
The Company has allocated approximately $1 million from the proceeds of the
Offering towards product development, market research, point of sale materials,
and promotion and paid advertising to be spent over the next 18 months. See "Use
of Proceeds."
The Company has retained the creative services of Paragon Design, a well
respected creative agency known for its marketing communication programs for
clients that include Disney Consumer Products, MCA/Universal Entertainment
(Jurassic Park, Apollo 13), Mattel Toys, Baskin Robbins, L.A. gear,
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AirTouch and others. Paragon has been assigned with formulating brand
strategies, creative campaigns, new packaging designs, and creating a corporate
identity program for Beverage Works and the Breweries.
Pricing
Craft beers generally sell at a price premium relative to domestic
industrial beers, with retail prices for craft beers typically ranging from
$4.99 to $7.99 per six pack of 12 ounce bottles versus approximately $2.99 to
$3.99 for industrial beers. This price premium provides generally higher profit
margins for the distributors and retailers that offer craft beers. The Company
believes that distributors and retailers are eager to increase their sales of
higher margin craft beers as industrial brewers continue to wage price wars to
gain market share in this flat growth segment thereby decreasing distributor's
margins. To further increase retail product sales, the Company periodically
offers "post-offs," or price discounts to its distributors. Distributors and
retailers often participate in these price discounts.
New Products
Key to the Company's success is the ongoing development of unique quality
brews for high growth market segments. It utilizes the combined experience of
its brewmasters whose brews have won numerous awards. Among other market
segments, the Company plans to focus on small batch, high margin brews.
Contract Brews
The Breweries close proximity to key markets positions the Company to
improve utilization of its current and future brewing capacity and generate
additional income by expanding its already strong contract brewing and private
label business. The Company is currently having discussions with several
potential contract brew customers.
International Operations
The Company is negotiating a reciprocal production and marketing agreement
with "US Micro Brewing Ltd." U.S. Micro Brewing, Ltd. currently owns and
operates the South China Brewing Company in Hong Kong, and is in the process of
opening several micro breweries in key growth markets in the Pacific Rim, Europe
and Mexico. The planned cooperation may include domestic distribution,
imports/export, exchange of brewing knowledge and marketing techniques, product
formulas, and utilization of brewing capacity. The Company is also having
discussions with N.V. Pauwels, owned by one of the Company's overseas investors,
a Belgian corporation, operating in the field of consumer food products
manufacturing, marketing and distribution, regarding the possible manufacture
and distribution of the Company's products in Europe.
COMPETITION
The craft-brewed and high-end segments in the U.S. beer market are highly
competitive due to continuing proliferation of micro-brewers and contract
brewers, the recent introduction of fuller flavored beers by national brewers,
efforts by other micro-brewers to expand their production capacities and a
general surplus of under-utilized domestic brewing capacity, which facilitates
existing contract brewer expansion and the entry of new contract brewers. Recent
growth in the sales of craft-brewed beers are expected to increase competition
and, as a result, prices and market share of the Company's products may
fluctuate and possibly decline.
Direct competitors of the Company include all large contract brewers,
regional brewers and local micro brewers. Indirect competitors include the major
national mass producers such as Anheuser Busch, Inc. and Adolph Coors Brewing.
The national brewers, recognizing the significant growth potential and the
slight but growing shift in market share from national mass-produced beers to
craft brews, have made significant investment in the craft brew industry. The
Company expects that certain of the major national brewers, with their greater
financial resources and established national distribution networks, will seek
further participation in the continuing growth of the craft beer segment through
investments in, or formation of distribution alliances with, craft brewers. The
increasing participation of the major national brewers will likely increase
competition for market share and increase price competition within the craft
beer segment. Many of the
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Company's competitors in the craft beer segment have greater financial and other
resources than the than the Company. See "Risk Factors -- Increased Competition
for Specialty Beers."
The Company's products also compete generally with other alcoholic
beverages including other segments of the beer industry and low alcohol
products. The Company competes with other beer and beverage companies not only
for consumer acceptance and loyalty but also for shelf and tap space in retail
establishments and for marketing focus by the Company's distributors and their
accounts, all of which also distribute and sell other craft brews, beers and
alcoholic beverage products. The Company also competes against producers of
imported beers. Although imported beers currently account for a much greater
share of the U.S. beer market than craft beers, the Company believes that local
craft brewers possess some competitive advantages over certain importers,
including lower shipping and no importation costs, proximity to and familiarity
with local consumers, a higher degree of product freshness, eligibility for
lower federal excise taxes and freedom from currency fluctuations.
The principal methods of competition in the craft-brewed segment of the
beer industry include product quality and taste, brand advertising, trade and
consumer promotions, pricing, packaging and the development of new products. The
Company believes that its competitive position is enhanced by its dedication to
product quality and its ability to deliver fresh product brewed locally in
multiple markets, lower production and transportation costs resulting from
operating efficiencies, innovative marketing and advertising methods, a broad
and diverse product/brand lineup, new product launches and award winning quality
brews.
REGULATION
The manufacture and sale of alcoholic beverages is a highly regulated and
taxed business. The Company's operations may be subject to more restrictive
regulations and increased taxation by federal, state and local governmental
entities than are those of non-alcohol related businesses. Federal, state and
local laws and regulations govern the production and distribution of beer. These
laws and regulations govern permitting, licensing, trade practices, labeling,
advertising, marketing, distributor relationships and related matters. Federal,
state and local governmental entities also levy various taxes, license fees and
other similar charges and may require bonds to ensure compliance with applicable
laws and regulations. Failure by the Company to comply with applicable federal,
state or local laws and regulations could result in penalties, fees, suspension
or revocation of permits, licenses or approvals. There can be no assurances that
other or more restrictive laws or regulations will not be enacted in the future.
See "Risk Factors -- Government Regulation; Taxation."
Licenses and Permits
The Breweries produce beer and sell it to distributors or retailers.
Brewery and wholesale operations require various federal, state and local
licenses, permits and approvals. In addition, some states prohibit wholesalers
and/or retailers from holding an interest in any supplier such as the Company
and the Breweries. Violation of such regulations can result in the loss or
revocation of existing licenses by the wholesaler, retailer and/or the supplier.
The loss or revocation of any existing licenses, permits or approvals, failure
to obtain any additional or new licenses, permits or approvals or the failure to
obtain approval for the transfer of any existing permits or licenses could have
a material adverse effect on the ability of the Company to conduct its business.
On the federal level, brewers are required to file with the Bureau of Alcohol,
Tobacco and Firearms ("ATF") an amended Brewer's Notice every time there is a
material change in the brewing process or brewing equipment, change in the
brewery's location, change in the brewery's management or a material change in
the brewery's ownership. Brewers must seek ATF approval of an amended Brewer's
Notice prior to the change taking place. The Company's operations are subject to
audit and inspection by ATF at any time.
On the state and local level, some jurisdictions merely require notice of
any material change in the operations, management or ownership of a permittee or
licensee. Some jurisdictions require advance approvals and require that new
licenses, permits or approvals must be applied for and obtained in the event of
a change in the management or ownership of the permittee or licensee. State and
local laws and regulations governing the sale of beer within a particular state
by an out-of-state brewer or wholesaler vary from locale to locale.
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ATF permits and brewer's registrations can be suspended, revoked or
otherwise adversely affected for failure to pay tax, to keep proper accounts, to
pay fees, to bond premises, to abide by federal alcoholic beverage production
and distribution regulations and to notify ATF of any change (as described
above), or if holders of 10% or more of the Company's equity securities are
found to be of questionable character. Permits, licenses and approvals from
state regulatory agencies can be revoked for many of the same reasons.
Because of the many and various state and federal licensing and permitting
requirements, there is a risk that one or more regulatory authorities could
determine that the Company has not complied with applicable licensing or
permitting regulations or does not maintain the approvals necessary for it to
conduct business within their jurisdictions. There can be no assurance that any
such regulatory action would not have a material adverse effect upon the Company
or its operating results.
TAXATION
The federal government and each of the states levy excise taxes on
alcoholic beverages, including beer. For brewers producing no more than
2,000,000 barrels of beer per calendar year, the federal excise tax in $7.00 per
barrel on the first 60,000 barrels of beer removed for consumption or sale
during a calendar year, and $18.00 per barrel for each barrel in excess of
60,000. For brewers producing more than 2,000,000 barrels of beer in a calendar
year, the federal excise tax is $18.00 per barrel. None of the breweries
currently produces more than 60,000 barrels per year. Individual states also
impose excise taxes on alcoholic beverages in varying amounts, which have also
been subject to change. The state excise taxes are usually paid by the Company's
distributors.
Congress and state legislatures routinely consider various proposals to
impose additional excise taxes on the production and distribution of alcoholic
beverages, including beer, in connection with various governmental
budgetbalancing or funding proposals. Further increases in excise taxes on beer,
if enacted, could result in a general reduction of malt beverage sales and
adversely effect the Company's performance.
TRADEMARKS
The Company and the Breweries have obtained or applied for U.S. Trademark
Registrations for the marks of its products, and in some cases for most of its
logo designs. The Company regards its trademarks as having substantial value and
as being an important factor in the marketing of its products. The Company is
not aware of any infringing uses that could materially affect its current
business of any prior claim to the trademarks that would prevent the Company
from using such trademarks in its business. The Company's policy is to pursue
registration of its marks whenever possible and to oppose vigorously any
infringements of its marks.
EMPLOYEES
The Company and its subsidiaries will employ 135 employees after the
closing of the Offering, including 26 in brewery operations, 98 in the
brewpubrestaurants, 4 in administration and 8 in sales and marketing. These
include all employees of St. Stan's Brewing Company, of which the Company owns
51% in a joint-venture. None of the Company's employees is represented by a
labor union. The Company has experienced no work stoppages and believes that its
employee relations are good.
PROPERTIES
The St. Stan's Brewery and Brewpub is located at 821 L Street in Modesto,
California. The 14,500 square foot building was constructed in 1991. The
building is subject to a 50-year ground lease which expires in 2038, at which
time the building and ground lease revert back to the lessor. The ground lease,
which was originally entered into between the lessor and Stanislaus Brewing
Company, Inc., was subleased to Prost Partners. The sublease includes base rent
increases over the term of the lease at the lesser of (1) the percentage change
that occurs in the Consumer Price Index or (b) five percent (5%). In addition to
base rent increases, appraisals are required at scheduled dates. The minimum
annual rental payments, after a land appraisal, shall be based on no less than
12% of the appraisal amount. In addition to the base rental payments, the
sublease agreement requires the payment of the real property taxes and insurance
costs. The monthly rental under the ground lease and sublease is $4,250.
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The Riverside Brewing Company brewery is located in an industrial park, in
Riverside, California. The brewery occupies five suites of approximately 26,000
square feet. The total monthly rent is $9,889.00. The Riverside Brewing Company
pays an additional 18% of the common area operating expenses. The leases expire
March 31, 1998. The brewery leases are in the name of John Barnicoat, the former
president of Orange Empire Brewing Company, who has assigned these leases to the
Riverside Brewing Company. The Riverside Brewing Company brewpub is located in
Riverside, California's Mission Inn District. The brewpub occupies approximately
5,000 square feet. The total monthly rent is $6,365.40. This lease expires
August 2003. In addition, the Riverside Brewing Company leases substantially all
of its equipment and other personal property under a capital lease with a
related party expiring through August 2003).
Heritage's Brewery is located in Lake Elsinore, California. Total monthly
rent is $2,170. The lease expires in 1998. The Company does not intend to renew
the lease.
The Company's principal executive offices are located at 9800 South
Sepulveda Boulevard, Los Angeles, California. The monthly rent is $500 and the
term is month to month. The company's other executive office is located in
Newport Beach at 2431 West Coast Highway, Newport Beach, California. The monthly
rent payment is $1,800 and the term of the lease is month to month.
ENVIRONMENTAL REGULATIONS AND OPERATING CONSIDERATIONS
The Company's brewing operations are subject to a variety of extensive and
changing federal, state and local environmental laws, regulations and ordinances
that govern activities or operations that may have adverse effects on human
health or the environment. Such laws, regulations ordinances may impose
liability for the cost of remediating, and for certain damages resulting from,
sites of past releases of hazardous materials. The Company believes that it
currently conducts, and in the past has conducted, its activities and operations
in substantial compliance with applicable environmental laws, and believes that
costs arising from existing environmental laws will not have a material adverse
effect on the Company's financial condition or results of operations. There can
be no assurance, however, that environmental laws will not become more stringent
in the future or that the Company will not incur costs in the future in order to
comply with such laws.
The Company's operations are subject to certain hazards and liability risks
faced by all brewers, such as potential contamination of ingredients or products
by bacteria or other external agents that may be wrongfully or accidentally
introduced into products or packaging. See "Business -- Brewing Operations." The
occurrence of such a problem could result in a costly product recall and serious
damage to the Company's reputation for product quality, as well as claims for
product liability which may negatively impact the Company. The Company maintains
insurance which the Company believes is sufficient to cover any liability claims
which might result from a contamination problem in its products, but which may
not cover any damage to the Company's reputation. See "Risk Factors -- Operating
Hazards."
LEGAL PROCEEDINGS
The Company and its subsidiaries are not currently involved in any material
pending legal proceedings other than discussed below. Other than as described
below, the Company is not aware of any material legal proceedings threatened
against it. Tamkin Investments has asserted that it has been damaged by the
Company negotiating and entering the acquisition agreement with Riverside
Brewing Co. and the partnership agreement with St. Stan's Brewing Co. in
violation of a confidentiality agreement and letter agreement dated January 18,
1996 and January 16, 1996, respectively. The confidentiality agreement provided
that the Company would not negotiate with these companies while these companies
were under letters of intent with Tamkin. The Company does not believe that
Tamkin Investments' claim has merit; however if Tamkin should prevail, the
Company cannot determine the amount of damages. The letters of intent with those
companies expired prior to the Company commencing negotiations with any of these
companies. The Company's consolidated financial statements do not reflect any
provision for loss, if any, that may result from the outcome of this matter.
Riverside Brewing Company ("RBC") is presently in litigation where the
plaintiff is claiming damages against Riverside in the amount of $60,000.
Controlling principals of RBC's parent corporation have agreed to indemnify the
Company for any loss, if any, incurred by RBC arising out of this litigation.
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MANAGEMENT
DIRECTORS AND OFFICERS
The directors and officers of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- ---- ---------------------------------
<S> <C> <C>
Frederik G.M. Rodenhuis.............................. 41 President, Chief Executive
Officer and Chairman of the Board
of Directors
Lyle R. Maul......................................... 44 Chief Financial Officer, Vice
President of Finance, Chief
Operating Officer, and Secretary
Garith Helm.......................................... 53 Vice President of Brewing
Operations
John Stoner.......................................... 38 Vice President of New Breweries
and Director
Kathleen Burke....................................... 43 Vice President -- Sales
Adam Wachtel......................................... 35 Director
Lord Charles Spencer-Churchill....................... 55 Director
Steven Scarano....................................... 35 Director
</TABLE>
MANAGEMENT BIOGRAPHIES
Frederik G.M. Rodenhuis, Chairman, President and Chief Executive
Officer. Mr. Rodenhuis has been the Chief Executive Officer and a director of
the Company since November 1995. From June 1993 to October 1995, Mr. Rodenhuis
was the chief executive officer of Seaborn Beverages Company. From April 1991 to
September 1992, he was Director International Marketing Development for Original
New York Seltzer, and was responsible for international and domestic marketing
policies. From June 1989 to April 1991, Mr. Rodenhuis was President of Interex
Corp., a United States subsidiary of KLM Royal Dutch Airlines, engaged in the
specialty freight business. From 1987 to 1989, he was Director of Corporate
Marketing of Burlington Air Express. Mr. Rodenhuis has a law degree and a
masters degree in business administration from Erasmus University, The
Netherlands. In March 1995, Mr. Rodenhuis filed for Chapter 13 bankruptcy
protection. He has advised the Company that this was due primarily to the use of
his personal resources over the last two years to guarantee and pay obligations
of Seaborn Beverages Company. Mr. Rodenhuis brings a wealth of domestic and
international experience in strategic product development, marketing and sales
management and corporate administration. Mr. Rodenhuis has conducted business in
key markets worldwide, speaks several foreign languages and has made numerous
media appearances nationwide.
Lyle R. Maul, Chief Financial Officer, Chief Operating Officer and
Secretary. Mr. Maul has been the Company's Chief Financial Officer since
November, 1995. From April 1995 he has been the President of Deretin
Enterprises, a financial consulting company. From October 1990 to April 1995,
Mr. Maul was the President of Deretin Enterprises, Inc. a business consulting
firm with clients in the following industries, among others: consumer products,
publishing, computer software, and real estate development. Mr. Maul is a co-
founder of Government Technology Services, Inc., which was listed as the fifth
fastest growing private company in the U.S. until it went public. It is now the
leading reseller of microcomputer equipment to the federal government. Prior to
this, Mr. Maul was a principal and Chief Financial Officer of Softeam, Inc., a
leading distributor of microcomputer products. Mr. Maul has been directly
involved with over ten entrepreneurial ventures and has extensive experience
with equity and debt financings for small businesses. Mr. Maul has a bachelors
degree in business administration and a masters degree in entrepreneurship and
venture management from the University of Southern California. Mr. Maul is also
a co-author of The Entrepreneur's Road Map to Success -- a winner of the
Benjamin Franklin Award as the Best Business/Career Book.
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Garith Helm, Vice President of Brewing Operations. Mr. Helm will oversee
all brewing production and quality control. Mr. Helm co-founded St. Stan's
Brewing Company along with Romy Angle in 1984. He designed and constructed the
company's first 3,000 barrel brewery and designed and coordinated the
construction of the current 50,000 barrel capacity brewery and pub. He currently
teaches Practical Brewing and Applications, a certified 180 hour course, at
California State University, Turlock. Since 1984, Mr. Helm has been the Chief
Executive Officer and brewmaster for Stanislaus Brewing Company, has designed
the brewery, the St. Stan's products and has provided the direction for the
growth of the Company. His brewing education was acquired at the University of
California Davis, in brewing science and as a practical home brewer from 1975 to
1984. From 1979 to 1989, Mr. Helm was employed by Lawrence Livermore National
Laboratory, first as an Engineer then as Engineering Manager responsible for
thirty-one research support engineers. From 1982 to 1988, he was resource
Manager in the Engineering Department with direct responsibility for developing
and managing a $51 million budget funding 600 full-time employees. Additional
responsibilities were supervising all engineering facilities, and manpower
allocations for 3,000 mechanical and electronic engineering employees. As one of
six members of the Engineering Executive Committee, he developed policy on broad
issues affecting the laboratory and was Chief of Staff to the Associate Director
for Engineering. From 1969 to 1979, Mr. Helm was a lecturer at California State
University Stanislaus in the Physics Department and was also the Electronics
Design Department Manager. From 1969 to 1972, he was a part-time lecturer in the
Electronics Department at Modesto Junior College. Mr. Helm received his bachelor
degree in physics in 1975.
Kathleen Burke, Vice President of Sales. Ms. Burke has been the Vice
President -- Sales for the Company since December 1995. From 1993 to the
present, Ms. Burke has been Vice-President of Sales of Seaborn Beverages Co.
From 1987 to 1993 she was Vice President of Sales for Southern California for
Original New York Seltzer.
John Stoner, Vice President of New Breweries. Mr. Stoner, the Company's
Chief Operations Officer from October 1995 to June 1996, is the chief executive
officer of Heritage Brewing Company, which he co-founded in September 1989. From
1981 to 1989, he was employed with Rockwell International being appointed
Manager of Operations. Mr. Stoner has a bachelor's degree in finance management
and operations and a masters degree in business administration from California
State University Long Beach.
Steven Scarano, Director. Mr. Scarano has been a partner in Scarano &
Lipton, P.C., a certified public accounting firm, since 1990. Since June 1995,
Mr. Scarano has also been the Chairman of the Board and President of American
Gladiators Dinner Theatre in Orlando, Florida. Since December 1994 Mr. Scarano
has also been a Director and Vice President of Colorstone International, Inc. He
is a member of the American Society of Certified Public Accountants and the New
York State Society of Certified Public Accountants.
Lord Charles Spencer-Churchill, Director. Lord Spencer-Churchill has been
employed by Forte PLC, a hotel chain. He is Vice President -- Guest Relations.
He is also executive Director of Venwin Systems, Inc.
Adam B. Wachtel, Director. Mr. Wachtel, the Company's initial controlling
shareholder, is a director and consultant of Imafina, Inc., a money management
firm with its principal offices in Fribourg, Switzerland since August 1994. Mr.
Wachtel is not a shareholder of Imafina, but does provide financial consulting
services on a per-transaction basis. Since March 1994, Mr. Wachtel has also been
the President of A.W. Meridian Group, Inc., a financial consulting firm which
sometimes invests its own funds. For the two years prior thereto, he was a
Managing Director of Whale Securities L.P., performing investment banking
duties. For the two years prior thereto, he was an Associate Director of First
Hanover, performing investment banking duties.
SIGNIFICANT EMPLOYEES
Mark Mericle, Operations Manager. Mr. Mericle is the other co-founder of
Heritage Brewing Company and is responsible for the brewing operations of
Heritage. From 1981 to 1989, he was employed with Rockwell International. Mr.
Mericle has a bachelor's degree in communications from California State
University Fullerton and has studied at the Institute for Brewing Studies.
42
<PAGE> 47
EXECUTIVE COMPENSATION
Compensation of Executive Officers. The following table sets forth the
cash compensation paid by the Company to its executive officers for services
rendered during the fiscal year ended December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
---------------------------------
AWARDS
-----------------------
ANNUAL COMPENSATION SECURITIES PAYOUTS
---------------------------------- RESTRICTED UNDERLYING ------- ALL
OTHER ANNUAL STOCK OPTIONS/ LTIP OTHER
NAME AND POSITION YEAR SALARY(1) BONUS COMPENSATION(2) AWARDS(3) SARS PAYOUTS COMPENSATION(4)
- --------------------------- ---- -------- ----- --------------- ---------- ---------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Frederik G.M. Rodenhuis.... 1995 $120,000 $ 0 $13,200 -- -- -- --
CEO and President
Lyle R. Maul............... 1995 $ 75,000 $ 0 $ 6,000 -- -- -- --
Chief Financial Officer,
Chief Operations Officer
and Secretary
John Stoner................ 1995 $ 75,000 $ 0 $ 6,000 -- -- -- $73,524
Vice President of New
Breweries
Mark Mericle............... 1995 $ 75,000 $ 0 $ 6,000 -- -- -- $73,521
Operations Manager
</TABLE>
- ---------------
(1) Assumes salary for a full year. See "Employment Agreements." Actual
compensation paid for the period August 2, 1995 (date of incorporation) to
December 31, 1995 to Messers. Rodenhuis and Maul was $20,000 and $12,000,
respectively. Actual salary paid for the period from November 8, 1995 to
December 31, 1995 by Heritage Brewing Company to Messrs. Stoner and Mericle
was $12,000. Actual salary paid for the period August 2, 1995 (date of
incorporation) through December 31, 1995 to Messrs Stoner and Merical was
$ and $ , respectively. See "Management -- Employment
Agreements."
(2) Assumes annual car allowance and nonaccountable expense allowance for Mr.
Rodenhuis. Assumes annual car allowance for Messrs. Maul, Stoner and
Mericle.
(3) On November 19, 1995, the Company authorized the grant of two plans whereby
officers of the Company would receive warrants to purchase shares of the
Company's Common Stock provided certain earnings criteria were achieved. The
first plan, the Management Warrant Plan, provided that a total of 333,500
warrants to purchase Common Stock at $4.50 per share have been granted to
certain executive officers or their designees based on the Company's
earnings. The second plan, the Supplemental Warrant Plan, provided that
Messrs. Rodenhuis, Maul and Stoner will be granted warrants to purchase a
total of 600,000 shares of Common Stock at $4.50 per share based on the
Company's earnings. The Company had not achieved any of the earnings
criteria to allow for the grant of any warrants under the Management Warrant
Plan or Supplemental Warrant Plan and, as part of receiving options under
the Incentive Stock Option Plan and Nonqualifed Stock Option Plan, agreed to
release the Company of any obligations under the Management Warrant Plan or
Supplemental Warrant Plan. See "Options Grant Table."
(4) Messrs. Stoner and Mericle received 24,508 and 24,507 shares of Common Stock
valued at $3.00 per share as consideration for consulting services provided
to the Company.
43
<PAGE> 48
OPTIONS GRANT TABLE
COMMON STOCK OPTIONS GRANTED IN FISCAL YEAR 1995(1)
<TABLE>
<CAPTION>
% OF TOTAL OPTIONS
NUMBER OF SHARES OF GRANTED TO
COMMON STOCK EMPLOYEES AND EXERCISE
UNDERLYING OTHERS IN FISCAL PRICE EXPIRATION
NAME OPTIONS GRANTED YEAR 1995 PER SHARE DATE
- ------------------------------------------ ------------------- ------------------ --------- ----------
<S> <C> <C> <C> <C>
Frederik G. M. Rodenhuis.................. 632,491 33.4% $5.20 9/3/06
Chief Executive Officer and President
Lyle R. Maul.............................. 632,491 33.4% $5.20 9/3/06
Chief Financial Officer, Chief
Operations Officer and Secretary
John Stoner............................... 113,584 6.0% $5.20 9/3/06
Vice President of New Breweries
Mark Mericle.............................. 113,584 6.0% $5.20 9/3/06
Operations Manager
</TABLE>
- ---------------
(1) The figures in this table describe the total number of options granted under
the Company's Nonqualified Stock Option Plan and Incentive Stock Option
Plan. See "Management -- Nonqualified Stock Option Plan" and "Incentive
Stock Option Plan." Messrs. Rodenhuis and Maul were each granted 382,491
options (or 41% each of the total granted) under the Nonqualified Stock
Option Plan and 250,000 options (or 26% each of the total granted) under the
Incentive Stock Option Plan. Messrs. Stoner and Mericle were each granted
63,584 options (or 7% each of the total granted) under the Nonqualified
Stock Option Plan and 50,000 options (or 5% each of the total granted) under
the Incentive Stock Option Plan.
EMPLOYMENT AGREEMENTS
The Company has a four-year employment agreement with Frederik G.M.
Rodenhuis, pursuant to which Mr. Rodenhuis is to serve as Chairman of the Board,
Chief Executive Officer and President of the Company through November 18, 1998.
The employment agreement provides for a minimum base salary of $120,000 per
annum, a $500 monthly car allowance, which increases $50 annually, health
insurance premiums for family members, personal professional fees in 1997 of
$2,500 increasing to $5,000 annually, life insurance premiums for the benefit of
Mr. Rodenhuis' beneficiaries increasing to $5,000 annually, $600 nonaccountable
monthly expense allowance, and such other benefits available to other Company
employees. Although Mr. Rodenhuis presently devotes his full business time to
the Company, his employment agreement permits him to engage in other business
activities that are not competitive with the business of the Company and that do
not materially interfere with his performance of his duties and responsibilities
to the Company.
The Company has a four-year employment agreement with Lyle R. Maul,
pursuant to which Mr. Maul is to serve as Chief Financial Officer, Chief
Operations Officer and Secretary. The employment agreement, which becomes
effective on the close of the Offering, provides for a minimum base salary of
$108,000 per annum, a $500 monthly car allowance, which increases $50 annually,
health insurance premiums for family members, personal professional fees in 1997
of $2,500 increasing to $5,000 annually, life insurance premiums for the benefit
of Mr. Maul's beneficiaries premiums increasing to $5,000 annually, $500
nonaccountable monthly expense allowance, and such other benefits available to
other Company employees. Although Mr. Maul presently devotes his full business
time to the Company, his employment agreement permits him to engage in other
business activities that are not competitive with the business of the Company
and that do not materially interfere with his performance of his duties and
responsibilities to the Company.
Each of Mr. Rodenhuis' and Mr. Maul's employment agreements grant to the
subject employee the right to receive his salary and benefits through the
scheduled expiration date of such employment agreement in the event that the
Company terminates such individual's employment other than "for cause."
44
<PAGE> 49
The Company also has employment agreements with other officers and
significant employees of the Company. Mr. Stoner's employment agreement provides
for a base salary of $75,000 per annum. Ms. Burke's employment agreement
provides for a base salary of $75,000 per annum. Mr. Mericle's employment
agreement provides for a base salary of $75,000 per annum. Mr. Helm's employment
agreement is for three years at a base salary of $75,000 per annum. Ms. Angle's
employment agreement is for three years and provides for a base salary of
$70,000 per annum. Mr. Kahn's employment agreement is for two years and provides
for a base salary of $60,000 per annum. Each of these employment agreements
provides for benefits comparable to those provided to other Company employees,
and, except for Mr. Kahn, $500 monthly car allowance.
Mr. Maul will receive a cash bonus of $10,000 upon the close of this
Offering if it closes prior to January 1, 1997. Mr. Maul will also be entitled
to a $10,000 bonus, up to a maximum of $20,000, for each acquisition completed
or approved by the Company's Board of Directors prior to January 1, 1997.
INCENTIVE STOCK OPTION PLAN
Effective August 26, 1996, the Incentive Stock Option Plan (the "Incentive
Stock Option Plan") was adopted by the Company. A total of 1,500,000 authorized
but unissued shares of Common Stock are reserved for issuance under the
Incentive Stock Option Plan. As of August 26, 1996, options to purchase 955,000
shares of Common Stock have been granted to certain employees of the Company.
The purpose of the Incentive Stock Option Plan is to attract and retain
employees (including officers) of the Company (including its subsidiaries) and
other affiliates (if any) of the Company and provide such people with additional
incentives by increasing their equity ownership in the Company. Options granted
under the Incentive Stock Option Plan are intended to qualify as incentive
options under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or by non-qualified. The Incentive Stock Option Plan is intended to
satisfy the conditions of Section 16 of the Exchange Act pursuant to Rule 16b-3
promulgated thereunder ("Rule 16b-3"). The Incentive Stock Option Plan is
administered by a committee of the Company's Board of Directors comprised of
directors who are disinterested within the meaning of Rule 16b-3. Subject to the
terms of the Incentive Stock Option Plan, the committee administering the plan
has the sole authority and discretion to grant options, construe the terms of
the plan and make all other determinations and take all other action with
respect to the Incentive Stock Option Plan.
Options are exercisable during the period specified by the committee
administering the Incentive Stock Option Plan, except that options become
immediately exercisable in the event of a change in control of the Company. See
"Risk Factors -- Effect of Anti-Takeover Provisions." The grants made as of the
date of this Prospectus provide that options will become exercisable over a
four-year period, 25% each year at $5.20 per share. No option is exercisable
more than 10 years from the date of grant (or such other period as may be
required by the Code) or after the option holder leaves the Company's employ
(other than by reason of death). Options are non-transferable, except by will or
the laws of intestate succession or pursuant to a qualified domestic relations
order. Shares underlying options that terminate unexercised are available for
reissuance under the Incentive Stock Option Plan. The per share exercise price
of options granted under the Incentive Stock Option Plan will be determined by
the committee of the Board of Directors administering the Incentive Stock Option
Plan, except that incentive stock options may not be exercised for less than
100% of the Fair Market Value of a share of the Company's Common Stock on the
date of grant.
NONQUALIFIED STOCK OPTION PLAN
Effective August 26, 1996, the 1996 Nonqualified Stock Option Plan (the
"Nonqualified Plan") was adopted by the Company. A total of 933,500 authorized
but unissued shares of Common Stock are reserved for issuance under the
Nonqualified Plan. As of August 26, 1996, the options to purchase 933,500 shares
of Common Stock have been granted to certain employees of the Company. The
purpose of the Nonqualified Plan is to retain certain key employees (including
officers) of the Company and provide such people with additional incentives by
increasing their equity ownership in the Company. Options granted under the
Nonqualified Plan are not intended to qualify as incentive options under Section
422 of the Code. The Plan is intended to satisfy the conditions of Section 16 of
the Exchange Act pursuant to Rule 16b-3 promulgated
45
<PAGE> 50
thereunder ("Rule 16b-3"). The Nonqualified Plan is administered by a committee
of the Company's Board of Directors comprised of directors who are disinterested
within the meaning of Rule 16b-3. Subject to the terms of the Nonqualified Plan,
the committee administering the plan has the sole authority and discretion to
grant options, construe the terms of the plan and make all other determinations
and take all other action with respect to the Stock Option Plan.
Options are exercisable during the period specified by the committee
administering the Nonqualified Plan, except that options become immediately
exercisable in the event of a change in control of the Company. See "Risk
Factors -- Effect of Anti-Takeover Provisions." Generally, options will vest
after the grantee has been employed with the Company for four years. However,
options may be exercisable at $5.20 per share an earlier date provided the
Company achieves certain earnings criteria. No option is exercisable more than
10 years from the date of grant (or such other period as may be required by the
Code) or after the option holder leaves the Company's employ (other than by
reason of death). Options are non-transferable, except by will or the laws of
intestate succession or pursuant to a qualified domestic relations order. Shares
underlying options that terminate unexercised are available for reissuance under
the Nonqualified Plan. The per share exercise price of options granted under the
Nonqualified Plan will be determined by the committee of the Board of Directors
administering the Stock Option Plan, except that incentive stock options may not
be exercised for less than 100% of the Fair Market Value (as defined in the
Stock Option Plan) of a share of the Company's Common Stock on the date of
grant.
INCENTIVE COMPENSATION PLAN
The Company adopted a cash incentive bonus compensation plan, the 1996
Incentive Compensation Plan, (the "Incentive Plan"). The Incentive Plan is
intended to promote the interests of the Corporation and its shareholders by
providing eligible employees with the opportunity to earn incentive compensation
that is linked to the financial performance of the Corporation. The Incentive
Plan is intended to qualify as performance based compensation under Section
162(m) of the Code. The Incentive Plan is administered by the regularly
appointed compensation committee of the Board, which shall have at least two (2)
members and no member of the Board may serve on the Committee unless such person
is an "outside director" within the meaning of Section 162(m)(4)(C)(i) of the
Code.
The Incentive Plan provides that qualifying employees may receive as a cash
bonus an amount equal to the Company's modified earnings, calculated before
interest, taxes, depreciation and amortization ("Modified EBITDA"), for a
particular fiscal year. The total cash bonus that the Incentive Plan provides is
8.45% of Modified EBITDA up to $4,000,000 for such fiscal year and 12.45% of
Modified EBITDA if Modified EBITDA exceeds $4,000,000 for such fiscal year.
DIRECTOR COMPENSATION
The Company's Board of Directors compensation plan previously provided that
each director would receive $25,000 a year for his or her services to the
Company as a director. Each of the directors, except Lord Spencer-Churchill,
waived his $25,000 annual board member compensation in lieu of adopting the new
Director's Compensation Plan for 1996 and 1997, which was adopted by the Board
of Directors in September, 1996. Under the new "Director's Plan," each outside
director is to receive cash compensation in the amount of $500 and $2,000 for
each telephone and personal attendance board meeting, respectively. Each outside
director also receives $2,000 per year for each committee in which such member
serves. In addition, each outside director will receive 5,000 options to acquire
the Company's Common Stock at $5.20 per share. Each outside director who serves
on a committee will receive an additional 1,250 options. The Directors Plan also
provides $6,000 for Steven Scarano for services provided to the Company. In
addition, each outside director will be reimbursed for travel expenses related
to board meetings and other pre-approved Company business experiences.
46
<PAGE> 51
CERTAIN TRANSACTIONS
The Company has agreed to pay Lyle Maul, the Company's Chief Financial
Officer and Chief Operations Officer, the amount of $82,745 to reimburse Mr.
Maul for various expenses incurred on behalf of the Company, including travel,
delivery services and telephone costs, and $3,000 for furniture and computer
equipment contributed to the Company. The cost of such furniture and computer
equipment to Mr. Maul was approximately $7,500. Mr. Maul is repaid the principal
amount in monthly installments equal to three percent ($3%) of the Company's net
monthly sales. Mr. Maul to date has been paid approximately $2,500. The Company
was considering acquiring certain assets of Seaborn Beverages Company
("Seaborn"). Frederik Rodenhuis resigned as president of Seaborn prior to
becoming the Company's Chief Executive Officer and Chairman. Mr. Rodenhuis is
also a significant shareholder of Seaborn. Seaborn has since filed for
bankruptcy and the Company has decided not to pursue the acquisition of these
assets at this time. The Company has been advised that Mr. Rodenhuis' interest
in Seaborn as a result of the bankruptcy is de minimis.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the shares of Common Stock as of the date of this Prospectus by (i)
each person who is known by the Company to be the beneficial owner of more than
five percent (5%) of the issued and outstanding shares of Common Stock, (ii)
each of the Company's directors and executive officers and (iii) all directors
and executive officers as a group.
<TABLE>
<CAPTION>
PERCENTAGE OWNED
---------------------------------
BEFORE
NAME AND ADDRESS(1) NUMBER OF SHARES(2) OFFERING(6) AFTER OFFERING(7)
- ----------------------------------------------- ------------------- ----------- -----------------
<S> <C> <C> <C>
Adam B. Wachtel................................ 1,342,700 48.52% 35.64%
Frederik G.M. Rodenhuis(3)..................... 112,479 4.06% 2.99%
Lyle R. Maul(3)................................ 68,406 2.47% 1.82%
Stefdan, Ltd.(4)............................... 33,000 1.19% 1%
Lord Charles Spencer-Churchill(5).............. 5,000 1% 1%
John Stoner.................................... 63,583 2.27% 1.67%
All executive officers and directors as a 1,642,370 59.35% 43.60%
group........................................
</TABLE>
- ---------------
(1) The address for each beneficial owner is in care of the Company, 9800 S.
Sepulveda Boulevard, Suite 720, Los Angeles, California 90045.
(2) Except as indicated in the footnotes to this table, to the knowledge of the
Company, the persons named in the table have sole voting and investment
power with respect to all shares of Common Stock shown as beneficially
owned by them, except to the extent authority is shared by spouses under
applicable law.
(3) This figure includes the proportional number of shares held by Manhattan
Enterprises, Inc., which is the beneficial owner of 55,369 shares. Mr.
Rodenhuis and Mr. Maul are the beneficial owners of 89.8% and 10.2% of
Manhattan Enterprises, Inc., respectively.
(4) Stefdan, Ltd. is an entity wholly-owned by Steven M. Scarano. These shares
have registration rights and these shares were included in the registration
statement along with the Offering.
(5) Spencer-Churchill also owns 10,000 issued Class A Warrants.
(6) Includes 309,222 shares of Common Stock associated with Riverside Brewing
Company acquisition. See "Business -- Breweries -- Riverside Brewing
Company."
(7) Assumes no exercise of the Representative's overallotment.
47
<PAGE> 52
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue 20,000,000 shares of Common Stock, no
par value, of which, as of the date of this Prospectus, 2,767,085 shares were
issued and outstanding, which includes shares issued under the Riverside Brewing
Company acquisition. Holders of shares of Common Stock are entitled to one vote
per share on all matters to be voted upon by the stockholders generally. The
approval of proposals submitted to stockholders at a meeting other than for the
election of directors requires the favorable vote of a majority of the shares
voting, except in the case of certain fundamental matters (such as certain
amendments to the Articles of Incorporation, and certain mergers and
reorganizations), in which cases California law and the Company's By-laws
require the favorable vote of at least two-thirds of all outstanding shares.
Stockholders are entitled to receive such dividends as may be declared form time
to time by the Board of Directors out of funds legally available therefor, and
in the event of liquidation, dissolution or winding up of the Company to share
ratably in all assets remaining after payment of liabilities. The holders of
shares of Common Stock have no preemptive, conversion, subscription or
cumulative voting rights. All shares of Common Stock sold in this offering will
be, when issued, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors of the Company is authorized, subject to certain
limitations prescribed by applicable law, from time to time to issue up to an
aggregate of 5,000,000 shares of Preferred Stock in one or more series and to
fix or alter the designations, the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, in each case without further vote or action by the stockholders.
The issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of the Company without further action by the
stockholders and may adversely affect the voting and other rights of the holders
of Common Stock. The issuance of Preferred Stock with voting and conversion
rights may adversely affect the voting power of the holders of Common Stock,
including the loss of voting control to others. At present, the Company has no
plans to issue any of the Preferred Stock.
REGISTRATION RIGHTS
The Company has issued 520,745 shares of common stock with certain
registration rights, and has issued 3,000,000 Issued Class A Warrants, and the
shares of the Company's common stock issuable upon exercise of the Issued Class
A Warrants at $8.25 per share, 35,000 Class B Warrants, and the shares of the
Company's common stock issuable upon exercise of the Class B Warrants at $4.75
per share, with registration rights. Pursuant to the terms of the registration
rights, these shares and warrants are registered along with the securities in
this Offering. However, 490,745 shares, and all of the warrants and shares
issuable upon exercise of the warrants referred to above may not be sold for a
period of thirteen (13) months after the closing date of the initial public
offering without the prior written consent of the Representative. 30,000 shares
of the Company's Common Stock registered along with this offering are subject to
a shorter lock up. 10,000 shares will be freely tradeable 60 days after the date
of this Prospectus, another 10,000 shares 90 days, and the final 10,000 shares
120 days. Such shares can become freely tradeable earlier upon consent of the
Representative. Of the 490,745 shares being registered subject to the 13 month
lockup, 33,000 shares are owned by Stefdan, Ltd., a company controlled by Steven
Scarano, a director of the Company and 4,000 of the shares are owned by Kathleen
Burke, the Company's Vice President of Sales.
WARRANTS
Class A Warrants and Issued Class A Warrants. There are currently issued
and outstanding warrants issued in connection with the Company's initial
financing in 1995 (the "Issued Class A Warrants"), entitling the holders to
purchase an aggregate of 3,000,000 shares of Common Stock, subject to adjustment
in certain circumstances. The following is a brief summary of certain provisions
of the Issued Class A Warrants.
48
<PAGE> 53
Each Issued Class A Warrant entitles the holder thereof to purchase, at any
time through the period ending five years after the closing of this Offering,
one share of Common Stock at a price of $8.25 per share, subject to adjustment
in accordance with the anti-dilution and other provisions referred to below. The
Issued Class A Warrants may be exercised at any time in whole or in part at the
applicable exercise price until the date of expiration. No fractional shares
will be issued upon the exercise of the Issued Class A Warrants. At any time
that the Issued Class A Warrants are exercisable, the Issued Class A Warrants
are also subject to redemption by the Company on not less than 30 days notice at
$0.10 per Issued Class A Warrant, provided the closing bid price of the Common
Stock exceeds $15.00 per share for thirty consecutive trading days ending within
fifteen days prior to the date on which notice is sent.
The exercise price and the number of shares of Common Stock purchasable
upon the exercise of the Issued Class A Warrants are subject to adjustment upon
the occurrence of certain events, including stock dividends, stock splits,
combinations or reclassification of the Common Stock. Additionally, an
adjustment would be made in the case of a reclassification or exchange of Common
Stock, consolidation or merger of the Company with or into another corporation,
or sale of all or substantially all of the assets of the Company, in order to
enable Warrant holders to acquire the kind and number of shares of stock or
other securities or property receivable in such event by a holder of that number
of shares of Common Stock that would have been issued upon exercise of the
Issued Class A Warrant immediately prior to such event. No adjustment to the
exercise price of the shares subject to the Issued Class A Warrants will be made
for dividends (other than stock dividends), if any, paid on the Common Stock or
for securities issued pursuant to the Company's stock option plans or other
employee benefit plans of the Company, or upon exercise of the Issued Class A
Warrants or any other options or warrants.
The 1,000,000 Class A Warrants which are part of the Offering are identical
to the Issued Class A Warrants except that the Company has agreed to pay the
Representative a fee of seven (7%) percent of the aggregate exercise price of
each Class A Warrant, but not Issued Class A Warrants, exercised commencing one
year after the date of the Prospectus. See "Underwriting."
Class B Warrants. As part of the Company's May 1996 bridge loan (See
"Bridge Note") the Company issued Class B Warrants entitling the holder thereof
to purchase, at any time through April 20, 1999, up to 35,000 shares of Common
Stock at an exercise price of $4.75 per share, subject to adjustment upon the
occurrence of any stock dividends, stock splits, combinations of shares or
reclassification of the Common Stock, or upon any consolidation or merger of the
Company with or into another corporation. The Class B Warrants were registered
in this Offering, subject to a 13-month lockup similar to the Issued Class A
Warrants.
Class C Warrants. The Company issued to Hecht & Steckman, P.C., legal
counsel to the Company, warrants to purchase up to 15,583 shares of the
Company's Common Stock at any time through October 31, 2002 at the exercise
price of $4.50 per share. The exercise price and the number of shares of Common
Stock purchasable upon exercise of the Class C Warrants are subject to
adjustment upon the occurrence of certain events, including stock dividends,
stock splits, combinations or reclassification of the Common Stock or sale by
the Company of shares of Common Stock (or other securities convertible into or
exercisable for Common Stock) at a price per share or share equivalent below the
greater of the then-applicable exercise price of the Class C Warrants or the
then-current market price of the Common Stock. These warrants and the common
stock issuable upon exercise of the warrants are "restricted securities" under
Rule 144.
Class D Warrants. As part of the Company's acquisition of Riverside
Brewing Company warrants to purchase up to 50,000 shares of the Company's Common
Stock were issued to debtholders of Orange Empire Brewing Company. The Class D
warrants may be exercised at any time at $5.00 per share through the period
ending three (3) year after the close of this Offering. The exercise price and
the number of shares of Common Stock purchasable upon exercise of the Class D
Warrants are subject to adjustment upon the occurrence of certain events,
including stock dividends, stock splits, combinations or reclassification of the
Common Stock. These warrants and the common stock issuable upon exercise of the
warrants are "restricted securities" under Rule 144.
49
<PAGE> 54
Representative's Warrants. For nominal consideration, the Company has
granted to the Representative of the Representative's the Unit purchase option
which allows the Representative to acquire 100,000 units, each unit consisting
of one share of Common Stock and one Representative's Warrants at 160% of the
initial public offering price or $12,80 per unit. See "Underwriting." The
Representative's Warrants issued in connection with this Unit Purchase Option
Offering ("Representative's Warrants"), entitle the holders to purchase an
aggregate of 100,000 shares of Common Stock, subject to adjustment in certain
circumstances. Each Representative's Warrant entitles the holder thereof to
purchase, at any time after exercise of the Unit Purchase option through the
date five years from the date of the Prospectus, one share of Common Stock at a
price of $8.25 per share, subject to adjustment in accordance with the
anti-dilution and other provisions referred to below. The Representative's
Warrants may be exercised at any time in whole or in part at the applicable
exercise price until the date of expiration. No fractional shares will be issued
upon the exercise of the Representative's Warrants. The exercise price and the
number of shares of Common Stock purchasable upon exercise of the
Representative's Warrants are subject to adjustment upon the occurrence of
certain events, including stock dividends, stock splits, combinations or
reclassification of the Common Stock. The Representative's Warrants are
identical to the Class A Warrants, excluding the redemption provision.
Class H Warrants. The Company issued warrants to purchase 15,000 shares of
the Company's Common Stock in a private placement to accredited investors. The
Class H Warrants may be exercised at any time at $7.00 per share through the
period ending September 10, 2001. The exercise price and the number of shares of
Common Stock purchasable upon exercise of the Class H Warrants are subject to
adjustment upon the occurrence of certain events, including stock dividends,
stock splits, combinations or reclassification of the Common Stock. The
adjustment provisions of the Class H Warrants are otherwise substantially
equivalent to the adjustment provisions for the Class A Warrants, as described
immediately above. These warrants and the Common Stock issuable upon exercise of
the warrants are "restricted securities" under Rule 144.
BRIDGE NOTE
In May 1996, the Company issued a $500,000 principal amount note secured by
the Company's assets ("Bridge Note") due on the earlier of the completion of any
equity public offering which results in the Company receiving gross proceeds of
$6 million or more, on December 31, 1996. Under the terms of the Bridge Note,
the investor received 35,000 Class B Warrants which are registered along with
this Offering. The Bridge Note also provides that the investor will receive an
additional 35,000 Class B Warrants if the Offering does not close by December
31, 1996. The Bridge Note bears interest at the rate of 18.0% per annum. The
Bridge Note will be repaid in full out of the net proceeds of this Offering. See
"Use of Proceeds."
DIVIDENDS
The Company has never paid and does not anticipate the payment of cash
dividends on its Common Stock in the foreseeable future.
TRANSFER AGENT
The Transfer Agent and Class A Warrant Agent for the Company's Common Stock
and Warrants is Continental Stock Transfer & Trust Company.
50
<PAGE> 55
UNDERWRITING
The Underwriters named below, acting through their representative, State
Capital Markets Corp. (the "Representative"), have severally agreed, subject to
the terms and conditions of an Underwriting Agreement (the form of which is
filed as an exhibit to the Company's registration statement, of which this
Prospectus is a part), to purchase form the Company the number of Shares set
opposite their respective names below. The Underwriters are committed to
purchase and pay for all such Shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER UNITS
-------------------------------------------------------- ---------
<S> <C>
State Capital markets Corp.............................. 1,000,000
</TABLE>
UNDERWRITER'S COMPENSATION
The Representative has advised the Company that it proposes to offer the
Shares directly to the public at the offering price set forth on the cover page
of this Prospectus. The gross offering discount from the initial offering price
at which the Underwriters shall be entitled to purchase the Units and Units in
the over-allotment option is equal to ten percent of the initial offering price.
The Underwriters may allow a concession to selected dealers who are members of
the National Association of Securities Dealers, Inc. ("NASD") not in excess of
$ per share, and the Underwriters may allow, and such dealers may
re-allow, to members of the NASD a concession not in excess of $ per
share. No such allowances or reallowances shall change the amount of proceeds to
be received by the Company as set fort on the cover page of this Prospectus.
The Company has agreed to sell to the Representative an option to purchase
100,000 units, each unit consisting of one share of Common Stock and one
Representative's Warrant ("Representative's Unit Purchase Option"). The
Representative's Unit Purchase Option will be exercisable at a price equal to
160% of the initial public offering price during the period beginning one year
from the date of this Prospectus and continuing until five years from the date
of this Prospectus. The Representative's Warrants are identical to the Class A
Warrants, which are part of the Company's offering except that such
Representative's Warrants are not subject to redemption. The Representative's
Unit Purchase Option will contain certain demand and piggyback registration
rights under the 1933 Act. The exercise price of the Representative's Unit
Purchase Option and the number of shares covered thereby are subject to
adjustment in certain events to prevent dilution. For the life of the
Representative's Unit Purchase Option, the holders thereof are given, at a
nominal cost, the opportunity to profit from a rise in the market price of the
Company's securities with a resulting dilution in the interest of other
stockholders. The Company may find it more difficult to raise capital for its
business if the need should arise while the Representative's Unit Purchase
Option is outstanding. At any time when the holders of the Representative's Unit
Purchase Option might be expected to exercise it, the Company would probably be
able to obtain additional capital on more favorable terms.
The Representative will be paid a cash or "in-kind" finder's fee of (i)
five percent (5%) of the first $1,000,000; (ii) four percent (4%) of the second
$1,000,000; (iii) three percent (3%) of the third $1,000,000; and (iv) two
percent (2%) of any consideration over $4,000,000 involved in any transaction
(including mergers, acquisitions, joint ventures, and any other business for the
Company introduced by the Representative) consummated by the Company, in which
the Representative introduced the other party to the Company for such purpose
during a period ending three years from the closing of the Offering.
The Representative shall have a preferential right for a period of four
years from this Offering to purchase for the Representative's account or to sell
for the account of the Company or any principal shareholder any securities of
the Company offered with or without registration under the 1933 Act, or
otherwise, on terms not less favorable to the Company than it can secure
elsewhere. This preferential right shall not apply to shares issued in the
acquisitions or joint ventures.
The Company shall, for a period of two (2) years from the completion of the
Offering, employ the Representative as its investment banker and financial
consultant, at an annual fee of $50,000, with the aggregate of $100,000 payable
on the closing of the Offering.
51
<PAGE> 56
The Company will pay the Representative a fee of seven (7%) percent of the
aggregate exercise price of each Class A Warrant (exclusive of any Class A
Warrants issued or outstanding prior to the Offering) exercised commencing one
year after the Effective Date, of which three (3%) percent may be allocated to
the dealer who solicited the exercise of the Class A Warrant (who may also be
the Representative), provided: (i) the market price of the common stock on the
date of exercise was greater than the exercise price on that date, (ii) exercise
of the Class A Warrant was solicited by a member of the NASD, (iii) the Class A
Warrant was not held in a discretionary account, (iv) disclosure of compensation
was made both at the time of the Offering and the exercise of the Class A
Warrant, and (v) the solicitation and the exercise of the Warrant was not in
violation of Rule 10b-6 of the Securities Exchange Act.
Prior to the date of this Prospectus, Company's management have agreed in
writing not to sell, assign or transfer any of their shares of the Company's
securities without the Underwriter's prior written consent for a period of
twenty four (24) months from the Effective Date.
The Underwriter may designate a non-director observer to attend meetings of
the Company's Board of Directors for three (3) years after the Effective Date at
the Company's discretion.
The Company has agreed to pay the Representative a non-accountable expense
allowance equal to 3% of the gross proceeds of the offering to the Company. The
Company and the Underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the 1933 Act.
OFFERING PRICE
Prior to this offering, there has been no public market for the Company's
Common Stock or the Class A Warrants and there can be no assurance that an
active trading market will develop following the offering. Consequently, the
initial public offering price has been determined through negotiation between
the Representative and the Company. Among the factors considered in such
negotiations were the history of and the prospects for the Company, the market
for the Company's products, assessment of the Company's management, the number
of Shares offered, and the general condition of the securities markets at the
time of the offering. Accordingly, the offering price set forth on the cover
page of this Prospectus should not be considered a conclusive indication of the
actual value of the Company, Shares or the Class A Warrants.
OVER-ALLOTMENT
The Company has granted to the Representative an option, exercisable within
30 days from the date of this Prospectus, to purchase up to 150,000 additional
Units at the initial public offering price less the underwriting discount set
forth on the cover page of this Prospectus. The option may be exercised only for
the purpose of covering any over-allotments in the sale of the Units offered
hereby.
PRIOR TRANSACTIONS WITH THE COMPANY
On November 20, 1995, the Company commenced a private placement of up to
400,000 shares of common stock. The offering was conducted on behalf of the
Company by the Representative. The Company paid the Representative a commission
on sales of the shares in the amount of nine percent (9%), plus three percent
(3%) nonaccountable expense allowance, of the gross offering price.
LEGAL MATTERS
The law firm of Hecht & Steckman, P.C., New York, New York, has acted as
counsel for the Company in connection with this offering and has rendered its
opinion to the Company on the legality of the securities covered in this
Prospectus. The firm of Lampert & Lampert, New York, New York, has acted as
counsel for the Underwriters in connection with certain legal matters relating
to this offering.
52
<PAGE> 57
EXPERTS
The Historical Financial Statements of the Company, Orange Empire Brewing
Company and the St. Stan's Brewing & Brewpub Operations as of December 31, 1995
and for each of the two years in the period ended December 31, 1995 as listed on
"Index to Financial Statements" and as included elsewhere in this Prospectus,
have been audited by Corbin & Wertz, independent public accountants, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports. Reference is made to said reports for the Company and Orange
Empire Brewing Company which include an explanatory paragraph which states that
there is substantial doubt about the Company's and Orange Empire Brewing
Company's ability to continue as a going concern. Furthermore, reference is made
to said report for the St. Stan's Brewery and Brewpub Operations which includes
an explanatory paragraph which identifies a substantial need for ongoing
financial support.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission, a
registration statement on Form SB-2 under the 1933 Act with respect to the
Shares being offered hereby. This Prospectus does not contain all of the
information set forth in the registration statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Shares being offered hereby, reference is hereby made to such registration
statement and the exhibits and schedules thereto, which may be inspected without
charge at the Commission's offices and copies of all or any part of which may be
obtained from such offices upon payment of prescribed fees. Statements contained
in the Prospectus regarding the provisions of documents filed with such
registration statement as exhibits are necessarily summaries of such documents,
and each such statement is qualified in all respects by reference to the copy of
the applicable document filed with the Commission.
53
<PAGE> 58
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
BEVERAGE WORKS, INC. AND SUBSIDIARY, PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
Introduction To Unaudited Pro Forma Condensed Consolidated Financial
Statements................................................................ F-3
Pro Forma Condensed Consolidated Balance Sheet As Of April 30, 1996
(Unaudited)............................................................... F-4
Pro Forma Condensed Consolidated Balance Sheet, Summary of Pro Forma
Adjustments (Unaudited)................................................... F-5 to F-6
Pro Forma Condensed Consolidated Statement Of Operations For The Four Months
Ended April 30, 1996 (Unaudited).......................................... F-7
Pro Forma Condensed Consolidated Statement Of Operations For The Year Ended
December 31, 1995 (Unaudited)............................................. F-8
Pro Forma Condensed Consolidated Statement Of Operations, Summary Of Pro
Forma Adjustments (Unaudited)............................................. F-9
Notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited)... F-10 to F-20
BEVERAGE WORKS, INC. AND SUBSIDIARY, HISTORICAL CONSOLIDATED FINANCIAL
STATEMENTS
Independent Auditor's Report................................................. F-21
Consolidated Balance Sheets As Of April 30, 1996 (Unaudited) and
December 31, 1995......................................................... F-22
Consolidated Statements Of Operations For The Four Months Ended April 30,
1996 (Unaudited) and For The Period From Incorporation (August 2, 1995) To
December 31, 1995......................................................... F-23
Consolidated Statements Of Stockholders' Equity For The Four Months Ended
April 30, 1996 (Unaudited) and For The Period From Incorporation (August
2, 1995) To December 31, 1995............................................. F-24
Consolidated Statements Of Cash Flows For The Four Months Ended April 30,
1996 (Unaudited) and For The Period From Incorporation (August 2, 1995) To
December 31, 1995......................................................... F-25 to F-26
Notes to Consolidated Financial Statements................................... F-27 to F-45
ST. STAN'S BREWERY AND BREWPUB OPERATIONS
Independent Auditors' Report................................................. F-46
Historical Statements of Assets and Liabilities To Be Contributed to
BWI -- Prost Partners General Partnership As Of April 30, 1996 (Unaudited)
and
December 31, 1995......................................................... F-47
Historical Statements Of Historical Operations Of Assets and Liabilities To
Be Contributed to BWI -- Prost Partners General Partnership For The Four
Months Ended April 30, 1996 (Unaudited) and 1995 (Unaudited), and For The
Years Ended December 31, 1995 and 1994.................................... F-48
Historical Statements Of Changes In Equity Of Assets and Liabilities To Be
Contributed to BWI -- Prost Partners General Partnership For The Four
Months Ended April 30, 1996 (Unaudited), and For The Years Ended December
31, 1995 and 1994......................................................... F-49
Historical Statements Of Cash Flows Of Assets and Liabilities To Be
Contributed to BWI -- Prost Partners General Partnership For The Four
Months Ended April 30, 1996 (Unaudited) and 1995 (Unaudited), and For The
Years Ended December 31, 1995 and 1994.................................... F-50
Notes To Historical Financial Statements Of Assets and Liabilities To Be
Contributed To BWI -- Prost Partners General Partnership.................. F-51 to F-60
</TABLE>
F-1
<PAGE> 59
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
ORANGE EMPIRE BREWING COMPANY AND SUBSIDIARY
Independent Auditors' Report................................................. F-61
Consolidated Balance Sheets As Of April 30, 1996 (Unaudited) and
December 31, 1995......................................................... F-62
Consolidated Statements Of Operations For The Four Months Ended April 30,
1996 (Unaudited) and 1995 (Unaudited), and For The Years Ended December
31, 1995 and 1994......................................................... F-63
Consolidated Statements Of Stockholders' Equity (Capital Deficiency) For The
Four Months Ended April 30, 1996 (Unaudited) and For The Years Ended
December 31, 1995 and 1994................................................ F-64
Consolidated Statements of Cash Flows For The Four Months Ended April 30,
1996 (Unaudited) and 1995 (Unaudited), and For The Years Ended December
31, 1995 and 1994......................................................... F-65
Notes To Consolidated Financial Statements................................... F-66 to F-77
</TABLE>
F-2
<PAGE> 60
BEVERAGE WORKS, INC.
INTRODUCTION TO
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated information as of
and for the four months ended April 30, 1996, and for the year ended December
31, 1995, is based on the historical financial statements of Beverage Works,
Inc., and Subsidiary, Orange Empire Brewing Company and Subsidiary, and the St.
Stan's Brewery and Brewpub Operations. The unaudited pro forma condensed
consolidated financial information has given effect to the following:
(1) The consummation of the Beverage Works, Inc. Initial Public
Offering and the application of the proceeds therefrom as described in "Use
of Proceeds."
(2) The consummation of the Beverage Works, Inc. and Orange Empire
Brewing Company Share Purchase Agreement and related agreements.
(3) The consummation of the BWI-Prost Partners Contribution and
Partnership Agreements and related agreements.
The unaudited pro forma condensed consolidated balance sheet has been
prepared as though the transactions and arrangements described above had taken
effect on April 30, 1996, and the unaudited pro forma condensed consolidated
statements of operations have been prepared as though the transactions and
arrangements had taken effect at the beginning of each period presented. The
unaudited pro forma information should be read in conjunction with the notes
related thereto and the historical financial statements of the Beverage Works,
Inc. and Subsidiary, Orange Empire Brewing Company and Subsidiary, and the St.
Stan's Brewery and Brewpub Operations, which are included elsewhere in this
Registration Statement. In management's opinion, all adjustments have been made
necessary to reflect the effects of the consummation of the initial public
offering and the application of the proceeds therefrom, the consummation of the
Orange Empire Brewing Company Share Purchase Agreement, and the consummation of
the BWI-Prost Partners Contribution and Partnership Agreements.
The unaudited pro forma condensed consolidated financial information does
not purport to be indicative of the financial condition or results of operations
of the Company that would have been obtained for the periods presented had the
transactions and arrangements taken effect on the assumed dates, nor does it
purport to represent the financial position or results of operations of the
Company for any future period.
F-3
<PAGE> 61
BEVERAGE WORKS, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
APRIL 30, 1996
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
ST. STAN'S
BEVERAGE ORANGE BREWERY AND
WORKS, EMPIRE BREW PUB PRO FORMA PRO FORMA
INC. BREWING CO. OPERATIONS SUBTOTAL ADJUSTMENTS REF APRIL 30, 1996
---------- ----------- ----------- ---------- ----------- --- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents (Notes 1, 2,
3, 4, 5 and 9)....................... $ 308,079 $ 14,634 $ 15,863 $ 338,576 $3,548,276 (a) $ 3,886,852
Common stock subscription receivable... 260,000 -- -- 260,000 -- 260,000
Accounts receivable, net............... 30,177 171,493 143,548 345,218 -- 345,218
Inventories............................ 53,405 234,526 150,283 438,214 -- 438,214
Other current assets (Note 2).......... 129,517 17,222 44,249 190,988 (50,530 ) (b) 140,458
---------- ---------- ---------- ---------- -----------
Total current assets........... 781,178 437,875 353,943 1,572,996 3,497,746 5,070,742
Property and equipment, net (Notes 2
and 3)............................... 1,407,705 1,407,495 2,435,738 5,250,938 429,565 (c) 5,680,503
Goodwill and other intangible assets
(Notes 1, 2, 4
and 8)............................... -- -- -- -- 4,233,543 (d) 4,233,543
Other assets (Note 2).................. 118,682 21,409 11,189 151,280 (54,882 ) (e) 96,398
---------- ---------- ---------- ---------- -----------
$2,307,565 $1,866,779 $2,800,870 $6,975,214 $8,105,972 $ 15,081,186
========== ========== ========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
Accounts payable and accrued expenses
(Notes 2, 5
and 8)............................... $ 270,843 $ 509,800 $ 159,051 $ 939,694 $ (659,941 ) (f) $ 279,753
Notes payable (Notes 4 and 9).......... 41,286 142,548 21,658 205,492 43,108 (g) 248,600
Capital lease due to related party
(Note 8)............................. -- 86,410 -- 86,410 42,054 (h) 128,464
Notes payable to related parties (Notes
4, 5 and 9).......................... 90,238 897,863 459,153 1,447,254 (1,357,016 ) (i) 90,238
Deferred income taxes (Note 2)......... 52,286 -- -- 52,286 110,894 (j) 163,180
---------- ---------- ---------- ---------- -----------
Total current liabilities...... 454,653 1,636,621 639,862 2,731,136 (1,820,901 ) 910,235
Notes payable, net of current portion
(Note 4)............................. 385,086 191,735 655,178 1,231,999 (146,547 ) (k) 1,085,452
Capital lease due to related party, net
of current portion (Note 8).......... -- 949,965 -- 949,965 -- 949,965
Deferred income taxes, net of current
portion (Note 2)..................... 288,593 -- -- 288,593 1,552,523 (l) 1,841,116
Distribution payable (Notes 6 and 7)... -- -- -- -- 1,159,011 (m) 1,159,011
Minority Interest (Note 7)............. -- -- -- -- 346,819 (n) 346,819
---------- ---------- ---------- ---------- -----------
Total liabilities.............. 1,128,332 2,778,321 1,295,040 5,201,693 1,090,905 6,292,598
---------- ---------- ---------- ---------- -----------
Total stockholders' equity
(capital deficiency) (Notes
1, 2, 4, 5, 7 and 9)......... 1,179,233 (911,542 ) 1,505,830 1,773,521 7,015,067 (o) 8,788,588
---------- ---------- ---------- ---------- -----------
$2,307,565 $1,866,779 $2,800,870 $6,975,214 $8,105,972 $ 15,081,186
========== ========== ========== ========== ===========
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
F-4
<PAGE> 62
BEVERAGE WORKS, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SUMMARY OF PRO FORMA ADJUSTMENTS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
AS OF
REF ADJUSTMENT APRIL 30, 1996
---- ----------------------------------------------------------- --------------
<S> <C> <C> <C>
Cash and cash equivalents (a) Net proceeds from BWI initial public offering, net of
deferred offering costs (see Notes 1 and 2).............. $ 6,685,265
Paydown of accounts payable from IPO proceeds (see Note
2)....................................................... (500,000)
Payment for costs related to formation of BWI-Prost
Partnership (see Note 2)................................. (75,000)
Purchases of property and equipment from IPO proceeds (see
Note 3).................................................. (800,000)
Paydown of St. Stan's notes payable by BWISS (see Note
4)....................................................... (176,836)
Repayment of St. Stan's notes payable to related parties
(see Note 5)............................................. (459,153)
Paydown of OEBC notes payable to related parties, plus
accrued interest (see Note 5)............................ (301,000)
Repayment of bridge note payable from IPO proceeds (see
Note 9).................................................. (500,000)
Repayment of note payable from IPO proceeds (see Note 9)... (175,000)
Repayment of advances from related party from IPO proceeds
(see Note 9)............................................. (150,000)
-----------
3,548,276
-----------
Other current assets (b) Write-off of deferred financing costs (see Note 2)......... (50,530)
-----------
Increase in current assets................................................................................... 3,497,746
-----------
Property and equipment, net (c) Adjustment to machinery and equipment to fair value in
connection with the acquisition of OEBC (see Note 2)..... (370,435)
Purchases of property and equipment from IPO proceeds (see
Note 3).................................................. 800,000
-----------
429,565
-----------
Goodwill and other intangible assets (d) Goodwill from acquisition of OEBC (see Note 1)............. 4,158,543
Costs related to the formation of BWI-Prost Partnership
(see Note 2)............................................. 75,000
-----------
4,233,543
-----------
Other assets (e) Reclassification of deferred offering costs to equity (see
Note 2).................................................. (54,882)
-----------
Increase in total assets..................................................................................... $ 8,105,972
===========
</TABLE>
Continued
F-5
<PAGE> 63
BEVERAGE WORKS, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SUMMARY OF PRO FORMA ADJUSTMENTS, CONTINUED
(UNAUDITED)
LIABILITIES AND EQUITY
<TABLE>
<CAPTION>
AS OF
REF ADJUSTMENT APRIL 30, 1996
---- --------------------------------------------------------------- --------------
<S> <C> <C> <C>
Accounts payable and accrued expenses (f) Paydown of accounts payable with IPO proceeds (see Note 2)..... $ (500,000)
Repayment of OEBC accrued interest on notes payable to related
parties (see Note 5)......................................... (40,475)
Effect of forgiveness of past due capital lease payments due to
related party (see Note 8)................................... (77,412)
Effect of extension of capital lease due to related party (see
Note 8)...................................................... (42,054)
--------------
(659,941)
--------------
Notes payable (g) Paydown of BWISS note payable (see Note 4)..................... (7,777)
Reclassification of OEBC notes payable due related parties due
to refinancing with bank (see Note 4)........................ 50,885
Establishment and repayment of BWI bridge note payable (see
Note 9)...................................................... --
--------------
43,108
--------------
Capital lease due to related party (h) Effect of extension of capital lease due to related party (see
Note 8)...................................................... 42,054
--------------
Notes payable to related parties (i) OEBC debt exchange for common stock (see Note 4)............... (220,941)
Reclassification of OEBC notes payable due related parties in
connection with refinance (see Note 4)....................... (73,397)
Repayment of OEBC notes payable to related parties (see Note
5)........................................................... (603,525)
Repayment of St. Stan's note payable to related party (see Note
5)........................................................... (459,153)
Establishment and repayment of BWI note payable to related
party (see Note 9)........................................... --
Establishment and repayment of BWI related party advances (see
Note 9)...................................................... --
--------------
(1,357,016)
--------------
Deferred income taxes (j) Establish current portion of deferred tax liability from
tax-free acquisition of OEBC (see Note 2).................... 110,894
--------------
Decrease in total current liabilities............................................................................ (1,820,901)
--------------
Notes payable, net of current portion (k) Repayment of BWISS note payable (see Note 4)................... (169,059)
Reclassification of OEBC notes payable due related parties due
to refinancing with bank (see Note 4)........................ 22,512
--------------
(146,547)
--------------
Deferred income taxes, net of current (l) Establish deferred tax liability, net of current portion, from
portion tax-free acquisition of OEBC (see Note 2).................... 1,552,523
--------------
Distribution payable (m) Establish distribution payable to minority interest partners
(see Notes 6 and 7).......................................... 1,159,011
--------------
Minority Interest (n) Establish historical minority interest in BWI-Prost Partners
(see Note 7)................................................. 1,505,830
Establish distribution payable to minority interest partners
(see Notes 6 and 7).......................................... (1,159,011)
--------------
346,819
--------------
Increase in total liabilities.................................................................................... 1,090,905
--------------
Stockholders' equity (capital deficiency) (o) Net proceeds from BWI initial public offering, net of deferred
offering costs of $54,882 (see Notes 1 and 2)................ 6,630,383
Issuance of common stock in connection with OEBC Exchange
Agreement (see Note 1)....................................... 1,286,890
Reversal of historical OEBC capital deficiency (see Note 1).... 911,542
Costs incurred in connection with the OEBC Exchange Agreement
(see Note 1)................................................. 81,000
Write-off of deferred financing costs (see Note 2)............. (50,530)
Issuance of common stock in connection with OEBC debt exchange
agreement (see Note 4)....................................... 143,612
Issuance of common stock in connection with repayment of OEBC
notes payable to related parties (see Note 5)................ 343,000
Establish historical minority interest in BWI-Prost Partners
(see Note 7)................................................. (1,505,830)
Establish BWI bridge note payable used for working capital (see
Note 9)...................................................... (500,000)
Establish BWI note payable to related party used for working
capital (see Note 9)......................................... (175,000)
Establish BWI related party advances used for working capital
(see Note 9)................................................. (150,000)
Issuance of common stock in connection with private placement
and related use for working capital (see Note 9) --
--------------
7,015,067
--------------
Increase in stockholders' equity (capital deficiency)............................................................ $ 8,105,972
============
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
F-6
<PAGE> 64
BEVERAGE WORKS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FOUR MONTHS ENDED APRIL 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ST. STAN'S
BEVERAGE ORANGE BREWERY AND PRO FORMA
WORKS, EMPIRE BREW PUB PRO FORMA APRIL 30,
INC. BREWING CO. OPERATIONS SUBTOTAL ADJUSTMENTS REF 1996
--------- ----------- ----------- ---------- ----------- --- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales (Note 2)...................... $ 100,076 $ 1,061,072 $ 661,463 $1,822,611 $ -- (a) $1,822,611
Cost of sales (Notes 2 and 3)........... 169,029 783,856 456,396 1,409,281 20,455 (b) 1,429,736
-------- ---------- -------- ---------- --------- ----------
Gross profit.......................... (68,953) 277,216 205,067 413,330 (20,455) 392,875
Selling, general and administrative
expenses (Notes 2 and 8).............. 566,548 411,104 230,490 1,208,142 127,164 (c) 1,335,306
-------- ---------- -------- ---------- --------- ----------
Operating loss........................ (635,501) (133,888) (25,423) (794,812) (147,619) (942,431)
Interest and other expenses (income),
net
(Notes 2, 4, 5 and 8)................. 23,398 82,652 32,137 138,187 (73,353) (d) 64,834
Minority interest in loss of partnership
(Note 7).............................. -- -- -- -- (27,195) (e) (27,195)
-------- ---------- -------- ---------- --------- ----------
Loss before income tax benefit........ (658,899) (216,540) (57,560) (932,999) (47,071) (980,070)
Income tax benefit (Note 2)............. (17,415) -- -- (17,415) (36,965) (f) (54,380)
-------- ---------- -------- ---------- --------- ----------
Net loss................................ $(641,484) $ (216,540) $ (57,560) $ (915,584) $ (10,106) $ (925,690)
======== ========== ======== ========== ========= ==========
Net loss per share...................... $ (0.21)
==========
Common shares and equivalents
outstanding (Note 2).................. 4,434,096
==========
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
F-7
<PAGE> 65
BEVERAGE WORKS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
ST. STAN'S
BEVERAGE ORANGE BREWERY AND PRO FORMA
WORKS, EMPIRE BREW PUB PRO FORMA DECEMBER 31,
INC. BREWING CO. OPERATIONS SUBTOTAL ADJUSTMENTS REF 1995
--------- ----------- ----------- ---------- ----------- --- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales (Note 2)................... $ 44,810 $ 2,553,977 $ 2,029,424 $4,628,211 $ 347,751 (a) $ 4,975,962
Cost of sales (Notes 2 and 3)........ 81,627 1,824,065 1,396,217 3,301,909 558,367 (b) 3,860,276
--------- ---------- ---------- ---------- --------- ----------
Gross profit....................... (36,817) 729,912 633,207 1,326,302 (210,616) 1,115,686
Selling, general and administrative
expenses (Notes 2 and 8)........... 433,553 990,701 583,568 2,007,822 991,463 (c) 2,999,285
--------- ---------- ---------- ---------- --------- ----------
Operating profit (loss).............. (470,370) (260,789) 49,639 (681,520) (1,202,079) (1,883,599)
Interest and other expenses (income),
net (Notes 2, 4, 5 and 8).......... 28,320 163,169 98,398 289,887 (171,173) (d) 118,714
Minority interest in loss of
partnership (Note 7)............... -- -- -- -- (34,631) (e) (34,631)
--------- ---------- ---------- ---------- --------- ----------
Loss before income tax benefit....... (498,690) (423,958) (48,759) (971,407) (996,275) (1,967,682)
Income tax benefit (Note 2).......... (7,706) 1,600 -- (6,106) (155,432) (f) (161,538)
--------- ---------- ---------- ---------- --------- ----------
Net loss............................. $(490,984) $ (425,558) $ (48,759) $ (965,301) $ (840,843) $ (1,806,144)
========= ========== ========== ========== ========= ==========
Net loss per share................... $ (0.41)
==========
Common shares and equivalents
outstanding (Note 2)............... 4,434,096
==========
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
F-8
<PAGE> 66
BEVERAGE WORKS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SUMMARY OF PRO FORMA ADJUSTMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
FOUR MONTHS YEAR ENDED
ENDED DECEMBER 31,
REFERENCE ADJUSTMENT APRIL 30, 1996 1995
--------- --------------------------------------------------------- -------------- ------------
<S> <C> <C> <C> <C>
Net sales (a) Revenues of Heritage prior to November 8, 1995 (date of
acquisition) (see Note 2).............................. $ -- $ 347,751
--------- -----------
Cost of sales (b) Cost of sales of Heritage prior to November 8, 1995 (date
of acquisition) (see Note 2)........................... -- 426,900
Reduction to depreciation for adjustment to fair value of
OEBC property and equipment, net (see Note 2).......... (17,640) (52,919 )
Additional depreciation related to capital expenditures
from IPO proceeds (see Note 3)......................... 38,095 114,286
Additional depreciation related to assets under capital
lease (see Note 2)..................................... -- 70,100
--------- -----------
20,455 558,367
--------- -----------
Decrease in gross profit........................................................................ (20,455) (210,616 )
--------- -----------
Selling, general and (c) Estimated BWI selling, general and administrative
administrative expenses expenses prior to August 2, 1995 (date of
incorporation) and actual Heritage selling, general and
administrative expenses prior to November 8, 1995 (date
of acquisition) (see Note 2)........................... 19,919 663,227
Amortization of OEBC goodwill (see Note 2)............... 92,412 277,236
Amortization of St. Stan's acquisition costs (see Note
2)..................................................... 8,333 25,000
Issuance of stock for management services (see Note 8)... 6,500 26,000
--------- -----------
127,164 991,463
--------- -----------
Increase to operating loss...................................................................... (147,619) (1,202,079 )
--------- -----------
Interest and other (d) Interest income on investment of net IPO proceeds
expenses (income), net (see Note 2)........................................... (57,745) (173,236 )
Reduction of historical interest expense due to OEBC debt
exchange agreement (see Note 4)........................ (7,733) (23,199 )
Reduction of historical interest expense due to repayment
of St. Stan's notes payable (see Note 4)............... (10,110) (17,426 )
Reduction of historical interest expense due to repayment
of OEBC notes payable to related parties (see Note
5)..................................................... (12,839) (30,199 )
Reduction of historical interest expense due to repayment
of St. Stan's notes payable to related party (see Note
4)..................................................... (8,449) (26,658 )
Interest expense on Distribution Payable (Note 6)........ 28,975 115,901
Reduction to interest expense due to OEBC related party
lease amendment (see Note 8)........................... (5,452) (16,356 )
--------- -----------
(73,353) (171,173 )
--------- -----------
Minority interest in loss (e) Reflect minority interest in net loss of St. Stan's (see
of Note 7)................................................ (28,204) (23,892 )
partnership Reflect minority interest in pro forma adjustments
related to St. Stan's (see Note 7)..................... 1,009 (10,739 )
--------- -----------
(27,195) (34,631 )
--------- -----------
Decrease in (increase to)
net loss before income tax benefit............................................................ (47,071) (996,275 )
--------- -----------
Income tax benefit (f) Income tax benefit attributable to nondeductible
amortization of OEBC goodwill (see Note 2)............. (36,965) (110,894 )
Income tax benefit attributable to nondeductible
depreciation of the fixed asset step-up recorded in
connection with the Heritage acquisition (see Note
2)..................................................... -- (44,538 )
--------- -----------
(36,965) (155,432 )
--------- -----------
Decrease in (increase to) net loss.............................................................. $ (10,106) $ (840,843 )
========= ===========
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
F-9
<PAGE> 67
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 -- PROPOSED INITIAL PUBLIC OFFERING, ACQUISITION AND JOINT VENTURE
Proposed Initial Public Offering
Beverage Works, Inc. ("BWI" or the "Company") intends to file a
registration statement on Form SB-2 with the Securities and Exchange Commission
(the "Commission") of 1,000,000 units, each unit consisting of one share of
common stock and one common stock purchase warrant exercisable at $8.25 per
share, at an estimated offering price of $8.00 per unit. The letter of intent
(see below) provides for an overallotment of units to be offered not to exceed
15% of the proposed offering.
In connection with the initial public offering (the "IPO"), the Company
received a letter of intent with an underwriter whereby for services rendered in
connection with the IPO, the underwriter will receive a commission of 10% of the
gross proceeds, and assuming the underwriter does not exercise its overallotment
option, such fees and costs will be $800,000, plus an additional 3% for
non-accountable expenses, amounting to $240,000. As of April 30, 1996, BWI had
incurred $54,882 of costs related to the IPO. Such costs are reflected as
deferred offering costs on the historical BWI condensed consolidated balance
sheet (see Note 2). BWI estimates that it will incur an additional $274,735 of
costs related to this offering, excluding the underwriters fees and expenses.
The Underwriter will be paid a cash or "in-kind" finder's fee of (i) five
percent (5%) of the first $1,000,000; (ii) four percent (4%) of the second
$1,000,000; (iii) three percent (3%) of the third $1,000,000; and (iv) two
percent (2%) of any consideration over $4,000,000 involved in any transaction
(including mergers, acquisitions, joint ventures, and any other business for the
Company introduced by the underwriter) consummated by the Company, in which the
Underwriter introduced the other party to the Company for such purpose during a
period ending three years from the closing of the Offering.
The Company shall, for a period of two (2) years from the completion of the
Offering, employ the underwriter as its investment banker and financial
consultant, at an annual fee of $50,000, with the aggregate of $100,000 payable
on the closing of the Offering.
Assumed net cash proceeds, excluding the underwriters overallotment
provision, included in the accompanying unaudited pro forma condensed
consolidated balance sheet related to the IPO totals $6,685,265, and $6,630,383
(after giving effect to the $54,882 of deferred offering costs at April 30,
1996).
Orange Empire Brewing Company Exchange Agreement
On September , 1996, the Company entered into a stock-for-stock exchange
(the "Exchange Agreement") with Orange Empire Brewing Company ("OEBC"). Pursuant
to the Exchange Agreement, BWI is to issue 247,479 shares of its common stock in
exchange for all of the outstanding shares of OEBC. Such shares have been valued
at $1,286,891, based on 65% of the estimated IPO price per share of $8.00 (see
Note 2). Due to certain transferability restrictions under Rule 144 of the
Securities Act of 1933, the valuation reflects a discount of 35%. The shares to
be issued in the exchange are subject to adjustment (based on the change in net
assets of the OEBC, as defined). Assuming the Exchange Agreement was consummated
on April 30, 1996, the excess of the purchase price over the fair value of the
net assets acquired is estimated at $4,158,543.
In addition, up to 130,000 additional shares of the Company's common stock
may be issued, if OEBC reaches certain production levels, as defined. Pursuant
to the Exchange Agreement, the exchange is to occur concurrently with the
consummation (the "Closing Date") of the Company's IPO. If for any reason the
IPO does not occur on or before March 31, 1997 or the IPO does not raise
aggregate proceeds of $6,000,000, either party may unilaterally terminate the
Exchange Agreement. Should such additional shares of the Company's common stock
be issued, the value of such shares will be deemed additional purchase
consideration.
F-10
<PAGE> 68
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
Accordingly, such will be deemed additional goodwill at the time the contingency
is achieved. The effects of this contingent consideration are not reflected in
the accompanying unaudited pro forma condensed consolidated financial
statements.
BWI -- Prost Partner's Agreement
On September , 1996, the Company's wholly-owned subsidiary, BWI -- St.
Stan's Inc. ("BWISS") entered into a joint venture with Prost Partners Limited
Partnership (dba St. Stan's Brewing Company -- "St. Stan's") named BWI-Prost
Partners (the "Partnership"). Pursuant to the terms of the BWI-Prost Partners
partnership agreement (the "Partnership Agreement"), St. Stan's has agreed to
contribute substantially all of its assets, net of certain liabilities, to the
Partnership for a 49% minority interest in the Partnership. BWISS has agreed to
contribute $2,295,000 to the Partnership for a 51% controlling interest in the
Partnership. The BWISS consideration is to be tendered in cash commencing 18
months from the IPO and the assumption and partial repayment of certain debt
(see Notes 4 and 5) at the date of contribution, the "Contribution Date", the
date of the successful consummation of an IPO of BWI's common stock, occurring
on or before March 31, 1997, realizing minimum gross proceeds of at least
$8,000,000.
NOTE 2 -- PRINCIPLES OF ACCOUNTING FOR CONDENSED CONSOLIDATED PRO FORMA
FINANCIAL STATEMENTS
Basis of Presentation
The accompanying unaudited pro forma condensed consolidated financial
statements include the effects of the intended IPO, and the accounts of the
Company and the accounts of the entities which, in management's opinion, are
probable of being acquired by or joint ventured with the Company (see Note 1).
The accompanying unaudited pro forma condensed consolidated balance sheet is
presented as if the transactions had been effected as of April 30, 1996, and the
accompanying unaudited pro forma condensed consolidated statements of operations
are presented as if the transactions had been effected at the beginning of each
period presented. The unaudited pro forma condensed consolidated financial
statements have been prepared for analysis purposes only, and do not purport to
be indicative of what the actual consolidated financial condition of the Company
would have been at April 30, 1996 and the actual results of operations of the
Company would have been for the four months ended April 30, 1996 and the year
ended December 31, 1995, nor does it purport to represent the future
consolidated financial position or results of operations of the Company.
Principles of Consolidation
The historical consolidated financial statements include the accounts of
BWI and its substantially-owned subsidiary, Heritage Brewing Company
("Heritage"). The accounts of BWI have been included in the historical
consolidated financial statements beginning August 2, 1995 (date of
incorporation). The accounts of Heritage have been included in the historical
consolidated financial statements beginning November 8, 1995 (date of
acquisition). The historical consolidated operations of BWI and of Heritage do
not include a full year of activity for 1995. Accordingly, management estimated
certain expenses for BWI on an ongoing basis, and adjusted the historical
accounts for Heritage based on the actual results of operations of Heritage for
the year ended December 31, 1995.
For the four months ended April 30, 1996, an increase totaling $19,919 was
made to selling, general and administrative expense in the accompanying
unaudited pro forma condensed consolidated statement of operations to effect
expected incremental salaries and certain expected ongoing expenses.
F-11
<PAGE> 69
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
For the year ended December 31, 1995, the accompanying unaudited pro forma
condensed consolidated statements of operations have been adjusted to reflect
management's estimates of certain general and administrative expenses for BWI
and the actual results of operations for Heritage as follows:
<TABLE>
<CAPTION>
BWI HERITAGE COMBINED
-------- --------- ---------
<S> <C> <C> <C>
Net sales.......................................... $ -- $(347,751) $(347,751)
Cost of sales...................................... -- 426,900 426,900
Selling, general and administrative expenses....... 561,597 101,630 663,227
Interest........................................... -- -- --
Income tax benefit................................. -- (44,538) (44,538)
-------- --------- ---------
Increase to net loss............................... $561,597 $ 136,241 $ 697,838
======== ========= =========
</TABLE>
The historical consolidated financial statements also include the accounts
of OEBC and its wholly-owned subsidiary, Riverside Brewing Company, and the
assets and liabilities expected to be contributed to the Partnership by St.
Stan's, and the operations related thereto. All significant intercompany
accounts have been eliminated in the pro forma consolidation.
Cash and Cash Equivalents
Management intends to invest the proceeds from the IPO in highly liquid
instruments with maturities of 90 days or less. Interest income in the
accompanying unaudited pro forma condensed consolidated statements of operations
was increased by $57,745 and $173,236 for the four months ended April 30, 1996
and the year ended December 31, 1995, respectively, to reflect earnings at a
rate of 5% per annum on the increased cash balances which are expected to arise
from the IPO (see Note 1).
Property and Equipment
In connection with the OEBC Exchange Agreement (see Note 1), certain
machinery and equipment (see Note 3) was reduced by $370,435 to reflect its fair
market value. In connection with this property adjustment, depreciation and
amortization expense was reduced $17,640 and $52,919 for the four months ended
April 30, 1996 and the year ended December 31, 1995, respectively. Such
reduction is reflected in cost of sales in the accompanying unaudited pro forma
condensed consolidated statements of operations.
A substantial portion of the assets of OEBC under capital leases (see Note
3) were placed into service in late 1995. As a result, cost of sales in the
accompanying unaudited pro forma condensed consolidated statement of operations
for the year ended December 31, 1995 has been increased by $70,100 to reflect
amortization of such assets for a full 12 month period.
Goodwill and Other Intangible Assets
Goodwill of $4,158,543 has been estimated in connection with the OEBC
Exchange Agreement (see Notes 1, 4 and 8), assuming the exchange was consummated
on April 30, 1996, and is expected to be amortized on a straight-line basis over
a period of 15 years. Amortization of goodwill has been included in the
accompanying unaudited pro forma condensed consolidated statements of operations
amounting to $92,412 and $277,236 for the four months ended April 30, 1996 and
the year ended December 31, 1995, respectively. Such is reflected as an increase
to selling, general and administrative expenses.
Unaudited pro forma amortization expense relating to goodwill and other
intangible assets for the four months ended April 30, 1996 and the year ended
December 31, 1995 is $100,745 and $302,236, respectively.
F-12
<PAGE> 70
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
The Company will assess the recoverability of this intangible asset by
determining whether the amortization of the goodwill balance over its remaining
life can be recovered through projected undiscounted cash flows. The amount of
goodwill impairment, if any, will be measured based on projected undiscounted
cash flows and will be charged to operations in the period in which goodwill
impairment is determined by management. The methodology that management is
expected to use to project results of operations will be based on a five-year
trend line of expected cash flows.
In connection with the structuring of the BWI-Prost Limited Partnership,
BWI expects to incur costs totaling $75,000. Such costs have been reflected as
an increase to intangible assets and a decrease to cash in the accompanying
unaudited pro forma condensed consolidated balance sheet. In connection
therewith, selling, general and administrative expenses have been increased by
$8,333 and $25,000, based on a three-year amortization period, in the unaudited
pro forma condensed consolidated statements of operations for the four months
ended April 30, 1996 and the year ended December 31, 1995, respectively.
Deferred Financing Costs
Deferred financing costs, included in other current assets, arose from the
issuance by BWI of warrants which represent interest costs associated with a
bridge financing which was funded in May 1996. Such costs, totaling $50,530 at
April 30, 1996, have been written-off and reflected as a reduction to other
current assets and stockholders' equity in the accompanying unaudited pro forma
condensed consolidated balance sheet.
An increase to interest expense has not been made in the accompanying
unaudited pro forma condensed consolidated statements of operations for the four
months ended April 30, 1996 and the year ended December 31, 1995, to reflect the
amortization of such costs as the bridge financing is intended to be temporary,
with any balance outstanding thereunder to be repaid from the proceeds from the
IPO.
Deferred Offering Costs
Deferred offering costs, included in other assets, represent costs
associated with BWI's intended IPO (see Note 1). Such costs, totaling $54,882 at
April 30, 1996, have been written-off and reflected as a reduction to equity on
the accompanying unaudited pro forma condensed consolidated balance sheet.
Accounts Payable
Accounts payable generally represent amounts due vendors in the normal
course of business. Management is expected to use $500,000 from proceeds of the
IPO (see Note 1) to reduce past due accounts and contractual commitments for
services related to the IPO. Accordingly, accounts payable and cash have been
reduced in the accompanying unaudited pro forma condensed consolidated balance
sheet.
Per Share Information
Pro forma net loss per share is computed by dividing the pro forma net loss
by the sum of the historical number of shares of common stock and common stock
equivalents outstanding during the respective periods, common stock expected to
be issued in the proposed IPO (excluding the underwriters' overallotment),
common stock expected to be issued in connection with the proposed OEBC
acquisition and BWI-Prost Partners joint venture (see Note 1) and common stock
issued in connection with the private placement (see Note 9). Common stock
equivalents include common shares issuable upon the exercise of the Company's
stock options and warrants. Pursuant to the Securities and Exchange Commission
(the "Commission"), Staff Accounting Bulletin No. 83, common shares issued for
consideration below an assumed IPO price (estimated at $8.00 per share as
discussed in Note 1) have been considered outstanding for all periods presented,
and common stock purchase options and warrants granted with exercise prices
below the IPO price during the
F-13
<PAGE> 71
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
twelve-month period preceding the date of the initial filing of the registration
statement have been included in the calculation of the common shares
outstanding, using the treasury stock method, as if they were outstanding for
all periods presented, including loss years where the impact is anti-dilutive.
Income Taxes
In connection with the OEBC Exchange Agreement (see Note 1), a deferred tax
liability totaling $1,663,417 associated with non-deductible goodwill has been
established in the accompanying unaudited pro forma condensed consolidated
balance sheet. Management believes the acquisition of OEBC will qualify as a
statutory tax-free exchange under the Internal Revenue Code.
In connection with the nondeductible amortization of goodwill, as discussed
in Notes 1 and 2, and the depreciation related to the acquisition of Heritage
(please refer to the historical financial statement of BWI), an adjustment to
record the related deferred tax benefit amounting to $36,965 and $155,432 for
the four months ended April 30, 1996 and the year ended December 31, 1995,
respectively, has been reflected in the accompanying unaudited pro forma
condensed consolidated statements of operations.
NOTE 3 -- PROPERTY AND EQUIPMENT, NET
Property and equipment in the accompanying unaudited pro forma condensed
consolidated balance sheet consists of the following:
<TABLE>
<S> <C>
Machinery and equipment.................................................. $3,374,926
Building and leasehold improvements...................................... 2,307,379
Equipment under capital lease............................................ 941,500
Furniture and equipment.................................................. 35,332
-----------
6,659,137
Less accumulated depreciation and amortization......................... (978,634)
-----------
$5,680,503
===========
</TABLE>
Management expects to expand its brewing capacity in excess of current
capacity and that of its proposed acquisition and joint venture. Accordingly,
management expects to use approximately $800,000 of its IPO proceeds for
purchases of equipment. The Company reflected a reduction to cash and a
corresponding increase to property and equipment in the accompanying unaudited
pro forma condensed consolidated balance sheet.
In connection therewith, depreciation expense in the accompanying unaudited
pro forma condensed statements of operations was increased by $38,095 and
$114,286 for the four months ended April 30, 1996 and the year ended December
31, 1995, respectively.
Unaudited pro forma depreciation and amortization expense relating to
property and equipment for the four months ended April 30, 1996 and the years
ended December 31, 1995 is $259,480 and $679,203, respectively.
NOTE 4 -- NOTES PAYABLE
OEBC Note Payable to Bank
In connection with the OEBC Exchange Agreement and concurrent with the
Closing Date, notes payable to related parties, which aggregated approximately
$545,000, refinanced with a bank on May 10, 1996, will be divided into two
notes. The predecessor stockholders will assume a note totaling $220,941 without
further obligation to OEBC, and the remaining principal balance of the note
totaling $324,128 will be paid to the bank
F-14
<PAGE> 72
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
by OEBC. In consideration for assuming a portion of the OEBC's debt obligations,
the stockholders will be issued 27,618 shares of BWI common stock valued at
$143,612, using 65% of the estimated IPO price per share of $8.00 (see Note 2).
Due to transferability restrictions under Commission Rule 144 of the 1933 Act,
the valuation reflects a discount of 35%. If on January 1, 1999, the per share
market value of BWI common stock is less than $6.00, the Company will issue to
such stockholders an additional 9,227 shares of its common stock.
Included in the accompanying unaudited pro forma condensed consolidated
balance sheet is a reduction to notes payable of $220,941, and an increase in
stockholders' equity of $143,612. The difference of $77,329 has been reflected
as a reduction to goodwill (see Notes 1 and 2). Furthermore, a reclassification
of $73,397 has been made from notes payable to related parties and to notes
payable to reflect the refinancing on May 10, 1996.
In connection therewith, interest expense in the accompanying unaudited pro
forma condensed consolidated statements of operations was reduced by $7,733 and
$23,199 for the four months ended April 30, 1996 and the year ended December 31,
1995, respectively.
BWISS New Note Payable
BWISS has obtained a commitment letter from the lender to refinance the
$676,836 note payable that BWISS is to assume from the Partnership on the
Contribution Date. The lender requires a principal reduction payment be made
such that the outstanding balance of the note will be $500,000. Accordingly, the
accompanying unaudited pro forma condensed consolidated balance sheet reflects a
reduction of $176,836 to cash and a corresponding reduction to notes payable. In
consideration therewith, interest expense in the accompanying unaudited pro
forma condensed consolidated statements of operations was reduced by $10,110 and
$17,426 for the four months ended April 30, 1996 and the year ended December 31,
1995, respectively.
F-15
<PAGE> 73
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
Notes payable, as adjusted, in the accompanying unaudited pro forma
condensed consolidated balance sheet consist of the following:
<TABLE>
<S> <C>
BWI note payable to bank, bearing interest at prime, plus 2.75% per annum
(11.50% at April 30, 1996), payable in monthly principal and interest
installments of $6,286, due May 4, 2004, secured by substantially all
assets of Heritage and personal guarantees of certain officers and
former stockholders of Heritage........................................ $ 398,323
BWI note payable to bank, bearing interest at prime, plus 2.529% per
annum (11.279% at April 30, 1996), payable in monthly principal and
interest installments of $1,148, due August 1, 1998, secured by
substantially all assets of Heritage, and personal guarantees of
certain officers and former stockholders of Heritage................... 28,049
OEBC note payable to bank, expected to bear interest at prime plus 1.75%
per annum (10.50% at April 30, 1996), expected to be payable in monthly
installments of principal and interest of approximately $11,576, due
December 31, 1998 (assuming a closing date of the IPO of December 31,
1996).................................................................. 324,128
BWISS note payable to a lending institution, bearing interest at a
variable rate, ranging from 11.00% to 16.00% per annum, payable in
monthly installments of principal and interest of $5,683 due December
31, 2001 (assuming a closing date of the IPO of
December 31, 1996)..................................................... 500,000
Unsecured demand notes with vendors, generally bearing interest at 11%
per annum, payable in monthly payments of principal and interest
through May 1997....................................................... 83,552
----------
1,334,052
Less current portion..................................................... (248,600)
----------
$1,085,452
==========
</TABLE>
Future annual principal installments of notes payable, as adjusted, as of
April 30, 1996 are expected to be as follows:
<TABLE>
<CAPTION>
YEARS ENDING
APRIL 30,
-------------------------------------------------
<S> <C>
1997............................................. $ 248,600
1998............................................. 185,235
1999............................................. 155,172
2000............................................. 62,322
2001............................................. 69,770
Thereafter....................................... 612,953
----------
$1,334,052
==========
</TABLE>
NOTE 5 -- NOTES PAYABLE TO RELATED PARTIES
OEBC Note Payable to Stockholder
In connection with the OEBC Exchange Agreement, BWI entered into an
agreement whereby BWI is obligated to repay $644,000 of indebtedness due to
certain related parties, consisting of $603,525 of principal and $40,475 of
accrued interest as of April 30, 1996. Upon the consummation of the IPO (see
Note 1), such indebtedness is to be satisfied as follows: (1) $301,000 is to be
paid in cash, and (2) $343,000 is to be refinanced with a new non-interest
bearing promissory note which matures in 90 days, payable in 24,125 shares
F-16
<PAGE> 74
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
of the Company's common stock and 50,000 warrants to purchase shares of the
Company's common stock at an exercise price of $5.00 per share, subject to
adjustment, as defined.
Included in the accompanying unaudited pro forma condensed consolidated
balance sheet is a decrease of $301,000 to cash, a decrease of $260,525 to notes
payable to related parties and a decrease of $40,475 to accounts payable and
accrued expenses, which have been made to reflect the cash paydown of the notes
payable to the OEBC stockholders. Also included in the accompanying unaudited
pro forma condensed consolidated balance sheet is a decrease of $343,000 to
notes payable to related parties and a corresponding increase in stockholders'
equity, which have been made to reflect the repayment of the remainder of the
notes payable to the OEBC stockholders. Although such repayment is scheduled to
occur 90 days after the close of the IPO, it has been reflected herein as it is
management's intent to promptly effect such repayment.
In connection therewith, interest expense in the accompanying unaudited pro
forma condensed consolidated statements of operations has been reduced by
$12,839 and $30,199 for the four months ended April 30, 1996 and the year ended
December 31, 1995, respectively, to reflect the principal reductions described
above.
BWISS Notes Payable to Related Party
As part of BWISS's capital contribution, as more thoroughly discussed at
Note 1, BWISS is obligated to assume and repay these notes payable to related
party. The balances of such notes payable total $459,153 as of April 30, 1996.
Accordingly, the pro forma condensed consolidated balance sheet reflects a
reduction to cash and a corresponding reduction to notes payable to related
party.
In connection therewith, interest expense on the accompanying pro forma
condensed consolidated statements of operations was reduced $8,449 and $26,658
for the four months ended April 30, 1996 and the year ended December 31, 1995,
respectively. Notes payable to related parties, as adjusted, in the accompanying
unaudited condensed consolidated pro forma balance sheet consist of the
following as of April 30, 1996:
<TABLE>
<S> <C>
BWI unsecured demand notes payable to officers, noninterest bearing........ $11,283
BWI unsecured note payable to an officer, noninterest bearing, payable
monthly at 3% of monthly sales, as defined............................... 78,955
-------
$90,238
=======
</TABLE>
NOTE 6 -- DISTRIBUTION PAYABLE
Pursuant to the BWI-Prost Partners Partnership Agreement, the Partnership
is required to record a distribution payable to Prost Partners limited
Partnership in an amount equal to the remaining amount of the BWISS capital
contribution due the Partnership. It is estimated that $1,135,989 of the
$2,295,000 capital contribution (see Note 1) will be satisfied through BWISS's
assumption and repayment of $459,153 of notes payable to related parties (see
Note 5) and full assumption and partial repayment of $676,836 of notes payable
(see Note 4). Accordingly, the remaining required capital contribution of BWISS,
which is estimated to be $1,159,011 at April 30, 1996, has been reflected as a
decrease to minority interest and a corresponding increase to distribution
payable. Please refer to the notes to the financial statements of the St. Stan's
Brewery and Brewpub Operations for the payment terms related thereto.
BWISS is required to pay interest to the Partnership on its unpaid capital
contribution at a rate of 10% per annum, and the Partnership is required to pay
Prost Partners Limited Partnership interest on the distribution payable under
similar terms. In connection therewith, interest expense in the accompanying
unaudited pro forma condensed consolidated statements of operations has been
increased by $28,975 and $115,901 for the four months ended April 30, 1996 and
the year ended December 31, 1995, respectively.
F-17
<PAGE> 75
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 7 -- MINORITY INTEREST
The accompanying pro forma condensed consolidated balance sheet has been
adjusted to reflect the establishment of the minority interest liability
totaling $1,505,830 which corresponds with the historical book value of the net
assets of the St. Stan's Brewery and Brewpub Operations, and the recordation of
the $1,159,011 distribution payable (see Note 6 above).
The accompanying unaudited pro forma condensed consolidated statements of
operations for the four months ended April 30, 1996 and the year ended December
31, 1995 have been adjusted to reflect the minority interest's 49% share of the
historical net loss of the St. Stan's Brewery and Brewpub Operations and the pro
forma adjustments related thereto.
NOTE 8 -- COMMITMENTS
Capital Lease Agreement Amendment
In connection with the OEBC Exchange Agreement (see Note 1) and concurrent
with the Closing Date, a capital lease with a related party of OEBC is required
to be modified for the benefit of the Company. The modifications to the capital
lease obligation include a reduction in the effective interest rate to 12%, a
provision that all such leased equipment may be purchased by the Company for $1
upon expiration of the lease, the extension of such lease by that number of
months which is equal to the number of months the lease is in arrears through
December 31, 1995, the forgiveness of any lease payment that the lessor was to
receive for the period January 1, 1996 through September 30, 1996, and the
repayment of deferred lease payments, if any, for the period October 1, 1996 to
December 31, 1996 from net proceeds expected to be received from the IPO (see
Note 1). As of April 30, 1996, such past due payments which are expected to be
forgiven totaled $77,412. The Company reduced accounts payable by $77,412 to
reflect the forgiveness of such lease payments. Such has also been reflected as
a reduction to goodwill (see Notes 1 and 2). Also included in the accompanying
unaudited pro forma condensed consolidated balance sheet is a reclassification
from accounts payable to capital lease due to related party totaling $42,054, to
reflect the extension of lease payments in arrears through December 31, 1995.
Future annual aggregate minimum lease payments under the capital lease due
to related party, as modified in the accompanying pro forma condensed
consolidated balance sheet as follows:
<TABLE>
<CAPTION>
YEARS
ENDING
APRIL 30,
- -----------
<S> <C> <C>
1997............................................... $ 239,288
1998............................................... 250,564
1999............................................... 249,456
2000............................................... 249,486
2001............................................... 216,611
Thereafter......................................... 252,438
1,457,843
Less amounts representing interest................. (379,414)
Present value of minimum lease payments............ 1,078,429
Less current portion............................... (128,464)
$ 949,965
</TABLE>
F-18
<PAGE> 76
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
In connection therewith, interest expense in the accompanying unaudited pro
forma condensed consolidated statements of operations has been reduced by $5,452
and $16,356 for the four months ended April 30, 1996 and the year ended December
31, 1995, respectively.
Management Agreements
In connection with the OEBC Exchange Agreement, the Company entered into a
management agreement (the "Management Agreement") with certain stockholders of
OEBC whereby they are to manage and operate the brewpub operations of OEBC from
the Closing Date through December 31, 1998. As compensation for such services,
they are to receive 10,000 shares of the Company's common stock. Such shares are
to be issued on a pro rata basis over the term of the Management Agreement,
estimated at two years for the pro forma condensed consolidated financial
statements. In addition, the brewpub managers are obligated to the Company for
quarterly cash flow deficits, if any, as defined, during the term of the
Management Agreement. The Management Agreement can be terminated by mutual
written consent or in the event of a breach, as defined.
Selling, general and administrative expenses in the accompanying unaudited
pro forma condensed consolidated statements of operations have been increased by
$6,500 and $26,000 for the four months ended April 30, 1996 and the year ended
December 31, 1995, respectively, to reflect the estimated expense for such
Management Agreement.
NOTE 9 -- SUBSEQUENT EVENTS
Bridge Note
In April 1996, the Company entered into an agreement whereby the Company
issued a $500,000 promissory note (the "Bridge Note"), bearing interest at 18%
per annum. Interest is payable monthly and the Bridge Note matures the earlier
of the closing of the intended IPO (see discussion below) or December 31, 1996.
The Bridge Note is secured by all equipment, inventory and accounts receivable
of the Company. As of April 30, 1996, no amounts were outstanding under the
terms of this financing as the proceeds were received by the Company in May
1996.
The accompanying pro forma condensed consolidated balance sheet reflects
the establishment of the Bridge Note and the related use of such proceeds for
working capital purposes (a reduction to stockholders' equity), and the
repayment of such amount from the proceeds of the IPO.
Related Party Financing
On June 24, 1996, the Company entered into an agreement with a significant
stockholder of a company to be acquired (OEBC -- see discussion below), whereby
the Company can borrow up to $175,000. Borrowings bear interest at a maximum
rate of 11%, as defined, payable monthly. The principal balance, together with
any unpaid interest, is due the earlier of the closing of an IPO with aggregate
proceeds of no less than $10,000,000, or before June 30, 1997.
The accompanying unaudited pro forma condensed consolidated balance sheet
reflects the establishment of the note and the related use of such proceeds for
working capital purposes (a reduction to stockholders' equity), and the
repayment of such amount from the proceeds of the IPO.
During the period May 1, 1996 and through the Closing Date of the OEBC
Exchange Agreement, OEBC is expected to receive advances from a stockholder of
OEBC totaling up to $150,000 to be used for working capital purposes. Such
advances, up to $150,000, are expected to be paid from proceeds to be received
upon the consummation of the IPO.
F-19
<PAGE> 77
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
The accompanying unaudited pro forma condensed consolidated balance sheet
reflects the establishment of the Note and the related use of such proceeds for
working capital purposes (a reduction to stockholders' equity), and the
repayment of such amount from the proceeds of the IPO.
Private Placement
On September 9, 1996, the Company closed a private placement of 15,000
common stock purchase units for $150,000, net of offering costs of $20,000. Each
unit consists of two shares of common stock and one common stock purchase
warrant exercisable at $7.00 per share. Such securities are restricted under
Commission Rule 144 of the 1933 Act. The accompanying unaudited pro forma
condensed consolidated balance sheet reflects this transaction as a net funds
from this private placement all to be used for working capital purposes prior to
the IPO.
F-20
<PAGE> 78
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Beverage Works, Inc.
We have audited the accompanying consolidated balance sheet of Beverage
Works, Inc. and subsidiary (the "Company") as of December 31, 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the period from incorporation (August 2, 1995) to December 31, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Beverage Works, Inc. and subsidiary as of December 31, 1995, and the
consolidated results of their operations and their cash flows for the period
from incorporation (August 2, 1995) to December 31, 1995, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As discussed in Note 2 to
the consolidated financial statements, the Company was formed on August 2, 1995,
and since such date, has incurred substantial losses from operations. The
Company will require additional financing to fund operations, consummate its
proposed acquisitions and to ultimately enable it to achieve revenues to support
its cost structure. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management is currently funding
operations from a private placement of its common stock and a bridge loan, and
management is seeking additional capital through the issuance of its common
stock in an initial public offering as more fully described in Notes 2 and 11.
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
CORBIN & WERTZ
Irvine, California
August 1, 1996, except
for Notes 2 and 11 as to which
the date is September , 1996
The foregoing auditors' report is in the form which will be signed upon
consummation of the transaction described in Note 11 to the financial
statements.
F-21
<PAGE> 79
BEVERAGE WORKS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
(Note 2)
<TABLE>
<CAPTION>
DECEMBER 31,
1995
APRIL 30, ------------
1996
-----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................... $ 308,079 $1,041,723
Common stock subscription receivable (Note 8)...................... 260,000 --
Accounts receivable, net of allowance for doubtful accounts of
$20,000 (1996) (unaudited) and $0 (1995) (Notes 5 and 11)....... 30,177 1,311
Inventories (Notes 3, 5 and 11).................................... 53,405 45,135
Deferred financing costs, net (Note 11)............................ 50,530 --
Prepaid expenses and other......................................... 78,987 33,208
---------- ----------
Total current assets....................................... 781,178 1,121,377
Property and equipment, net (Notes 4, 5 and 11)...................... 1,407,705 1,296,434
Deferred licensing fees (Note 7)..................................... 63,800 --
Deferred offering costs (Note 11).................................... 54,882 37,320
---------- ----------
$ 2,307,565 $2,455,131
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.............................. $ 270,843 $ 96,352
Notes payable (Note 5)............................................. 41,286 41,286
Notes payable to related parties (Note 6).......................... 90,238 109,072
Deferred income taxes (Note 10).................................... 52,286 52,286
---------- ----------
Total current liabilities.................................. 454,653 298,996
Notes payable, net of current portion (Note 5)....................... 385,086 398,240
Deferred income taxes, net of current portion (Note 10).............. 288,593 306,008
---------- ----------
Total liabilities.......................................... 1,128,332 1,003,244
---------- ----------
Commitments and contingencies (Note 7)
Stockholders' equity (Notes 8 and 11):
Preferred stock, no par value; 5,000,000 shares authorized, no
shares issued and outstanding; liquidation value of $.001 per
share........................................................... -- --
Common stock, no par value; 20,000,000 shares authorized; 2,427,863
(1996) (unaudited) and 2,341,363 (1995) shares issued and
outstanding..................................................... 2,311,701 1,942,871
Accumulated deficit................................................ (1,132,468) (490,984)
---------- ----------
Total stockholders' equity................................. 1,179,233 1,451,887
---------- ----------
$ 2,307,565 $2,455,131
========== ==========
</TABLE>
See independent auditors' report and accompanying notes
to consolidated financial statements
F-22
<PAGE> 80
BEVERAGE WORKS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THE PERIOD FROM
INCORPORATION
(AUGUST 2, 1995) TO
DECEMBER 31, 1995
THE FOUR -------------------
MONTHS ENDED
APRIL 30,
1996
------------
(UNAUDITED)
<S> <C> <C>
Sales (Note 2)............................................... $ 109,543 $ 48,395
Less excise taxes............................................ (9,467) (3,585)
--------- ---------
Net sales.......................................... 100,076 44,810
Cost of sales................................................ 169,029 81,627
--------- ---------
Gross profit (loss)................................ (68,953) (36,817)
--------- ---------
Operating expenses:
Salaries and wages (Note 8)................................ 188,745 237,559
Professional fees (Note 8)................................. 91,103 78,516
Other general and administrative (Notes 7 and 8)........... 190,757 108,445
Marketing and selling...................................... 95,943 9,033
--------- ---------
Total operating expenses........................... 566,548 433,553
--------- ---------
Loss from operations......................................... (635,501) (470,370)
Interest expense (Notes 5, 6 and 8).......................... 23,398 28,320
--------- ---------
Loss before benefit for income taxes......................... (658,899) (498,690)
Benefit for income taxes (Note 10)........................... 17,415 7,706
--------- ---------
Net loss..................................................... $ (641,484) $(490,984)
========= =========
Net loss per common share.................................... $ (0.21) $ (0.16)
========= =========
Common shares and equivalents outstanding (Notes 2 and 11)... 3,094,874 3,094,874
========= =========
</TABLE>
See independent auditors' report and accompanying notes
to consolidated financial statements
F-23
<PAGE> 81
BEVERAGE WORKS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE FOUR MONTHS ENDED APRIL 30, 1996 (UNAUDITED) AND FOR THE
PERIOD FROM INCORPORATION (AUGUST 2, 1995)
TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK
----------------------- ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
--------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Issuance of common stock for cash at $0.01
per share in connection with incorporation
(August 2, 1995) (Note 8).................. 245,310 $ 2,453 $ -- $ 2,453
Issuance of common stock for cash at $0.05
per share in October 1995 (Note 8)......... 1,549,100 77,455 -- 77,455
Issuance of warrants to purchase common
stock, at an exercise price of $8.25 per
share, for cash in October 1995 (Note 8)... -- 28,100 -- 28,100
Issuance of common stock valued at $3.11 per
share in connection with the
stock-for-stock exchange on November 8,
1995 (Notes 1
and 8)..................................... 142,276 442,828 -- 442,828
Issuance of common stock valued at $3.00 per
share for services rendered (Note 8)....... 49,015 147,045 -- 147,045
Issuance of common stock valued at $4.00 per
share for interest (Note 8)................ 5,333 21,332 -- 21,332
Issuance of common stock valued at $3.47 per
share for services rendered (Note 8)....... 16,583 57,570 -- 57,570
Issuance of common stock for cash at $4.00
per share, net of offering costs of
$168,896
(Note 8)................................... 333,746 1,166,088 -- 1,166,088
Net loss..................................... -- -- (490,984) (490,984)
--------- ---------- ----------- ----------
Balances, December 31, 1995.................. 2,341,363 1,942,871 (490,984) 1,451,887
Issuance of common stock for subscription
receivable at $4.00 per share, net of
offering costs of $42,720 (Note 8)......... 80,000 277,280 -- 277,280
Issuance of common stock valued at $5.20 per
share pursuant to a license agreement
(Notes 7 and 8)............................ 6,500 33,800 -- 33,800
Issuance of Bridge Warrants to purchase
35,000 shares of common stock, at an
exercise price of $4.75 per share, valued
at $1.65 per share, representing interest
(Notes 8 and 11)........................... -- 57,750 -- 57,750
Net loss..................................... -- -- (641,484) (641,484)
--------- ---------- ----------- ----------
Balances, April 30, 1996 (unaudited)......... 2,427,863 $2,311,701 $(1,132,468) $1,179,233
========= ========== =========== ==========
</TABLE>
See independent auditors' report and accompanying notes
to consolidated financial statements
F-24
<PAGE> 82
BEVERAGE WORKS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THE PERIOD
FROM INCORPORATION
(AUGUST 2, 1995) TO
DECEMBER 31, 1995
THE FOUR -------------------
MONTHS ENDED
APRIL 30,
1996
------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities
Net loss.................................................... $ (641,484) $ (490,984)
Adjustments to reconcile net loss to net cash used in
operating activities (Note 8):
Depreciation and amortization............................ 80,647 30,282
Provision for loss on accounts receivable................ 20,000 --
Common stock issued for services rendered................ -- 204,615
Common stock issued to related parties for interest...... -- 21,332
Changes in operating assets and liabilities, net of acquired
company:
Accounts receivable...................................... (48,866) --
Inventories.............................................. (8,270) --
Prepaid expenses and other............................... (45,779) (18,715)
Accounts payable and accrued expenses.................... 174,491 37,216
Deferred income taxes.................................... (17,415) (7,706)
------------ -------------------
Net cash used in operating activities............... (486,676) (223,960)
------------ -------------------
Cash flows from investing activities:
Cash of acquired company received in connection with
stock-for-stock exchange (Note 1)........................ -- 5,952
License acquisition fee (Note 7)............................ (30,000) --
Purchases of property and equipment......................... (184,698) (86,117)
------------ -------------------
Net cash used by investing activities............... (214,698) (80,165)
------------ -------------------
Cash flows from financing activities:
Proceeds from issuance of common stock (Note 8)............. 54,600 1,245,996
Proceeds from issuance of common stock purchase warrants
(Note 8)................................................. -- 28,100
Deferred offering costs (Note 8)............................ (54,882) (37,320)
Proceeds from issuance of notes payable to related parties
(Note 6)................................................. -- 109,072
Payments on notes payable................................... (13,154) --
Payments on notes payable to related parties (Note 6)....... (18,834) --
------------ -------------------
Net cash provided by (used in) financing
activities........................................ (32,270) 1,345,848
------------ -------------------
Net change in cash and cash equivalents....................... (733,644) 1,041,723
Cash and cash equivalents, beginning of period................ 1,041,723 --
------------ -------------------
Cash and cash equivalents, end of period...................... $ 308,079 $ 1,041,723
=========== ===============
Supplemental disclosure of cash flow information --
Cash paid during the period for:
Interest................................................. $ 7,833 $ 2,771
=========== ===============
Income taxes............................................. $ -- $ 800
=========== ===============
</TABLE>
See independent auditors' report and accompanying notes
to consolidated financial statements
F-25
<PAGE> 83
BEVERAGE WORKS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
Supplemental disclosure of noncash investing and financing activities:
April 30, 1996 (unaudited)
The Company issued 6,500 shares of common stock valued at $33,800 pursuant
to license agreement (see Notes 7 and 8).
The Company issued Bridge Warrants to acquire 35,000 shares of the
Company's common stock valued at $57,750 for deferred financing costs (see Notes
8 and 11).
December 31, 1995
The Company issued 5,333 shares of common stock valued at $21,332 for
interest to related parties (see Note 8).
The Company issued 65,598 shares of common stock valued at $204,615 for
services rendered (see Note 8).
As discussed in Note 1, on November 8, 1995, the Company entered into a
stock-for-stock exchange. Pursuant to the terms of the stock-for-stock exchange,
liabilities were assumed as follows:
<TABLE>
<S> <C>
Fair value of assets acquired............................................ $1,307,490
Value of stock given as consideration.................................... (442,828)
----------
Liabilities assumed.................................................... $ 864,662
=========
</TABLE>
See independent auditors' report and accompanying notes
to consolidated financial statements
F-26
<PAGE> 84
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION
Beverage Works, Inc. ("BWI"), a California corporation incorporated on
August 2, 1995, was formed to acquire interests in various craft brewing and
beverage operations.
On November 8, 1995, BWI entered into a stock-for-stock exchange with
Heritage Brewing Company, Inc. ("Heritage") intended to qualify as a statutory
tax-free exchange under the Internal Revenue Code. Heritage is a microbrewery in
the business of manufacturing and distributing various distinctive beers
throughout the Western United States. Pursuant to the acquisition, BWI issued
142,276 shares of its common stock in exchange for approximately 95% of the
outstanding shares of Heritage. BWI has offered 7,724 shares to the minority
interest stockholders of Heritage. To date, such minority stockholders have not
tendered their shares. The arrangement allows for the former stockholders of
Heritage to effect a "Call" provision. The Call provision allows the
stockholders to rescind the acquisition should BWI not consummate an initial
public offering (the "IPO") by December 31, 1996. In the event the IPO is not
consummated by December 31, 1996, and the Call holders effect to exchange their
BWI shares for their shares of Heritage, amounts advanced to Heritage for
working capital and capital improvements will be payable to BWI in 36 equal
monthly noninterest bearing installments. The acquisition has been accounted for
under the purchase method of accounting as management believes the IPO is
probable of being consummated. The purchase price was $442,828, plus acquisition
costs of $18,480. The minority interest relating to the remaining stockholders
of Heritage was not recorded as the amount was not considered significant. There
was no excess of purchase price over the fair value of the net assets acquired
as a result of this transaction. Unaudited proforma revenues, net loss and net
loss per share of BWI, assuming the acquisition was consummated January 1, 1995,
for the year ended December 31, 1995, are as follows:
<TABLE>
<S> <C>
Revenues............................................... $ 392,561
=========
Net loss............................................... $(566,149)
=========
Net loss per share..................................... $ (0.18)
=========
</TABLE>
The proforma information above is not necessarily indicative of the actual
results which may have occurred had the acquisition been consummated on January
1, 1995.
As discussed in Note 11, on September , 1996, BWI entered into a
stock-for-stock exchange (the "Exchange Agreement") with Orange Empire Brewing
Company ("OEBC"), a California corporation. Additional agreements were entered
into concurrently with the execution of the Exchange Agreement, including an
agreement with BWI to actively manage OEBC's operations (Note 11).
On June 25, 1996, BWI formed a wholly-owned subsidiary, BWI -- St. Stan's,
Inc. ("BWISS"). On September , 1996, Prost Partners Limited Partnership (a
California limited partnership) ("St. Stan's"), a craft brewing company located
in Modesto, California, formed a California general partnership with BWISS,
BWI-Prost Partners (the "Partnership"). Pursuant to the terms of the BWI-Prost
Partners partnership agreement (the "Partnership Agreement"), St. Stan's has
agreed to contribute substantially all of its assets, net of certain
liabilities, to the Partnership for a 49% minority interest in the Partnership.
BWISS has agreed to contribute $2,295,000 to the Partnership for a 51%
controlling interest in the Partnership. The BWISS consideration is to be
tendered in cash commencing 18 months from the IPO, and the assumption of
certain debt on the contribution date, the "Contribution Date", the date of the
successful consummation of the IPO of BWI's common stock, occurring on or before
March 31, 1997, realizing minimum proceeds of at least $8,000,000 (before any
deductions, including, but not limited to, underwriters' compensation and
expenses). See Note 11 for further discussion of the terms of the Partnership
Agreement which have a significant effect on the accompanying historical
financial statements.
F-27
<PAGE> 85
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates, among other things, the realization of
assets and the satisfaction of liabilities in the normal course of business. As
reflected in the accompanying consolidated financial statements, BWI incurred
net losses of $641,484 (unaudited) and $490,984, for the four months ended April
30, 1996 and for the period from incorporation (August 2, 1995) to December 31,
1995, respectively. BWI will require significant capital to fund operations, to
consummate its proposed acquisitions (Note 11) and to enable it to achieve
revenues to support its cost structure. These factors raise substantial doubt
about BWI's ability to continue as a going concern.
BWI has funded operations from a private placement (see Note 8) and the
1996 Bridge Financing and a second Private Placement (see Note 11). BWI plans to
effect the IPO to raise additional capital, certain of which, if the IPO is
successful and the proposed acquisitions are consummated, the proceeds will be
used to close the proposed acquisitions (Note 11), to reduce BWI's indebtedness
and to fund working capital requirements. Management also plans to reduce BWI's
costs on a per unit basis through increased plant utilization and through
combined purchases with the brewing facilities acquired, or to be acquired, by
BWI. Management also plans to implement a marketing plan which is expected to
substantially increase BWI's revenues sufficient to meets BWI's proposed cost
structure. There are no assurances that management's plans can be effected,
which includes the consummation of the IPO in a timely manner. The accompanying
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
BWI and its substantially-owned subsidiary, Heritage Brewing Company
(collectively the "Company"). The accounts of Heritage have been included in the
accompanying consolidated financial statements beginning November 8, 1995. All
significant intercompany transactions and balances have been eliminated in
consolidation.
F-28
<PAGE> 86
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Parent Only Financial Information
Beverage Works, Inc., parent only condensed financial information consists
of the following:
FINANCIAL POSITION
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
1995
APRIL 30, ------------
1996
------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash............................................................ $ 299,100 $1,035,771
Common stock subscription receivable............................ 260,000 --
Other current assets............................................ 98,224 2,715
----------- -----------
Total current assets.................................... 657,324 1,038,486
Property and equipment, net....................................... 11,547 5,312
Investment in subsidiary.......................................... 182,725 351,626
Due from subsidiary............................................... 528,586 193,573
Other............................................................. 118,682 37,320
----------- -----------
$1,498,864 $1,626,317
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses........................ $ 229,393 $ 65,358
Notes payable to related party............................... 90,238 109,072
----------- -----------
319,631 174,430
Stockholders' equity.............................................. 1,179,233 1,451,887
----------- -----------
$1,498,864 $1,626,317
=========== ===========
</TABLE>
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
AUGUST 2,
1995 TO
DECEMBER 31,
1995
FOUR ------------
MONTHS ENDED
APRIL 30,
1996
------------
(UNAUDITED)
<S> <C> <C>
Net sales......................................................... $ -- $ --
Cost of sales..................................................... -- --
----------- -----------
Gross profit............................................ -- --
Selling, general and administrative expenses...................... 486,842 359,823
----------- -----------
Loss from operations.................................... (486,842) (359,823)
Equity in loss of subsidiary...................................... 147,422 131,161
Interest expense.................................................. 7,220 --
----------- -----------
Net loss.......................................................... $ (641,484) $ (490,984)
=========== ===========
</TABLE>
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, as well
as disclosure of contingent assets and liabilities at the date of the financial
statements.
F-29
<PAGE> 87
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Certain estimates made by management also effect the reported amounts of
revenues and expenses during the reported periods. Actual results could
materially differ from those estimates. Significant estimates made by management
include the provision for loss on accounts receivable and the net realizability
of inventory.
Fair Value of Financial Instruments
The consolidated financial statements contain financial instruments whereby
the fair market value of the financial instruments could be different than those
recorded on a historical basis in the accompanying consolidated financial
statements. The Company's financial instruments consist of cash, accounts
receivable, accounts payable, notes payable and notes payable to related
parties. The carrying amounts of the Company's financial instruments generally
approximate their fair values at April 30, 1996 (unaudited) and December 31,
1995. In the case of the notes payable to related parties (see Note 6), it was
not practical to determine fair values due to the lack of a market for such
financial instruments.
Concentration of Credit Risk
The Company, at times, maintains cash balances at certain financial
institutions in excess of the federally insured deposits.
The Company sells its products to independent distributors for distribution
to retailers. The Company extends credit to its distributors and performs
periodic credit evaluations of such customers. The Company does not obtain
collateral to secure its accounts receivable. The Company periodically evaluates
its accounts receivable for collectibility and provides a reserve for losses
resulting therefrom.
Three customers accounted for 37%, 23% and 17% of sales (unaudited),
respectively, for the four-month period ended April 30, 1996. Such
concentrations were similar during the period from November 8, 1995 (date of
acquisition of Heritage) to December 31, 1995.
No one supplier of the raw material used in its brewing process is from a
single source which accounts for 10% or more of total purchases for the
four-month period ended April 30, 1996 (unaudited) and for the period from
incorporation (August 2, 1995) to December 31, 1995.
Risks and Uncertainties
Licenses and Permits
The brewery and wholesale operations require various Federal, state and
local licenses and permits. Brewers are required to file with the Federal Bureau
of Alcohol, Tobacco and Firearms (the "BATF"). The California Department of
Alcoholic Beverage Control (the "ABC") requires that companies file and maintain
licenses, permits or approvals for the production and sale of alcoholic
beverages. Other state and local laws and regulations governing the sale of
alcoholic beverages within a particular state by an out-of-state brewer or
wholesaler vary by state and locality. The Company's brewery operations are
subject to audit and inspection by the BATF and ABC at any time.
Because of the various state and Federal licensing and permitting
requirements, there is a risk that one or more regulatory authorities could
determine that the Company has not complied with applicable licensing or
permitting regulations or does not maintain the approvals necessary for it to
conduct business within their jurisdictions. Regulatory actions could have a
material adverse effect on the Company's financial position and its operating
results.
Seasonality
The beverage business traditionally has historically been seasonal.
Typically, net sales are highest during the third and fourth calendar quarters
and decline sequentially in the first and second calendar quarters. The
F-30
<PAGE> 88
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
seasonal pattern is due primarily to the increased demand for consumer beverages
during the summer through the year-end holiday buying season. The Company
expects its net sales and operating results to continue to reflect seasonality.
Environmental Regulations and Operating Considerations
The Company's brewing operations are subject to a variety of extensive and
changing Federal, state and local environmental laws, regulations and ordinances
that govern activities or operations that may have adverse effects on human
health or the environment. Such laws, regulations ordinances may impose
liability for the cost of remediating, and for certain damages resulting from,
sites of past releases of hazardous materials. The Company believes that it
currently conducts, and in the past has conducted, its activities and operations
in substantial compliance with applicable environmental laws, and believes that
costs arising from existing environmental laws will not have a material adverse
effect on the Company's financial condition or results of operations. There can
be no assurance, however, that environmental laws will not become more stringent
in the future or that the Company will not incur costs in the future in order to
comply with such laws.
The Company's operations are subject to certain hazards and liability risks
faced by all brewers, such as potential contamination of ingredients or products
by bacteria or other external agents that may be wrongfully or accidentally
introduced into products or packaging. The occurrence of such a problem could
result in a costly product recall and serious damage to the Company's reputation
for product quality, as well as claims for product liability which may
negatively impact the Company. The Company maintains insurance which the Company
believes is sufficient to cover any liability claims which might result from a
contamination problem in its products, but which may not cover any damage to the
Company's reputation.
Cash Equivalents
The Company considers highly liquid investments with a remaining maturity
of 90 days or less when purchased to be cash equivalents.
Inventories
Inventories, consisting primarily of raw materials and purchased products,
and work in process and finished goods, are stated at the lower of cost or
market. Cost is determined by the first-in, first-out method.
Deferred Financing Costs
Deferred financing costs arose from the issuance of certain warrants which
were deemed by management to represent interest costs associated with the 1996
Bridge Financing (Note 11). Such interest costs are currently being amortized
over the nine-month period ending December 31, 1996. Amortization of such costs
during the four months ended April 30, 1996 was $7,220.
Deferred Offering Costs
Deferred offering costs represent costs associated with the Company's
private placement of common stock (Note 8) and proposed IPO (Note 11). Deferred
offering costs will be recorded as a reduction of proceeds received upon the
close of escrow of each transaction. In May 1996, the private placement of the
Company's common stock closed and, accordingly, $37,320 of such costs were
recorded net of the proceeds received. In the event the IPO is unsuccessful, the
$54,882 of costs incurred through April 30, 1996 (unaudited), and costs to be
incurred, will be charged to operations.
F-31
<PAGE> 89
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation,
and are being depreciated on a straight-line basis over their estimated useful
lives, which range from five (5) to seven (7) years. Leasehold improvements are
being amortized using the straight-line method over the life of the asset or the
term of the lease (which expires on February 1998), whichever is shorter.
Major betterments and renewals are capitalized, while routine repairs and
maintenance are charged to expense when incurred.
Management of the Company assesses the recoverability of property and
equipment by determining whether the depreciation of such assets over their
remaining lives can be recovered through projected undiscounted cash flows. The
amount of impairment, if any, is measured based on projected undiscounted cash
flows and is charged to operations in the period in which such impairment is
determined by management. To date, management has not identified an impairment
of property and equipment.
Goodwill
Upon the consummation of the proposed IPO (Note 11), the excess of cost of
the investment over net assets to be acquired (goodwill) in connection with the
proposed acquisition of OEBC will be amortized on a straight-line basis over the
expected periods to be benefitted. The Company will assess the recoverability of
this intangible asset by determining whether the amortization of the goodwill
balance over its remaining life can be recovered through projected undiscounted
cash flows. The amount of goodwill impairment, if any, will be measured based on
projected undiscounted cash flows and will be charged to operations in the
period in which goodwill impairment is determined by management. Goodwill will
be amortized on the straight-line method over an expected 15 year life. The
methodology that management will use to project results of operations will be
based on a five-year trend line of expected cash flows.
Deferred Licensing Fees
Deferred licensing fees (Note 7) represent amounts paid by the Company to
acquire rights to use specified trademarks and tradenames for use in its craft
brewing operations. Such amounts will be amortized on a straight-line basis over
the term of the agreement. No amortization has been recorded during the periods
presented since the manufacture and distribution of such products using product
tradenames has not commenced.
Income Taxes
The Company accounts for its income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("Statement 109"). Under Statement 109, an asset and liability method is used
whereby deferred tax assets and liabilities are determined based on temporary
differences between bases used for financial reporting and income tax reporting
purposes. Income taxes are provided based on the enacted tax rates in effect at
the time such temporary differences are expected to reverse. A valuation
allowance is provided for certain deferred tax assets if it is more likely than
not that the Company will not realize the tax assets through future operations
(see Note 10).
Revenue Recognition
Revenues from product sales are recognized upon shipment. The Company
records a provision for the effect of returned products at the time the units
are shipped. Historically, the Company has experienced minimal product returns.
F-32
<PAGE> 90
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Per Share Information
Net loss per common share is computed by dividing the net loss by the
number of shares of common stock and common stock equivalents outstanding during
the respective periods. Common stock equivalents include common shares issuable
upon the exercise of the Company's stock options and warrants. Pursuant to the
Securities and Exchange Commission (the "Commission"), Staff Accounting Bulletin
No. 83, common shares issued for consideration below an assumed IPO price
(estimated at $8.00 per share as discussed in Note 11) have been considered
outstanding for all periods presented, and common stock purchase options and
warrants granted (see Note 8) with exercise prices below the IPO price during
the twelve-month period preceding the date of the initial filing of the
registration statement (estimated to be September 12, 1996) have been included
in the calculation of the common shares outstanding, using the treasury stock
method, as if they were outstanding for all periods presented, including loss
years where the impact is anti-dilutive.
Interim Financial Statements
In the opinion of management, the accompanying unaudited consolidated
financial statements of the Company include all adjustments (consisting of only
normal recurring adjustments) necessary for a fair presentation of the
consolidated financial position of the Company as of April 30, 1996, and results
of operations and cash flows for the four months then ended. Although management
believes that the disclosures of interim financial information in these
financial statements are adequate to make the information presented not
misleading, certain information and disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
during the interim periods have been condensed or omitted pursuant to the rules
and regulations of the Commission. The unaudited results of operations for the
four months ended April 30, 1996 are not necessarily indicative of results of
operations to be expected for the year ending December 31, 1996.
NOTE 3 -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
APRIL 30, ------------
1996
-----------
(UNAUDITED)
<S> <C> <C>
Raw materials and purchased packaging....................... $40,526 $ 32,900
Work in process and finished goods.......................... 12,879 12,235
------- -------
$53,405 $ 45,135
======= =======
</TABLE>
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER
31, 1995
APRIL 30, -----------
1996
-----------
(UNAUDITED)
<S> <C> <C>
Machinery and equipment..................................... $ 1,434,848 $ 1,250,150
Furniture and fixtures...................................... 8,446 8,446
Leasehold improvements...................................... 68,120 68,120
---------- ----------
1,511,414 1,326,716
Less accumulated depreciation and amortization.............. (103,709) (30,282)
---------- ----------
$ 1,407,705 $ 1,296,434
========== ==========
</TABLE>
F-33
<PAGE> 91
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER
31, 1995
APRIL 30, -----------
1996
-----------
(UNAUDITED)
<S> <C> <C>
Note payable to bank, bearing interest at prime, plus 2.75%
per annum (11.50% at December 31, 1995), payable in
monthly principal and interest installments of $6,286, due
May 4, 2004, secured by substantially all assets of
Heritage and personal guarantees of certain officers and
former stockholders of
Heritage.................................................. $ 398,323 $ 408,007
Note payable to bank, bearing interest at prime, plus 2.529%
per annum (11.279% at December 31, 1995), payable in
monthly principal and interest installments of $1,148, due
August 1, 1998, secured by substantially all assets of
Heritage, and personal guarantees of certain officers and
former stockholders of
Heritage.................................................. 28,049 31,519
-------- --------
426,372 439,526
Less current portion........................................ (41,286) (41,286)
-------- --------
$ 385,086 $ 398,240
======== ========
</TABLE>
Interest expense on this indebtedness amounted to $12,050 (unaudited) for
the four months ended April 30, 1996 and $6,988 for the period November 8, 1995
(date of acquisition of Heritage) to December 31, 1995.
Future annual principal installments of notes payable as of December 31,
1995 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
- ------------
<S> <C> <C>
1996............................................... $ 41,286
1997............................................... 46,237
1998............................................... 47,152
1999............................................... 43,042
2000............................................... 48,261
Thereafter......................................... 213,548
--------
$439,526
========
</TABLE>
See Note 11 for issuance of a bridge note totaling $500,000 subsequent to
April 30, 1996.
NOTE 6 -- NOTES PAYABLE TO RELATED PARTIES
Notes payable to related parties consist of two unsecured demand notes,
non-interest bearing, totaling $11,283 (unaudited) and $26,327 as of April 30,
1996 and December 31, 1995, respectively, and one unsecured note payable,
non-interest bearing, payable at a rate of 3% of monthly sales. As of April 30,
1996 and December 31, 1995, such note was $78,955 (unaudited) and $82,745,
respectively.
Also see Note 11 referencing the Company's right to draw down up to
$175,000 pursuant to a note agreement entered into with a related party (OEBC
stockholder).
F-34
<PAGE> 92
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- COMMITMENTS AND CONTINGENCIES
Employment Contracts
The Company has entered into employment contracts with five of its
employees, including three officers, which expire on various dates through May
10, 1998. Such management agreements will be canceled and replaced with new
agreements upon the consummation of the IPO (Note 11). Certain of the employment
contracts provide for substantial incentive compensation if certain revenue
levels were achieved, as defined. No incentive compensation has been paid
through April 30, 1996. The employment contracts also provide for certain
expense allowances.
Future annual minimum base salaries plus allowances, as amended, and in the
aggregate, consist of the following at December 31, 1995:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
- ------------
<S> <C> <C>
1996.............................................. $ 451,200
1997.............................................. 451,200
1998.............................................. 203,025
----------
$1,105,425
=========
</TABLE>
Operating Leases
The Company leases its Lake Elsinore, California facility under a
noncancelable operating lease which expires February 1998. Future annual minimum
lease payments at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
- ------------
<S> <C> <C>
1996................................................ $26,050
1997................................................ 27,560
1998................................................ 4,630
-------
$58,240
=======
</TABLE>
The Company leases its Newport Beach, California office on a month-to-month
arrangement for $2,105, monthly. Rent expense under all operating lease
agreements totaled $23,892 (unaudited) for the four months ended April 30, 1996,
and $10,525 for the period ended December 31, 1995.
Distributor Agreements
The Company is party to certain agreements with certain distributors which
grants the Company's distributors the right to sell certain products in
specified territories for a period of one year. The agreements may be terminated
by mutual agreement, or by written notice, subject to certain terms and fees, as
defined.
License Agreement
In February 1996, the Company entered into a license agreement to obtain an
exclusive right to manufacture, distribute and market beer products, as defined,
in specified territories, as well as use trademarks and tradenames of the
licensor. The term of the agreement is one year, renewable annually pursuant to
certain minimum sales quotas set forth in the agreement. Pursuant to the terms
of the agreement, the Company paid $25,000 in cash, issued 6,500 shares of its
common stock valued at $33,800 (see Note 8) to acquire the rights under the
agreement, and paid certain fees and expenses totaling $5,000, and paid advance
royalties of $10,000. Such amounts, excluding the advanced royalties, have been
capitalized as deferred licensing fees in
F-35
<PAGE> 93
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the accompanying consolidated balance sheet at April 30, 1996 (unaudited);
advance royalties of $10,000 are included in prepaid expenses and other current
assets in such consolidated April 30, 1996 balance sheet (unaudited). In
addition, the Company is obligated to pay royalties ranging from $0.20 to $0.242
per gallon over the life of the agreement, as defined, and royalties of 10% of
the gross profit from the sale of any merchandise with the licensor's tradename,
as defined.
Litigation
The Company and its subsidiaries are currently not involved in any material
pending legal proceedings. Other than as described below, the Company is not
aware of any material legal proceedings threatened against it.
Tamkin Investments has asserted that it has been damaged by the Company
negotiating and entering the acquisition agreement with Riverside Brewing Co.
and the Partnership Agreement with St. Stan's Brewing Co. in violation of a
confidentiality agreement and letter agreement dated January 18, 1996 and
January 16, 1996, respectively. The confidentiality agreement provided that the
Company would not negotiate with these companies while these companies were
under letters of intent with Tamkin. The Company does not believe that Tamkin
Investments' claim has merit. The letters of intent with those companies expired
prior to the Company commencing negotiations with any of these companies. The
Company's consolidated financial statements do not reflect a provision for loss,
if any, that may result from the outcome of this matter.
Certain other claims were brought by or against the Company. In the opinion
of management, the ultimate outcome of these matters will not have a material
adverse effect the Company's consolidated operations or financial position.
NOTE 8 -- STOCKHOLDERS' EQUITY
The Company is authorized to issue up to 20,000,000 shares of common stock,
no par value and up to 5,000,000 shares of preferred stock, no par value. Since
the Company's incorporation, no preferred shares have been issued.
The Company has issued its common stock, and common stock purchase options
and warrants for cash, services rendered and interest since its inception. There
is currently no significant market for trading of the Company's common stock.
The Company's Board of Directors, through consensus, is responsible for
assessing the estimated fair value of the shares based on relevant information
available. Through the first quarter of 1996, the Board of Directors have
generally used the value of the consideration received (e.g. the private
placement proceeds), or services rendered to the Company, to determine the
estimated fair value of its common stock. Subsequent to the closing of the
private placement, the Board of Directors determined the estimated fair value of
common stock transactions using the estimated IPO price per share of $8.00. In
the event the securities are issued under Commission Rule 144 of the 1933 Act,
the Board of Directors reflected a discount of 35% from the estimated IPO price
due to the transferability restrictions. Should the shares have registration
rights (demand or best efforts) under the Commission Act of 1933, the Board of
Directors reflected a discount of 20% from the estimated IPO price.
Common stock transactions since incorporation (August 2, 1995) through
December 31, 1995, and during the four months ended April 30, 1996 (unaudited)
are as follows:
On August 2, 1995 (incorporation), the Company issued 245,310 shares
of common stock to its founders for cash at $0.01 per share. No
compensation expense was charged to operations as the value of the shares
was deemed nominal.
F-36
<PAGE> 94
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On October 6, 1995, the Company issued 1,549,100 shares of common
stock to certain investors for cash at $0.05 per share. No compensation
expense was charged to operations as the value of the shares was nominal in
light of the fact the Company had no material assets or operations.
On October 6, 1995, the Company sold a warrant to purchase 2,810,000
shares of the Company's common stock at 8.25 per share to an investor for
cash at $0.01 per share ($28,100) under the warrant agreement (also see
warrants issued to purchase 190,000 shares discussed below). The warrants
expire five (5) years from the IPO, are subject to adjustment and an
anti-dilution provision, and are callable by the Company at $0.10 each
provided that the closing bid price of the IPO exceeds $15.00 per share for
thirty consecutive trading days. Such warrants are expected to be
registered in the Company's IPO, subject to a 13-month "lock-up" agreement,
which restricts the sale of such securities. Although the exercise price of
the warrant was considerably higher than the estimated fair value of the
underlying common stock, the purchase price was deemed appropriate due to
the right to purchase a significant block of common stock under the terms
of the agreement. The purchase price of $28,100 was reflected in the
accompanying consolidated statements of stockholders' equity.
On November 8, 1995, the Company issued 142,276 shares of common stock
valued at an effective price of approximately $3.11 per share in connection
with the Heritage acquisition (see Note 1). Such shares issued include
16,000 shares which have registration rights.
On November 12, 1995, the Company issued 49,015 shares of common stock
valued at $3.00 per share to two former stockholders of Heritage, one of
which is an officer and director of the Company. Such individuals are
considered experts in craft brewing operations and have performed certain
consultations to the Company related thereto. Accordingly, the Company
charged $147,045 to operations during the period ended December 31, 1995
for services rendered.
On November 12, 1995, the Company issued 5,333 shares of common stock
valued at $4.00 per share for interest to two former stockholders of
Heritage and current debt holders of the Company (Note 6). Accordingly, the
Company charged $21,332 to operations during the period ended December 31,
1995 for interest expense.
On November 15, 1995, the Company issued 16,583 shares of common
stock, valued at $3.47 per share to certain parties for consulting services
provided to the Company. Accordingly, the Company charged $57,570 to
operations during the period ended December 31, 1995 for services rendered.
On November 20, 1995, the Company engaged a placement agent to sell up
to 400,000 shares of its common stock at $4.00 per share. This private
placement was intended to comply with exemptions promulgated under Rule 506
of Regulation D. Such shares are expected to be registered in the Company's
IPO, subject to a 13-month lock-up agreement. Through December 31, 1995,
the Company issued 333,746 shares of its common stock for aggregate
proceeds of $1,166,088, net of offering costs of $168,896.
Through April 30, 1996, the Company issued an additional 80,000 shares
of common stock (unaudited) for aggregate proceeds of $277,280, net of
offering costs of $42,720 under its private placement discussed in the
preceding paragraph. A subscription receivable from the sale of this common
stock totaling $260,000 is reflected as a current asset in the accompanying
consolidated balance sheet as such funds were received by the Company in
May 1996.
On February 3, 1996, the Company issued 6,500 shares of common stock
(unaudited) valued at $5.20 per share pursuant to the terms of a license
agreement. The shares issued were deemed consideration for acquiring its
rights under the agreement and, accordingly, the Company capitalized
$33,800 (unaudited) for such value as deferred licensing fees in the
accompanying consolidated balance sheet at April 30, 1996 (see Notes 2 and
7).
F-37
<PAGE> 95
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In April 1996, the Company issued warrants to purchase 35,000 shares
of its common stock (unaudited) at $4.75 each expiring April 20, 1999. The
underlying common stock has demand registration rights in the IPO subject
to a 13-month "lock-up" agreement. The Board of Directors determined the
estimated fair value to be $6.40 per share and, accordingly, $57,750 was
capitalized as deferred financing cost to be amortized to interest expense
over the term of the loan (Notes 2 and 11).
Since incorporation, the Board of Directors approved the issuance of
certain common stock purchase options and warrants at various exercise prices as
deemed appropriate by the Board of Directors.
In October 1995, the Board of Directors approved the grant of warrants to
purchase 190,000 shares to certain investors and directors of the Company which
are expected to be registered in the Company's IPO, subject to a 13-month
lock-up agreement. Each option entitles the holder to purchase one share of
common stock at an exercise price of $8.25 per share and is fully vested as of
the date of grant. The exercise price substantially exceeds the estimated fair
value of underlying common stock at the date of grant; such options expire five
(5) years under the IPO. In addition, the Board of Directors granted the
Company's securities counsel options to purchase 15,583 shares of common stock
at $4.50 per share under similar terms as described above.
See Note 11 for option plans adopted by the Board of Directors subsequent
to April 30, 1996.
The following table summarizes activity of the common shares available for
purchase, and their range of per share prices, during the period ended December
31, 1995 and the four months ended April 30, 1996:
<TABLE>
<CAPTION>
NUMBER OF PRICE
SHARES PER SHARE
--------- -----------
<S> <C> <C>
Balances at August 2, 1995.................................. -- --
Granted................................................... 3,015,583 $4.50-$8.25
Exercised................................................. -- --
Canceled.................................................. -- --
--------- -----------
Balances at December 31, 1995............................... 3,015,583 $4.50-$8.25
Granted................................................... 35,000 $ 4.75
Exercised................................................. -- --
Canceled.................................................. -- --
--------- -----------
April 30, 1996 (unaudited).................................. 3,050,583 $4.50-$8.25
=========
Shares exercisable at April 30, 1996 (unaudited)............ 3,050,583
=========
</TABLE>
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123 "Accounting for Stock Based Compensation"
("Statement No. 123"). Statement No. 123 is primarily a disclosure standard for
the Company because the Company will continue to account for employee stock
options under Accounting Principles Board Opinion No. 25. The disclosure
requirements for the Company required by Statement No. 123 will be effective for
the Company's 1996 financial statements. Because of a lack of a market in the
Company common stock, the proforma effects on operations of the employee stock
options were not determinable.
NOTE 9 -- RELATED PARTY TRANSACTIONS
License Agreement
In August 1995, the Company entered into a license agreement to obtain an
exclusive right to sell non-alcoholic beverages in a specified territory. The
president of the Company was also the former president of the non-alcoholic
beverages company. The agreement is in effect until terminated by either party,
as defined. The
F-38
<PAGE> 96
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company is obligated to pay $0.50 for every case of licensed product sold. In
addition, the Board of Directors approved the acquisition of this company;
however, in 1996, the Board of Directors resolved that the acquisition be
postponed indefinitely. During the four months ended April 30, 1996, the Company
paid $30,000 (unaudited) to this entity which was charged to operations as the
ultimate realizability of such fees, through future sales of the licensed
products, was not assured.
Notes Payable and Capital Leases
The Company has entered into certain notes payable with related parties
which are further discussed in Note 6. As discussed in Note 11, the Company will
assume certain notes from the stockholders, will be required to repay certain
notes payable to persons or entities, which after the IPO, will be stockholders
of the Company. In addition, the Company will assume a capital lease obligation
from a company controlled by a significant stockholder of OEBC upon the close of
the IPO (Note 11).
Management Agreements
The Board of Directors approved a series of management agreements with
certain officers and key employees for terms of generally three years (Note 7).
Upon the consummation of the IPO, new management agreements will be executed.
See Note 11 for further discussion of these management agreements to be in
effect upon the close of the IPO.
The Board of Directors approved certain fees for their services to the
Company. In November 1995, the Board of Directors approved the payment of
$25,000, per director, for future services to be rendered from January 1, 1996
to December 31, 1996. In order to reduce the Company's cash commitments, certain
directors (three) agreed to waive their fees permanently. The Board of Directors
have approved $50,000 for payments to be made to two directors, which have been
accrued in the accompanying balance sheet at April 30, 1996, and $25,000 has
been paid by the Company to one director as of April 30, 1996.
NOTE 10 -- INCOME TAXES
The benefit for income taxes in the accompanying consolidated statement of
operations consists of the reduction of the deferred tax liability associated
with the nondeductible depreciation expense for tax reporting purposes charged
to operations, using an effective tax rate of approximately 40%.
A reconciliation of the benefit for income taxes to expected income tax
benefit computed by applying the Federal statutory income tax rate of 34% to the
loss before provision for income taxes for the period ended December 31, 1995 is
as follows:
<TABLE>
<CAPTION>
AMOUNT %
--------- -----
<S> <C> <C>
Income tax benefit computed at federal statutory tax rate........ $(169,555) (34.0)%
State income taxes, net of 50% limitation on loss
carryforwards.................................................. (15,757) (3.2)
Expenses not deductible for income tax purposes and other........ 2,920 0.6
Increase in the valuation allowance for deferred tax assets...... 174,686 35.0
------
-
---------
Benefit for income taxes......................................... $ (7,706) (1.6)%
========= =======
</TABLE>
F-39
<PAGE> 97
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of deferred tax assets and liabilities recorded in the
accompanying balance sheet at December 31, 1995 is as follows:
<TABLE>
<S> <C>
Deferred tax asset:
Net operating loss carryforwards....................................... $ 214,086
Less valuation allowance............................................... (214,086)
----------
$ --
==========
Deferred tax liability -- nondeductible basis of assets acquired from
Heritage in
tax-free exchange...................................................... $ 358,294
==========
</TABLE>
The valuation allowance increased $214,086 during the period ended December
31, 1995. The deferred tax liability was established from the expected tax-free,
stock-for-stock exchange with Heritage. Such amount represents the difference in
the nondeductible tax bases of property and equipment acquired upon the
acquisition. At December 31, 1995, the Company had Federal and state net
operating loss carryforwards of approximately $571,188 and $331,371,
respectively, available to offset future taxable federal and state income. The
federal and state carryforward amounts expire in varying amounts through 2010
and 2000, respectively.
Due to the change in ownership provisions of the Tax Reform Act of 1986,
net operating loss carryforwards for federal income tax reporting purposes may
be subject to annual limitations upon future stock issuances. Upon the
acquisition of Heritage (Note 1), a change in ownership occurred, and
accordingly, such net operating loss carryforwards will be limited as to use,
annually.
NOTE 11 -- SUBSEQUENT EVENTS
1996 Bridge Financing
In April 1996, the Company entered into an agreement whereby the Company
issued a $500,000 promissory note (the "Bridge Note"), bearing interest at 18%
per annum. Interest is payable monthly and the Bridge Note matures the earlier
of the closing of the intended IPO (see discussion below) or December 31, 1996.
The Bridge Note is secured by all equipment, inventory and accounts receivable
of the Company. As of April 30, 1996, no amounts were outstanding under the
terms of this financing as the proceeds were received by the Company in May
1996.
In connection with the Bridge Note, the Company issued warrants ("Bridge
Warrants") to purchase 35,000 shares of the Company's common stock. Each Bridge
Warrant entitles the holder to purchase one share of common stock at an exercise
price of $4.75 for a period of three years from the date of issuance. The
warrants were valued at $57,750 (Note 8). Such costs have been capitalized as
deferred financing costs in the accompanying consolidated balance sheet at April
30, 1996 and are net of accumulated amortization totaling $7,220 as of such
date. If the IPO has not occurred by December 31, 1996, the Company will be
required to issue an additional 35,000 Bridge Warrants with the same terms
described above.
Related Party Financing
On June 24, 1996, the Company entered into an agreement with a significant
stockholder of a company to be acquired (OEBC -- see discussion below), whereby
the Company can borrow up to an aggregate $175,000. Borrowings bear interest at
a maximum rate of 11%, as defined, payable monthly. The principal balance,
together with any unpaid interest, is due the earlier of the closing of an IPO
with aggregate proceeds of no less than $10,000,000, or June 30, 1997.
F-40
<PAGE> 98
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Purchase Agreement
On July 10, 1996, the Company entered into an agreement whereby the
Company, through its subsidiaries and affiliated companies, will produce
specific beer products and the counterparty will purchase such specified
products, as defined. The agreement does not specify the quantities to be
produced by the Company and purchased by the counterparty. The term of the
agreement is one year. Management believes such contracts will be entered into
from time to time with other parties in the normal course of business until such
time the Company utilizes all available facilities.
Employment Contracts
As discussed in Note 7, the Company has entered into employment contracts
with five of its employees, including three officers, which expire on various
dates through May 10, 1998. Such management agreements will be canceled and
replaced with new agreements upon the consummation of the IPO. Certain of the
new employment contracts provide for substantial incentive compensation if
certain revenue levels are achieved, as defined. No incentive compensation has
been paid through April 30, 1996. The employment contracts also provide for
certain expense allowances and participation in the Company's incentive stock
option plan and nonqualified stock option plan (Note 8).
Future annual minimum base salaries plus allowances under new management
agreements, subject to the consummation of the IPO in the aggregate, consist of
the following at December 31, 1995 assuming the consummation of the IPO was on
January 1, 1997:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
- ------------
<S> <C> <C>
1996.............................................. $ --
1997.............................................. 637,200
1998.............................................. 638,400
1999.............................................. 423,148
2000.............................................. 256,800
----------
$1,955,548
=========
</TABLE>
Incentive Compensation Plan
In August 1996, the Company adopted a cash incentive bonus compensation
plan, the 1996 Incentive Compensation Plan (the "Incentive Plan"). The Incentive
Plan is intended to qualify as performance based compensation under Section
162(m) of the Internal Revenue Code. The Incentive Plan provides that qualifying
employees may receive as a cash bonus as amount equal to the Company's modified
earnings, calculated before interest, taxes, depreciation and amortization
("Modified EBITDA"), for a particular fiscal year. The total cash bonus that the
Incentive Plan provides is 8.45% of Modified EBITDA up to $4,000,000 for such
fiscal year and 12.45% of Modified EBITDA if Modified EBITDA exceeds $4,000,000
for such fiscal year.
Stock Option Plans
In August 1996, the Board of Directors adopted, subject to stockholder
approval, an incentive stock option plan meeting the requirements of Section 422
of the Internal Revenue Code. The plan reserves 1,500,000 shares for issuance
over a term of 10 years. The Board of Directors approved the grant of options to
purchase 955,000 shares, exercisable at $5.20 per share (unless such options are
granted to a 10% stockholder, in which case the exercise price would be no less
than 110% of fair value). The options vest ratably over a period of four (4)
years.
F-41
<PAGE> 99
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In August 1996, the Board of Directors adopted, subject to stockholder
approval, a nonqualified stock option plan. The Board of Directors granted
options to purchase 933,500 shares at $5.20 per share. The options vest
immediately and are exercisable at the end of four (4) years, subject to an
acceleration clause if certain profitability levels are achieved, as defined.
The options expire in 2006.
See Note 8 for other options and warrants granted by the Board of
Directors.
Second Private Placement
On September 9, 1996, the Company closed a second private placement of
15,000 common stock purchase units for $150,000, net of offering costs of
$20,000. Each unit consists of two shares of common stock and one common stock
purchase warrant exercisable at $7.00 per share. Such securities are restricted
under Commission Rule 144 of the 1933 Act.
Proposed Public Offering
The Company has negotiated a letter of intent on a "firm commitment" basis
with an underwriter to place 1,000,000 units, consisting of one share of the
Company's common stock and one common stock purchase warrant. The letter of
intent provides for options to be issued to the Underwriter to purchase units,
payment by the Company of certain fees and expenses aggregating 13% of the gross
proceeds raised in an offering, restrictions on sales by the Company and its
affiliates and certain other warranties and covenants. Also, the Underwriter
would be granted an option to purchase an additional 15% of the total shares
issued in the offering solely to cover over-allotments.
In connection with the IPO, the Company granted the underwriter an option
to purchase 100,000 units, each unit consisting of one share of common stock and
one common stock purchase warrant for 160% of the IPO price (based on an assumed
price per share of $8.00, the price for such unit would be $12.80 each). The
warrant will be exercisable at $8.25 per share, will be subject to adjustment
and an anti-dilution provision, and will expire five (5) years from the closing
date of the proposed IPO.
The Underwriter will be paid a cash or "in-kind" finder's fee of (i) five
percent (5%) of the first $1,000,000; (ii) four percent (4%) of the second
$1,000,000; (iii) three percent (3%) of the third $1,000,000; and (iv) two
percent (2%) of any consideration over $4,000,000 involved in any transaction
(including mergers, acquisitions, joint ventures, and any other business for the
Company introduced by the underwriter) consummated by the Company, in which the
underwriter introduced the other party to the Company for such purpose during a
period ending three years from the closing of the Offering.
The Company shall, for a period of two (2) years from the completion of the
Offering, employ the underwriter as its investment banker and financial
consultant, at an annual fee of $50,000, with the aggregate of $100,000 payable
on the closing of the Offering.
Transactions Proposed With Orange Empire Brewing Company
Exchange Agreement With OEBC
As discussed in Note 1, on September , 1996, the Company entered
into the Exchange Agreement with OEBC. Pursuant to the Exchange Agreement,
the Company is to issue 247,479 shares of its common stock, subject to
adjustment (based on the change in net assets of the OEBC, as defined), in
exchange for all of the outstanding shares of the OEBC. In addition, up to
130,000 additional shares of the Company's common stock may be issued, if
OEBC reaches certain production levels, as defined. Pursuant to the
Exchange Agreement, the exchange is to occur concurrently with the
consummation (the "Closing Date") of the Company's IPO. If for any reason
the IPO does not occur on or before March 31,
F-42
<PAGE> 100
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1997 or the IPO does not raise in the aggregate $6,000,000, either party
may unilaterally terminate the Exchange Agreement.
Should such additional shares of the Company's common stock be issued,
the value of such shares will be deemed additional purchase consideration.
Management Agreements
In connection with the Exchange Agreement, the Company entered into a
management agreement (the "Management Agreement") with certain stockholders
of OEBC whereby they are to manage and operate the brewpub operations of
OEBC from the Closing Date through December 31, 1998. As compensation for
such services, they are to receive 10,000 shares of the Company's common
stock. Such shares are to be issued on a pro rata basis over the term of
the Management Agreement. In addition, the brewpub managers are obligated
to the Company for quarterly cash flow deficits, if any, as defined, during
the term of the Management Agreement. The Management Agreement can be
terminated by mutual written consent or in the event of a breach, as
defined.
On June 10, 1996, the Company entered into a management agreement with
OEBC, whereby it will manage and operate the brewery operations of OEBC. As
compensation for the management services provided, the Company is to
receive $6,500 per month, plus reimbursement of expenses, as defined. The
agreement terminates upon consummation of the IPO.
Capital Lease Agreement Amendment
In connection with the Exchange Agreement and concurrent with the
Closing Date, a capital lease with a related party of OEBC is required to
be modified for the benefit of the Company. The modifications to the
capital lease obligation include a reduction in the effective interest rate
to 12%, a provision that all such leased equipment may be purchased by the
Company for $1 upon expiration of the lease, the extension of such lease by
that number of months which is equal to the number of months the lease is
in arrears through December 31, 1995, the forgiveness of any lease payment
that the lessor was to receive for the period January 1, 1996 through
September 30, 1996 (which payments will total $140,488), and the repayment
of deferred lease payments, if any, for the period October 1, 1996 to
December 31, 1996 from net proceeds to be received from the IPO as
discussed below.
Note Payable to Bank
In connection with the Exchange Agreement and concurrent with the
Closing Date, notes aggregating approximately $545,000 (unaudited) due to a
bank by OEBC are required to be divided into two notes. The stockholders
will assume a note totaling $220,941 without further obligation of the
Company, and the remaining principal balance of the notes (which
approximates $324,128 at May 10, 1996), will be paid to the bank by the
Company. In consideration for assuming a portion of the OEBC's debt
obligations, the stockholders will be issued 27,618 shares of BWI common
stock. If on January 1, 1999, the per share market value of BWI common
stock is less than $6.00, the Company will issue to such stockholders an
additional 9,227 shares of its common stock.
Notes Payable To Stockholders
At April 30, 1996, OEBC has $644,000 (unaudited) of indebtedness due
to certain related parties (consisting of $603,525 (unaudited) in principal
and $40,475 (unaudited) in accrued interest). Upon the consummation of the
IPO, such indebtedness is to be satisfied as follows: (1) $301,000 is to be
paid in cash, and (2) $343,000 is to be refinanced with a new non-interest
bearing promissory note which will mature in 90 days, payable in cash
and/or up to 24,125 shares of the Company's common stock and/or
F-43
<PAGE> 101
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
up to 50,000 warrants to purchase shares of the Company's common stock at
an exercise price of $5.00 per share, based on a formula, as defined.
Stockholder Advances
In connection with the Exchange Agreement, the Company has agreed to
use up to $150,000 of the proceeds from the IPO to repay advances made by
one stockholder of OEBC during the period May 1, 1996 through the Closing
Date, including deferred lease payments as discussed above.
Agreements Not to Compete
In connection with the Exchange Agreement and concurrent with the
Closing Date, the Company has agreed to enter into
agreements-not-to-compete with certain stockholders of OEBC for a period of
three years in specified territories. Management will ascribe no value to
the agreements as management believes that such agreements are not a
material component to the Exchange Agreement.
Transactions Proposed Prost Partners Limited Partnership
BWI-Prost Partnership Agreement
On September , 1996, the Company formed a California general
partnership with St. Stan's, BWI-Prost Partners. Pursuant to the terms of
the BWI-Prost Partners partnership agreement, St. Stan's has agreed to
contribute substantially all of its assets, net of certain liabilities, to
the Partnership for a 49% minority interest in the Partnership. BWISS has
agreed to contribute $2,295,000 to the Partnership for a 51% controlling
interest in the Partnership. The BWISS consideration is to be tendered in
cash commencing 18 months from the IPO and the assumption of certain debt
(as discussed below) on the contribution date, the "Contribution Date", the
date of the successful consummation of an initial public offering (the
"IPO") of BWI's common stock, occurring on or before March 31, 1997,
realizing minimum proceeds of at least $8,000,000 (before any deductions,
including, but not limited to, underwriters' compensation and expenses).
The profits and losses of the Partnership are to be allocated based on
each partner's respective ownership interest, subject to special
allocations as defined. The Partnership is to be managed by a five member
joint management committee (the "Committee") until dissolution of the
Partnership. BWISS will maintain three of the five positions on the
Committee. Substantially all management decisions of the committee are to
be approved by a majority vote of the members.
The Partnership Agreement contains a buy-out provision whereby BWISS,
during a three year period commencing with the Contribution Date, can
purchase St. Stan's 49% interest in the Partnership for $2,205,000. If
BWISS does not elect to purchase such interest at the end of the third
year, St. Stan's has the right to purchase BWISS's 51% interest at
appraised value of tangible assets plus a predetermined formula of modified
earnings, as adjusted. If St. Stan's does not elect to purchase BWISS's 51%
interest, BWISS has the right to purchase St. Stan's 49% interest at
appraised value of tangible assets plus a predetermined formula of modified
earnings, as adjusted. If neither partner elects to purchase the other
partner's interest, such non purchase is deemed a liquidating event, as
defined.
The Partnership Agreement contains provisions (the "Breach
Provisions") should either partner breach its responsibilities pursuant to
the Partnership Agreement, as defined. The Breach Provisions provide that
the breaching partner ceases to be a partner of the Partnership if such
breach is not cured within 120 days. The breaching partner is to receive
breach payments, as defined, in compensation for withdrawal from the
Partnership.
F-44
<PAGE> 102
BEVERAGE WORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The BWISS Contribution
In accordance with the Partnership Agreement, BWISS is required to
make its $2,295,000 capital contribution through debt assumption and
periodic payments as follows: (1) the full assumption and partial repayment
of the note payable from the Partnership (which totals $676,836 at April
30, 1996, unaudited), (2) the full assumption and repayment of notes
payable to related party from the Partnership (which total $459,153 at
April 30, 1996, unaudited), (3) six cash payments of $100,000 to the
Partnership, each payable 18, 21, 24, 27, 30 and 33 months from the
Contribution Date, and (4) a cash payment of the remaining unpaid capital
contribution, subject to adjustment as defined, 36 months from the
Contribution Date. If the gross proceeds of the BWI IPO exceed $10,000,000,
BWISS is required to make a payment on its capital contribution 30 days
from the Contribution Date; such payment will equal to 10% of the gross
proceeds in excess of $10,000,000, up to $300,000.
The unpaid portion of the BWISS capital contribution bears interest at
10% per annum, subject to adjustment as defined, payable quarterly
beginning April 30, 1998.
The Note Payable
BWISS has obtained a commitment letter from the lender to refinance
the note payable that BWISS is to assume from the Partnership on the
Contribution Date (see discussion above). The lender requires a principal
reduction payment be made such that the outstanding balance of the note
will be $500,000. The revised note payable will bear interest at a variable
rate ranging from 11% to 16% per annum, with principal and interest payable
monthly based on a 15 year amortization period, with all unpaid principal
and interest due in five years.
Employment Agreements
On the Contribution Date, the Company is to execute employment
agreements with two of the officers of the general partner of Prost
Partners Limited Partnership (see discussion above).
F-45
<PAGE> 103
INDEPENDENT AUDITORS' REPORT
To the General Partner
Prost Partners Limited Partnership
To the Board of Directors
Beverage Works, Inc.
We have audited the accompanying historical statement of assets and
liabilities (the "St. Stan's Brewery and Brewpub Operations") to be contributed
to BWI-Prost Partners, a California general partnership in the process of
formation, by Prost Partners Limited Partnership, a California limited
partnership, as of December 31, 1995, and the related historical statements of
operations of assets and liabilities to be contributed, changes in equity of
assets and liabilities to be contributed, and cash flows of asset and
liabilities to be contributed for each of the years in the two-year period ended
December 31, 1995. These financial statements are the responsibility of
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 audits 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.
The accompanying financial statements were prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission (for inclusion in the registration statement on Form SB-2 of Beverage
Works, Inc. as described in Note 1), and are not intended to be a complete
presentation of the financial position, results of operations or cash flows of
Beverage Works, Inc. or Prost Partners Limited Partnership.
In our opinion, the historical financial statements referred to above
present fairly, in all material respects, the financial position of the St.
Stan's Brewery and Brewpub Operations to be contributed to BWI-Prost Partners by
Prost Partners Limited Partnership as of December 31, 1995, and the results of
their historical operations and cash flows for each of the years in the two-year
period ended December 31, 1995 in conformity with generally accepted accounting
principles.
As discussed in Note 2 to the financial statements, the St. Stan's Brewery
and Brewpub Operations have had recurring net losses and working capital
deficits. The St. Stan's Brewery and Brewpub Operations have received financial
support in the form of advances from the general partner of Prost Partners
Limited Partnership during the past two years to cover these recurring working
capital demands. Should the St. Stan's Brewery and Brewpub Operations continue
to incur losses, the general partner of Prost Partners Limited Partnership, and
the general partners of BWI-Prost Partners upon the close of the Beverage Works,
Inc. initial public offering (Note 1), will be required to provide additional
financial support. The lack of such financial support could have a material
adverse effect on the financial condition and/or results of operations of the
St. Stan's Brewery and Brewpub Operations.
CORBIN & WERTZ
Irvine, California
May 31, 1996, except for
Notes 1 and 9, as to which the
date is September , 1996
The foregoing auditors' report is in the form which will be signed upon
consummation of the transaction described in Note 9 to the financial statements.
F-46
<PAGE> 104
ST. STAN'S BREWERY AND BREWPUB OPERATIONS
HISTORICAL STATEMENTS OF ASSETS AND LIABILITIES TO BE CONTRIBUTED
TO BWI-PROST PARTNERS GENERAL PARTNERSHIP (NOTES 1 AND 9)
ASSETS
(Note 5)
<TABLE>
<CAPTION>
DECEMBER 31,
1995
APRIL 30, ------------
1996
-----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash............................................................... $ 15,863 $ 68,105
Accounts receivable, less allowance for doubtful accounts of
$20,000 (unaudited) (1996) and $10,000 (1995) (Note 2).......... 143,548 84,846
Inventories (Notes 2 and 3)........................................ 150,283 197,070
Prepaid expenses and other current assets.......................... 44,249 46,404
---------- ----------
Total current assets....................................... 353,943 396,425
Property and equipment, net (Notes 2 and 4).......................... 2,435,738 2,492,400
Other assets......................................................... 11,189 14,759
---------- ----------
$ 2,800,870 $2,903,584
========== ==========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable................................................... $ 101,642 $ 126,455
Accrued expenses and other current liabilities..................... 57,409 103,280
Note payable (Note 5).............................................. 21,658 21,658
Notes payable to related party (Note 6)............................ 459,153 459,120
---------- ----------
Total current liabilities.................................. 639,862 710,513
Note payable, net of current portion (Note 5)........................ 655,178 662,803
---------- ----------
Total liabilities.......................................... 1,295,040 1,373,316
Commitments and contingencies (Notes 7 and 9)
Equity in assets and liabilities to be contributed................... 1,505,830 1,530,268
---------- ----------
$ 2,800,870 $2,903,584
========== ==========
</TABLE>
See independent auditors' report and accompanying notes to financial statements
F-47
<PAGE> 105
ST. STAN'S BREWERY AND BREWPUB OPERATIONS
HISTORICAL STATEMENTS OF HISTORICAL OPERATIONS OF ASSETS AND LIABILITIES
TO BE CONTRIBUTED TO BWI-PROST PARTNERS GENERAL PARTNERSHIP (NOTE 1 AND 9)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
FOR THE FOUR MONTHS ENDED ----------------------------
-------------------------- DECEMBER 31, DECEMBER 31,
APRIL 30, 1995 1994
1995 ------------ ------------
-----------
APRIL 30, (UNAUDITED)
1996
-----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Sales......................................... $ 691,498 $ 672,451 $2,128,877 $1,977,805
Less excise taxes............................. (30,035) (26,175) (99,453) (86,251)
-------- -------- ---------- ----------
Net sales (Notes 2 and 8)........... 661,463 646,276 2,029,424 1,891,554
Cost of goods sold (Note 2)................... 456,396 422,653 1,396,217 1,374,318
-------- -------- ---------- ----------
Gross profit........................ 205,067 223,623 633,207 517,236
Selling, general and administrative expenses
(Note 7).................................... 230,490 185,021 583,568 518,763
-------- -------- ---------- ----------
Income (loss) from operations (Note 8)........ (25,243) 38,602 49,639 (1,527)
Interest (Note 5 and 6)....................... 32,137 29,412 98,398 104,351
-------- -------- ---------- ----------
Net income (loss)............................. $ (57,560) $ 9,190 $ (48,759) $ (105,878)
======== ======== ========== ==========
</TABLE>
See independent auditors' report and accompanying notes to financial statements
F-48
<PAGE> 106
ST. STAN'S BREWERY AND BREWPUB OPERATIONS
HISTORICAL STATEMENTS OF CHANGES IN EQUITY OF ASSETS AND
LIABILITIES TO BE CONTRIBUTED TO BWI-PROST PARTNERS
GENERAL PARTNERSHIP (NOTES 1 AND 9)
FOR THE FOUR-MONTHS ENDED APRIL 30, 1996 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<S> <C>
Equity in assets and liabilities to be contributed, January 1, 1994.............. $1,571,269
Non-cash contributions of general partner of Prost Partners Limited Partnership
(Note 7)....................................................................... 44,032
Net loss......................................................................... (105,878)
----------
Equity in assets and liabilities to be contributed, December 31, 1994............ 1,509,423
Non-cash contributions of general partner of Prost Partners Limited Partnership
(Note 7)....................................................................... 69,604
Net loss......................................................................... (48,759)
----------
Equity in assets and liabilities to be contributed, December 31, 1995............ 1,530,268
Non-cash contributions of general partner of Prost Partners Limited Partnership
(unaudited) (Note 7)........................................................... 33,122
Net loss (unaudited)............................................................. (57,560)
----------
Equity in assets and liabilities to be contributed, April 30, 1996 (unaudited)... $1,505,830
=========
</TABLE>
See independent auditors' report and accompanying notes to financial statements
F-49
<PAGE> 107
ST. STAN'S BREWERY AND BREWPUB OPERATIONS
HISTORICAL STATEMENTS OF CASH FLOWS OF ASSETS AND LIABILITIES
TO BE CONTRIBUTED TO BWI -- PROST PARTNERS GENERAL PARTNERSHIP (NOTES 1 AND 9)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
FOR THE FOUR MONTHS ENDED ----------------------------
-------------------------- DECEMBER 31, DECEMBER 31,
APRIL 30, 1995 1994
1995 ------------ ------------
-----------
APRIL 30, (UNAUDITED)
1996
-----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................ $ (57,560) $ 9,190 $ (48,759) $ (105,878)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization......................... 65,908 61,000 179,926 174,502
Gain on disposition of assets......................... -- -- (1,701) --
Management fees (Note 7).............................. 27,999 21,791 69,604 19,372
Changes in operating assets and liabilities:
Accounts receivable, net............................ (58,702) (16,802) 15,397 (25,532)
Inventories......................................... 46,787 (41,786) (73,643) (29,708)
Prepaid expenses and other current assets........... 2,155 4,079 (12,133) (1,066)
Accounts payable.................................... (24,813) (21,299) (1,773) (63,746)
Accrued expenses and other current liabilities...... (45,871) 8,809 8,807 21,831
-------- -------- --------- ---------
Net cash provided by (used in) operating
activities..................................... (44,097) 24,982 135,725 (10,225)
-------- -------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of equipment.......................... -- -- 50,000 --
Purchases of property and equipment...................... (6,262) (91,401) (307,560) (75,112)
Other assets............................................. 586 (21,322) (21,765) (4,059)
-------- -------- --------- ---------
Net cash used in investing activities............ (5,676) (112,723) (279,325) (79,171)
-------- -------- --------- ---------
Cash flows from financing activities:
Payments on note payable................................. (7,625) -- (5,539) --
Payments on notes payable to related party (Note 6)...... (696) (695) (2,382) (3,330)
Net additions to notes payable to related party (Note
6).................................................... 5,852 53,404 184,594 122,022
-------- -------- --------- ---------
Net cash provided by (used in) financing
activities..................................... (2,469) 52,709 176,673 118,692
Net increase (decrease) in cash............................ (52,242) (35,032) 33,073 29,296
Cash, beginning of period.................................. 68,105 35,032 35,032 5,736
-------- -------- --------- ---------
Cash, end of period........................................ $ 15,863 $ -- $ 68,105 $ 35,032
======== ======== ========= =========
Supplemental disclosures of cash flow information --
Cash paid during the year for interest................... $ 23,137 $ 6,155 $ 105,130 $ 105,612
======== ======== ========= =========
</TABLE>
See Note 7 for supplemental disclosures of noncash financing activities
See independent auditors' report and accompanying notes to financial statements
F-50
<PAGE> 108
ST. STAN'S BREWERY AND BREWPUB OPERATIONS
NOTES TO HISTORICAL FINANCIAL STATEMENTS OF ASSETS AND LIABILITIES
TO BE CONTRIBUTED TO BWI -- PROST PARTNERS GENERAL PARTNERSHIP
FOR THE FOUR-MONTH PERIODS ENDED APRIL 30, 1996 AND 1995 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 1 -- NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Nature of Operations
Prost Partners Limited Partnership, a California limited partnership, dba
St. Stan's Brewing Company ("St. Stan's") was formed on July 26, 1988 to
construct and operate a brewery facility (the "Brewery") and an adjoining
restaurant, pub, and beer garden (the "Brewpub") in Modesto, California. St.
Stan's offered limited partnership interests to California residents who met
certain suitability standards. The general partner of St. Stan's is Stanislaus
Brewing Company, a California corporation. St. Stan's commenced operations on or
about October 12, 1990.
Beverage Works, Inc. ("BWI"), a California corporation, incorporated on
August 2, 1995, was formed to acquire interests in various craft brewing
operations. On June 25, 1996, BWI formed a wholly-owned subsidiary, BWI -- St.
Stan's, Inc. ("BWISS"). On September , 1996, St. Stan's entered into a joint
venture with BWISS named BWI-Prost Partners (the "Partnership"). Pursuant to the
terms of the BWI-Prost Partners partnership agreement (the "Partnership
Agreement"), St. Stan's has agreed to contribute substantially all of its
assets, net of certain liabilities, to the Partnership for a 49% minority
interest in the Partnership. BWISS has agreed to contribute $2,295,000 to the
Partnership for a 51% controlling interest in the Partnership. The BWISS
consideration is to be tendered in cash commencing 18 months from the IPO and
the assumption of certain debt (see Note 9) at the date of contribution, the
"Contribution Date", the date of the successful consummation of an initial
public offering (the "IPO") of BWI's common stock, occurring on or before March
31, 1997, realizing minimum proceeds of at least $8,000,000 (before any
deductions, including, but not limited to, underwriters' compensation and
expenses). See Note 9 for further discussion of the terms of the Partnership
Agreement which have a significant effect on the accompanying historical
financial statements.
Basis of Presentation
The accompanying historical financial statements include the assets and
liabilities to be contributed to the Partnership by St. Stan's, and the related
historical operations and cash flows thereof (the "St. Stan's Brewery and
Brewpub Operations"). In management's opinion, these historical financial
statements include the assets and liabilities, the revenues and expenses, and
the cash flows directly identifiable with the assets and liabilities to be
contributed by St. Stan's to the Partnership. The financial statements are not
intended to represent the historical assets and liabilities and historical
operations and cash flows of St. Stan's, the Partnership or BWI.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 reported
period. Actual results could materially differ from those estimates.
Fair Value of Financial Instruments
These historical financial statements contain financial instruments whereby
the fair market value of the financial instruments could be different than that
recorded on a historical basis on the accompanying historical financial
statements. The financial instruments consist of cash, accounts receivable,
accounts payable, notes
F-51
<PAGE> 109
ST. STAN'S BREWERY AND BREWPUB OPERATIONS
NOTES TO HISTORICAL FINANCIAL STATEMENTS OF ASSETS
AND LIABILITIES TO BE CONTRIBUTED TO BWI -- PROST PARTNERS
GENERAL PARTNERSHIP -- (CONTINUED)
payable and notes payable to related party. The carrying amounts of the St.
Stan's Brewery and Brewpub Operations' financial instruments generally
approximate their fair values at April 30, 1996 (unaudited) and December 31,
1995. In the case of the notes payable to related party (see Note 6), it was not
practical to determine fair values due to the lack of a market for such
financial instruments.
Concentrations of Credit Risk
The customers of the Brewery operations consist of distributors who resell
St. Stan's Brewery and Brewpub Operations products domestically. The St. Stan's
Brewery and Brewpub Operations extends credit to its Brewery customers and
performs periodic credit evaluations of such customers. Management of the St.
Stan's Brewery and Brewpub Operations do not obtain collateral to secure its
accounts receivable. The Company maintains an allowance for doubtful accounts.
Management determines the adequacy of the allowance based on a period review and
evaluation of aged accounts receivable.
Five Brewery customers accounted for 35.4% and 28.9% of sales, of which one
customer accounted for 10.1% of 1995 sales, during the years ended December 31,
1995 and 1994, respectively. For the four months ended April 30, 1996
(unaudited), five customers accounted for 26.5% of sales. Five customers
accounted for 69.5% and 42.5%, of which one customer accounted for 33.6% of the
1995 balance, of the accounts receivable balance at December 31, 1995 and April
30, 1996 (unaudited), respectively.
The St. Stan's Brewery and Brewpub Operations purchase certain products
from two companies which accounted for approximately 27.3% and 12.0% of total
purchases in 1995, and 26.0% and 11.3% of total purchases in 1994. Two companies
accounted for approximately 26.8% and 17.9% of total purchases for the four
months ending April 30, 1996 (unaudited).
Risks and Uncertainties
Financial Support
The St. Stan's Brewery and Brewpub Operations have had recurring net losses
and working capital deficits. The Stan's Brewery and Brewpub Operations have
received financial support in the form of advances (see Note 6) from the general
partner of Prost Partners Limited partnership during the past two years to cover
these recurring working capital demands. Should the St. Stan's Brewery and
Brewpub Operations continue to incur losses, the general partner of Prost
Partners Limited Partnership, and the general partners of BWI-Prost Partners
upon the close of the BWI IPO (see Note 9), will be required to provide
additional financial support. The lack of such financial support could have a
material adverse effect on the financial condition and/or results of operations
of the St. Stan's Brewery and Brewpub Operations.
Licenses and Permits
Brewery (wholesale) and Brewpub (retail) operations require various
federal, state and local licenses and permits. Brewers are required to file with
the Federal Bureau of Alcohol, Tobacco and Firearms (the "BATF"). The California
Department of Alcoholic Beverage Control (the "ABC") requires that companies
file and maintain licenses, permits or approvals for the production and sale of
alcoholic beverages. Other state and local laws and regulations governing the
sale of alcoholic beverages within a particular state by an out-of-state brewer
or wholesaler vary by state and locality. The St. Stan's Brewery and Brewpub
Operations are subject to audit and inspection by the BATF and ABC at any time.
Should the IPO and proposed joint venture be consummated, management of the
Partnership must apply for a change in the Brewery's and Brewpub's management,
and for a change in the Brewery's ownership with Federal and state agencies.
Because of the many and various Federal and state licensing and permitting
F-52
<PAGE> 110
ST. STAN'S BREWERY AND BREWPUB OPERATIONS
NOTES TO HISTORICAL FINANCIAL STATEMENTS OF ASSETS
AND LIABILITIES TO BE CONTRIBUTED TO BWI -- PROST PARTNERS
GENERAL PARTNERSHIP -- (CONTINUED)
requirements, there is a risk that one or more regulatory authorities may not
approve such changes in management and/or ownership, or determine the
predecessor partnership and/or management had not complied with applicable
licensing or permitting regulations. Should St. Stan's, or subsequently the
Partnership, not maintain the approvals necessary for it to conduct business,
there could be a material adverse effect on the financial condition and/or
operations of the St. Stan's Brewery and Brewpub Operations.
Seasonality
The beverage business traditionally has been seasonal. Typically, net sales
are highest during the third and fourth calendar quarters and decline in the
first and second calendar quarters. The seasonal pattern is due primarily to the
increased demand for consumer beverages during the summer months through the
holiday buying season. The management of St. Stan's Brewing and Brewpub
Operations expects its net sales and operating results to continue to reflect
this seasonality.
Environmental Regulations and Operating Considerations
The Brewery operations are subject to a variety of extensive and changing
Federal, state and local environmental laws, regulations and ordinances that
govern activities or operations that may have adverse effects on human health or
the environment. Such laws, regulations ordinances may impose liability for the
cost of remediating, and for certain damages resulting from, sites of past
releases of hazardous materials. Management of the St. Stan's Brewery and
Brewpub Operations believes that it currently conducts, and in the past has
conducted, its activities and operations in substantial compliance with
applicable environmental laws, and believes that costs arising from existing
environmental laws will not have a material adverse effect on the financial
condition or results of operations. There can be no assurance, however, that
environmental laws will not become more stringent in the future or that the St.
Stan's Brewery and Brewing Operations will not incur costs in the future in
order to comply with such laws.
The St. Stan's Brewery and Brewing Operations operations are subject to
certain hazards and liability risks faced by all brewers, such as potential
contamination of ingredients or products by bacteria or other external agents
that may be wrongfully or accidentally introduced into products or packaging.
The occurrence of such a problem could result in a costly product recall and
serious damage to the St. Stan's Brewery & Brewpub Operations reputation for
product quality, as well as claims for product liability which may negatively
impact the St. Stan's Brewery & Brewpub Operations. The management of the St.
Stan's Brewery & Brewpub Operations maintains insurance which it believes is
sufficient to cover any liability claims which might result from a contamination
problem in its products, but which may not cover any damage to its reputation.
Inventories
Inventories, consisting of raw materials and purchased products, work in
process, and finished goods, are stated at the lower of cost or market (see Note
3). Cost is determined by the first-in, first-out method of accounting.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation,
and are being depreciated using the straightline method over their estimated
useful lives, which generally range from 5 to 40 years. Major betterments and
renewals are capitalized, while routine repairs and maintenance costs are
charged to expense when incurred.
F-53
<PAGE> 111
ST. STAN'S BREWERY AND BREWPUB OPERATIONS
NOTES TO HISTORICAL FINANCIAL STATEMENTS OF ASSETS
AND LIABILITIES TO BE CONTRIBUTED TO BWI -- PROST PARTNERS
GENERAL PARTNERSHIP -- (CONTINUED)
Useful lives for property and equipment are as follows:
<TABLE>
<S> <C>
Equipment, furniture, and fixtures..................................... 5 to 10 years
Building and improvements (Note 6)..................................... 40 years
</TABLE>
Management of the St. Stan's Brewery and Brewpub Operations assesses the
recoverability of property and equipment by determining whether the depreciation
of such assets over their remaining lives can be recovered through projected
undiscounted cash flows. The amount of impairment, if any, is measured based on
projected undiscounted cash flows and is charged to operations in the period in
which such impairment is determined by management. To date, management has not
identified an impairment of property and equipment.
Income Taxes
The Partnership will not be, and St. Stan's currently is not subject to,
income taxes. However, income or losses of the partnership will be included in
the tax returns of the partners. Accordingly, no provision for income taxes is
made in the accompanying financial statements.
Revenue Recognition
Brewery revenues are recognized at the time of shipment. The Company
records a provision for the effect of returned products at the time the units
are shipped. Revenues in connection with Brewpub operations are recognized at
the time the food and beverage sales are made.
Advertising and Marketing Costs
Advertising and marketing costs are expensed as incurred.
Interim Accounting Policy
In the opinion of the management of St. Stan's and BWISS, the accompanying
unaudited financial statements of the St. Stan's Brewery and Brewpub Operations
include all adjustments (consisting of only normal recurring adjustments)
necessary for a fair presentation of the historical financial position and
results of operations and cash flows as of April 30, 1996, and for the four
months ended April 30, 1996 and 1995. Although the management of St. Stan's and
BWISS believes that the disclosures regarding interim financial information in
these historical financial statements are adequate to make the information
presented not misleading, certain information and disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. Unaudited historical
results of operations for the four months ended April 30, 1996 are not
necessarily indicative of results of operations to be expected for the year
ending December 31, 1996.
F-54
<PAGE> 112
ST. STAN'S BREWERY AND BREWPUB OPERATIONS
NOTES TO HISTORICAL FINANCIAL STATEMENTS OF ASSETS
AND LIABILITIES TO BE CONTRIBUTED TO BWI -- PROST PARTNERS
GENERAL PARTNERSHIP -- (CONTINUED)
NOTE 3 -- INVENTORIES
The following is a summary of inventories:
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
Raw materials and purchased
products.................................................. $ 89,506 $124,772
Work in process............................................. 20,856 18,480
Finished goods.............................................. 39,921 53,818
-------- --------
$ 150,283 $197,070
======== ========
</TABLE>
NOTE 4 -- PROPERTY AND EQUIPMENT, NET
The following is a summary of property and equipment, at cost, less
accumulated depreciation:
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
Buildings and improvements................................. $ 1,867,917 $1,867,917
Equipment, furniture, and fixtures......................... 1,442,746 1,436,484
----------- -----------
3,310,663 3,304,401
Less accumulated depreciation.............................. (874,925) (812,001)
----------- -----------
$ 2,435,738 $2,492,400
=========== ===========
</TABLE>
NOTE 5 -- NOTE PAYABLE
The following is a summary of the note payable:
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
Note payable to a lending institution, principal and
interest payable in equal monthly installments of $8,155,
with the remaining principal and interest due November
30, 1997, interest at 11% per annum, collateralized by
St. Stan's assets and personally guaranteed by officers
of the general partner of St. Stan's (Note 1)............ $ 676,836 $ 684,461
Less current portion....................................... (21,658) (21,658)
--------- ---------
$ 655,178 $ 662,803
========= =========
</TABLE>
Interest expense approximated $23,688 (unaudited) and $23,821 (unaudited)
for the four months ended April 30, 1996 and 1995, respectively, and $71,740 and
$87,347 for the years ended December 31, 1995 and 1994, respectively.
F-55
<PAGE> 113
ST. STAN'S BREWERY AND BREWPUB OPERATIONS
NOTES TO HISTORICAL FINANCIAL STATEMENTS OF ASSETS
AND LIABILITIES TO BE CONTRIBUTED TO BWI -- PROST PARTNERS
GENERAL PARTNERSHIP -- (CONTINUED)
Future annual principal installments of this note payable as of December
31, 1995 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
- ------------
<S> <C> <C>
1996............................................... $ 21,658
1997............................................... 662,803
--------
Total.............................................. $684,461
========
</TABLE>
See Note 9 for discussion regarding the planned assumption and partial
repayment of the note payable by BWISS on the Contribution Date.
NOTE 6 -- NOTES PAYABLE TO RELATED PARTY
The following is a summary of notes payable to related party:
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
Unsecured note payable to the general partner of St. Stan's,
payable in monthly installments of interest only at 8% per
annum, due on the earlier of demand or December 31,
1996...................................................... $ 282,685 $ 281,956
Unsecured note payable to the general partner of St. Stan's,
payable in monthly installments of principal and interest
of $1,213, interest at a certain bank's reference rate
plus 2.35% (6.25% at April 30, 1996, unaudited, and
December 31, 1995), due on the earlier of demand or
December 31, 1996......................................... 176,468 177,164
-------- --------
$ 459,153 $ 459,120
======== ========
</TABLE>
Interest incurred totaled $26,658 and $17,004 for the years ended December
31, 1995 and 1994, respectively, and $8,449 (unaudited) and $5,591 (unaudited)
for the four months ended April 30, 1996 and 1995, respectively.
See Note 9 for discussion regarding the planned assumption and repayment of
the notes payable to related party by BWISS on the Contribution Date.
NOTE 7 -- COMMITMENTS AND CONTINGENCIES
Operating Lease
St. Stan's Brewery and Brewpub Operations sublease its land under a 50 year
operating lease expiring on June 5, 2038. The sublease includes base rent
increases over the term of the lease at the lesser of (a) the percentage change
that occurs in the Consumer Price Index or (b) five percent (5%). In addition to
base rent increases, appraisals are required at scheduled dates. The minimum
annual rental payments, after a land appraisal, shall be based on no less than
twelve percent (12%) of the appraisal amount (assuming an undeveloped land
value). The total amount of the base rental payments is being charged to expense
as incurred over the term of the lease. In addition to the base rental payments,
the sublease agreement requires the payment of the real property taxes and
insurance costs. The Partnership is expected to assume this land sublease. The
Partnership is not expected to assume other significant operating leases or
rental commitments from St. Stan's.
F-56
<PAGE> 114
ST. STAN'S BREWERY AND BREWPUB OPERATIONS
NOTES TO HISTORICAL FINANCIAL STATEMENTS OF ASSETS
AND LIABILITIES TO BE CONTRIBUTED TO BWI -- PROST PARTNERS
GENERAL PARTNERSHIP -- (CONTINUED)
Future annual minimum rental payments, excluding annual increases in base
rents, under this operating lease as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
- ------------
<S> <C> <C>
1996............................................. $ 51,000
1997............................................. 51,000
1998............................................. 51,000
1999............................................. 51,000
2000............................................. 51,000
Thereafter....................................... 1,908,930
----------
$2,163,930
=========
</TABLE>
Rent expense under the ground lease totaled $17,180 (unaudited) and $17,000
(unaudited) for the four-month periods ended April 30, 1996 and 1995,
respectively, and $51,000 and $53,738 for the years ended December 31, 1995 and
1994, respectively (see Notes 2 and 5).
Management Agreements
Under the St. Stan's partnership agreement, the general partner is to be
paid $84,000, annually, for management of the partnership. At December 31, 1995,
all such amounts have not been paid (except for $83,000) and the obligation
related thereto is not to be assumed by the Partnership. The accompanying
historical statements of operations reflect the management fee expense pursuant
to said management contract. The unpaid management fees payable have been
reflected as non-cash contributions in the accompanying statements of changes in
equity.
See Note 9 for discussion regarding the employment agreements to be entered
into on the Contribution Date.
Distributor Agreements
St. Stan's is party to certain agreements with its various distributors. In
general, such agreements grant St. Stan's distributors the right to sell certain
products in specified territories. The agreements may be terminated by either
party if concerns or deficiencies, as defined, are not satisfied within 30 days.
F-57
<PAGE> 115
ST. STAN'S BREWERY AND BREWPUB OPERATIONS
NOTES TO HISTORICAL FINANCIAL STATEMENTS OF ASSETS
AND LIABILITIES TO BE CONTRIBUTED TO BWI -- PROST PARTNERS
GENERAL PARTNERSHIP -- (CONTINUED)
NOTE 8 -- SEGMENT INFORMATION
Business segment information as of and for the periods presented are as
follows:
<TABLE>
<CAPTION>
FOR THE FOUR MONTHS ENDED FOR THE YEAR ENDED
-------------------------- ----------------------------
APRIL 30, APRIL 30, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994
----------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales:
Brewery............................ $ 405,236 $ 367,765 $1,229,988 $1,024,018
Brewpub............................ 256,227 278,511 799,436 867,536
-------- -------- ---------- ----------
Total...................... $ 661,463 $ 646,276 $2,029,424 $1,891,554
======== ======== ========== ==========
Operating profit:
Brewery............................ $ 11,323 $ 30,651 $ 92,925 $ (21,606)
Brewpub............................ (36,566) 7,951 (43,286) 20,079
-------- -------- ---------- ----------
Total...................... $ (25,243) $ 38,602 $ 49,639 $ (1,527)
======== ======== ========== ==========
Depreciation and amortization:
Brewery............................ $ 42,903 $ 35,235 $ 92,586 $ 96,583
Brewpub............................ 23,005 25,765 87,340 77,919
-------- -------- ---------- ----------
Total...................... $ 65,908 $ 61,000 $ 179,926 $ 174,502
======== ======== ========== ==========
Capital expenditures:
Brewery............................ $ 6,262 $ 91,401 $ 307,560 $ 73,060
Brewpub............................ -- -- -- 2,052
-------- -------- ---------- ----------
Total...................... $ 6,262 $ 91,401 $ 307,560 $ 75,112
======== ======== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
Identifiable property and equipment:
Brewery.................................................... $ 1,471,521 $1,464,616
Brewpub.................................................... 1,839,142 1,839,785
---------- ----------
Total.............................................. $ 3,310,663 $3,304,401
========== ==========
</TABLE>
In the determination of identifiable property and equipment, management
specifically identified all Brewpub and Brewery property and equipment except
for the buildings and improvements (see Note 4). Management allocated 70% and
30% of the buildings and improvements to the Brewpub and Brewery, respectively.
NOTE 9 -- SUBSEQUENT EVENTS
The Partnership Agreement
On September , 1996, St. Stan's formed a California general partnership
with BWISS named BWI-Prost Partners. Pursuant to the terms of the BWI-Prost
Partners partnership agreement, St. Stan's has agreed to contribute
substantially all of its assets, net of certain liabilities, to the Partnership
for a 49% minority interest in the Partnership. BWISS has agreed to contribute
$2,295,000 to the Partnership for a 51% controlling interest in the Partnership.
The BWISS consideration is to be tendered in cash commencing 18 months from the
IPO and the assumption of certain debt (as discussed below) at the date of
contribution,
F-58
<PAGE> 116
ST. STAN'S BREWERY AND BREWPUB OPERATIONS
NOTES TO HISTORICAL FINANCIAL STATEMENTS OF ASSETS
AND LIABILITIES TO BE CONTRIBUTED TO BWI -- PROST PARTNERS
GENERAL PARTNERSHIP -- (CONTINUED)
the "Contribution Date", the date of the successful consummation of an initial
public offering of BWI's common stock, occurring on or before March 31, 1997,
realizing minimum proceeds of at least $8,000,000 (before any deductions,
including, but not limited to, underwriters' compensation and expenses).
The profits and losses of the Partnership are to be allocated based on each
partner's respective ownership interest, subject to special allocations as
defined. The Partnership is to be managed by a five member joint management
committee (the "Committee") until dissolution of the Partnership. BWISS will
maintain three of the five positions on the Committee. Substantially all
management decisions of the committee are to be approved by a majority vote of
the members.
The Partnership Agreement contains a buy-out provision whereby BWISS,
during a three year period commencing with the Contribution Date, can purchase
St. Stan's 49% interest in the Partnership for $2,205,000. If BWISS does not
elect to purchase such interest at the end of the third year, St. Stan's has the
right to purchase BWISS's 51% interest at appraised value, as adjusted. If St.
Stan's does not elect to purchase BWISS's 51% interest, BWISS has the right to
purchase St. Stan's 49% interest at appraised value, as adjusted. If neither
partner elects to purchase the other partner's interest, such non purchase is
deemed a liquidating event, as defined.
The Partnership Agreement contains provisions (the "Breach Provisions")
should either partner breach its responsibilities pursuant to the Partnership
Agreement, as defined. The Breach Provisions provide that the breaching partner
ceases to be a partner of the Partnership if such breach is not cured within 120
days. The breaching partner is to receive breach payments, as defined, in
consideration for withdrawal from the Partnership.
The BWISS Contribution
In accordance with the Partnership Agreement, BWISS is required to make its
$2,295,000 capital contribution through debt assumption and periodic payments as
follows: (1) the full assumption and partial repayment of the note payable from
the Partnership (which totals $676,836 at April 30, 1996, unaudited -- Note 5),
(2) the full assumption and repayment of the notes payable to related party from
the Partnership (which total $459,153 at April 30, 1996, unaudited -- Note 6),
(3) six cash payments of $100,000 to the Partnership, each payable 18, 21, 24,
27, 30 and 33 months from the Contribution Date, and (4) a cash payment of the
remaining unpaid capital contribution, subject to adjustment as defined, 36
months from the Contribution Date. If the gross proceeds of the BWI IPO exceed
$10,000,000, BWISS is required to make a payment on its capital contribution 30
days from the Contribution Date; such payment will be equal to 10% of the gross
proceeds in excess of $10,000,000, up to $300,000.
The unpaid portion of the BWISS capital contribution bears interest at 10%
per annum, subject to adjustment as defined, payable quarterly beginning April
30, 1998.
The Note Payable
BWISS has obtained a commitment letter from the lender to refinance the
note payable that BWISS is to assume from the Partnership on the Contribution
Date (see discussion above). The lender requires a principal reduction payment
be made such that the outstanding balance of the note will be $500,000. The
revised note payable will bear interest at a variable rate, ranging from 11% to
16% per annum, with principal and interest payable monthly based on a 15 year
amortization period, with all unpaid principal and interest due in five years.
F-59
<PAGE> 117
ST. STAN'S BREWERY AND BREWPUB OPERATIONS
NOTES TO HISTORICAL FINANCIAL STATEMENTS OF ASSETS
AND LIABILITIES TO BE CONTRIBUTED TO BWI -- PROST PARTNERS
GENERAL PARTNERSHIP -- (CONTINUED)
Employment Agreements
On the Contribution Date, BWI is to execute employment agreements with two
of the officers of the general partner of Prost Partners Limited Partnership.
The agreements are for a term of three years, provide for base annual
compensation aggregating $157,000, including allowances, and allow for
participation in the BWI qualified incentive stock option plan. The employment
agreements can be terminated by mutual consent or for cause, as defined.
F-60
<PAGE> 118
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Orange Empire Brewing Company
To the Board of Directors
Beverage Works, Inc.
We have audited the accompanying consolidated balance sheet of Orange
Empire Brewing Company and subsidiary (the "Company") as of December 31, 1995,
and the related statements of operations, stockholders' equity (capital
deficiency) and cash flows for each of the years in the two-year period ended
December 31, 1995. These consolidated financial statements are the
responsibility of management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Orange
Empire Brewing Company and subsidiary as of December 31, 1995, and the results
of their operations and their cash flows for each of the years in the two-year
period ended December 31, 1995 in conformity with generally accepted accounting
principles.
The consolidated financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company had recurring losses from
operations, has current liabilities in excess of current assets and a
significant capital deficiency at April 30, 1996. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
The Company has, and will continue to require, significant working capital to
fund operations. Management is currently funding operations through loans from
certain stockholders. Management's plans with regard to these matters are also
described in Note 2. The accompanying consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
CORBIN & WERTZ
Irvine, California
July 20, 1996, except for
Notes 1 and 11 as to which the date
is September , 1996
The foregoing auditors' report is in the form which will be signed upon
consummation of the transaction described in Note 11 to the financial
statements.
F-61
<PAGE> 119
ORANGE EMPIRE BREWING COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
(Notes 2, 5, 6 and 10)
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995
----------- -------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash............................................................ $ 14,634 $ 56,302
Accounts receivable, less allowance for doubtful accounts of
$7,500 (unaudited) and $5,000, at April 30, 1996 and December
31, 1995, respectively....................................... 171,493 92,273
Inventories (Note 3)............................................ 234,526 231,766
Prepaid expenses and other current assets....................... 17,222 44,441
----------- -----------
Total current assets.................................... 437,875 424,782
Property and equipment, net (Note 4).............................. 1,407,495 1,510,551
Deposits and other assets......................................... 21,409 20,679
----------- -----------
$ 1,866,779 $ 1,956,012
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
(Notes 1 and 2)
Current liabilities:
Accounts payable (Note 7)....................................... $ 332,747 $ 334,780
Accrued expenses and other current liabilities (Note 6)......... 177,053 196,886
Notes payable (Note 5).......................................... 142,548 58,980
Notes payable to related parties (Notes 6 and 11)............... 897,863 767,559
Capital lease obligations to related party (Notes 7 and 11)..... 86,410 109,408
----------- -----------
Total current liabilities............................... 1,636,621 1,467,613
Notes payable, net of current portion (Note 5).................... 191,735 211,416
Capital lease obligations to related party, net of current portion
(Notes 7 and 11)................................................ 949,965 971,985
----------- -----------
Total liabilities....................................... 2,778,321 2,651,014
----------- -----------
Commitments and contingencies (Notes 7 and 11)
Stockholders' equity (capital deficiency) (Notes 9 and 11):
Common stock, Series A, no par value; 1,000,000 shares
authorized, 110,000 shares issued and outstanding............ 412,500 412,500
Common stock, Series B, no par value; 1,000,000 shares
authorized, 247,401 shares issued and outstanding............ 1,067,766 1,067,766
Accumulated deficit............................................. (2,391,808) (2,175,268)
----------- -----------
Total capital deficiency................................ (911,542) (695,002)
----------- -----------
$ 1,866,779 $ 1,956,012
=========== ===========
</TABLE>
See independent auditors' report and accompanying notes to these consolidated
financial statements
F-62
<PAGE> 120
ORANGE EMPIRE BREWING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE FOUR MONTHS
ENDED FOR THE YEARS ENDED
----------------------- --------------------------
APRIL 30, APRIL 30, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994
---------- --------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Sales........................................ $1,094,984 $ 645,014 $2,606,573 $1,399,515
Less excise taxes............................ 33,912 10,407 52,596 21,045
---------- --------- ---------- ----------
Net sales (Notes 2 and 10)......... 1,061,072 634,607 2,553,977 1,378,470
Cost of sales (Notes 2, 3 and 7)............. 783,856 414,558 1,824,065 1,025,191
---------- --------- ---------- ----------
Gross profit....................... 277,216 220,049 729,912 353,279
Selling, general and administrative
expenses................................... 411,104 349,507 990,701 624,209
---------- --------- ---------- ----------
Loss from operations (Note 10)............... (133,888) (129,458) (260,789) (270,930)
Interest expense (Notes 5, 6 and 7).......... 82,240 48,227 172,924 94,516
Other (income) expense....................... 412 (1,648) (9,755) 4,149
---------- --------- ---------- ----------
Loss before provision for income taxes....... (216,540) (176,037) (423,958) (369,595)
Provision for income taxes (Notes 2 and 8)... -- -- 1,600 1,600
---------- --------- ---------- ----------
Net loss..................................... $ (216,540) $(176,037) $ (425,558) $ (371,195)
========== ========= ========== ==========
Net loss per common share (Note 2)........... $ (0.61) $ (0.52) $ (1.24) $ (1.09)
========== ========= ========== ==========
Weighted average number of common shares
outstanding................................ 357,401 341,401 342,760 341,401
========== ========= ========== ==========
</TABLE>
See independent auditors' report and accompanying notes to these consolidated
financial statements
F-63
<PAGE> 121
ORANGE EMPIRE BREWING COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
FOR THE FOUR MONTHS ENDED APRIL 30, 1996 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
SERIES A SERIES B
------------------ -------------------- ACCUMULATED
SHARES AMOUNT SHARES AMOUNT DEFICIT TOTAL
------- -------- ------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balances -- January 1, 1994
(Note 9)...................... 110,000 $412,500 231,401 $ 867,766 $(1,378,515) $ (98,249)
Net loss........................ -- -- -- -- (371,195) (371,195)
------- -------- ------- ---------- ----------- ---------
Balances -- December 31, 1994... 110,000 412,500 231,401 867,766 (1,749,710) (469,444)
Common stock issued for cash at
$12.50 per share (Note 9)..... -- -- 16,000 200,000 -- 200,000
Net loss........................ -- -- -- -- (425,558) (425,558)
------- -------- ------- ---------- ----------- ---------
Balances, December 31, 1995..... 110,000 412,500 247,401 1,067,766 (2,175,268) (695,002)
Net loss........................ -- -- -- -- (216,540) (216,540)
------- -------- ------- ---------- ----------- ---------
Balances, April 30, 1996 (Notes
9 and 11)..................... 110,000 $412,500 247,401 $1,067,766 $(2,391,808) $(911,542)
======= ======== ======= ========= ========== =========
</TABLE>
See independent auditors' report and accompanying notes to these consolidated
financial statements
F-64
<PAGE> 122
ORANGE EMPIRE BREWING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOUR MONTHS ENDED FOR THE YEARS ENDED
-------------------------- ----------------------------
APRIL 30, APRIL 30, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994
----------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................... $(216,540) $(176,037) $ (425,558) $ (371,195)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization............... 92,470 44,114 161,325 93,959
Provisions for losses on accounts receivable
and inventory............................. 2,500 5,000 25,000 --
Changes in operating assets and liabilities:
Accounts receivable....................... (81,720) (17,212) (70,945) (25,578)
Inventories............................... (2,760) (47,324) (196,985) (15,794)
Prepaid expenses and other current
assets................................. 27,219 4,631 (24,997) (8,267)
Accounts payable.......................... (2,033) 54,971 242,692 16,024
Accrued expenses and other current
liabilities............................ (19,833) 7,560 134,172 15,826
--------- --------- --------- ---------
Net cash used in operating
activities........................... (200,697) (124,297) (155,296) (295,025)
--------- --------- --------- ---------
Cash flows from investing activities:
Deposits and other assets...................... (730) (3,998) (11,088) (9,400)
Capital expenditures........................... (10,172) (45,022) (199,216) (59,323)
--------- --------- --------- ---------
Net cash used in investing
activities........................... (10,902) (49,020) (210,304) (68,723)
--------- --------- --------- ---------
Cash flows from financing activities:
Issuance of common stock for cash (Note 9)..... -- -- 200,000 --
Borrowings under bank note payable (Note 5).... -- -- -- 37,500
Borrowings under notes payable from vendors,
net (Note 5)................................ 83,552 -- -- --
Borrowings under notes payable to related
parties (Note 6)............................ 130,304 200,425 307,714 375,099
Repayments under bank note payable (Note 5).... (19,665) (17,500) (42,081) (35,000)
Payments under capital lease obligation to
related party (Note 7)...................... (24,260) (16,745) (50,868) (28,234)
--------- --------- --------- ---------
Net cash provided by financing
activities........................... 169,931 166,180 414,765 349,365
--------- --------- --------- ---------
Net increase (decrease) in cash.................. (41,668) (7,137) 49,165 (14,383)
Cash at beginning of period...................... 56,302 7,137 7,137 21,520
--------- --------- --------- ---------
Cash at end of period............................ $ 14,634 $ -- $ 56,302 $ 7,137
========= ========= ========= =========
Supplemental disclosures of cash flow
information --
Cash paid during the year for:
Interest.................................. $ 44,824 $ 43,319 $ 100,223 $ 82,144
========= ========= ========= =========
Income taxes.............................. $ -- $ -- $ 1,600 $ 3,200
========= ========= ========= =========
</TABLE>
Supplemental schedule of noncash financing and investing activities:
During the four months ended April 30, 1996 and 1995, the Company
(returned) purchased $(20,758) and $85,366, respectively, of equipment under a
capital lease agreement with a related party (see Note 7).
During the years ended December 31, 1995 and 1994, the Company purchased
$777,633 and $56,937, respectively, of equipment under a capital lease agreement
with a related party (see Note 7).
See independent auditors' report and accompanying notes to these consolidated
financial statements
F-65
<PAGE> 123
ORANGE EMPIRE BREWING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FOUR-MONTH PERIODS ENDED APRIL 30, 1996 AND 1995 (UNAUDITED),
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 1 -- NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Nature of Operations
Orange Empire Brewing Company and its wholly owned subsidiary, Riverside
Brewing Company (collectively the "Company"), were incorporated in the state of
California on June 1, 1993 to operate a brewpub and brewery. The Company
currently brews and markets six distinctive beers in 27 states. During October
1995, the Company expanded its brewing operations by leasing an additional
brewery facility and its brewing equipment in Riverside, California (see Note
7).
As discussed in Note 11, on September , 1996, the Company entered into a
stock-for-stock exchange (the "Exchange Agreement") with Beverage Works, Inc.
("BWI"), a California corporation. Additional agreements were entered into
concurrently with the execution of the Exchange Agreement, including an
agreement with BWI to actively manage the Company's operations (see Note 11).
Basis of Presentation
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern, which contemplates, among
other things, the realization of assets and the satisfaction of liabilities in
the normal course of business. As shown in the accompanying consolidated
financial statements, at April 30, 1996, the Company had excess current
liabilities in excess of current assets of $1,198,746 (unaudited) and a capital
deficiency of $911,542 (unaudited). In addition, the Company has incurred net
losses of $425,558 and $371,195, for the years ended December 31, 1995 and 1994,
respectively, and $216,540 (unaudited) for the four months ended April 30, 1996.
Successful completion of its marketing program, and the transition, ultimately,
to the attainment of profitable operations is dependent upon the Company
obtaining adequate financing and generating sales sufficient to fund profitable
operations. These factors, among other things, raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans include,
but are not limited to, entering into a stock-for-stock exchange whereby the
Company will become a wholly-owned subsidiary of BWI (see Notes 1 and 11). BWI
plans to effect an initial public offering ("IPO") to raise capital, certain of
which, if the IPO is successful and the Exchange Agreement is consummated, will
be used to partially reduce the Company's indebtedness and to fund working
capital requirements. Management also plans to reduce the Company's costs on a
per unit basis through increased plant utilization and through combined
purchases with other brewing facilities acquired, or to be acquired, by BWI.
There are no assurances that management's plans will be effected, which includes
the IPO being consummated in a timely manner. The accompanying consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
NOTE 2 -- SUMMARY OF SIGNIFICANT POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Orange Empire
Brewing Company and its wholly-owned subsidiary Riverside Brewing Company. All
significant intercompany transactions and balances have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, as well
as disclosure of contingent assets and liabilities at the date of the financial
statements.
F-66
<PAGE> 124
ORANGE EMPIRE BREWING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Certain estimates made by management also effect the reported amounts of
revenues and expenses during the reported periods. Actual results could
materially differ from those estimates.
Fair Value of Financial Instruments
These consolidated financial statements contain financial instruments
whereby the fair market value of the financial instruments could be different
than those recorded on a historical basis in the accompanying consolidated
financial statements. The Company's financial instruments consist of cash,
accounts receivable, accounts payable, notes payable to related parties, and
notes payable and capital lease obligations. The carrying amounts of the
Company's financial instruments generally approximate their fair values at April
30, 1996 (unaudited) and December 31, 1995. In the case of the notes payable to
related parties (see Note 6), it was not practical to determine fair values due
to the lack of a market for such financial instruments.
Concentrations of Credit Risk
The customers of the brewery operations consist of distributors which
resell the Company's products domestically. The Company performs periodic credit
evaluations of its customers and does not require collateral to secure its
accounts receivable. The Company maintains an allowance for potential credit
losses; such losses have historically been within management's expectations.
One brewery customer accounted for approximately 23% (unaudited) of
consolidated net sales for the four months ended April 30, 1996. No one customer
made up 10% or more of consolidated net sales for the four months ended April
30, 1995 (unaudited). One brewery customer accounted for approximately 12% of
consolidated net sales for the year ended December 31, 1995 and one brewery
customer accounted for approximately 18% of consolidated net sales for the year
ended December 31, 1994. Accounts receivable from four brewery customers totaled
23%, 18%, 18% and 16%, respectively, of accounts receivable at December 31,
1995. Accounts receivable from three brewery customers totaled 69%, 16% and 15%,
respectively, of accounts receivable at April 30, 1996 (unaudited).
The Company purchased certain products from one company which accounted for
approximately 13% (unaudited), and purchased certain products from two companies
which accounted for 50% (unaudited) and 15% (unaudited) of consolidated
purchases for the four months ended April 30, 1996 and 1995, respectively. One
Company accounted for approximately 40% and 38% of consolidated purchases for
the years ended December 31, 1995 and 1994, respectively. Accounts payable to
one company accounted for 31% (unaudited) and 26% of total accounts payable as
of April 30, 1996 and December 31, 1995, respectively.
Risks and Uncertainties
Licenses and Permits
The brewery operations (wholesale) and the brewpub operations (retail),
require various federal, state and local licenses and permits. Brewers are
required to file with the Federal Bureau of Alcohol, Tobacco and Firearms (the
"BATF"). The California Department of Alcoholic Beverage Control (the "ABC")
requires that companies file and maintain licenses, permits or approvals for the
production and sale of alcoholic beverages. Other state and local laws and
regulations governing the sale of alcoholic beverages within a particular state
by an out-of-state brewer or wholesaler vary by state and locality. The
Company's brewery and brewpub operations are subject to audit and inspection by
the BATF and ABC at any time.
Should the Exchange Agreement be consummated (see Notes 1 and 11),
management of the Company will be required to apply for a change in the
brewery's and/or the brewpub's management, and for a change in ownership with
Federal and state agencies. Due to the various Federal and state licensing and
permitting requirements, there is a risk that one or more regulatory authorities
may not approve such changes in management and/or ownership, or may determine
the predecessor managers/owners had not complied with
F-67
<PAGE> 125
ORANGE EMPIRE BREWING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
applicable licensing or permitting regulations. Should the brewery or brewpub
operations not maintain the licenses and permits necessary for it to conduct
business, there could be a material adverse effect on the consolidated financial
condition and/or the consolidated results of operations of the Company.
Seasonality
The beverage business traditionally has been seasonal. Typically, net sales
are highest during the third and fourth calendar quarters and decline in the
first and second calendar quarters. This pattern is due primarily to the
increased amount of consumer demand for beverages during the summer months
through the holiday buying season. Management of the Company expects its
consolidated net sales and operating results to continue to reflect this
seasonality.
Environmental Regulations and Operating Considerations
The Company's brewing operations are subject to a variety of extensive and
changing Federal, state, and local environmental laws, regulations and
ordinances that govern activities or operations that may have adverse effects on
human health or the environment. Such laws, regulations ordinances may impose
liability for the cost of remediating, and for certain damages resulting from,
sites of past releases of hazardous materials. The Company believes that it
currently conducts, and in the past has conducted, its activities and operations
in substantial compliance with applicable environmental laws, and believes that
costs arising from existing environmental laws will not have a material adverse
effect on the Company's financial condition or results of operations. There can
be no assurance, however, that environmental laws will not become more stringent
in the future or that the Company will not incur costs in the future in order to
comply with such laws.
The Company's operations are subject to certain hazards and liability risks
faced by all brewers, such as potential contamination of ingredients or products
by bacteria or other external agents that may be wrongfully or accidentally
introduced into products or packaging. The occurrence of such a problem could
result in a costly product recall and serious damage to the Company's reputation
for product quality, as well as claims for product liability which may
negatively impact the Company. The Company maintains insurance which the Company
believes is sufficient to cover any liability claims which might result from a
contamination problem in its products, but which may not cover any damage to the
Company's reputation.
Inventories
Inventories, consisting of raw materials and purchased packaging, as well
as certain in process and finished goods, are valued at the lower of cost
(average cost method) or market (see Note 3).
Property and Equipment
Property and equipment, including equipment under capital leases, as
amended, with a related party (see Note 7), are stated at cost and are
depreciated using the straight-line method over the estimated useful lives of
the related assets, generally ranging from three to seven years. Betterments are
capitalized, while repairs and maintenance costs are charged to expense as
incurred.
Leasehold improvements are being amortized over the shorter of the lease
term or the estimated useful lives of the improvements, generally ranging from
three to ten years.
Management of the Company assesses the recoverability of property and
equipment by determining whether the depreciation of such assets over their
remaining lives can be recovered through projected undiscounted cash flows. The
amount of impairment, if any, is measured based on projected undiscounted cash
flows and is charged to operations in the period in which such impairment is
determined by management. To date, management has not identified an impairment
of property and equipment.
F-68
<PAGE> 126
ORANGE EMPIRE BREWING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
The Company accounts for its income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("Statement 109"). Under Statement 109, a liability method is used whereby
deferred tax assets and liabilities are determined based on temporary
differences between bases used for financial reporting and income tax reporting
purposes. Income taxes are provided based on tax rates in effect at the time
such temporary differences are expected to reverse. A valuation allowance is
provided for certain deferred tax assets if it is more likely than not that the
Company will not realize the tax assets through future operations (see Note 8).
Revenue Recognition
Revenues from brewery product sales are recognized upon shipment. The
Company records a provision for the effect of returned products at the time the
units are shipped. Historically, the Company has experienced minimal product
returns. Revenues in connection with brewpub operations are recognized at the
time the food and beverage sales are made.
Advertising and Marketing Expense
Advertising and marketing costs are expensed as incurred.
Per Share Information
Net loss per common share is computed by dividing net loss by the weighted
average number of shares of Series A and Series B common stock outstanding
during each respective period presented. During the periods presented, the
Company did not have common stock equivalents outstanding (see Note 9).
Interim Accounting Policy
In the opinion of management, the accompanying unaudited consolidated
financial statements of the Company include all adjustments (consisting of only
normal recurring adjustments) necessary for a fair presentation of the
consolidated financial position of the Company as of April 30, 1996, and results
of operations and cash flows as of and for the four months ended April 30, 1996
and 1995. Although management believes that the disclosures regarding interim
financial information in these financial statements are adequate to make the
information presented not misleading, certain information and disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles during the interim periods have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. The unaudited results of operations for the four months ended April
30, 1996 are not necessarily indicative of results of operations to be expected
for the year ending December 31, 1996.
NOTE 3 -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER
APRIL 30, 31,
1996 1995
---------- ----------
<S> <C> <C>
(UNAUDITED)
Finished goods and work in process.......................... $ 28,427 $ 30,616
Raw materials and purchased products........................ 206,099 201,150
---------- ----------
$ 234,526 $ 231,766
========= =========
</TABLE>
F-69
<PAGE> 127
ORANGE EMPIRE BREWING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER
APRIL 30, 31,
1996 1995
---------- ----------
<S> <C> <C>
(UNAUDITED)
Equipment under capital lease with a related party (Note
7)........................................................ $1,139,737 $1,160,495
Equipment................................................... 82,227 76,888
Furniture and fixtures...................................... 50,875 50,875
Leasehold improvements...................................... 499,980 495,147
---------- ----------
1,772,819 1,783,405
Less accumulated depreciation and amortization.............. (365,324) (272,854)
---------- ----------
$1,407,495 $1,510,551
========= =========
</TABLE>
NOTE 5 -- NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER
APRIL 30, 31,
1996 1995
---------- ----------
<S> <C> <C>
(UNAUDITED)
Note payable to bank, bearing interest at prime plus 3% per
annum (11.75% at December 31, 1995), payable monthly in
principal payments of $4,916 plus accrued interest,
matures May 1, 1998, secured by substantially all assets
of the Company and guaranteed by a former officer and
certain stockholders of the Company....................... $ 250,731 $ 270,396
Unsecured demand notes with vendors generally bearing
interest at 11% per annum, payable in aggregate monthly
installments ranging from $5,082 to $15,083 through
February, 1997............................................ 83,552 --
---------- ----------
334,283 270,396
Less current portion........................................ (142,548) (58,980)
---------- ----------
$ 191,735 $ 211,416
========= =========
</TABLE>
Interest expense amounted to $11,172 (unaudited) and $9,686 (unaudited) for
the four months ended April 30, 1996 and 1995, respectively, and amounted to
$33,515 and $29,057 for the years ended December 31, 1995 and 1994,
respectively.
Future annual principal installments of notes payable as of December 31,
1995 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
- ------------
<S> <C> <C>
1996............................................... $ 58,980
1997............................................... 58,960
1998............................................... 152,456
--------
$270,396
========
</TABLE>
See Note 6 for discussion regarding the refinance of the note payable to
bank.
F-70
<PAGE> 128
ORANGE EMPIRE BREWING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- NOTES PAYABLE TO RELATED PARTIES
Notes payable to related parties consist of the following:
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995
--------- ------------
(UNAUDITED)
<S> <C> <C>
Unsecured demand note payable to a former officer and current
stockholder, interest at prime plus 2% per annum (10.75% at
December 31, 1995)........................................... $ 93,462 $ 96,132
Unsecured demand notes payable to certain stockholders,
interest at prime plus 2% per annum (10.75% at December 31,
1995), refinanced with bank note discussed below............. 294,338 254,364
Unsecured demand notes payable to certain officers and
stockholders, interest at 7.75% per annum.................... 428,229 335,229
Unsecured demand notes payable in default to stockholders,
interest rates ranging from 8% per annum to prime plus 2% per
annum 10.75% at December 31, 1995)........................... 81,834 81,834
-------- --------
$ 897,863 $767,559
======== ========
</TABLE>
On May 10, 1996, the Company entered into an agreement with a bank to
refinance a note payable with the bank totaling $250,731 (see Note 5) and
unsecured demand notes payable to certain stockholders totaling $294,338. The
new note payable totals $545,069, payable with interest at prime plus 1.75% per
annum (initial rate of 11.0%). Interest is payable monthly beginning June 1,
1996 and principal is payable in 48 installments of $11,576, beginning September
1, 1996. The new note matures August 1, 2000. The new note is secured by
substantially all assets of the Company and is guaranteed by certain
stockholders. See Note 11 for further discussion regarding this new note payable
to bank.
Interest expense on notes payable to related parties amounted to $21,155
(unaudited) and $19,490 (unaudited) for the four months ended April 30, 1996 and
1995, respectively, and amounted to $63,464 and $20,447 for the years ended
December 31, 1995 and 1994, respectively. Accrued interest due on the notes
payable to related parties totaled $40,475 (unaudited) and $27,995 at April 30,
1996 and December 31, 1995, respectively.
Also See Note 7 for discussion of capital lease obligations with a related
party.
NOTE 7 -- COMMITMENTS AND CONTINGENCIES
Leases
The Company leases its facilities and certain equipment under noncancelable
operating leases which expire at various dates through August 2003.
The Company leases certain brewing, kitchen and equipment, as well as
leasehold improvements under a capital lease obligation, as amended, with an
entity controlled by a Company stockholder. Such lease has components with
effective interest rates ranging from 14% to 17% per annum, payable monthly at
varying amounts ranging from $193 to $10,663, scheduled to mature through 2003.
F-71
<PAGE> 129
ORANGE EMPIRE BREWING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future annual aggregate minimum lease payments under noncancelable
operating lease arrangements and under the capital lease obligation, as amended,
with a related party as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING CAPITAL OPERATING
DECEMBER 31, LEASE LEASES
------------------------------------------------------------- ---------- --------
<S> <C> <C>
1996...................................................... $ 256,114 $183,012
1997...................................................... 272,028 189,829
1998...................................................... 270,415 106,285
1999...................................................... 270,348 74,501
2000...................................................... 261,742 74,160
Thereafter................................................ 286,185 197,760
---------- --------
1,616,832 $825,547
========
Less amounts representing interest........................ (535,439)
----------
Present value of minimum lease payments................... 1,081,393
Less current portion...................................... (109,408)
----------
$ 971,985
==========
</TABLE>
Rent expense under operating lease agreements totalled $62,495 (unaudited)
and $34,134 (unaudited) for the four months ended April 30, 1996 and 1995,
respectively, and $130,884 and $77,457 for the years ended December 31, 1995 and
1994, respectively, and is included in selling, general and administrative
expense in the accompanying consolidated statements of operations.
Interest expense under the capital lease obligation, as amended, amounted
to $49,914 (unaudited) and $19,051 (unaudited) for the four months ended April
30, 1996 and 1995, respectively, and $75,945 and $45,012 for the years ended
December 31, 1995 and 1994, respectively.
As of April 30, 1996, the Company was in default on the capital lease
obligation to the related party. Past due capital lease payments totaling
$103,164 (unaudited) and $42,053 as of April 30, 1996 and December 31, 1995,
respectively, are included in accounts payable on the accompanying consolidated
balance sheets.
See Note 11 for discussion of the amendment to the capital lease to be made
in conjunction with the consummation of the Exchange Agreement.
Distributor Agreements
The Company is party to certain agreements with its various distributors.
In general, such agreements grant the Company's distributors the right to sell
certain products in specified territories. The agreements may be terminated by
either party by written 30 day notice or immediately if certain conditions
exist, as defined.
F-72
<PAGE> 130
ORANGE EMPIRE BREWING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Purchase Commitment
During 1995, the Company entered into a purchase agreement with a vendor to
buy specified quantities of grain to be delivered through June 1999, as defined,
at fixed contract prices. No provision for loss has been made as the difference
between the contract price and the market price has not been significant. The
Company's annual obligation under the agreement is as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
--------------------------------------------------
<S> <C>
1996............................................ $ 71,454
1997............................................ 59,538
1998............................................ 59,957
1999............................................ 39,125
--------
$230,074
========
</TABLE>
The Company is also obligated to pay storage fees, as defined, for any
goods not shipped as agreed. The Company does not anticipate storage charges
will be incurred.
Management Agreements
See Note 11 for discussion of the management agreements entered into in
connection with the stock-for-stock exchange (see Notes 1 and 11).
Contingencies
In January 1996, the Company entered into a settlement agreement with a
stockholder whereby for past services the stockholder would retain 10,000 shares
of the Company's common stock and receive $43,000 in cash. Such was paid in
November 1995. In May 1996, the Company received a letter from such
stockholder's legal counsel demanding 13,792 additional shares be issued to the
stockholder as the settlement agreement was signed without knowledge of certain
material information. The Company's management believes these allegations are
without merit and believes that no additional amounts are due the stockholder in
cash or common stock. No provision for any additional loss has been reflected in
the accompanying consolidated financial statements.
A breach of contract action was filed on July 25, 1996 by a retail chain
against the Company alleging damages in the amount of $64,000. Management of the
Company intends to vigorously defend against this action. The consolidated
financial statements reflect a $14,000 accrual for losses relating to this
matter at April 30, 1996 (unaudited).
In the ordinary course of business, there are various claims and lawsuits
brought by or against the Company. In the opinion of management, the ultimate
outcome of these matters will not have a material adverse effect the Company's
operations or financial position.
NOTE 8 -- INCOME TAXES
The provision for income taxes for the years ended December 31, 1995 and
1994 is comprised of minimum state taxes due to the historical losses incurred
by the Company.
F-73
<PAGE> 131
ORANGE EMPIRE BREWING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the provision for income taxes from operations with
expected income tax benefit computed by applying the federal statutory income
tax rate to loss before provision for income taxes for the years ended December
31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1995 1994
------------------ ------------------
$ % $ %
--------- ----- --------- -----
<S> <C> <C> <C> <C>
Income tax benefit computed at federal
statutory tax rate......................... $(144,146) (34.0%) $(125,662) (34.0%)
State and local tax benefit, net of reduction
of loss carryforward....................... (12,930) (3.0) (11,273) (3.1)
Change in valuation allowance for deferred
tax
assets..................................... 160,886 37.9 138,875 37.6
Other........................................ (2,210) (0.5) (340) (0.1)
--------- ----- --------- -----
$ 1,600 0.4% $ 1,600 0.4%
========= ===== ========= =====
</TABLE>
At December 31, 1995, significant components of the Company's net deferred
taxes are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards....................................... $ 688,229
Reserves and allowances................................................ 10,035
Depreciation........................................................... 89,898
Other.................................................................. 34,674
Less valuation allowance............................................... (812,778)
---------
Total deferred tax assets...................................... 10,058
---------
Deferred tax liability --
Property, equipment and other.......................................... (10,058)
---------
Deferred income taxes.......................................... $ --
=========
</TABLE>
The net change in the total valuation allowance was an increase of $160,886
and $138,875 for the years ended December 31, 1995 and 1994, respectively.
At December 31, 1995, the Company has approximately $1,857,000 and $930,000
of net operating loss carryforwards for Federal and state income tax reporting
purposes, respectively, which expire through 2010. Because of the "change in
ownership" provisions of the Tax Reform Act of 1986, net operating loss
carryforwards will be subject to annual limitations should the Company complete
its stock-for-stock exchange (see Notes 1 and 11).
NOTE 9 -- COMMON STOCK
The Company is authorized to issue up to 5,000,000 shares of common stock.
Such common shares may be divided into various series. The Company is currently
authorized to issued 1,000,000 shares of Series A common stock and 1,000,000
shares of Series B common stock. The rights, preferences, privileges and
restrictions of the Series A common shares and the Series B common shares shall
be equal and identical in all respects except that, unless otherwise provided by
law, the Company may declare dividends to holders of Series B common shares
without declaring dividends to holders of Series A common shares. No dividends
shall be declared on Series A common shares without also declaring like
dividends on Series B common shares. Through April 30, 1996, no dividends have
been declared or paid by the Company and pursuant to the California Corporations
Code, dividends may not be paid with an accumulated deficit.
F-74
<PAGE> 132
ORANGE EMPIRE BREWING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Through January 1, 1994, the Company issued 110,000 shares of Series A
common stock for compensation to officers of the Company for services provided
valued at $412,500 or $3.75 per share. Such shares were valued by the Board of
Directors based on cash paid for shares near the date of issuance (see below).
Through January 1, 1994, the Company sold for cash at $3.75 per share,
112,824 shares of Series B common stock for an aggregate $423,102. In addition,
the Company issued 118,577 shares of Series B common stock for debt and services
provided valued at $444,664.
In November 1995, the Company issued 16,000 shares of Series B common stock
at $12.50 per share totalling $200,000.
NOTE 10 -- SEGMENT INFORMATION
Business segment information as of and for the periods presented is as
follows:
<TABLE>
<CAPTION>
FOR THE FOUR MONTHS ENDED FOR THE YEAR ENDED
-------------------------- ----------------------------
APRIL 30, APRIL 30, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994
----------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Sales:
Brewery.............................. $ 497,249 $ 110,907 $ 865,433 $ 252,154
Brewpub.............................. 597,735 534,107 1,741,140 1,147,361
---------- --------- ---------- ----------
Total........................ $ 1,094,984 $ 645,014 $2,606,573 $1,399,515
========== ========= ========== ==========
Operating loss:
Brewery.............................. $ (91,746) $ (54,617) $ (162,850) $ (92,469)
Brewpub.............................. (42,142) (74,841) (97,939) (178,461)
---------- --------- ---------- ----------
Total........................ $ (133,888) $(129,458) $ (260,789) $ (270,930)
========== ========= ========== ==========
Depreciation and amortization:
Brewery.............................. $ 53,598 $ 2,716 $ 49,054 $ 2,663
Brewpub.............................. 38,872 41,398 112,271 91,296
---------- --------- ---------- ----------
Total........................ $ 92,470 $ 44,114 $ 161,325 $ 93,959
========== ========= ========== ==========
Capital expenditures(1):
Brewery.............................. $ 10,172 $ 6,212 $ 833,785 $ 31,076
Brewpub.............................. -- 124,176 143,064 85,184
---------- --------- ---------- ----------
Total........................ $ 10,172 $ 130,388 $ 976,849 $ 116,260
========== ========= ========== ==========
</TABLE>
Identifiable property and equipment, net:
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
Brewery.................................................... $ 751,167 $ 815,351
Brewpub.................................................... 656,328 695,200
---------- ----------
Total............................................ $ 1,407,495 $1,510,551
========== ==========
</TABLE>
- ---------------
(1) Includes equipment acquired under capital lease obligation with a related
party (see Note 7). For the four months ended April 30, 1996, the brewery
returned certain capital lease equipment totaling $20,758. Accordingly,
such returns are excluded from brewery capital expenditures.
F-75
<PAGE> 133
ORANGE EMPIRE BREWING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- SUBSEQUENT EVENTS
Exchange Agreement With BWI
On September , 1996, the Company entered into a stock-for-stock exchange
with Beverage Works, Inc., a California corporation. Pursuant to the Exchange
Agreement, BWI is to issue 247,479 shares of its common stock, subject to
adjustment (based on the change in net assets of the Company, as defined), in
exchange for all of the outstanding shares of the Company. In addition, up to
130,000 additional shares of BWI common stock may be issued, if the Company
reaches certain production levels, as defined. Pursuant to the Exchange
Agreement , the exchange is to occur concurrently with the consummation (the
"Closing Date") of the BWI IPO. If for any reason the IPO does not occur on or
before March 31, 1997 or the IPO does not raise in the aggregate $6,000,000,
either party may unilaterally terminate the Exchange Agreement.
Should such additional shares of BWI common stock be issued, the value of
such shares will be deemed additional purchase consideration.
Management Agreements
In connection with the Exchange Agreement, the Company will enter into a
management agreement (The "Management Agreement") with certain stockholders
whereby the stockholders are to manage and operate the brewpub operations of the
Company from the Closing Date through December 31, 1998. As compensation for
such services, the stockholders are to receive 10,000 shares of BWI common
stock. Such shares are to be issued on a pro rata basis over the term of the
Management Agreement. In addition, the stockholders are obligated to the Company
for quarterly cash flow deficits, if any, as defined, during the term of the
Management Agreement. The Management Agreement can be terminated by mutual
written consent or in the event of a breach, as defined.
In connection with the Exchange Agreement on June 10, 1996, the Company
entered into a management agreement with BWI, whereby BWI will manage and
operate the Company. As compensation for the management services provided, BWI
is to receive $6,500 per month, plus reimbursement of expenses, as defined. The
agreement terminates upon consummation of the BWI IPO.
Capital Lease Agreement Amendment
In connection with the Exchange Agreement and concurrent with the Closing
Date, the related party is required to enter into an agreement with the Company
to modify the existing terms of the capital lease obligation (see Note 7). The
modifications to the capital lease obligation include a reduction in the
effective interest rate to 12%, a provision that all such leased equipment may
be purchased by the Company for $1 upon expiration of the lease, the extension
of such lease by that number of months which is equal to the number of months
the lease is in arrears through December 31, 1995, the forgiveness of any lease
payment that the lessor was to receive for the period January 1, 1996 through
September 30, 1996 (which payments total $140,488, unaudited), and the repayment
of deferred lease payments, if any, for the period October 1, 1996 to December
31, 1996 from net proceeds expected to be received from the IPO.
Note Payable to Bank
As discussed in Note 6, the Company refinanced certain notes payable to a
bank and to certain stockholders aggregating approximately $545,000 (unaudited)
(the "Note"). In connection with the Exchange Agreement and concurrent with the
Closing Date, the Company is required to obtain the agreement of such
stockholders and the bank to amend and modify the Note to have two notes. The
stockholders will assume a note totaling $220,941 without further obligation of
the Company, and the remaining principal balance of the Note (which approximates
$324,128 at May 10, 1996, unaudited), will be paid to the bank by the Company.
In consideration for assuming a portion of the Company's debt obligations, the
stockholders will
F-76
<PAGE> 134
ORANGE EMPIRE BREWING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
be issued 27,618 shares of BWI common stock. If on January 1, 1999, the per
share market value of BWI common stock is less than $6.00, BWI will issue to
such stockholders an additional 9,227 shares of BWI common stock.
Notes Payable To Stockholders
At April 30, 1996, the Company has $644,000 (unaudited) of indebtedness due
to certain related parties (consisting of $603,525 (unaudited) in principal and
$40,475 (unaudited) in accrued interest -- Note 6). Upon the consummation of the
IPO, such indebtedness is to be satisfied as follows: (1) $301,000 is to be paid
in cash, and (2) $343,000 is to be refinanced with a new non-interest bearing
promissory note which will mature in 90 days, payable in cash and/or up to
24,125 shares of BWI stock and/or up to 50,000 warrants to purchase shares of
BWI stock at an exercise price of $5.00 per share, based on a formula, as
defined.
Stockholder Advances
In connection with the Exchange Agreement, BWI agreed to use up to $150,000
of the proceeds from the IPO to repay advances made by one stockholder of the
Company during the period May 1, 1996 through the Closing Date, including
deferred lease payments as discussed above.
Agreements Not to Compete
In connection with the Exchange Agreement and concurrent with the Closing
Date, BWI has agreed to enter into agreements-not-to-compete with certain
stockholders of the Company for a period of three years in specified
territories. Management will ascribe no value to the agreements as management
believes that such agreements are not a material component to the Exchange
Agreement.
F-77
<PAGE> 135
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING HEREIN CONTAINED, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO BUY
ANY SECURITY OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES, OR AN
OFFER TO OR SOLICITATION OF ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER
OF SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE FACTS HEREIN SET FORTH SINCE THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 6
Capitalization......................... 12
Dilution............................... 13
Use of Proceeds........................ 14
Selected Financial Data................ 15
Management's Discussion and Analysis... 18
Business............................... 26
Management............................. 41
Principal Stockholders................. 47
Description of Securities.............. 48
Underwriting........................... 51
Legal Matters.......................... 52
Experts................................ 53
Additional Information................. 53
Index to Financial Statements.......... F-1
</TABLE>
------------------------
UNTIL , 1996 ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,000,000 UNITS
EACH UNIT CONSISTING OF
ONE SHARE OF COMMON STOCK
(NO PAR VALUE)
AND ONE CLASS A WARRANT
BEVERAGE WORKS, INC.
------------------------------
PROSPECTUS
------------------------------
STATE CAPITAL MARKETS CORP.
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 136
ALTERNATE PAGE
SUBJECTION TO COMPLETION DATED , 1996
PROSPECTUS
BEVERAGE WORKS, INC.
520,745 SHARES OF COMMON STOCK
This Prospectus relates to the Offering (the "Offering") by certain selling
securityholders (the "Selling Shareholders") of 520,745 shares of Common Stock,
no par value, (the "Shares") of Beverage Works, Inc., a California corporation
(the "Company"). The Shares offered hereby may be sold from time to time by the
Selling Shareholders, or by transferees, on or after the date of this
Prospectus, subject to contractual restrictions which provide that such
securities may not be sold for a period of thirteen months after the closing of
the Company Offering (defined below) without the prior written consent of State
Capital Markets Corp. as representative of the several underwriters of the
Company Offering (the "Representatives"). See "Risk Factors -- Shares Available
for Future Sale," "Description of Securities" and "Common Stock."
No underwriting arrangements have been entered into by the Selling
Shareholders. The distribution of the Shares by the Selling Shareholders may be
effected from time to time in transactions on the Nasdaq Small Cap Market
System, in negotiated transactions, through the writing of options on the
Shares, or a combination of such methods of sale, at fixed prices that may be
changed, at market prices prevailing at the time of sale, at prices related to
such prevailing market prices, or at negotiated prices. The Selling Shareholders
may effect such transactions by the sale of the Shares to or through
broker-dealers, and such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Shareholders and/or the
purchasers of the Shares for whom such broker-dealers may act as agent or to
whom they may sell as principal, or both. Usual and customary or specifically
negotiated brokerage fees or commissions may be paid by the Selling Shareholders
in connection with sales of the Shares.
The Selling Shareholders and intermediaries through whom the Shares are
sold may be deemed "underwriters" within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), with respect to the securities offered
and any profits realized or commissions received may be deemed underwriting
compensation. The Company will not receive any proceeds from sales of the
Shares.
A registration statement under the Securities Act has been filed with the
Securities and Exchange Commission with respect to an underwritten public
offering on behalf of the Company of 1,000,000 Units, each Unit consisting of
one share of Common Stock and one Class A Warrant, which are immediately
separate upon trading, plus up to 150,000 Units which may be offered by the
Company pursuant to the exercise of the Underwriters' over-allotment option (the
"Company Offering"). The registration statement also includes 3,000,000 Class A
Warrants and the Shares of Common Stock underlying the Class A Warrants and
35,000 Class B Warrants and the shares of Common Stock underlying the Class B
Warrants which are being offered by other selling securityholders. See
"Concurrent Sales By Company and Selling Securityholders."
THESE SECURITIES 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
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 137
ALTERNATE PAGE
THE OFFERING
Securities Offered......... 520,745 shares of Common Stock, no par value. See
"Risk Factors-Shares Available for Future Sale" and
"Description of Securities." No underwriting
arrangements have been entered into by the Selling
Shareholder.
Common Stock Outstanding
after the Company
Offering(1)(2)........... 3,767,085 shares
Shares of Common Stock to
be Outstanding After this
Offering(1)(2)........... 3,767,085 shares
Use of Proceeds............ The Company will not receive any proceeds from the
sale of the Shares. See "Use of Proceeds."
Trading Symbol............. The Common Stock is traded on the Nasdaq Small Cap
Market under the symbol .
- ---------------
(1) Does not include (i) 4,150,000 shares of Common Stock issuable at $8.25 per
share upon exercise of the 1,000,000 Class A Warrants offered by the Company
in its initial public offering, plus 150,000 Class A Warrants which may be
offered pursuant to the underwriter's over-allotment option, and the
3,000,000 Class A Warrants which are part of this offering, (ii) 2,433,500
shares of Common Stock issuable upon exercise of outstanding options granted
under the Company's stock option plans, (iii) 35,000 shares of Common Stock
issuable at $4.75 per share upon exercise of the Class B Warrants, (iv) the
200,000 shares of Common Stock upon exercise of the Representative's Unit
Purchase Option and Underwriter's Warrants and (v) 80,583 shares of Common
Stock issuable upon exercise of other outstanding options and warrants. Does
not include 150,000 shares issuable upon exercise of the underwriters'
overallotment option.
(2) Includes 309,222 shares of Common Stock as follows: 247,479 shares of Common
Stock which are to be issued to the Riverside shareholders in accordance
with the Share Exchange Agreement, 51,743 shares of Common Stock to be
issued to the Riverside debtholders in accordance with the Debt Exchange
Agreement, and 10,000 shares of Common Stock to the Riverside brewpub
managers pursuant to the Brewpub Management Agreement.
<PAGE> 138
ALTERNATE PAGE
SELLING SECURITYHOLDERS
A registration statement under the Securities Act of 1933, as amended (the
"Act"), has been filed by the Company with the Securities and Exchange
Commission with respect to an underwritten public offering by the Company of
1,000,000 Units, each Unit consisting of one share of Common Stock and one Class
A Warrant, plus 150,000 shares which may be offered pursuant to exercise of the
Underwriters' over-allotment option. Concurrent sales of securities by the
Company, the Selling Securityholders and the Class A Warrantholders would likely
have an adverse effect on the market price of the Common Stock. The Shares are
subject to contractual restrictions upon resale with the representative of the
Underwriters. See "Risk Factors -- Shares Available for Future Sale" and
"Description of Securities."
<PAGE> 139
ALTERNATE PAGE
SELLING SHAREHOLDERS
The following table sets forth the name of each person who is a Selling
Shareholder, the number of Shares and other shares of Common Stock beneficially
owned by each Selling Shareholder's account and the number of shares of Common
Stock such Shareholder will own after the completion of this Offering assuming
all Shares are sold. Unless otherwise indicated, all beneficial ownership
consists solely of Shares. Certain of the listed persons currently have or have
had a position, office or other material relationship with the Company or any
predecessor in the past three years. See "Management." For each Selling
Shareholder, the figure in each column represents number and percentage
ownership of the total number of shares of Common Stock owned.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
------------------------ ------------------------
NAME SHARES PERCENTAGE SHARES PERCENTAGE
- ------------------------------------------ ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Kathleen Burke(1)......................... 62,758 2.55% 58,758 1.56%
c/o Beverage Works, Inc.
2431 West Coast Highway Suite 204
Newport Beach, CA 92663
Stefdan, Ltd.(2).......................... 33,000 1.34% 0 0
c/o Steven M. Scarano Scarano
& Lipton
333 Earle Ovington Blvd. Suite 102
Mitchell Field, NY 11553
Bob Molinaro.............................. 666 <1% 0 0
1854 Pt. Taggart
Newport Beach, CA 92660
Kevin McCarthy............................ 4,000 <1% 0 0
209 John Street
Manhattan Beach, CA 90266
Jack Stoner(3)............................ 13,598 <1% 0 0
8716 Frontera Avenue
Yucca Valley, CA 92284
John & Terri Langhans..................... 14,691 <1% 10,289 <1%
5712 Horsham Ave
Westminster, CA 92683
Hecht & Steckman, P.C.(4)................. 14,000 <1% 0 0
Attn: Charles J. Hecht, Esq.
60 East 42nd Street, Suite 5101
New York, NY 10165
Patrick H. Miller and(5).................. 100,000 4.07% 0 0
Lee M. Miller
1300 W. Garmon Road, NW
Atlanta, GA 30327
Gerald T. Cochran......................... 100,000 4.07% 0 0
400 Horton Road,
SW Rainsville, AL 35986
Robert H. Mudd, Jr........................ 10,000 <1% 0 0
6108 Sturbridge Drive
Mobile, AL 36609
</TABLE>
<PAGE> 140
ALTERNATE PAGE
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
NAME SHARES PERCENTAGE SHARES PERCENTAGE
- ------------------------------------------ --------- --- --------- ---
<S> <C> <C> <C> <C>
M Co., a partnership...................... 10,000 <1% 0 0
c/o Robert H. Mudd, Jr.
P.O. Box 1248
Mobile, AL 36633
Larry Murk................................ 20,000 <1% 0 0
607 Palmer Avenue
Maywood, NJ 07607
Johann Vets(6)............................ 99,996 4.06% 6,250 <1%
39 Graaf de Granvellelaan
2650 Edegem Belgium
Douglas Barat............................. 10,000 <1% 0 0
317 Richmond Avenue
Massapequa, NY 11758-3232
William Hess, Jr.......................... 10,000 <1% 0 0
P.O. Box 15856
Asheville, NC 28813
Marcel Aronheim........................... 20,000 <1% 0 0
419 101st Street, Apt. 2C
Brooklyn, NY 11209
Gary S. and M. Cristina Leske............. 5,000 <1% 0 0
165 Old Field Road
Setauket, NY 11733
Robert Deutsch............................ 10,000 <1% 0 0
8820 Millbrook Road
Newark, IL 60541
A.C. Brown................................ 10,000 <1% 0 0
406 N. Lee Street
Alexandria, VA 22314-2302
Kimberly A. Stoner(7)..................... 3,333 <1% 0 0
6549 E. Camino Vista, #3
Anaheim, CA 92807
Michael Pizitz............................ 7,500 <1% 0 0
2140 11th Avenue South,
Suite 318
Birmingham, AL 35205
Richard Pizitz............................ 7,500 <1% 0 0
Hidden Dunes, #1901
9815 Highway 98 West
Destin, FL 32541
W.E. Stephens, Jr......................... 10,000 <1% 0 0
13214 Allysum Ct.
Cypress, TX 77429
Guy Schebowitz............................ 20,000 <1% 0 0
931 East 77th, 2nd Flr
Brooklyn, NY 11236
</TABLE>
<PAGE> 141
ALTERNATE PAGE
- ---------------
(1) Ms. Burke is Vice President of Sales of the Company. In addition to 4,000
Shares offered hereby, beneficial ownership includes 58,758 shares of Common
Stock.
(2) Stefdan, Ltd. is a wholly-owned company of Steven Scarano, a director of the
Company. In addition to 33,000 Shares offered hereby, beneficial ownership
includes 50,000 Class A Warrants.
(3) Mr. Stoner is the father of John Stoner, a director and the Vice President
of New Breweries. In addition to 2,000 Shares offered hereby, beneficial
ownership includes 11,598 shares of Common Stock.
(4) Hecht & Steckman, P.C. is Company counsel. In addition to 14,000 Shares
offered hereby, beneficial ownership includes 15,583 Class C Warrants.
(5) In addition to 100,000 Shares offered hereby, beneficial ownership includes
100,000 Class A Warrants.
(6) In addition to 93,746 Shares offered hereby, beneficial ownership includes
6,250 shares in the name of Group Nollett Vets, of which Mr. Vets is a
principal.
(7) Ms. Stoner is the wife of John Stoner, a director and Vice President of New
Breweries.
<PAGE> 142
ALTERNATE PAGE
LOCK-UP ARRANGEMENTS
The Selling Shareholders have agreed, prior to the closing of the Company
Offering, that they will not publicly sell, offer to sell, contract to offer to
sell, transfer, assign or pledge any of the Shares which are being registered on
their behalf by the Registration Statement of which this Prospectus forms a
part, for a period of thirteen months from the closing of the Company Offering
without the prior written consent of State Capital Markets Corp., as
representative of the several Underwriters. See "Risk Factors -- Shares
Available for Future Sale" and "Description of Securities."
PLAN OF DISTRIBUTION
The distribution of the Shares by the Selling Shareholders may be effected
from time to time in transactions on Nasdaq, in negotiated transactions, through
the writing of options on the Shares, or a combination of such methods of sale,
at fixed prices that may be changed, at market prices prevailing at the time of
the sale, at prices related to such prevailing market prices, or at negotiated
prices. The Selling Shareholders may effect such transactions by the sale of the
Shares to or through broker-dealers, and such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Selling Shareholders and/or the purchasers of the Shares for whom such
broker-dealers may act as agent or to whom they may sell as principal, or both.
Usual and customary or specifically negotiated brokerage fees or commissions may
be paid by the Selling Shareholders in connection with sales of the Shares. No
underwriting arrangements have been entered into by the Selling Shareholders.
The Selling Shareholders and intermediaries through whom the Shares are sold may
be deemed "underwriters" within the meaning of the Securities Act with respect
to the securities offered and any profits realized or commissions received may
be deemed underwriting compensation.
<PAGE> 143
ALTERNATE PAGE
SUBJECTION TO COMPLETION DATED , 1996
PROSPECTUS
BEVERAGE WORKS, INC.
3,000,000 ISSUED CLASS A WARRANTS AND
3,000,000 SHARES OF COMMON STOCK ISSUABLE
UPON EXERCISE OF ISSUED CLASS A WARRANTS
This Prospectus relates to the Offering (the "Offering") by certain selling
securityholders (the "Issued Class A Warrantholders") of 3,000,000 Issued Class
A Warrants and 3,000,000 shares of Common Stock, no par value, (the "Common
Stock") of Beverage Works, Inc., a California corporation (the "Company"),
purchasable upon exercise of the Issued Class A Warrants (the "Issued Class A
Warrants and Issued Class A Warrant Shares"). The Issued Class A Warrants and
Issued Class A Warrant Shares offered hereby may be sold from time to time by
the Issued Class A Warrantholders, or by transferees, on or after the date of
this Prospectus, subject to contractual restrictions which provide that such
securities may not be sold for a period of thirteen months after the closing of
the Company Offering (defined below) without the prior written consent of State
Capital Markets Corp. as representative of the several underwriters of the
Company Offering (the "Representatives"). See "Risk Factors -- Shares Available
for Future Sale," "Description of Securities" and "Issued Class A
Warrantholders."
No underwriting arrangements have been entered into by the Issued Class A
Warrantholders. The distribution of the Issued Class A Warrants and Issued Class
A Warrant Shares by the Issued Class A Warrantholders may be effected from time
to time in transactions on the Nasdaq Small Cap Market System, in negotiated
transactions, through the writing of options on the Issued Class A Warrants and
Issued Class A Warrant Shares, or a combination of such methods of sale, at
fixed prices that may be changed, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices, or at negotiated
prices. The Issued Class A Warrantholders may effect such transactions by the
sale of the Issued Class A Warrants and Issued Class A Warrant Shares to or
through broker-dealers, and such broker-dealers may receive compensation in the
form of discounts, concessions or commissions from the Issued Class A
Warrantholders and/or the purchasers of the Issued Class A Warrants and Issued
Class A Warrant Shares for whom such broker-dealers may act as agent or to whom
they may sell as principal, or both. Usual and customary or specifically
negotiated brokerage fees or commissions may be paid by the Issued Class A
Warrantholders in connection with sales of the Issued Class A Warrants and
Issued Class A Warrant Shares.
The Issued Class A Warrantholders and intermediaries through whom the
Issued Class A Warrants and Issued Class A Warrant Shares are sold may be deemed
"underwriters" within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the securities offered and any profits
realized or commissions received may be deemed underwriting compensation. Other
than the exercise price payable upon exercise of the Issued Class A Warrants,
the Company will not receive any proceeds from sales of the Issued Class A
Warrants and Issued Class A Warrant Shares. See "Issued Class A Warrantholders."
A registration statement under the Securities Act has been filed with the
Securities and Exchange Commission with respect to an underwritten public
offering on behalf of the Company of 1,000,000 Units, each Unit consisting of
one share of Common Stock and one Issued Class A Warrant, which are immediately
separable upon trading, plus up to 150,000 Units which may be offered by the
Company pursuant to the exercise of the Underwriters' over-allotment option (the
"Company Offering"). The registration statement also includes 520,745 shares of
Common Stock, 35,000 Class B Warrants and the shares of Common Stock underlying
the Class B Warrants which are being offered by other selling securityholders.
See "Concurrent Sales By Company and Selling Securityholders."
THESE SECURITIES 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 ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 144
ALTERNATE PAGE
THE OFFERING
<TABLE>
<S> <C>
Securities Offered.......................... 3,000,000 Issued Class A Warrants and
3,000,000 shares of Common Stock, no par
value, issuable upon exercise of the
outstanding Issued Class A Warrants (the
"Issued Class A Warrants and Issued Class A
Warrant Shares"). See "Description of
Securities," "Risk Factors -- Shares
Available for Future Sale" and "Description
of Securities." No underwriting arrangements
have been entered into by the Issued Class A
Warrantholders. See "Issued Class A
Warrantholders."
Class A Warrants Outstanding after the 4,000,000 Class A Warrants
Company Offering(1).......................
Class A Warrants to be Outstanding After 4,000,000 Class A Warrants
this Offering(1)..........................
Use of Proceeds............................. Other than the exercise price payable upon
exercise of the Issued Class A Warrants, the
Company will not receive any proceeds from
the sale of the Issued Class A Warrants and
Issued Class A Warrant Shares. Because the
Company is unable to predict the time at
which such Warrants will be exercised, if
ever, the Company has not allocated the
proceeds to any particular purpose. See "Use
of Proceeds."
Trading Symbol.............................. The Common Stock is traded on the Nasdaq
Small Cap Market under the symbol . The
Issued Class A Warrants are traded on the
Nasdaq Small Cap Market under the symbol
.
</TABLE>
- ---------------
(1) Includes 1,000,000 Class A Warrants offered in the Company Offering, but
excludes 150,000 Class A Warrants which may be offered pursuant to the
underwriter's over-allotment option. Does not include the 100,000
Representative's Warrants upon exercise of the Representative's Unit
Purchase Option. The Underwriter's Warrants are identical to the Class
Warrants except that the Underwriter's Warrants are not redeemable.
<PAGE> 145
ALTERNATE PAGE
SELLING SECURITY STOCKHOLDERS
A registration statement under the Securities Act of 1933, as amended (the
"Act"), has been filed by the Company with the Securities and Exchange
Commission with respect to an underwritten public offering by the Company of
1,000,000 Units, each Unit consisting of one share of Common Stock and one Class
A Warrant, plus 150,000 shares which may be offered pursuant to exercise of the
Underwriters' over-allotment option. Concurrent sales of securities by the
Company, the Selling Securityholders and the Issued Class A Warrantholders would
likely have an adverse effect on the market price of the Common Stock and Issued
Class A Warrants. The Issued Class A Warrants and Issued Class A Warrant Shares
are subject to contractual restrictions upon resale with the representative of
the several Underwriters. See "Risk Factors -- Shares Available for Future
Sale," "Description of Securities" and "Issued Class A Warrantholders."
<PAGE> 146
ALTERNATE PAGE
ISSUED CLASS A WARRANTHOLDERS
The following table sets forth the name of each person who is an Issued
Class A Warrantholder, the number of Issued Class A Warrants and Issued Class A
Warrant Shares and other shares of Common Stock beneficially owned by each
Issued Class A Warrantholder's account and the number of Issued Class A Warrants
and Issued Class A Warrant Shares such Issued Class A Warrantholder will own
after the completion of this Offering assuming all Issued Class A Warrants are
sold. Unless otherwise indicated, all beneficial ownership consists solely of
Issued Class A Warrants and Issued Class A Warrant Shares. The percentage
figures are after the Company Offering excluding the underwriters' overallotment
option. Certain of the listed persons currently has or has had a position,
office or other material relationship with the Company or any predecessor in the
past three years as described in the footnotes. See "Management."
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
-------------------------- --------------------------
ISSUED ISSUED
CLASS A CLASS A
NAME WARRANTS PERCENTAGE WARRANTS PERCENTAGE
- --------------------------------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Imafina, S.A.(1)....................... 2,710,000 67.8% 0 0%
c/o Mr. Hubert Hendrickx
Administrateur Delegue
4, Route de Beaumont
1700 Fribourg CH
Switzerland
Stefdan, Ltd.(2)....................... 50,000 1.3% 0 0%
c/o Steven M. Scarano
Scarano & Lipton
333 Earle Ovington Blvd.,
Suite 102
Mitchell Field, NY 11553
Robert E. Reale(3)..................... 65,000 1.6% 0 0%
6501 5th Avenue
Brooklyn, NY 11220
Robert F. Reale(4)..................... 29,250 <1% 0 0%
7312 Ridge Blvd.
Brooklyn, NY 11209
Bradley W. Kabbash(5).................. 32,500 <1% 0 0%
52 Thunder Mountain Road
Greenwich, CT 06831
Lord Charles Spencer-Churchill(6)...... 10,000 <1% 0 0%
91 Eaton Terrace
London SW1Y4W, England
Winchester Investment Securities(7).... 3,250 <1% 0 0%
c/o Alan Miller
7007 College Blvd. Suite 260
Overland Park, KS 66209
</TABLE>
<PAGE> 147
ALTERNATE PAGE
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
ISSUED ISSUED
CLASS A CLASS A
NAME WARRANTS PERCENTAGE WARRANTS PERCENTAGE
- --------------------------------------- --------- --- --------- ---
<S> <C> <C> <C> <C>
Patrick & Lee Miller(8)................ 100,000 2.5% 0 0%
1266 W. Paces Ferry Road,
N.W., Suite 457
Atlanta, GA 30327
</TABLE>
- ---------------
(1) Adam Wachtel, a director and controlling shareholder of the Company, is a
director of Imafina, S.A.
(2) Stefdan, Ltd. is a wholly-owned Company of Steven Scarano, a director of the
Company. In addition to 50,000 Issued Class A Warrants and Issued Class A
Warrant Shares offered hereby, beneficial ownership includes 33,000
outstanding shares.
(3) In addition to 65,000 Issued Class A Warrants and Issued Class A Warrant
Shares offered hereby, beneficial ownership includes 78,050 outstanding
shares.
(4) In addition to 29,250 Issued Class A Warrants and Issued Class A Warrant
Shares offered hereby, beneficial ownership includes 34,515 outstanding
shares.
(5) In addition to 32,500 Issued Class A Warrants and Issued Class A Warrant
Shares offered hereby, beneficial ownership includes 38,500 outstanding
shares. Mr. Kabbash was a director of the Company at the time he received
the Issued Class A Warrants, Issued Class A Warrant Shares and these
additional shares.
(6) Lord Spencer-Churchill is a director of the Company. In addition to 10,000
Issued Class A Warrants and Issued Class A Warrant Shares offered hereby,
beneficial ownership includes 5,000 outstanding shares.
(7) In addition to 3,250 Issued Class A Warrants and Issued Class A Warrant
Shares offered hereby, beneficial ownership includes 3,335 outstanding
shares.
(8) In addition to 100,000 Issued Class A Warrants and Issued Class A Warrant
Shares offered hereby, beneficial ownership includes 100,000 outstanding
shares.
<PAGE> 148
ALTERNATE PAGE
LOCK-UP ARRANGEMENTS
The Issued Class A Warrantholders have agreed, prior to the closing of the
Company Offering, that they will not publicly sell, offer to sell, contract to
offer to sell, transfer, assign or pledge any of the Issued Class A Warrants and
Issued Class A Warrant Shares which are being registered on their behalf by the
Registration Statement of which this Prospectus forms a part, for a period of
thirteen months from the closing of the Company Offering without the prior
written consent of State Capital Markets Corp., as representative of the several
Underwriters. See "Risk Factors -- Shares Available for Future Sale,"
"Description of Securities" and "Certain Transactions."
PLAN OF DISTRIBUTION
The distribution of the Issued Class A Warrants and Issued Class A Warrant
Shares by the Issued Class A Warrantholders may be effected from time to time in
transactions on Nasdaq, in negotiated transactions, through the writing of
options on the Issued Class A Warrants and Issued Class A Warrant Shares, or a
combination of such methods of sale, at fixed prices that may be changed, at
market prices prevailing at the time of the sale, at prices related to such
prevailing market prices, or at negotiated prices. The Issued Class A
Warrantholders may effect such transactions by the sale of the Issued Class A
Warrants and Issued Class A Warrant Shares to or through broker-dealers, and
such broker-dealers may receive compensation in the form of discounts,
concessions or commissions from the Issued Class A Warrantholders and/or the
purchasers of the Issued Class A Warrants and Issued Class A Warrant Shares for
whom such broker-dealers may act as agent or to whom they may sell as principal,
or both. Usual and customary or specifically negotiated brokerage fees or
commissions may be paid by the Issued Class A Warrantholders in connection with
sales of the Issued Class A Warrants and Issued Class A Warrant Shares. No
underwriting arrangements have been entered into by the Issued Class A
Warrantholders. The Issued Class A Warrantholders and intermediaries through
whom the Issued Class A Warrants and Issued Class A Warrant Shares are sold may
be deemed "underwriters" within the meaning of the Securities Act with respect
to the securities offered and any profits realized or commissions received may
be deemed underwriting compensation.
<PAGE> 149
ALTERNATE PAGE
SUBJECTION TO COMPLETION DATED , 1996
PROSPECTUS
BEVERAGE WORKS, INC.
35,000 CLASS B WARRANTS AND
35,000 SHARES OF COMMON STOCK ISSUABLE
UPON EXERCISE OF CLASS B WARRANTS
This Prospectus relates to the Offering (the "Offering") by certain selling
securityholders (the "Class B Warrantholders") of 35,000 Class B Warrants and
35,000 shares of Common Stock, no par value, (the "Common Stock") of Beverage
Works, Inc., a California corporation (the "Company"), purchasable upon exercise
of the Class B Warrants (the "Class B Warrants and Class B Warrant Shares"). The
Class B Warrants and Class B Warrant Shares offered hereby may be sold from time
to time by the Class B Warrantholders, or by transferees, on or after the date
of this Prospectus, subject to contractual restrictions which provide that such
securities may not be sold for a period of thirteen months after the closing of
the Company Offering (defined below) without the prior written consent of State
Capital Markets Corp. as representative of the several underwriters of the
Company Offering (the "Representatives"). See "Risk Factors -- Shares Available
for Future Sale," "Description of Securities" and "Class B Warrantholders." No
underwriting arrangements have been entered into by the Class B Warrantholders.
The distribution of the Class B Warrants and Class B Warrant Shares by the Class
B Warrantholders may be effected from time to time in transactions on the Nasdaq
Small Cap Market System, in negotiated transactions, through the writing of
options on the Class B Warrants and Class B Warrant Shares, or a combination of
such methods of sale, at fixed prices that may be changed, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, or at negotiated prices. The Class B Warrantholders may effect such
transactions by the sale of the Class B Warrants and Class B Warrant Shares to
or through broker-dealers, and such broker-dealers may receive compensation in
the form of discounts, concessions or commissions from the Class B
Warrantholders and/or the purchasers of the Class B Warrants and Class B Warrant
Shares for whom such broker-dealers may act as agent or to whom they may sell as
principal, or both. Usual and customary or specifically negotiated brokerage
fees or commissions may be paid by the Class B Warrantholders in connection with
sales of the Class B Warrants and Class B Warrant Shares.
The Class B Warrantholders and intermediaries through whom the Class B
Warrants and Class B Warrant Shares are sold may be deemed "underwriters" within
the meaning of the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the securities offered and any profits realized or commissions
received may be deemed underwriting compensation. Other than the exercise price
payable upon exercise of the Warrants, the Company will not receive any proceeds
from sales of the Class B Warrants and Class B Warrant Shares. See "Class B
Warrantholders." A registration statement under the Securities Act has been
filed with the Securities and Exchange Commission with respect to an
underwritten public offering on behalf of the Company of 1,000,000 Units, each
Unit consisting of one share of Common Stock and one Class A Warrant, which are
immediately separate upon trading, plus up to 150,000 Units which may be offered
by the Company pursuant to the exercise of the Underwriters' over-allotment
option (the "Company Offering"). The registration statement also includes
shares of Common Stock, 300,000 Class A Warrants and the shares of
Common Stock underlying the Class A Warrants which are being offered by other
selling securityholders. See "Concurrent Sales By Company and Selling
Securityholders."
THESE SECURITIES 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 ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 150
ALTERNATE PAGE
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Securities Offered....................... 35,000 Class B Warrants and 35,000 shares of Common
Stock, no par value, issuable upon exercise of the
outstanding Class B Warrants (the "Class B Warrants
and Class A Warrant Shares"). See "Description of
Securities," "Risk Factors-Shares Available for
Future Sale" and "Description of Securities." No
underwriting arrangements have been entered into by
the Class B Warrantholders. See "Class B
Warrantholders."
Class B Warrants Outstanding after the
Company Offering....................... 35,000 Class B Warrants
Class B Warrants to be Outstanding After
this Offering.......................... 35,000 Class B Warrants
Use of Proceeds.......................... Other than the exercise price payable upon exercise
of the Class B Warrants, the Company will not
receive any proceeds from the sale of the Class B
Warrants and Class B Warrant Shares. Because the
Company is unable to predict the time at which such
Warrants will be exercised, if ever, the Company has
not allocated the proceeds to any particular
purpose. See "Use of Proceeds."
Trading Symbol........................... The Common Stock is traded on the Nasdaq Small Cap
Market under the symbol . The Class B
Warrants will not be listed on the Nasdaq.
</TABLE>
<PAGE> 151
ALTERNATE PAGE
SELLING SECURITYHOLDERS
A registration statement under the Securities Act of 1933, as amended (the
"Act"), has been filed by the Company with the Securities and Exchange
Commission with respect to an underwritten public offering by the Company of
1,000,000 Units, each Unit consisting of one share of Common Stock and one Class
A Warrant, plus 150,000 shares which may be offered pursuant to exercise of the
Underwriters' over-allotment option. Concurrent sales of securities by the
Company, and the Selling Securityholders would likely have an adverse effect on
the market price of the Common Stock. The Class B Warrants and Class B Warrant
Shares are subject to contractual restrictions upon resale with the
representative of the several Underwriters. See "Risk Factors -- Shares
Available for Future Sale," "Description of Securities" and "Class B
Warrantholders."
<PAGE> 152
ALTERNATE PAGE
CLASS B WARRANTHOLDERS
The following table sets forth the name of each person who is a Class B
Warrantholder, the number of Class B Warrants and Class B Warrant Shares and
other shares of Common Stock beneficially owned by each Class B Warrantholder's
account and the number of shares of Common Stock such Class B Warrantholder will
own after the completion of this Offering. Unless otherwise indicated, all
beneficial ownership consists solely of Class B Warrants and Class B Warrant
Shares.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
----------------------- -----------------------
CLASS B CLASS B
NAME WARRANTS PERCENTAGE WARRANTS PERCENTAGE
- -------------------------------------------------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Frederik Friedman(1).............................. 35,000 100% 35,000 100%
</TABLE>
- ---------------
(1) Mr. Friedman does not beneficially own any other security of the Company.
<PAGE> 153
ALTERNATE PAGE
LOCK-UP ARRANGEMENTS
The Class B Warrantholder has agreed, prior to the closing of the Company
Offering, that he will not publicly sell, offer to sell, contract to offer to
sell, transfer, assign or pledge any of the Class B Warrants and Class B Warrant
Shares which are being registered on his behalf by the Registration Statement of
which this Prospectus forms a part, for a period of thirteen months from the
closing of the Company Offering without the prior written consent of State
Capital Markets Corp., as representative of the several Underwriters. See "Risk
Factors -- Shares Available for Future Sale," "Description of Securities" and
"Certain Transactions."
PLAN OF DISTRIBUTION
The distribution of the Class B Warrants and Class B Warrant Shares by the
Class B Warrantholders may be effected from time to time in transactions on
Nasdaq, for the Class B Warrant Shares in negotiated transactions, through the
writing of options on the Class B Warrants and Class B Warrant Shares, or a
combination of such methods of sale, at fixed prices that may be changed, at
market prices prevailing at the time of the sale, at prices related to such
prevailing market prices, or at negotiated prices. The Class B Warrantholders
may effect such transactions by the sale of the Class B Warrants and Class B
Warrant Shares to or through broker-dealers, and such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the Class
B Warrantholders and/or the purchasers of the Class B Warrants and Class B
Warrant Shares for whom such broker-dealers may act as agent or to whom they may
sell as principal, or both. Usual and customary or specifically negotiated
brokerage fees or commissions may be paid by the Class B Warrantholders in
connection with sales of the Class B Warrants and Class B Warrant Shares. No
underwriting arrangements have been entered into by the Class B Warrantholders.
The Class B Warrantholders and intermediaries through whom the Class A Warrants
and Class A Warrant Shares are sold may be deemed "underwriters" within the
meaning of the Securities Act with respect to the securities offered and any
profits realized or commissions received may be deemed underwriting
compensation.
<PAGE> 154
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
CALIFORNIA STATUTES
Section 317 of the California General Corporation Law, as amended, provides
for the indemnification of the Company's officers, directors, employees and
agents under certain circumstances as follows:
(a) For the purposes of this section, "agent" means any person who is
or was a director, officer, employee or other agent of corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another foreign or domestic corporation, partnership,
joint venture, trust or other enterprise, or was a director, officer,
employee or agent of a foreign or domestic corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of the predecessor corporation; "proceeding" means any threatened,
pending or completed action or proceeding, whether civil, criminal,
administrative or investigative; and "expenses" includes without limitation
attorneys' fees and any expenses of establishing a right to indemnification
under subdivision (d) or paragraph (4) of subdivision (e).
(b) A corporation shall have power to indemnify any person who was or
is a party or is threatened to be made a party to any proceeding (other
than an action by or in the right of the corporation to procure a judgment
in its favor) by reason of the fact that the person is or was an agent of
the corporation, against expenses, judgments, fines, settlements, and other
amounts actually and reasonably incurred in connection with the proceeding
if that person acted in good faith and in a manner the person reasonably
believed to be in the best interests of the corporation and, in the case of
a criminal proceeding, had no reasonable cause to believe the conduct of
the person was unlawful. The termination of any proceeding by judgment,
order, settlement, conviction, or upon a please of nolo contendere or its
equivalent shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed
to be in the best interests of the corporation or that the person had
reasonable cause to believe that the person's conduct was unlawful.
(c) A corporation shall have power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending,
or completed action by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was an
agent of the corporation, against expenses actually and reasonably incurred
by that person in connection with the defense or settlement of the action
if the person acted in good faith, in a manner the person believed to be in
the best interests of the corporation and its shareholders.
No indemnification shall be made under this subdivision for any of the
following:
(1) In respect of any claim, issue or matter as to which the person
shall have been adjudged to be liable to the corporation in the
performance of that person's duty to the corporation and its
shareholders, unless and only to the extent that the court in which the
proceeding is or was pending shall determine upon application that, in
view of all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for expenses and then only to the
extent that the court shall determine.
(2) Of amounts paid in settling or otherwise disposing of a pending
action without court approval.
(3) Of expenses incurred in defending a pending action which is
settled or otherwise disposed of without court approval.
(d) To the extent that an agent of a corporation has been successful
on the merits in defense of any proceeding referred to in subdivision (b)
or (c) or in defense of any claim, issue, or matter therein, the
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agent shall be indemnified against expenses actually and reasonably
incurred by the agent in connection therewith.
(e) Except as provided in subdivision (d), any indemnification under
this section shall be made by the corporation only if authorized in the
specific case, upon a determination that indemnification of the agent is
proper in the circumstances because the agent has met the applicable
standard of conduct set forth in subdivision (b) or (c), by any of the
following:
(1) A majority vote of a quorum consisting of directors who are not
parties to such proceeding.
(2) If such a quorum of directors is not obtainable, by independent
legal counsel in a written opinion.
(3) Approval of the shareholders (Section 153), with the shares
owned by the person to be indemnified not being entitled to vote
thereon.
(4) The court in which the proceeding is or was pending upon
application made by the corporation or the agent or the attorney or
other person rendering services in connection with the defense, whether
or not the application by the agent, attorney or other person is opposed
by the corporation.
(f) Expenses incurred in defending any proceeding may be advanced by
the corporation prior to the final disposition of the proceeding upon
receipt of an undertaking by or on behalf of the agent to repay that amount
if it shall be determined ultimately that the agent is not entitled to be
indemnified as authorized in this section. The provisions of subdivision
(a) of Section 315 do not apply to advances made pursuant to this
subdivision.
(g) The indemnification authorized by this section shall not be deemed
exclusive of any additional rights to indemnification for breach of duty to
the corporation and its shareholders while acting in the capacity of a
director or officer of the corporation to the extent the additional rights
to indemnification are authorized in an article provision adopted pursuant
to paragraph (11) of subdivision (1) of Section 204. The indemnification
provided by this section for acts, omissions, or transactions while acting
in the capacity of, or while serving as, a director or officer of the
corporation but not involving breach of duty to the corporation and its
shareholders shall not be deemed exclusive of any other rights to which
those seeking indemnification may be entitled under any by-law, agreement,
vote of shareholders or disinterested directors, or otherwise, to the
extent the additional rights to indemnification are authorized in the
articles of the corporation. An article provision authorizing
indemnification "in excess of that otherwise permitted by Section 317" or
"to the fullest extent permissible under California law" or the substantial
equivalent thereof shall be construed to be both a provision for additional
indemnification for breach of duty to the corporation and its shareholders
as referred to in, and with the limitations required by, paragraph (11) of
subdivision (a) of Section 204 and a provision for additional
indemnification as referred to in the second sentence of this subdivision.
The rights to indemnity hereunder shall continue as to a person who has
ceased to be a director, officer, employee, or agent and shall inure to the
benefit of the heirs, executors, and administrators of the person. Nothing
contained in this section shall affect any right to indemnification to
which persons other than the directors and officers may be entitled by
contract or otherwise.
(h) No indemnification or advance shall be made under this section,
except as provided in subdivision (d) or paragraph (4) of subdivision (e),
in any circumstance where it appears:
(1) That it would be inconsistent with a provision of the articles,
by-laws, a resolution of the shareholders, or an agreement in effect at
the time of the accrual of the alleged cause of action asserted in the
proceeding in which the expenses were incurred or other amounts were
paid, which prohibits or otherwise limits indemnification.
(2) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
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(i) A corporation shall have power to purchase and maintain
insurance on behalf of any agent of the corporation against any
liability asserted against or incurred by the agent in that capacity
or arising out of the agent's status as such whether or not the
corporation would have the power to indemnify the agent against that
liability under this section. The fact that a corporation owns all or
a portion of the shares of the company issuing a policy of insurance
shall not render this subdivision inapplicable if either of the
following conditions are satisfied: (1) if the articles authorize
indemnification in excess of that authorized in this section and the
insurance provided by this subdivision is limited as indemnification
is required to be limited by paragraph (11) of subdivision (1) of
Section 204; or (2)(A) the company issuing the insurance policy is
organized, licensed, and operated in a manner that complies with the
insurance laws and regulations applicable to its jurisdiction of
organization, (B) the company issuing the policy provides procedures
for processing claims that do not permit that company to be subject
to the direct control of the corporation that purchased that policy,
and (C) the policy issued provides for some manner of risk sharing
between the issuer and purchaser of the policy, on one hand, and some
unaffiliated person or persons, on the other, such as by providing
for more than one unaffiliated owner of the company issuing the
policy or by providing that a portion of the coverage furnished will
be obtained from some unaffiliated insurer or reinsurer.
(j) This section does not apply to any proceeding against any trustee,
investment manager, or other fiduciary of an employee benefit plan in that
person's capacity as such, even though the person may also be an agent as
defined in subdivision (a) of the employer corporation. A corporation shall
have power to indemnify such a trustee, investment manager, or other
fiduciary to the extent permitted by subdivision (f) of Section 207.
ARTICLES OF INCORPORATION
The Company's Articles of Incorporation provides for the indemnification of
the Company's directors under certain circumstances as follows:
PART IV
LIMITATION OF LIABILITY
The liability of the directors of this corporation for monetary
damages shall be eliminated to the fullest extent permissible under
California law.
PART V
INDEMNIFICATION OF AGENTS
This corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the Corporations Code) for breach of duty to
the corporation and its stockholders through bylaw provisions or through
agreements with the agents, or both, in excess of the indemnification
otherwise permitted by Section 317 of the Corporations Code, subject to the
limits on such excess indemnification set forth in Section 204 the
Corporations Code.
BY-LAWS
The Company's By-Laws provide for the indemnification of the Company's
directors, officers, employees, or agents under certain circumstances as
follows:
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ARTICLE VI
INDEMNIFICATION OF
DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS
SECTION 1. AGENTS, PROCEEDINGS, AND EXPENSES.
For the purposes of this Article, "agent" means any person who is or
was a director, officer, employee, or other agent of this corporation, or
who is or was serving at the request of this corporation as a director,
officer, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise, or who was a
director, officer, employee, or agent of a foreign or domestic corporation
that was a predecessor corporation of this corporation or of another
enterprise at the request of such predecessor corporation; "proceeding"
means any threatened, pending, or completed action or proceeding, whether
civil, criminal, administrative, or investigative; and "expenses" includes,
without limitation, attorney fees and any expenses of establishing a right
to indemnification under Section 4 or Section 5(d) of this Article VI.
SECTION 2. ACTIONS OTHER THAN BY THE CORPORATION.
This corporation shall have the power to indemnify any person who was
or is a party, or is threatened to be made a party, to any proceeding
(other than an action by or in the right of this corporation to procure a
judgment in its favor) by reason of the fact that such person is or was an
agent of this corporation, against expenses, judgments, fines, settlements,
and other amounts actually and reasonably incurred in connection with such
proceeding if that person acted in good faith and in a manner that the
person reasonably believed to be in the best interests of this corporation
and, in the case of a criminal proceeding, had no reasonable cause to
believe the conduct of that person was unlawful. The termination of any
proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent shall not, of itself, create a
presumption that the person did not act in good faith and in a manner that
the person reasonably believed to be in the best interests of this
corporation or that the person had reasonable cause to believe that the
person's conduct was not unlawful.
SECTION 3. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION.
This corporation shall have the power to indemnify any person who was or is
a party, or is threatened to be made a party, to any threatened, pending, or
completed action by or in the right of this corporation to procure a judgment in
its favor by reason of the fact that such person is or was an agent of this
corporation, against expenses actually and reasonably incurred by such person in
connection with the defense or settlement of that action, if such person acted
in good faith, in a manner such person believed to be in the best interests of
this corporation and its shareholders. No indemnification shall be made under
this Section 3 for the following:
(a) With respect to any claim, issue, or matter on which such
person has been adjudged to be liable to this corporation in the
performance of such person's duty to the corporation and its
shareholders, unless and only to the extent that the court in which such
proceeding is or was pending shall determine on application that, in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for expenses and then only to the
extent that the court shall determine;
(b) Amounts paid in settling or otherwise disposing of a pending
action without court approval; or
(c) Expenses incurred in defending a pending action that is settled
or otherwise disposed of without court approval.
SECTION 4. SUCCESSFUL DEFENSE BY AGENT.
To the extent that an agent of this corporation has been successful on
the merits in defense of any proceeding referred to in Section 2 or 3 of
this Article VI, or in defense of any claim, issue, or matter
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<PAGE> 158
therein, the agent shall be indemnified against expenses actually and
reasonably incurred by the agent in connection therewith.
SECTION 5. REQUIRED APPROVAL.
Except as provided in Section 4 of this Article VI, any indemnification
under this Section shall be made by the corporation only if authorized in the
specific case, after a determination that indemnification of the agent is proper
in the circumstances because the agent has met the applicable standard of
conduct set forth in Section 2 or 3 by one of the following:
(a) A majority vote of a quorum consisting of directors who are not
parties to such proceeding;
(b) Independent legal counsel in a written opinion if a quorum of
directors who are not parties to such a proceeding is not available;
(c) (i) The affirmative vote of a majority of shares of this
corporation entitled to vote represented at a duly held meeting at which
a quorum is present; or
(ii) the written consent of holders of a majority of the
outstanding shares entitled to vote (for purposes of this subsection
5(c), the shares owned by the person to be indemnified shall not be
considered outstanding or entitled to vote thereon); or
(d) The court in which the proceeding is or was pending, on
application made by this corporation or the agent or the attorney or
other person rendering services in connection with the defense, whether
or not such application by the agent, attorney, or other person is
opposed by this corporation.
SECTION 6. ADVANCE OF EXPENSES.
Expenses incurred in defending any proceeding may be advanced by the
corporation before the final disposition of such proceeding on receipt of
an undertaking by or on behalf of the agent to repay such amounts if it
shall be determined ultimately that the agent is not entitled to be
indemnified as authorized in this Article VI.
SECTION 7. OTHER CONTRACTUAL RIGHTS.
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors, or otherwise, both as to action in an official capacity and as
to action in another capacity while holding such office, to the extent such
additional rights to indemnification are authorized in the articles of the
corporation. Nothing in this section shall affect any right to
indemnification to which persons other than such directors and officers may
be entitled by contract or otherwise.
SECTION 8. LIMITATIONS.
No indemnification or advance shall be made under this Article VI,
except as provided in Section 4 or Section 5(d), in any circumstance if it
appears:
(a) That it would be inconsistent with a provision of the articles,
bylaws, a resolution of the shareholders, or an agreement in effect at
the time of the accrual of the alleged cause of action asserted in the
proceeding in which expenses were incurred or other amounts were paid,
which prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly
imposed by a court in approving settlement.
SECTION 9. INSURANCE.
This corporation may purchase and maintain insurance on behalf of any
agent of the corporation insuring against any liability asserted against or
incurred by the agent in that capacity or arising out of the
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agent's status as such, whether or not this corporation would have the
power to indemnify the agent against that liability under the provisions of
this Article VI. Notwithstanding the foregoing, if this corporation owns
all or a portion of the shares of the company issuing the policy of
insurance, the insuring company and/or the policy shall meet the conditions
set forth in section 317(i) of the Corporations Code.
SECTION 10. FIDUCIARIES OF CORPORATE EMPLOYEE BENEFIT PLAN.
This Article VI does not apply to any proceeding against any trustee,
investment manager, or other fiduciary of an employee benefit plan in that
person's capacity as such, even though that person may also be an agent of
the corporation. The corporation shall have the power to indemnify, and to
purchase and maintain insurance on behalf of any such trustee, investment
manager, or other fiduciary of any benefit plan for any or all of the
directors, officers, and employees of the corporation or any of its
subsidiary or affiliated corporations.
SECTION 11. SURVIVAL OF RIGHTS.
The rights provided by this Article VI shall continue for a person who
has ceased to be an agent and shall inure to the benefit of the heirs,
executors, and administrators of such person.
SECTION 12. EFFECT OF AMENDMENT.
Any amendment, repeal, or modification of this Article VI shall not
adversely affect an agent's right or protection existing at the time of
such amendment, repeal, or modification.
SECTION 13. SETTLEMENT OF CLAIMS.
The corporation shall not be liable to indemnify any agent under this
Article VI for (a) any amounts paid in settlement of any action or claim
effected without the corporation's written consent, which consent shall not
be unreasonably withheld, or (b) any judicial award, if the corporation was
not given a reasonable and timely opportunity to participate, at its
expense, in the defense of such action.
SECTION 14. SUBROGATION.
In the event of payment under this Article VI, the corporation shall
be subrogated to the extent of such payment to all of the rights of
recovery of the agent, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the
execution of such documents as may be necessary to enable the corporation
effectively to bring suit to enforce such rights.
SECTION 15. NO DUPLICATION OF PAYMENTS.
The corporation shall not be liable under this Article VI to make any
payment in connection with any claim made against the agent to the extent
the agent has otherwise actually received payment, whether under a policy
of insurance, agreement, vote, or otherwise, of the amounts otherwise
indemnifiable under this Article.
WRITTEN AGREEMENTS
The Company has entered into written agreements with each of its officers
and directors, including Frederik G.M. Rodenhuis and Lyle R. Maul, pursuant to
which the Company is required to indemnify each person under circumstances and
to the extent generally equivalent to those which are permissible under the
Company's By-Laws.
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ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the offering are as follows:
<TABLE>
<CAPTION>
ITEM AMOUNT*
------------------------------------------------------------------ --------
<S> <C>
Securities and Exchange Commission Registration Fee............... $ 17,252
National Association of Securities Dealers, Inc. and Blue Sky
Registration Fees............................................... 25,000
Accounting Fees and Expenses......................................
Legal Fees and Expenses...........................................
Printing, Design and Advertising..................................
Underwriters' Non-Accountable Expense Allowance...................
Miscellaneous.....................................................
--------
Total........................................................... 569,752
========
</TABLE>
- ---------------
* Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Within the last three (3) years, the Company has issued the following
securities which were not registered under the Securities Act of 1933.
On August 2, 1995, the date of incorporation, the Company authorized the
issuance of 245,310 shares of Common Stock to its founders for $0.01 per share.
This sale was made in reliance on the exemption from registration under Section
4(2) of the 1933 Act.
On October 6, 1995, the Company issued 192,400 shares of its common stock
and 190,000 warrants to purchase shares of the Company's Common Stock,
exercisable at $8.25 per share. The gross proceeds realized from the issuance
was $76,756. 2,810,000 warrants to were issued to Imafina, S.A., a Swiss money
management firm. The gross proceeds realized from the sale was $28,000. Imafina,
S.A. sold 100,000 warrants to one of the Company's existing shareholders. These
issuances were made in reliance on the exemption from registration under Section
4(2) of the 1933 Act.
On October 31, 1995, the Company issued 14,000 shares of its Common Stock
and 15,583 warrants to purchase shares of the Company's Common Stock exercisable
at $4.50 per share to Hecht & Steckman, P.C., counsel to the Company. The gross
proceeds realized from the sale was $140.00. This issuance was made in reliance
on the exemption from registration under Section 4(2) of the 1933 Act.
On November 8, 1995, the Company acquired Heritage Brewing Company in a
stock-for-stock exchange. The Company acquired 94.85% of all of the outstanding
voting capital stock of Heritage in exchange for 142,276 shares of the Company's
Common Stock. The Heritage shareholders have an option to call the Heritage
stock if the Company does not close a public offering of the Company's common
stock realizing gross proceeds of at least $5,000,000 by December 31, 1995. The
issuance was made in reliance on the exemption from registration under Section
3(a)(9) of the 1933 Act.
On November 12, 1995, the Company authorized the issuance of 49,015 shares
of its Common Stock to John Stoner and Mark Mericle as consideration for
consulting services provided to the Company. The Company also issued 5,333
shares to Jack Stoner and Edward Hansen to reduce notes owed by Heritage. The
shares were issued in reliance on the exemption from registration under Section
4(2) of the 1933 Act.
On November 15, 1995, the Company authorized the issuance of 16,583 shares
to certain parties for consulting services previously rendered to the Company
and advances made to the Company at its pre-formation stages in the total amount
of $57,034. The issuance was made in reliance on the exemption from registration
under Section 4(2) of the 1933 Act.
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On November 20, 1995, the Company made a nonpublic offer of 400,000 shares
of Common Stock at the price of $4.00 per share. These offers and sales were
conducted by an NASD member firm in consideration for payment of commission of
9%, plus 3% nonaccountable expense allowance, of the gross proceeds. On August
28, 1996, the Company authorized the acceptance of additional subscriptions of
15,000 causing the total number of shares issued in the private placement to be
413,746. The 413,746 shares in the private placement were sold to fourteen (14)
investors realizing gross proceeds, before deducting for commissions and
expenses of $1,654,984. The private placement was made in reliance on the
exemption from registration afforded by Rule 506 of Regulation D promulgated
under the 1933 Act.
On January 22, 1996, the Company authorized the issuance of 6,500 shares of
its Common Stock to C.A. Wittwer & Associates and its designees as part of the
consideration for the license agreements between Heritage Brewing Company, a
subsidiary of the Company, and C.A. Wittwer & Associates. Heritage and the
Company have executed an agreement whereby the Company has the right to assume
the contract upon the close of a public offering by the Company realizing gross
proceeds of at least $5,000,000 on or before December 31, 1995. The sale was
made in reliance on the exemption from registration afforded by Section 4(2) of
the 1933 Act.
On May 20, 1996, the Company issued a $500,000 promissory note, secured by
all equipment, inventory and accounts receivable of the Company, and warrants to
Frederick Friedman. The note, which pays simple interest at 18% per annum,
mature on the earlier of (i) closing of a public offering by the Company with
aggregate gross proceeds of no less than $6,000,000, or (ii) December 31, 1996.
Interest is payable monthly until the principal is paid in full. The purchaser
of the note was also granted 35,000 Class B Warrants, which are registered in
this Offering, to purchase shares of the Company's Common Stock. If the Company
does not close a public offering by December 31, 1996, the purchaser is entitled
to an additional 35,000 warrants on the same terms and conditions. The sale was
made in reliance on the exemption from registration afforded by Section 4(2) of
the 1933 Act.
On August 5, 1996, the Company made a nonpublic offer of 32,500 units, each
unit consisting of two shares of the Corporation's common stock and one Class H
Warrant at the price of $10.00 per unit. These offers and sales were conducted
by an NASD member firm in consideration for payment of commission of 10% of the
gross proceeds. The offer closed after 15,000 units were subscribed by two (2)
investors realizing gross proceeds, before deducting for commissions and
expenses of $150,000. The private placement was made in reliance on the
exemption from registration afforded by Rule 506 of Regulation D promulgated
under the 1933 Act.
On September 10, 1996, the Company entered into a Share Purchase Agreement
with the shareholders of Orange Empire Brewing Company ("OEBC"), the parent of
Riverside Brewing Company. Under the terms of the Share Purchase Agreement, the
Company will issue up to 247,479 shares of its Common Stock for all of the
voting capital stock of OEBC. The Company will also issue 27,618 shares to
shareholders of Orange Empire for assuming certain Orange Empire debts and up to
130,000 shares based on Orange Empire meeting certain production levels. On
September 10, 1996, the Company entered into a Debt Exchange Agreement, which
provides that the Company will issue 24,125 shares of its Common Stock to
certain holders of OEBC's debts in return for extinguishing such debt. On
September 10, 1996, the Company and two individuals, Mike Hagerman and Norman
Kretschmar, two principals of OEBC, entered into the Brewpub Management
Agreement, whereby the two individuals will operate the brewpub. Under the
Brewpub Management Agreement, the Company will also issue 10,000 shares to these
individuals. The Share Purchase Agreement, Debt Exchange Agreement, and Brewpub
Management Agreement each provide that these respective transactions will close
on the closing of a public offering by the Company of the Company's Common Stock
realizing gross proceeds of at least $6,000,000. The issuance of shares of
Common Stock under the Share Purchase Agreement, Debt Exchange Agreement and
Brewpub Management Agreement was made in reliance on the exemption from
registration afforded by Rule 506 of Regulation D promulgated under the 1933
Act.
The Company had reasonable grounds to believe, prior to accepting the
subscription of each purchaser under all offers and sales under this Item 26
based in part on subscription agreements or investment letters
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<PAGE> 162
executed by the purchasers, that the purchasers were purchasing for investment
and not with a view to distribution. Other than in connection with the private
placements of common stock on November 20, 1995 and August 8, 1996, there were
no broker-dealers involved in any of the transactions listed above.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------
<C> <S>
1.1 [Form of] Underwriting Agreement*
1.2 [Form of] Agreement Among Underwriters*
1.3 [Form of] Selected Dealers Agreement*
2.1 Agreement and Plan of Reorganization dated November 8, 1995 between the
Company and Heritage Brewing Company, a California corporation, and
exhibits thereto
2.2 Agreement of Partnership dated September , 1996 between Prost Partners,
L.P., a California limited partnership, and BWI-St. Stan's, Inc., a
California corporation, a wholly-owned subsidiary of the Company, and
exhibits thereto
2.3 Share Purchase Agreement dated September 10, 1996 between Orange Empire
Brewing Company, Inc., a California corporation and the Company and
exhibits thereto
2.4 Debt Exchange Agreement Orange Empire Brewing Company, et al, and the
Company dated September , 1996.*
3.1 Amended and Restated Articles of Incorporation of the Company
3.2 By-Laws of the Company
4.1 Specimen of Common Stock Certificate*
4.2 Class A Warrant Agreement*
4.3 Class B Warrant Agreement
4.4 Class C Warrant Agreement (Counsel Warrants)*
4.5 Class D Warrant Agreement (Riverside Warrants)*
4.6 Representative's Warrant Agreement*
4.7 Class H Warrant Agreement*
4.8 Registration Rights Agreement*
4.9 $500,000 Note Agreement and Promissory Note dated May 7, 1996 between the
Company and Frederick Friedman
4.10 Owens Financial Note
5.1 Opinion of Hecht & Steckman, P.C. re: legality of shares*
10.1 $445,000 Small Business Administration Loan dated November 10, 1993
between Heritage and Liberty National Bank*
10.2 Equipment Lease dated , as amended, between Riverside
Brewing Company and Brewery Leasing Company*
10.3 Ground Lease Agreement dated June 6, 1988 between Randall and Susan Steele
and Stanislaus Brewing Company, Inc., as amended*
10.4 Riverside Brewing Company Brewery Lease with Hunsaker-Hunter dated April
1, 1995
10.5 Riverside Brewing Company Brewery Lease with Hunsaker-Hunter dated
December 6, 1995
10.6 Riverside Brewing Company Brewpub Lease with Kowashoji USA, Inc. dated
March 31, 1993
10.7 Lease between Heritage Brewing Company and Central Business Park
Investors -- 89 dated November 3, 1993
</TABLE>
II-9
<PAGE> 163
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------
<C> <S>
10.8 Employment Agreement between the Company and Frederik G.M. Rodenhuis
10.9 Employment Agreement between the Company and Lyle R. Maul
10.10 Employment Agreement between the Company and John Stoner
10.11 Employment Agreement between the Company and Kathy Burke
10.12 Employment Agreement between the Company and Garith Helm
10.13 Distributorship Agreement dated August 20, 1996 between the Company and
Southern Wine and Spirits
10.14 Distributorship Agreement dated June 6, 1995 between Riverside Brewing
Company and Wine Warehouse*
10.15 Distributorship Agreement dated August 1, 1996 between the Company and
Cabo Distributing Company, Inc.
10.16 1996 Nonqualified Stock Option Plan
10.17 1996 Incentive Stock Option Plan
10.18 Incentive Compensation Plan*
10.19 Hussong's License Agreement dated February 3, 1996 between Heritage
Brewing Company and C.A. Wittwer & Associates
10.20 Reciprocal Production and Marketing Agreement dated August 1, 1996 between
the Company and Chicago Brewing Company*
10.21 Management Agreement between Riverside Brewing Company and the Company
dated July 19, 1996
21.1 List of Subsidiaries
23.1 Consent of Hecht & Steckman, P.C.*
23.2 Consent of Corbin & Wertz
23.3 Consent of Corbin & Wertz
23.4 Consent of Corbin & Wertz
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 28. UNDERTAKINGS.
A. The undersigned registrant hereby undertakes (a) to file during any
period in which offers or sales of the securities are being made, a
post-effective amendment to this registration statement including any prospectus
required by Section 10(a)(3) of the Securities Act of 1933, reflecting any facts
or events arising after the effective date of the registration statement (or
most recent post-effective amendment) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement, and including any material information with respect to the plan of
distribution not previously disclosed or any material change to such information
set forth in the registration statement. The undersigned registrant further
undertakes that, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof. The undersigned registrant further undertakes to remove
from registration by means of a post-effective amendment any of the securities
being registered which remain unsold at the termination of the offering.
II-10
<PAGE> 164
B. The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
C. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
D. For determining any liability under the Securities Act of 1933, the
registrant shall treat the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the small business issuer under Rule 424(b)(1),
or (4) or 497(h) under the Securities Act as part of this registration statement
as of the time the Commission declared it effective. For determining any
liability under the Securities Act of 1933, the registrant shall treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
II-11
<PAGE> 165
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and has authorized this registration
statement to be signed on its behalf by the undersigned, in the City of New
York, State of New York on September 11, 1996.
BEVERAGE WORKS, INC.,
a California corporation
By: /s/ FREDERIK G.M. RODENHUIS
------------------------------------
Frederik G.M. Rodenhuis
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Frederik G.M. Rodenhuis and Lyle R. Maul, and each of them, with full power of
substitution and resubstitution in each of them, our true and lawful
attorneys-in-fact and agents, in any and all capacities, with full power to act
alone, to sign any and all amendments (including post-effective amendments) to
this Registration Statement, and to file each such amendment to this
Registration Statement, with all exhibits thereto, and any and all other
documents in connection therewith, with the Securities and Exchange Commission,
hereby granting unto said attorneys-in-fact and agents, and each of them, full
power and authority to do and perform any and all acts and things requisite and
necessary to be done in and about the premises as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or either of them, may lawfully do or
cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ----------------------------------- -------------------
<S> <C> <C>
/s/ FREDERIK G.M. RODENHUIS
- -------------------------------------
Frederik G.M. Rodenhuis Chief Executive Officer, President September 11, 1996
and Director
/s/ JOHN STONER
- -------------------------------------
John Stoner Director September 11, 1996
/s/ LYLE R. MAUL
- -------------------------------------
Lyle R. Maul Chief Financial Officer and September 11, 1996
Secretary
/s/ ADAM B. WACHTEL
- -------------------------------------
Adam B. Wachtel Director September 11, 1996
/s/ STEVEN M. SCARANO
- -------------------------------------
Steven M. Scarano Director September 11, 1996
- -------------------------------------
Lord Charles Spencer-Churchill Director September , 1996
</TABLE>
II-12
<PAGE> 166
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------
<C> <S>
1.1 [Form of] Underwriting Agreement*
1.2 [Form of] Agreement Among Underwriters*
1.3 [Form of] Selected Dealers Agreement*
2.1 Agreement and Plan of Reorganization dated November 8, 1995 between the
Company and Heritage Brewing Company, a California corporation, and
exhibits thereto
2.2 Agreement of Partnership dated September , 1996 between Prost Partners,
L.P., a California limited partnership, and BWI-St. Stan's, Inc., a
California corporation, a wholly-owned subsidiary of the Company, and
exhibits thereto
2.3 Share Purchase Agreement dated September 10, 1996 between Orange Empire
Brewing Company, Inc., a California corporation and the Company and
exhibits thereto
2.4 Debt Exchange Agreement Orange Empire Brewing Company, et al, and the
Company dated September , 1996.*
3.1 Amended and Restated Articles of Incorporation of the Company
3.2 By-Laws of the Company
4.1 Specimen of Common Stock Certificate*
4.2 Class A Warrant Agreement*
4.3 Class B Warrant Agreement
4.4 Class C Warrant Agreement (Counsel Warrants)*
4.5 Class D Warrant Agreement (Riverside Warrants)*
4.6 Representative's Warrant Agreement*
4.7 Class H Warrant Agreement*
4.8 Registration Rights Agreement*
4.9 $500,000 Note Agreement and Promissory Note dated May 7, 1996 between the
Company and Frederick Friedman
4.10 Owens Financial Note
5.1 Opinion of Hecht & Steckman, P.C. re: legality of shares*
10.1 $445,000 Small Business Administration Loan dated November 10, 1993
between Heritage and Liberty National Bank*
10.2 Equipment Lease dated , as amended, between Riverside
Brewing Company and Brewery Leasing Company*
10.3 Ground Lease Agreement dated June 6, 1988 between Randall and Susan Steele
and Stanislaus Brewing Company, Inc., as amended*
10.4 Riverside Brewing Company Brewery Lease with Hunsaker-Hunter dated April
1, 1995
10.5 Riverside Brewing Company Brewery Lease with Hunsaker-Hunter dated
December 6, 1995
10.6 Riverside Brewing Company Brewpub Lease with Kowashoji USA, Inc. dated
March 31, 1993
10.7 Lease between Heritage Brewing Company and Central Business Park
Investors -- 89 dated November 3, 1993
10.8 Employment Agreement between the Company and Frederik G.M. Rodenhuis
10.9 Employment Agreement between the Company and Lyle R. Maul
10.10 Employment Agreement between the Company and John Stoner
</TABLE>
<PAGE> 167
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------
<C> <S>
10.11 Employment Agreement between the Company and Kathy Burke
10.12 Employment Agreement between the Company and Garith Helm
10.13 Distributorship Agreement dated August 20, 1996 between the Company and
Southern Wine and Spirits
10.14 Distributorship Agreement dated June 6, 1995 between Riverside Brewing
Company and Wine Warehouse*
10.15 Distributorship Agreement dated August 1, 1996 between the Company and
Cabo Distributing Company, Inc.
10.16 1996 Nonqualified Stock Option Plan
10.17 1996 Incentive Stock Option Plan
10.18 Incentive Compensation Plan*
10.19 Hussong's License Agreement dated February 3, 1996 between Heritage
Brewing Company and C.A. Wittwer & Associates
10.20 Reciprocal Production and Marketing Agreement dated August 1, 1996 between
the Company and Chicago Brewing Company*
10.21 Management Agreement between Riverside Brewing Company and the Company
dated July 19, 1996
21.1 List of Subsidiaries
23.1 Consent of Hecht & Steckman, P.C.*
23.2 Consent of Corbin & Wertz
23.3 Consent of Corbin & Wertz
23.4 Consent of Corbin & Wertz
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of November 8, 1995, by
and among BEVERAGE WORKS, INC., a California corporation ("BrewCo"), HERITAGE
BREWING COMPANY, INC., a California corporation ("Heritage") (BrewCo and
Heritage being hereinafter collectively referred to as the "Constituent
Corporations") and the persons whose signatures appear on the signature page of
this Plan of Reorganization ("Selling Shareholders").
RECITALS
A. The Boards of Directors of BrewCo and Heritage have approved the
acquisition of up to 388,020 shares of Heritage, which are all of the
outstanding shares of Heritage, by BrewCo for up to 150,000 shares of its common
stock.
B. For federal income tax purposes, it is intended that the stock-for-stock
exchange shall qualify as a reorganization within the meaning of Section
368(a)(1)(B) of the Internal Revenue Code of 1986, as amended (the "Code").
C. Each of the parties to this Agreement desires to make certain
representations, warranties and agreements in connection with the exchange and
also to prescribe various conditions thereto.
AGREEMENT
THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
EXCHANGE OF SHARES
1.1. RATIO OF EXCHANGE. Pursuant to this Agreement, each issued and
outstanding share of common stock of Heritage ("Heritage Common Stock") shall be
exchanged, and become exchangeable, for 0.3866 shares of validly issued, fully
paid and nonassessable common stock, without par value, of BrewCo ("BrewCo
Common Stock").
<PAGE> 2
1.2 EXCHANGE OF COMPANY CAPITAL STOCK CERTIFICATES.
a. On or prior to the Closing Date, BrewCo shall deposit with the
Closing Agent the certificates representing shares of BrewCo Common Stock
required to effect the exchange referred to in Section 1.2.c.
b. On or prior to the Closing Date, each holder of a certificate which
immediately prior to the Closing Date represented outstanding shares of Heritage
Common Stock, shall deposit with the Closing Agent the certificates representing
shares of Heritage Common Stock required to effect the exchange referred to in
Section 1.2.c.
c. Selling Shareholders shall be entitled to receive a certificate or
certificates representing the number of shares of BrewCo Common Stock into which
such holder's shares of Heritage Common Stock were converted pursuant to Section
1.1. BrewCo shall be entitled to receive the certificates representing the
number of shares of Heritage Common Stock, in the ratio specified in Section
1.1.
1.3 CLOSING. The closing (the "Closing") of the transactions contemplated
by this Agreement shall take place at the offices of BrewCo's counsel, Hecht,
Margolin & Steckman, P.C., 60 East 42nd Street, Suite 5101, New York, New York
10165 (the "Closing Agent") at 10:00 AM, local time, on November 22, 1995, or at
such other time and place and on such other date as BrewCo and Heritage shall
agree (the "Closing Date").
1.4 MINIMUM NUMBER OF OUTSTANDING SHARES. This Agreement shall not become
effective unless Selling Shareholders holding at least ninety percent (90%) of
the outstanding stock of Heritage enter into this Agreement.
ARTICLE II
FURTHER AGREEMENTS
2.1 EMPLOYMENT AGREEMENT. Prior to or at the Closing, BrewCo and John
Stoner and Mark Mericle shall execute employment agreements (the "Employment
Agreements"). The Employment Agreements shall be substantially in the form
attached as Exhibit A hereto, with such additional terms and conditions as may
be mutually agreed to by the various parties thereto.
2.2 CONTINUITY OF INTEREST AGREEMENT. On the date hereof, Controlling
Shareholders (as that term is defined in the Continuity
2
<PAGE> 3
of Interest Agreement) and BrewCo shall execute a continuity of interest
agreement ("Continuity of Interest Agreement") substantially in the form
attached as Exhibit B hereto.
2.3 CALL OPTION AGREEMENT. Prior to or at the Closing, BrewCo shall grant
a call option to Heritage's Shareholders ("Call Option") substantially in the
form attached as Exhibit C hereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 GENERAL STATEMENT. The parties make the representations and warranties
to each other which are set forth in this Article III. The survival of all such
representations and warranties shall be in accordance with Section 7.1 hereof.
3.2 REPRESENTATIONS AND WARRANTIES OF BREWCO. BrewCo represents and
warrants to Heritage, as of the date hereof and as of the Closing Date, as
follows:
a. BrewCo is a California corporation in good standing.
b. BrewCo is authorized to execute this Agreement.
c. No governmental consent is required for BrewCo to execute this
Agreement.
3.3 REPRESENTATIONS AND WARRANTIES OF HERITAGE. Heritage represents and
warrants to BrewCo as of the date hereof and at the Closing Date, except as
disclosed in Schedule A annexed hereto, as follows:
a. Heritage is a California corporation in good standing.
b. Heritage is registered to do business in all jurisdictions
required to operate its business.
c. Heritage's authorized and issued capital stock is 388,020 common
shares, no par value, and that Heritage has no other equity securities issued or
outstanding or required to be issued.
d. No governmental consent is required for Heritage to execute this
Agreement, except for approvals of the change of directors and change of
ownership by the Small Business Administration, Bureau of Alcohol Tobacco and
Firearms and the State of California Department of Alcohol Beverage Control.
e. Heritage is authorized to execute this Agreement.
3
<PAGE> 4
f. Execution would not cause a conflict with or default under any
other agreements to which Heritage or its shareholders are a party.
g. Heritage warrants that its financial statements, attached hereto
as Exhibit D, are complete and accurate.
h. Heritage warrants that it has no undisclosed liabilities.
i. With respect to Taxes (as defined below):
(i) Heritage has filed, within the time and in the manner
prescribed by law, all returns, declarations, reports, estimates,
information returns and statements ("Returns") required to be
filed under federal, state, local or any foreign laws by Heritage,
and all such Returns are true, correct and complete in all
material respects.
(ii) Heritage has within the time and in the manner prescribed
by law, paid all Taxes (as defined below) that are due and
payable.
(iii) Heritage has established on its respective books and
records reserves (to be specifically designated as an increase to
current liabilities) that are adequate for the payment of all
Taxes not yet due and payable.
(iv) There are no liens for Taxes upon the assets of Heritage.
(v) No deficiency for any Taxes has been proposed, asserted or
assessed against Heritage or any of its subsidiaries which has
not been resolved and paid in full.
(vi) There are no outstanding waivers or comparable consents
regarding the application of the statute of limitations with
respect to any Taxes or Returns that have been given by Heritage
or any of its subsidiaries.
(vii) No federal, state, local or foreign audits or other
administrative proceedings or court proceedings are presently
pending with regard to any Taxes or Returns.
(viii) For purposes of this Agreement, "Taxes" shall mean all
taxes, charges, fees, levies or other assessments of whatever kind
or nature, including, without limitation, all net income, gross
income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, withholding, payroll, employment,
excise, estimated, severance, stamp, occupancy or
4
<PAGE> 5
property taxes, customs duties, fees, assessments or charges of
any kind whatsoever (together with any interest and any penalties,
additions to tax or additional amounts) imposed by any taxing
authority (domestic or foreign) upon or payable by Heritage.
j. Heritage is not presently in litigation or subject to any claims,
except as disclosed in Schedule A annexed hereto.
k. Heritage has good and valid title to all assets identified in the
financial statements, which are not subject to any liens except as disclosed in
Schedule A annexed hereto.
3.4 REPRESENTATIONS AND WARRANTIES OF SELLING SHAREHOLDERS.
Each Selling Shareholder represents and warrants severally, and not
jointly, that:
a. The Heritage Common Stock to be delivered to BrewCo by such
Selling Shareholder is free from claims, liens, or other encumbrances.
b. Such Selling Shareholder has the unqualified right to transfer the
Heritage Common Stock to BrewCo.
c. All legends on the share certificates of the Heritage Common Stock
to be delivered by such Selling Shareholder, other than the legend imposed under
the Securities Act of 1933, have been lawfully removed or that the transfer to
BrewCo under the terms of this Plan of Reorganization are in compliance with
such legends.
ARTICLE IV
COVENANTS
4.1 CONDUCT OF BUSINESS OF HERITAGE. Heritage agrees from the date hereof:
a. To provide BrewCo access to Heritage's books and facilities.
b. To not issue or redeem stock, incur debt or pay or declare
dividends without the approval of BrewCo.
c. To not declare or pay bonuses or incur or pay any other
extraordinary item.
d. To otherwise conduct its business consistent with past
5
<PAGE> 6
practice.
4.2 FINANCIAL STATEMENTS. Heritage must furnish regular financial
statements to BrewCo and such further information as BrewCo reasonably requests.
4.4 APPROVAL OF SHAREHOLDERS. Heritage shall recommend to its shareholders
approval of this Agreement and mail to its shareholders a transmittal letter in
form and substance reasonably satisfactory to BrewCo to be used by such
shareholders in forwarding their certificates for surrender and exchange.
4.5 THIRD PARTY CONSENTS. Each party to this Agreement shall use its best
efforts to obtain, as soon as reasonably practicable, all permits,
authorizations, consents, waivers and approvals from third parties or
governmental authorities necessary to consummate this Agreement and the
transactions contemplated hereby or thereby.
ARTICLE V
CONDITIONS TO CLOSING
5.1 CONDITIONS TO EACH PARTY'S OBLIGATION. The respective obligations of
each party shall be subject to the fulfillment of all of the following
conditions precedent at or prior to the Closing Date:
a. No statute or regulation enacted which would prevent consummation
of this Agreement.
b. All governmental consents and approvals required to consummate
this Agreement have been obtained.
5.2 CONDITIONS TO OBLIGATIONS OF HERITAGE AND SELLING SHAREHOLDERS. The
obligations of Heritage and Selling Shareholders are subject to fulfillment of
all of the following conditions precedent at or prior to the Closing Date:
a. Representations and warranties made by BrewCo are true.
b. All obligations of BrewCo under this Agreement have been
performed.
c. The Employment Agreements, substantially in the form attached
hereto as Exhibit A, shall be executed by BrewCo.
d. The Continuity of Interest Agreement in substantially the form
attached hereto as Exhibit B shall be executed by BrewCo.
6
<PAGE> 7
e. The Call Option in substantially the form attached hereto as
Exhibit C shall be executed by BrewCo.
5.3 CONDITIONS TO OBLIGATIONS OF BREWCO. The obligations of BrewCo are
subject to the fulfillment of all of the following conditions precedent at or
prior to the Closing Date:
a. Representations and warranties made by Heritage and Selling
Shareholders are true.
b. All obligations of Heritage and Selling Shareholders under this
Agreement have been performed.
c. The Employment Agreements, substantially in the form attached
hereto as Exhibit A, shall be executed by Controlling Shareholders.
d. The Continuity of Interest Agreement in substantially the form
attached hereto as Exhibit B, shall be fully executed and shall be in full force
and effect.
ARTICLE VI
INDEMNIFICATION
6.1 HERITAGE AND CONTROLLING SHAREHOLDER INDEMNIFICATION COVENANTS. John
Stoner and Mark Mericle ("Controlling Shareholders") and Heritage shall
indemnify, save and keep BrewCo and its affiliates, successors and permitted
assigns (the "BrewCo Indemnitees"), harmless against and from all liability,
demands, claims, actions or causes of action, assessments, losses, fines,
penalties, costs, damages and expenses, including reasonable attorneys' fees,
disbursements and expenses (collectively, "Damages"), sustained or incurred by
any of the BrewCo Indemnitees as a result of, arising out of or by virtue of any
misrepresentation, breach of any warranty or representation, or non-fulfillment
of any agreement or covenant on the part of Heritage, whether contained in this
Agreement or any exhibit or schedule hereto or thereto or any written statement
or certificate furnished or to be furnished to BrewCo pursuant hereto or in any
closing document delivered by Heritage to BrewCo in connection herewith.
Controlling Shareholders shall not be liable for a claim of Damages (under this
Section 6.1) which is less than $50,000, nor shall Controlling Shareholders be
liable for a claim or claims of Damages to the extent such claim or claims
exceeds the Controlling Shareholders' value in their BrewCo Common Stock,
whether acquired pursuant to this Agreement or otherwise. Controlling
Shareholders' obligations under this Section 6.1, and any other liability
hereunder, shall terminate two years from the date hereof.
7
<PAGE> 8
6.2 SELLING SHAREHOLDER INDEMNIFICATION COVENANTS. Each Selling
Shareholder shall indemnify, save and keep the BrewCo Indemnitees, as defined in
Section 6.1, harmless against and from all Damages, as defined in Section 6.1,
sustained or incurred by any of the BrewCo Indemnitees as a result of any
warranty or representation, or non-fulfillment of any agreement or covenant on
the part of such Selling Shareholder, whether contained in this Agreement or any
exhibit or schedule hereto or thereto, or any written statement or certificate
furnished or to be furnished to BrewCo pursuant hereto or in any closing
documents delivered by such Selling Shareholder to BrewCo in connection
herewith. Each Selling Shareholder's liability under this Section 6.2, or
otherwise under this Agreement, shall terminate two years from the date hereof.
ARTICLE VII
MISCELLANEOUS
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations,
warranties, covenants and agreements made by any party in this Agreement or
pursuant hereto shall survive the Agreement and Plan of Reorganization. All
claims made by BrewCo by virtue of any such representations, warranties,
covenants and agreements shall be made under, and subject to the limitations set
forth in, Article III hereof.
7.2 NOTICES. All notices required or permitted to be given hereunder shall
be in writing and shall be deemed given when delivered in person or sent by
confirmed facsimile, or when received if given by Federal Express or other
nationally recognized overnight courier service, or five (5) business days after
being deposited in the United States mail, postage prepaid, registered or
certified mail, addressed to the applicable party as follows:
BEVERAGE WORKS, INC. HERITAGE BREWING COMPANY, INC.
9800 Sepulveda Blvd. 571-C Crane Street
Suite 720 Lake Elsinore, CA 92530
Los Angeles, CA 90045
(310) 568-4077 (fax)
Notices to any Selling Shareholder shall sent to such address as set forth next
to such Selling Shareholder's name on the signature page herein.
7.3 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties.
7.4 NON-WAIVER. Failure of a party to insist upon performance of
8
<PAGE> 9
terms, covenants or conditions shall not be construed as a subsequent waiver of
any such terms, covenants, conditions.
7.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts with the same effect as if all of the parties had signed the same
document. All counterparts shall be construed together and shall constitute one
agreement.
7.6 SEVERABILITY. If any term or provision hereof is illegal or invalid for
any reason whatsoever, such illegality or invalidity shall not affect the
validity or legality of the remainder of this Agreement.
7.7 GOVERNING LAW. The laws of the State of California shall govern the
validity of this Agreement and the construction of its terms.
7.8 BINDING EFFECT; BENEFIT. Except as otherwise provided in this
Agreement, every covenant, term, and provision of this Agreement shall be
binding upon and inure to the benefit of the parties and their respective heirs,
legatees, legal representatives, successors, transferees, and assigns.
7.9 ASSIGNABILITY. This Agreement shall not be assignable by either party
without prior written consent of other party.
IN WITNESS WHEREOF, the parties have executed this Agreement and Plan
of Reorganization on the date first above written.
BEVERAGE WORKS, INC.
By:_________________________________
Frederik G.M. Rodenhuis
President
HERITAGE BREWING COMPANY, INC.
By:_________________________________
SELLING SHAREHOLDERS:
Number of Heritage
Name Address Shares Owned
_________________________ _____________________ _____________________
Mark B. Mericle
9
<PAGE> 10
_________________________ _____________________ _____________________
John G. Stoner
_________________________ _____________________ _____________________
Jack Stoner
_________________________ _____________________ _____________________
Patricia Stoner
_________________________ _____________________ _____________________
John Langhas
_________________________ _____________________ _____________________
Terri Langhas
_________________________ _____________________ _____________________
Leland Mothershead III
_________________________ _____________________ _____________________
John L. Mothershead IV
_________________________ _____________________ _____________________
Benjamin Ho
_________________________ _____________________ _____________________
Charles Nofflett
_________________________ _____________________ _____________________
Joan M. Nofflett
_________________________ _____________________ _____________________
Steven Lewkowitz
_________________________ _____________________ _____________________
Hein Vinh Phan
_________________________ _____________________ _____________________
Donald Lea
_________________________ _____________________ _____________________
Fay Lea
_________________________ _____________________ _____________________
Jeff S. Mericle
_________________________ _____________________ _____________________
Andrew S. Meyers
_________________________ _____________________ _____________________
Gordon J. Kuhlman
10
<PAGE> 11
_________________________ _____________________ _____________________
George A. Sedia
_________________________ _____________________ _____________________
Arthur R. Cathey
_________________________ _____________________ _____________________
Daniel D. Alustiza
_________________________ _____________________ _____________________
Mark Willburger
_________________________ _____________________ _____________________
Kathryn Willburger
_________________________ _____________________ _____________________
Edward D. Sybesma, Jr.;
APC Employees Pension Plan Trust
_________________________ _____________________ _____________________
David Walser
11
<PAGE> 12
SCHEDULE A
12
<PAGE> 13
EXHIBIT B
CONTINUITY OF INTEREST AGREEMENT
BEVERAGE WORKS, INC. a California corporation ("BrewCo") and the
undersigned shareholders ("Controlling Shareholders") of HERITAGE BREWING
COMPANY, INC., a California corporation ("Heritage"), hereby enter into this
Agreement on November 8, 1995 for the purposes hereinafter set forth.
WHEREAS, BrewCo, Heritage and Heritage's Shareholders entered into an
Agreement and Plan of Reorganization dated as of November 8, 1995 (the "Plan of
Reorganization"); and
WHEREAS, the BrewCo, Controlling Shareholders and Heritage are willing
to consummate the Plan of Reorganization only if such transaction will qualify
as a tax free reorganization under Section 368 of the Internal Revenue Code of
1986, as amended (the "Code");
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. The Controlling Shareholders represent and warrant that they have,
and as of the Closing Date will have, no present plan, intention or arrangement
to sell, transfer or otherwise dispose of the shares of BrewCo Common Stock to
be received in the Plan of Reorganization that would reduce former Heritage
shareholders' ownership of BrewCo Common Stock to a number of shares having a
value, as of the Closing Date, of less than fifty percent (50%) of the value of
all of the issued and outstanding capital stock of Heritage immediately prior to
the Closing Date.
2. The Controlling Shareholders represent that as of the date hereof
they own more than fifty percent (50%) of the outstanding shares of Heritage
Common Stock.
3. The Controlling Shareholders agree that prior to the Closing Date,
they will not sell, transfer or otherwise dispose of any Heritage Common Stock.
4. The Controlling Shareholders agree that, for a period of one year
after the Closing Date (the "Post-Closing Continuity Period"), they will not
sell, transfer or otherwise dispose of an aggregate number of shares of BrewCo
Common Stock having a value, as of the date of the Closing Date, of more than
fifty percent (50%) of the value of all of the issued and outstanding capital
stock of Heritage immediately prior to the Closing Date.
5. The Controlling Shareholders shall deliver written notice to BrewCo
within ten days after disposing of any shares of BrewCo
<PAGE> 14
Common Stock during the Post-Closing Continuity Period (as permitted by
paragraph 4), stating the number of shares disposed of and the manner of
disposition.
6. This Agreement shall be binding upon and shall be enforceable
against the successors and assigns of BrewCo.
7. This Agreement shall not be modified, amended, altered or
supplemented except by a written agreement executed by all of the parties
hereto.
8. In the event of the termination of the Plan of Reorganization, this
Agreement shall terminate.
9. This Agreement may be executed in two or more counterparts, each of
which together shall constitute one and the same document. This Agreement
constitutes the entire agreement among the Parties with respect to the subject
matter hereof. The terms used herein have the same meaning as defined in the
Plan of Reorganization unless otherwise stated.
IN WITNESS WHEREOF, the parties hereto have caused this Continuity of
Interest Agreement to be duly executed on the date first set forth above.
BEVERAGE WORKS, INC.
By:_________________________
Frederik G.M. Rodenhuis
President
CONTROLLING SHAREHOLDERS
By:_________________________
John G. Stoner
By:_________________________
Mark B. Mericle
-2-
<PAGE> 1
EXHIBIT 2.2
CONTRIBUTION
AGREEMENT
BY AND AMONG
PROST PARTNERS, L.P.
A CALIFORNIA LIMITED PARTNERSHIP
AND
BWI-ST. STAN'S, INC.
A CALIFORNIA CORPORATION
IN THE FORMATION OF
BWI-PROST PARTNERS
A CALIFORNIA PARTNERSHIP
<PAGE> 2
TABLE OF CONTENTS
Page
RECITALS....................................................................1
SECTION 1 - CONTRIBUTION OF ASSETS BY PARTNERS........................1
1.1 CONTRIBUTION OF THE ASSETS BY PROST..............................1
1.2 EXCLUDED ASSETS..................................................4
1.3 CONVEYANCE INSTRUMENTS...........................................5
1.4 ASSUMED LIABILITIES..............................................5
1.5 EXCLUDED LIABILITIES.............................................5
1.6 CONTRIBUTION BY BWISS............................................5
1.7 CONTRIBUTION DATE................................................6
SECTION 2 - EVENTS OCCURRING ON THE CONTRIBUTION DATE.................6
2.1 DELIVERIES BY PROST..............................................6
2.2 EFFECT OF DELIVERIES.............................................6
2.3 EFFECT OF CONTRIBUTIONS..........................................6
2.4 DELIVERIES BY BWISS..............................................6
2.5 EFFECT OF CONTRIBUTIONS..........................................7
SECTION 3 - OTHER AGREEMENTS..........................................7
3.1 OTHER AGREEMENTS.................................................7
SECTION 4 - REPRESENTATIONS AND WARRANTIES OF PROST...................7
4.1 ORGANIZATION.....................................................7
4.2 QUALIFICATION....................................................8
4.3 AUTHORITY........................................................8
4.4 NO VIOLATIONS....................................................8
4.5 FINANCIAL STATEMENTS.............................................9
4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS.............................9
4.7 CERTAIN TAX MATTERS.............................................11
4.8 CONDITION OF FACILITIES.........................................11
4.9 UTILITIES; ACCESS...............................................11
4.10 CERTAIN CONDITIONS NOT PRESENT..................................11
4.11 CONDITION OF EQUIPMENT..........................................12
4.12 INVENTORY; RECEIVABLES..........................................12
4.13 TITLE TO PROPERTIES; ENCUMBRANCES...............................12
4.14 LEASES..........................................................13
4.15 PATENTS, TRADEMARKS, AND SIMILAR RIGHTS.........................13
4.16 INSURANCE.......................................................13
4.17 ERISA...........................................................14
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4.18 DOCUMENTS; COMMITMENTS..........................................15
4.19 LABOR MATTERS...................................................15
4.20 PERSONNEL.......................................................16
4.21 NO BREACH.......................................................16
4.22 CONSENTS, PERMITS, ETC..........................................16
4.23 LITIGATION......................................................16
4.24 COMPLIANCE WITH APPLICABLE LAW; ADVERSE RESTRICTIONS............17
4.25 ENVIRONMENTAL PROTECTION........................................17
4.26 ASSETS NECESSARY TO BUSINESS....................................18
4.27 CUSTOMERS, DISTRIBUTORS, AND SUPPLIERS..........................18
4.28 BROKERS.........................................................18
SECTION 5 - REPRESENTATIONS AND WARRANTIES ON BWISS..................18
5.1 ORGANIZATION....................................................18
5.2 AUTHORITY.......................................................19
5.3 NO VIOLATIONS...................................................19
5.4 BROKERS.........................................................19
SECTION 6 - COVENANTS................................................20
6.1 CONDUCT OF BUSINESS OF PROST PENDING THE CONTRIBUTION DATE......20
6.2 APPROVAL OF PARTNERS............................................21
6.3 THIRD PARTY CONSENTS............................................21
6.4 EMPLOYEE MATTERS................................................22
SECTION 7 - SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION.............23
7.1 SURVIVAL; INDEMNIFICATION.......................................23
7.2 LIMITATIONS OF INDEMNIFICATION..................................24
7.3 TAX INDEMNIFICATION WITH RESPECT TO TAX LIABILITY...............24
7.4 DEFINITIONS.....................................................27
7.5 CONTROL OF LITIGATION...........................................28
7.6 TRANSFER TAXES..................................................28
7.7 COOPERATION ON TAX MATTERS......................................29
7.8 ELECTIONS.......................................................29
7.9 TAX RETURNS OF PROST............................................29
7.10 CERTAIN DISPUTES................................................30
7.11 OTHER TAX MATTERS...............................................30
SECTION 8 - CONDITIONS TO CLOSING; TERMINATION.......................30
8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE CLOSING.....30
8.2 CONDITIONS TO OBLIGATION OF BWISS TO EFFECT THE CLOSING.........31
8.3 CONDITIONS TO OBLIGATION OF PROST TO EFFECT THE TRANSACTION.....33
8.4 TERMINATION.....................................................34
8.5 BREAK UP FEES...................................................34
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SECTION 9 - MISCELLANEOUS PROVISIONS.................................34
9.1 AMENDMENT AND MODIFICATION......................................34
9.2 WAIVER OF COMPLIANCE; CONSENTS..................................34
9.3 ASSIGNMENT......................................................35
9.4 FURTHER ASSURANCES..............................................35
9.5 GOVERNING LAW...................................................35
9.6 COUNTERPARTS....................................................35
9.7 PUBLICITY.......................................................35
9.8 NOTICES.........................................................36
9.9 SPECIFIC PERFORMANCE............................................36
9.10 HEADINGS........................................................36
9.11 ENTIRE AGREEMENT................................................37
9.12 SEVERABILITY....................................................37
9.13 INCONSISTENCY OR CONFLICT.......................................37
9.14 EXHIBITS AND SCHEDULES..........................................37
9.15 ARBITRATION.....................................................37
9.16 ATTORNEYS' FEES.................................................37
iii
<PAGE> 5
This CONTRIBUTION AGREEMENT (this "Agreement") is entered into by and
between Prost Partners, L.P., a California limited partnership, and BWI-St.
Stan's Inc., a California corporation in the formation of BWI-Prost Partners, a
California partnership (the "Partnership"). This Agreement and the Agreement of
Partnership of BWI-Prost Partners, a California partnership (the "Partnership
Agreement") shall be effective as of the Contribution Date.
RECITALS
A. Prost Partners, L.P., a California limited partnership,
(hereinafter referred to as "Prost"), owns and operates a brewery and brewpub
located in Modesto, California doing business as St. Stan's Brewing Company (the
"Business"). BWI-St. Stan's, Inc. (hereinafter referred to as "BWISS"), a wholly
owned subsidiary of Beverage Works, Inc. (hereinafter referred to as "BWI"),
desires to enter into with Prost a partnership which will own and operate the
Business.
B. For the purpose set forth in Section 1.3 of the Partnership
Agreement, and as its Capital Contribution (as defined in Section 1.10 of the
Partnership Agreement), Prost wishes to contribute the Business (except the
"Excluded Assets," as defined in Section 1.2 of this Agreement) to the
Partnership in exchange for which Prost shall become a Partner in the
Partnership and shall receive the Percentage Interest in the Partnership
specified in Section 2.1 of the Partnership Agreement. BWISS wishes to assume
certain liabilities of the Business as its contribution in exchange for which
BWISS shall become a Partner in the Partnership and shall receive the Percentage
Interest in the Partnership specified in Section 2.1 of the Partnership
Agreement.
C. In order to accomplish the foregoing, simultaneously with the
execution of this Agreement and the Partnership Agreement, the parties shall
enter into the agreements identified in Section 3 hereof (collectively, the
"Other Agreements").
D. The foregoing contributions and assumption of liabilities by
the Partnership are all subject to the terms and conditions of this Agreement,
the Partnership Agreement and the Other Agreements.
In consideration of the foregoing and the mutual representations,
warranties, covenants, and agreements herein contained, Prost and BWISS agree as
follows:
SECTION 1
CONTRIBUTION OF ASSETS BY PARTNERS
1.1 CONTRIBUTION OF THE ASSETS BY PROST.
(a) Subject to the terms and conditions of this
Agreement, on the Contribution Date, Prost hereby assigns, transfers, and
delivers to the Partnership, as a contribution, free and clear of all title
defects, objections, liens, pledges, claims, rights of first refusal, options,
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charges, security interests, mortgages, or other encumbrances of any nature
whatsoever (collectively, "Encumbrances") other than "Permitted Encumbrances"
(as defined in Section 1.1(b) of this Agreement), all of the cash, assets,
properties, and business (excepting only the "Excluded Assets," as defined in
Section 1.2 of this Agreement) of every kind and description; wherever located;
real, personal, or mixed; tangible or intangible; owned or held; or used
primarily in the conduct of the Business by Prost as the same shall exist on the
Contribution Date including all assets and property shown on the "Contributed
Business Balance Sheet" (as defined in Section 4.5 of this Agreement) (and not
disposed of in the ordinary course of business) and all assets and property
thereafter acquired by Prost in respect of or used in the Business immediately
prior to the Contribution Date (collectively, the "Assets"), and including,
without limitation, all right, title, and interest of Prost in, to, and under:
(i) Those certain parcels of land described in
Schedule 1.1(a)(i) hereto (collectively, the "Fee Property") and all buildings,
fixtures, and improvements erected on the Fee Property (collectively,
"Improvements") (the Fee Property and Improvements hereinafter collectively
referred to as the "Subject Property");
(ii) The machinery, equipment, furniture, vehicles,
and other tangible property (including, without limitation, maintenance and
operating supplies, fuel, and spare parts for such machinery and equipment)
located on, or used at, the Subject Property or the "Excluded Facilities," as
defined in Section 1.2(a)(i) of this Agreement, or otherwise used in connection
with the Business (collectively, the "Equipment");
(iii) The raw materials, finished goods,
work-in-process, supplies, and inventories, with respect to the Business carried
on by Prost wherever located (collectively, the "Inventory");
(iv) Those patents, copyrights, trademarks, trade
names, technology, know-how, processes, trade secrets, inventions, proprietary
data, formulae, research and development data, computer software programs, and
other intangible property (excluding the Prost name and any derivative thereof),
and any applications for the same, used primarily in the portion of the Business
carried on by Prost, and all goodwill associated with such intangible property
(collectively, the "Intangible Property");
(v) The leases of real property (described in
Schedule 1.1(a)(v)) together with all fixtures, office equipment, furnishings,
furniture, and other tangible property located at such property (collectively,
the "Leased Property");
(vi) All of Prost's rights, claims, credits, causes
of action, or right of setoff against third parties relating to the Assets,
including, without limitation, unliquidated rights under manufacturers' and
vendors' warranties (collectively "Claims");
(vii) Those contracts, agreements, leases, licenses,
and other instruments, arrangements, and commitments being assumed by the
Partnership pursuant to Section 1.4 of
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this Agreement (collectively, "Rights");
(viii) All certificates of occupancy and other
transferable licenses, permits, registrations, authorizations, use agreements,
orders, or approvals of governmental or quasi-governmental agencies and
authorities (whether federal, state, local, municipal, or foreign) or private
parties relating to the construction, use, operation, or enjoyment of the Assets
(collectively, "Permits");
(ix) All accounts receivable arising out of sales of
beer and other inventory sold or otherwise in the ordinary and usual course of
the operation of the Business prior to the close of business on the Contribution
Date (collectively, "Receivables");
(x) All transferable bonds or deposits made by Prost
or its predecessors in title (or its agents) with any governmental agency or
authority or with any utility company or third party relating to the
construction, use, operation, or enjoyment of the Assets;
(xi) All prepaid rentals and other prepaid expenses
arising from payments made by Prost in the ordinary and usual course of the
operation of the Business related to the Assets prior to the close of business
on the Contribution Date for goods or services;
(xii) Originals or copies of all books, records,
files, and papers, whether in hard copy or computer format, used in the Business
since inception, including without limitation, engineering information, manuals
and data, sales and advertising materials, sales and purchase correspondence,
lists of present and former suppliers, and personnel and employment records and,
with respect to information relating to "Tax" (as defined in Section 7.4 of this
Agreement), only information that is necessary for the preparation of any Tax
returns to be filed by the Partnership after the Contribution Date or the
determination of the Tax basis of the Assets (collectively, "Files and
Records");
(xiii) All lists of present, and, to the extent
available, future customers and goodwill associated with the Assets.
(b) For purposes of this Agreement, "Permitted
Encumbrances" shall mean (i) the "Assumed Liabilities," as defined in Section
1.4 of this Agreement; (ii) Encumbrances which, individually or in the
aggregate, do not or would not have a material adverse effect on the business or
financial condition of the Business taken as a whole or materially interfere
with the present use of any Assets subject thereto; and (iii) easements,
rights-of-way, building or use restrictions, exceptions, variances,
reservations, or similar Encumbrances of record affecting, but not materially
interfering with the present use of, any Subject Property. For purposes of
Section 1.1(b), a "material adverse effect" shall include an individual
Encumbrance exceeding the principal amount of $500, and in the aggregate,
exceeding the principal amount of $2,500.
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<PAGE> 8
1.2 EXCLUDED ASSETS.
(a) There shall be excluded from the Assets the following
assets and properties of Prost which are used in connection with the Business:
(i) That certain parcel of land described in Schedule
1.2(a)(i) hereto (the "Excluded Fee Property") and the buildings, fixtures, and
improvements erected on the Excluded Fee Property (collectively, "Excluded
Improvements") (the Excluded Fee Property and Excluded Improvements hereinafter
sometimes collectively referred to as the "Excluded Facilities");
(ii) All machinery, equipment, furniture, vehicles,
and other tangible property (including, without limitation, maintenance and
operating supplies, fuel, and spare parts of such machinery and equipment)
located on, or used at, the Excluded Facilities and the other machinery,
equipment, and other tangible property described in Schedule 1.2(a)(ii) ("Other
Excluded Equipment") (collectively, the "Excluded Equipment");
(iii) All of its right, title, and interest in and to
all patents, copyrights, trademarks, trade names, technology, know-how,
processes, trade secrets, inventions, proprietary data, and other intangible
property, and any applications for the same, not used primarily in connection
with the Assets and described in Schedule 1.2(a)(iii) hereto, and all goodwill
associated with such intangible property (collectively, the "Excluded Intangible
Property");
(iv) All of its claims against third parties relating
to the "Excluded Assets," as defined in Section 1.2(b) of this Agreement, and
the related unliquidated rights under manufacturers' and vendors' warranties,
including all amounts representing reimbursements for items paid by it and
described in Schedule 1.2(a)(iv);
(v) All of its right, title, and interest in and to
all Permits relating to the construction, use, operation, or enjoyment of the
Excluded Assets and described in Schedule 1.2(a)(v);
(vi) All of its right, title, and interest in and to
all transferable bonds or deposits made by it or its predecessors in title (or
its agents) with any governmental agency or authority or with any utility
company or third party relating to the construction, use, operation, or
enjoyment of the Excluded Assets and described in Schedule 1.2(a)(vi); and
(vii) All of its right, title, and interest in and to
all prepaid rentals and other prepaid expenses arising from payments made by it
in the ordinary and usual course of the operation of the Business in connection
with the Excluded Assets and described in Schedule 1.2(a)(vii).
(b) The Excluded Facilities, Excluded Equipment, Excluded
Intangible Property, and all of the rights, properties, and other assets with
respect to the Business not being
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contributed to the Partnership by Prost pursuant to this Agreement are herein
collectively referred to as the "Excluded Assets."
1.3 CONVEYANCE INSTRUMENTS. In order to effectuate the
contribution of the Assets as contemplated by Section 1.1, Prost has, or will
hereafter, execute and deliver, or cause to be executed and delivered, all such
documents or instruments of assignment, transfer, or conveyance, in each case
dated the Contribution Date (collectively, the "Conveyance Instruments"), as the
parties and their respective counsel shall reasonably deem necessary or
appropriate to vest in or confirm title to the Assets to the Partnership.
1.4 ASSUMED LIABILITIES. Subject to the terms and conditions of
this Agreement and of the Partnership Agreement, in reliance on the
representations, warranties, covenants, and agreements of the parties contained
herein, the Partnership hereby assumes and agrees to pay, discharge, or fulfill
the following liabilities and obligations relating to the Business: (a) all of
the liabilities and obligations in respect of the contracts, agreements,
licenses, and other instruments, arrangements, and commitments listed in
Schedule 1.4(a); (b) the leasehold obligations, including by assignment or
sublease, in respect of the Leased Property as described in Schedule 1.4(b); and
(c) the other liabilities listed in Schedule 1.4(c) (collectively, the "Assumed
Liabilities").
1.5 EXCLUDED LIABILITIES. Notwithstanding any provision of this
Agreement or any Conveyance Instrument to the contrary, the Partnership is
assuming only the Assumed Liabilities and is not assuming any other liability or
obligation of Prost (or any predecessor owner of all or part of its business and
assets) of whatever nature whether presently in existence or arising hereafter,
and all such other liabilities and obligations shall be retained by and remain
liabilities of Prost (all of such liabilities and obligations not being assumed
hereinafter referred to as the "Excluded Liabilities") and, notwithstanding
anything to the contrary in this Section 1.5, none of the following shall be
"Assumed Liabilities" for purposes of this Agreement:
(a) Any liability for "Tax" (as defined in Section 7.4 of
this Agreement) arising from or with respect to the Assets or the operations of
the Business, other than described in Section 1.5(b) hereof, which is incurred
in or attributable to the "Tax Indemnification Period" (as defined in Section
7.4 of this Agreement) (the "Excluded Tax Liabilities"); or
(b) Any liabilities relating to the Excluded Assets (it
being understood that any Tax Liability relating to the Excluded Assets shall be
an Excluded Tax Liability for purposes of this Agreement).
1.6 CONTRIBUTION BY BWISS. Subject to the terms and conditions of
this Agreement, on the Contribution Date, as its contribution, BWISS, in
reliance on the representations, warranties, covenants, and agreements of Prost
contained herein, BWISS hereby assumes and agrees to pay, discharge, or fulfill
the liabilities and obligations described in Schedule 1.6 ("Assumed Debts").
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1.7 CONTRIBUTION DATE. The Contribution Date shall immediately
follow fulfillment or waiver of the conditions specified in Sections 8.1 through
8.3 hereof and provided that this Agreement has not been terminated or abandoned
pursuant to Section 8.4 hereof. The parties shall use their best efforts to
effectuate the Contribution Date as soon as practicable.
SECTION 2
EVENTS OCCURRING ON THE CONTRIBUTION DATE
2.1 DELIVERIES BY PROST. On the Contribution Date, Prost will
deliver to the Partnership the following:
(a) The Conveyance Instruments to effect the contribution
of the Assets to the Partnership and the assumption of the Assumed Liabilities
of the Partnership, such Conveyance Instruments to be those reasonably deemed
necessary by, and to be in form and substance reasonably satisfactory to,
counsel to the parties;
(b) All special warranty deeds and other appropriate
instruments conveying to the Partnership the Subject Property;
(c) All other previously undelivered items required to be
delivered by Prost at or prior to the Contribution Date pursuant to the terms of
this Agreement, the Partnership Agreement, and the Other Agreements.
2.2 EFFECT OF DELIVERIES. All deliveries of information and
documents contemplated to be made by Prost to the Partnership pursuant to the
terms of this Agreement, the Partnership Agreement, and the Other Agreements
shall be deemed made to such other parties on its own behalf and on behalf of
Prost's General Partner, as appropriate.
2.3 EFFECT OF CONTRIBUTIONS. In exchange for its Capital
Contribution, as defined in Section 1.10 of the Partnership Agreement, (i) Prost
shall become a partner in the Partnership pursuant to the terms of the
Partnership Agreement; (ii) Prost will receive the Percentage Interest set forth
beside its name in Section 2.1 of the Partnership Agreement; and (iii) the
Capital Account of Prost will be credited with such amount as determined under
this Agreement and the Partnership Agreement.
2.4 DELIVERIES BY BWISS. On the Contribution Date, BWISS will
deliver to the Partnership the following:
(a) Instruments necessary to effect the assumption of the
liabilities and obligations reasonably deemed necessary by, and to be in form
and substance reasonably satisfactory to, counsel to the parties.
(b) All other previously undelivered items required to be
delivered by BWISS at or prior to the Contribution Date pursuant to the terms of
this Agreement, the Partnership
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Agreement, and the Other Agreements.
2.5 EFFECT OF CONTRIBUTIONS. In exchange for its Capital
Contribution, as defined in Section 1.10 of the Partnership Agreement, (i) BWISS
shall become a partner in the Partnership pursuant to the terms of the
Partnership Agreement; (ii) BWISS will receive the Percentage Interest set forth
beside its name in Section 2.1 of the Partnership Agreement; and (iii) the
Capital Account of BWISS will be credited with such amount as determined under
this Agreement and the Partnership Agreement.
SECTION 3
OTHER AGREEMENTS
3.1 OTHER AGREEMENTS. Contemporaneously with the execution of this
Agreement and the Partnership Agreement or at the Contribution Date, Prost,
Prost's General Partner, BWISS, BWI, and the Partnership shall enter into the
following Other Agreements:
(a) Employment Agreements between BWI and Garith Helm and
Romy Angle substantially in the form attached as Exhibit B to the Partnership
Agreement with such additional terms and conditions as may be mutually agreed to
by the parties thereto to be executed at the Contribution Date.
(b) Assignment Agreement substantially in the form
attached as Exhibit C to the Partnership Agreement with such additional terms
and conditions as may be mutually agreed to by the parties thereto to be
executed at the Contribution Date.
(c) Property Lease Agreement between the Partnership and
Romy Angle for the use of the warehouse located at 3454 Shoemake Avenue,
Modesto, substantially in the form attached as Exhibit D to the Partnership
Agreement with such additional terms and conditions as may be mutually agreed to
by the parties thereto to be executed at the Contribution Date.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF PROST
4.1 ORGANIZATION.
(a) Prost is a limited partnership which is duly
organized, validly existing, and in good standing under the laws of the State of
California with the power and authority to own, lease, and operate its
properties and to carry on its business as now being conducted. Prost's General
Partner is a corporation which is duly organized, validly existing, and in good
standing under the laws of the State of California, with the corporate power and
authority to own, lease, and operate its properties and to carry on its business
as now being conducted.
(b) The copy of the Certificate of Limited Partnership
and all amendments thereto of Prost, and the Limited Partnership Agreement, as
amended to date, of Prost, as
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certified by the Secretary of Prost's General Partner and delivered to BWISS,
copies of which are attached hereto at Schedule 4.1, are true, complete, and
correct copies of the Certificate of Limited Partnership and Limited Partnership
Agreement, as amended and presently in effect, of Prost.
(c) The copy of the Articles of Incorporation and all
amendments thereto of Prost's General Partner, and the Bylaws, as amended to
date, of Prost's General Partner, as certified by its Secretary and delivered to
BWISS, copies of which are attached hereto at Schedule 4.1, are true, complete,
and correct copies of the Articles of Incorporation and Bylaws, as amended and
presently in effect, of Prost's General Partner.
4.2 QUALIFICATION. Prost is licensed or qualified to do business
and is in good standing in the jurisdictions in which it conducts its business
(except where the failure to so qualify would not have a material adverse effect
on the business or financial condition of the Business taken as a whole) (the
"Material Jurisdictions"). Schedule 4.2 contains a complete list of all Material
Jurisdictions.
4.3 AUTHORITY. Prost has the power and authority to execute and
deliver this Agreement, the Partnership Agreement, and the Other Agreements and
to consummate the transactions contemplated hereby and thereby. The execution
and delivery by Prost of this Agreement, the Partnership Agreement, and the
Other Agreements, as the case may be, and the consummation of the transactions
contemplated hereby and thereby, have been duly authorized by the Board of
Directors of Prost's General Partner, have been approved by the requisite vote
of the shareholders of Prost's General Partner, if necessary, and have been
approved by the requisite vote of the partners of Prost; no other proceedings on
the part of Prost or any other person or entity, whether pursuant to the
Certificate of Limited Partnership or Limited Partnership Agreement of Prost or
by law or otherwise, are necessary to authorize Prost to enter into this
Agreement, the Partnership Agreement, and the Other Agreements, as the case may
be, or to consummate the transactions contemplated hereby and thereby; and each
of this Agreement, the Partnership Agreement, and each Other Agreement will be
the legal, valid, and binding obligation of Prost.
4.4 NO VIOLATIONS. Except as set forth in Schedule 4.4, neither
the execution or delivery of this Agreement, the Partnership Agreement, or the
Other Agreements, nor the consummation of the transactions contemplated hereby
or thereby:
(a) Requires any filing or registration with, or consent,
authorization, approval, or Permit of, any governmental or regulatory authority
on the part of Prost;
(b) Violates or will violate (i) any order, writ,
injunction, judgment, decree, or award of any court or governmental or
regulatory authority or (ii) to the knowledge of Prost, violates or will violate
any "Law," as defined in Section 4.24 of this Agreement, of any governmental or
regulatory authority to which Prost or any of its respective properties or
assets are subject;
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(c) Violates or will violate, or conflicts with or will
conflict with, any provision of, or constitutes a default under, the Certificate
of Limited Partnership or the Limited Partnership Agreement of Prost; or
(d) Violates or breaches or constitutes a default (or an
event which, with notice or lapse of time or both, would constitute a default)
under, or give rise to a right to terminate, any mortgage, contract, agreement,
deed of trust, license, lease, or other instrument, arrangement, commitment,
obligation, understanding, or restriction of any kind to which Prost is a party
or by which its properties may be bound.
4.5 FINANCIAL STATEMENTS. Prost has heretofore delivered to BWISS
(i) the unaudited Statements of Assets and Liabilities to be Contributed to
BWI-Prost Partners as of April 30, 1996 (the "Contributed Business Balance
Sheet") and the unaudited related Statements of Historical Operations, Changes
in Equity, and Cash Flows for the Assets and Assumed Liabilities of the Business
taken as a whole for the four months ended April 30, 1996, (ii) the audited
Statements of Assets and Liabilities to be Contributed to BWI-Prost Partners as
of December 31, 1995, and the audited related Statements of Operations, Changes
in Equity, and Cash Flow for the Assets and Assumed Liabilities of the Business
taken as a whole for the year ended December 31, 1995, (iii) Statements of
Assets and Liabilities to be Contributed to BWI- Prost Partners as of December
31, 1994, the audited related Statements of Historical Operations, Changes in
Equity, and Cash Flows for the Assets and Assumed Liabilities of the Business
taken as a whole for the year ended December 31, 1994, copies of which are
annexed hereto as Schedule 4.5. The financial statements referred to in the
preceding sentence are hereinafter collectively referred to as the "Prost
Financial Statements." Each of Prost Financial Statements was prepared from the
books and records of Prost in conformity with U.S. Generally Accepted Accounting
Principles consistently applied and fairly present the financial condition and
results of operations and cash flows of the Assets and Assumed Liabilities of
the Business for the periods and as of the dates stated therein.
4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since April 30, 1996,
(the "Balance Sheet Date"), Prost has operated the Business in the ordinary
course consistent with past practice, and the Business taken as a whole has not:
(a) Suffered any material adverse change in its business
or any event or condition of any character, which, individually or in the
aggregate, has had or might reasonably be expected to have a material adverse
effect on the business or financial condition of the Business taken as a whole;
(b) Incurred any obligations or liabilities (absolute,
accrued, contingent, or otherwise) or entered into any transactions, other than
in the ordinary course of business;
(c) Paid, discharged, or satisfied any claims,
obligations, or liabilities (absolute, accrued, contingent, or otherwise),
except the payment, discharge, or satisfaction in the ordinary course of
business and consistent with past practice of any claims, obligations, and
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liabilities (i) which are reflected or reserved against in Prost Financial
Statements or (ii) which were incurred in the ordinary course of business and
consistent with past practice since the Balance Sheet Date;
(d) Permitted or allowed any of its properties or assets
to be subjected to any Encumbrances or other liabilities and obligations, except
(i) in the ordinary course of business and (ii) Permitted Encumbrances;
(e) Written off as uncollectible, or canceled or waived,
any accounts receivable or any portion thereof, or any debts or claims, except
in the ordinary course of business and consistent with past practice;
(f) Sold, conveyed, or otherwise disposed of any
properties or assets, except for fair consideration in the ordinary course of
business and consistent with past practice;
(g) Disposed of or permitted to lapse any item of
Intangible Property, or any license, Permit, or other form of authorization to
use any Intangible Property;
(h) Except for normal increases which are not material
and are consistent with past practice, granted or agreed to grant any increase
in the compensation of any Business Employee (including any such increase
pursuant to any bonus, pension, profit sharing or other plan or commitment), or
become a party to or instituted any new benefit programs for any Business
Employee;
(i) Made any capital expenditure, or commitment for a
capital expenditure, for additions to property, plant, equipment, or Intangible
Property, other than in the ordinary course of business;
(j) Made any change in any method of accounting or
accounting practice or in any Tax procedures or elections;
(k) Terminated or suffered a termination of (excluding a
termination in accordance with its terms) or amended, any material contract,
agreement, license, or lease;
(l) Declared, set aside or made any distribution, whether
in cash or property or otherwise;
(m) Agreed, whether in writing or otherwise, or made any
arrangement, whether or not legally binding, to take any action which, if taken
prior to the date hereof, would have been required to be disclosed on a Schedule
to clauses (a) through (l) of this Section 4.6.
For purposes of Section 4.6(a), a "material adverse change" shall be deemed to
include a decrease of $200,000 or more in the net assets of the Business from
the date of the Contributed Business Balance Sheet to the date of the Closing
Balance Sheet.
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4.7 CERTAIN TAX MATTERS.
(a) Except as set forth in Schedule 4.7(a), Prost and
Prost's General Partner (i) have filed or will file or furnish when due in
accordance with all applicable laws all Tax returns, statements, reports, and
forms (including information returns and reports) required to be filed or
furnished with respect to any Pre-Contribution Tax Period (collectively, the
"Returns"); (ii) have correctly reflected in all material respects on the
Returns (and, as to any Returns not filed as of the date hereof, will correctly
reflect) the facts regarding their respective income, business, assets,
operations, activities, and status of any other information required to be shown
therein; (iii) have timely paid, withheld, or made adequate provision for all
Taxes shown as due and payable on the Returns that have been filed; (iv) are not
subject to any liens for Taxes on their respective assets; (v) have not
participated in any Tax sharing or other arrangement whereby Prost or Prost's
General Partner, in determining their respective income, revenues, receipts,
gain, loss, or Tax Asset, have taken into account or included any income,
revenues, receipts, gain, loss, asset, liability, or Tax Assets of any other
person (or vice versa); (vi) are not currently under any contractual obligation
to pay the Tax obligations of, or with respect to transactions relating to, any
other person or to indemnify any other person with respect to any Tax; and (vii)
are not subject to any (A) claims, audits, actions, suits, proceedings, or
investigations with respect to any Tax or assessment for which Prost or Prost's
General Partner could be liable, which would be material, to the knowledge of
the directors or officers of Prost or Prost's General Partner, and (B) requests
for rulings in respect of any Tax or any proposed transaction pending before any
Taxing Authority.
(b) None of the directors or officers of Prost or Prost's
General Partner is aware of any state of facts which could give rise to any
claim, audit, action, suit, proceeding, or investigation with respect to any Tax
or assessment for which Prost or Prost's General Partner could be liable and
which would be material.
4.8 CONDITION OF FACILITIES. The manufacturing and other
facilities included in the Assets or owned by Prost are in adequate working
order for the continued conduct of the Business as it is presently conducted.
4.9 UTILITIES; ACCESS. The manufacturing and other facilities
included in the Assets have water supply, storm and sanitary sewer facilities,
access to telephone, gas, and electrical connections, fire protection, drainage,
means of ingress and egress to and from public highways and, without limitation,
other public utilities, all of which are adequate for the continued conduct of
the Business as it is presently conducted.
4.10 CERTAIN CONDITIONS NOT PRESENT.
(a) Except as set forth on Schedule 4.10, to the
knowledge of Prost, there are no liabilities of the Business of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable, or
otherwise, and there is no existing condition, situation, or set of
circumstances which could reasonably be expected to result in such a liability,
other than (i)
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liabilities disclosed or provided for in the Contributed Business Balance Sheet;
and (ii) liabilities incurred in the ordinary course of business consistent with
past practice since the Balance Sheet Date, which in the aggregate are not
material to the Business taken as a whole.
(b) Prost has not received notice of any pending, and has
no knowledge of any threatened or proposed, proceedings or governmental actions
to modify the zoning classification of, or to condemn, expropriate, or otherwise
take, or to purchase in lieu thereof, all or any material part of any Subject
Property.
(c) Prost has not received notice of any pending, and has
no knowledge of any threatened or proposed, reassessments or special assessments
or penalties or interest with respect to real estate taxes applicable to any
Subject Property which could, in the reasonable judgment of Prost, have any
material adverse effect on the business or financial condition of the Business
taken as a whole.
4.11 CONDITION OF EQUIPMENT. The machinery, equipment, furniture,
vehicles, and other tangible personal property of Prost which are included in
the Assets are in adequate operating condition for the continued conduct of the
Business as it is presently conducted.
4.12 INVENTORY; RECEIVABLES.
(a) Substantially all items of Inventory are of a good
and merchantable quality, usable and saleable in the ordinary course of
business. The inventory set forth on the Contributed Business Balance Sheet is
stated properly therein at the lower of cost or realizable market value,
determined in accordance with U.S. Generally Accepted Accounting Principles
consistently applied. The quantities of all items of Inventory are reasonable
and warranted in the present circumstances of the Business.
(b) All accounts and notes receivable relating to the
Business at the Balance Sheet Date have been included in the Contributed
Business Balance Sheet in accordance with U.S. Generally Accepted Accounting
Principles consistently applied. Since the Balance Sheet Date, no accounts or
notes receivable have been sold, transferred, or otherwise disposed of by Prost.
4.13 TITLE TO PROPERTIES; ENCUMBRANCES.
(a) Prost (i) has good and marketable title to each piece
of Fee Property listed in Schedule 1.1(a)(i) and to the Improvements thereon, in
each case free and clear of all Encumbrances, except for permitted Encumbrances,
and (ii) has title to all of the other Assets, free and clear of all
Encumbrances, except for Permitted Encumbrances. As a result of the delivery to
the Partnership of the Conveyance Instruments, all of the Assets are owned free
and clear of all Encumbrances, except Permitted Encumbrances and encumbrances
created by the Partnership (whether or not arising from the transactions
contemplated hereby).
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(b) Complete and accurate copies of all mortgages are
listed in Schedule 4.13(b) (the "Surviving Mortgages") which heretofore have
been furnished to BWISS. None of the Surviving Mortgages has been amended or
modified except as indicated in Schedule 4.13(b) and the aggregate amount of all
principal, interest, and other sums that is secured by each of the Surviving
Mortgages as of the Contribution Date does not exceed the amount reflected in
Schedule 4.13(b).
(c) Prost represents that (i) all principal, interest,
and other sums due and payable in accordance with the terms of the Surviving
Mortgages have been paid; and (ii) Prost has not received any notice of default
under any of the Surviving Mortgages, nor, to the knowledge of Prost, is any
such notice pending or do reasons exist for the giving of such notice.
4.14 LEASES. Schedule 4.14 sets forth a list of each lease pursuant
to which Prost leases real or personal property (collectively, the "Leases").
Prost heretofore has delivered to BWISS a true and complete copy of each such
Lease. Each of the Leases is in full force and effect in accordance with its
terms, no Lease has been modified or amended in writing, and Prost has not
received any notice of any breach or default with respect to a Lease the
consequences of which would result in such Lease being terminated by the Lessor
or which, individually or in the aggregate, would have a material adverse effect
on the business or financial condition of the Business taken as a whole.
4.15 PATENTS, TRADEMARKS, AND SIMILAR RIGHTS.
(a) Schedule 4.15(a) contains a list of all registered
Intangible Property owned by Prost and used primarily in the Business and all
licenses and other agreements relating to use of any such Intangible Property by
third parties in connection with any business which currently competes or, to
the knowledge of Prost, is reasonably likely to compete with the Business; and
Schedule 4.15(a) contains a list of all licenses and other agreements relating
to Intangible Property which Prost is licensed or authorized to use by others in
connection with the Business.
(b) Except as set forth in Schedule 4.15(b), (i) Prost
has the sole and exclusive right to use the Intangible Property which is
referred to in Schedule 4.15(a), and the consummation of the transactions
contemplated by this Agreement, the Partnership Agreement, and the Other
Agreements will not alter or impair any such rights and will result in the
Partnership having the sole and exclusive right to use all such Intangible
Property used primarily in the Business; (ii) no claims have been asserted by
any person or entity for the use of any such Intangible Property or challenging
or questioning the validity or effectiveness of any such license or agreement,
and Prost has no knowledge of any valid basis for any such claim; and (iii) to
the knowledge of Prost, the use of such Intangible Property by Prost does not
infringe on the rights of any person or entity.
4.16 INSURANCE. Prost has heretofore made available for inspection
by BWISS a true and complete copy of all material policies of fire, liability,
workers' compensation, and other forms of insurance owned or held by Prost as
described in Schedule 4.16. All such policies are
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in full force and effect, all premiums with respect thereto covering all periods
up to and including the Contribution Date have been paid, and no notice of
cancellation or termination has been received with respect to any such policy.
Such policies are in such amounts and insure against such losses and risks and
provide such coverage as, in the opinion of Prost, is adequate to protect the
Business as it is presently conducted.
4.17 ERISA.
(a) Except as described in Schedule 4.17, Prost, with
respect to any Business Employee, is not a party to or participates in or has
any liability with respect to (i) any "employee welfare benefit plan" or
"employee pension benefit plan" (as those terms are respectively defined in
Sections 3(1) and 3(2) of the Employee Retirement Income Security Act of 1974,
as amended (ERISA)), including a "multiemployer plan" (as defined in Section
3(37) of ERISA); (ii) any retirement or deferred compensation plan, incentive
compensation plan, stock plan, unemployment compensation plan, vacation pay,
severance pay, bonus or benefit arrangement, insurance or hospitalization
program, or any other material fringe benefit arrangements (herein referred to
collectively as "Employee Fringe Benefit Arrangements") for any employee, which
does not constitute an "employee benefit plan" (as defined in Section 3(3) of
ERISA); or (iii) any written employment agreement not terminable on thirty (30)
days or less written notice.
(b) A true and correct copy of each of the plans,
arrangements, and agreements listed in Schedule 4.17 heretofore has been
supplied or made available to BWISS by Prost. A true and correct copy of the
most recent annual report, actuarial report (with all attachments), summary plan
description, and Internal Revenue Service determination letter with respect to
each such plan or arrangement, to the extent applicable, heretofore has been
supplied to BWISS by Prost, and there have been no material changes in the
financial condition of any such plan from that stated in the annual report and
actuarial report supplied.
(c) All employee pension benefit plans listed in Schedule
4.17 which are subject to ERISA comply in form and in operation in all material
respects with the applicable requirements of Section 401(a) and 501(a) of the
Code. To the knowledge of Prost, no event has occurred which will or could give
rise to disqualification under the Code of any such employee pension benefit
plan listed in Schedule 4.17 that is subject to ERISA or to a tax under Section
511 of the Code; and no such plan which is subject to Part 3 of Subtitle B of
Title 1 of ERISA has incurred any "accumulated funding deficiency." Prost has
not otherwise engaged in any transaction with respect to any employee benefit
plan listed in Schedule 4.17 which could result in a tax under Section 4975 of
the Code. There are no prosecutions, claims, actions, suits, proceedings, or, to
the knowledge of Prost, investigations (collectively, "Actions") (other than
routine claims for benefits) pending or, to the knowledge of Prost, threatened
against such plans or the assets of such plans, and, to the knowledge of Prost,
no facts exist which could give rise to any such Actions (other than routine
claims for benefits). As to any employee pension benefit plan which is listed in
Schedule 4.17 and which is subject to Title IV of ERISA, there have been no
"reportable events" (as described in Section 4043 of ERISA), and no steps have
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been taken to terminate any such plan. All group health plans in which any
Business Employees participate (including any plans of current and former
affiliates of Prost which must be taken into account under Section 162(i) or
Section 162(k) of the Code) have been operated in all material respects in
compliance with the group health plan continuation coverage requirements of
Section 162(k) of the Code to the extent such requirements are applicable.
Accruals for all obligations, with respect to Business Employees under the
plans, arrangements, and agreements listed in Schedule 4.17, are reflected in
the Prost Financial Statements.
4.18 DOCUMENTS; COMMITMENTS.
(a) Prost has delivered or made available to BWISS the
following documents, each of which is true and complete:
(i) Copies of all documents in Schedule 4.18(a),
which is a list of every material contract, agreement, or other commitment,
written or oral, to which Prost is a party or has succeeded to a party by
assumption or assignment or in which it has a beneficial interest and excluding
documents listed in any other Schedule hereto (any contract or agreement shall,
for the purposes of this Agreement, be deemed material (A) if the Business taken
as a whole is substantially dependent upon it, (B) if it involves a financial
obligation of or benefit to the Business in excess of $25,000, (C) if the
contract is not made in the ordinary course, or (D) if it constitutes a
management contract or employment contract; and
(ii) Copies of all product bulletins, technical
bulletins, or other advertising or sales materials currently used in connection
with the Business.
(b) Prost does not have (i) any outstanding sales
contracts or commitments which are reasonably expected to result in any loss to
the Business upon completion of performance thereof or (ii) any outstanding bids
or sales or service proposals quoting prices which are not reasonably expected
to result in a profit consistent with past practice.
4.19 LABOR MATTERS.
(a) Prost is not a party to or is covered by any labor
agreement with any collective bargaining representative representing Business
Employees.
(b) To the knowledge of Prost, Prost is operating in
material compliance with all applicable law respecting employment and employment
practices, terms and conditions of employment, and wages and hours, and are not
engaged in any unfair labor practices.
(c) To the knowledge of Prost, there are no unfair labor
practice complaints, labor disputes, work stoppages, or union organization
efforts, or threats of the foregoing, directed against any of the operations of
the Business.
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4.20 PERSONNEL. Schedule 4.20 contains a true and complete list of:
(a) The names, titles, annual salaries, and other
compensation of each Business Employee whose annual base salary exceeds $30,000;
and
(b) The wage rates for nonsalaried Business Employees (by
classification).
(c) All bonuses or other benefits.
4.21 NO BREACH.
(a) Except as set forth in Schedule 4.21, each Permit,
contract, agreement, deed of trust, lease, policy, license, plan, commitment,
arrangement, and understanding (whether evidenced by a written document or
otherwise) referred to in this Agreement or in any Schedule hereto, under which
Prost has any right, interest, or obligation (i) is in full force and effect,
and (ii) is not subject to any threatened amendment, cancellation, or
outstanding dispute.
(b) Prost is not in breach of, and there does not exist
any default or event (including the execution and delivery of this Agreement,
the Partnership Agreement, and the Other Agreements and the consummation of the
transactions contemplated hereby or thereby) which, with the giving of notice or
the lapse of time or both, would become a breach or default, and there is no
basis for any valid claim of a default in any respect, under any thereof, and
Prost has used its best efforts to secure the consents (where such consents are
necessary) of the other parties thereto to the consummation of the transactions
contemplated by this Agreement, the Partnership Agreement, and the Other
Agreements.
4.22 CONSENTS, PERMITS, ETC. Except as set forth in Schedules 4.22,
or set forth in any applicable Schedule, no consent, approval, governmental
filing, authorization, or Permit from any person or entity is necessary to the
consummation of the transactions contemplated by this Agreement, the Partnership
Agreement, or the Other Agreements. Moreover, no other consent, approval,
permit, clearance, or audit is required under any federal law or the laws of the
states in which any member of Prost has real property or leasehold interests in
order to accomplish and complete the conveyance of real property and leasehold
interests contemplated hereunder.
4.23 LITIGATION. Except as set forth in Schedule 4.23, there are no
Actions pending or threatened by or against, or involving Prost or Prost's
General Partner or any directors or officers thereof in their capacity as such
or which question or challenge the validity of this Agreement, the Partnership
Agreement, or the Other Agreements or any action taken or to be taken by Prost
pursuant to this Agreement, the Partnership Agreement, or the Other Agreements
or in connection with the transactions contemplated hereby or thereby, which
would, if adversely decided, have a material adverse effect on the Business
taken as a whole or, after the Contribution Date, on the ability of the
Partnership to conduct the Business, and to the knowledge of Prost, there is no
valid basis for any such Action.
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4.24 COMPLIANCE WITH APPLICABLE LAW; ADVERSE RESTRICTIONS. Except
as and to the extent set forth in Schedule 4.24, the operations of Prost are
being conducted in material compliance with (a) all applicable Permits, orders,
writs, injunctions, judgments, decrees, or awards of all courts and governmental
and regulatory authorities, and (b) to the knowledge of Prost, all laws
(statutory or otherwise), ordinances, rules, regulations, bylaws, and codes of
all governmental and regulatory authorities, whether federal, state, or local
(individually, a "Law" and collectively, "Laws"), which are applicable to the
Assets of the Business (including, without limitation, those related to public
or occupational safety, pollution and protection of the environment, and
hazardous or other waste disposal). Except as and to the extent set forth in
Schedule 4.24, Prost has not received any notification of any asserted present
failure to comply with any Law, except for failures which in the aggregate are
not and were not material to the conduct of the Business as a whole and which
Prost has taken steps to correct or contest in good faith.
4.25 ENVIRONMENTAL PROTECTION. Except as set forth in Schedule
4.25:
(a) To the knowledge of Prost, Prost has obtained all
Permits relating to pollution or protection of health, safety, or the
environment which are required by Law ("Environmental Permits"), including,
without limitation, those regulating emissions, discharges, or releases of
Hazardous Substances (as defined in CERCLA, as amended by SARA "Hazardous
Waste," and "Regulated Substances" as defined by RCRA) into ambient air, surface
water, groundwater, or land, or resulting treatment, storage, or disposal of
Hazardous Substances. Prost has taken all actions necessary under applicable
requirements of Law to register any products or materials relating to the
Business, required to be registered thereunder. Prost is not aware of, nor has
Prost received notice of, any events, conditions, circumstances, activities,
practices, incidents, actions, or plans which Prost reasonably expects would
result in a claim of liability, based on or related to alleged on-site or
off-site contamination with respect to or affecting the Business and properties
related thereto. To the knowledge of Prost, there is not now on or in any of the
properties currently owned, leased, or rented by or otherwise used in the
Business any leaking underground storage tanks or surface impoundments which, if
determined by any court, governmental, or regulatory authority having
jurisdiction thereof, to be in violation of any law related to public or
occupational safety, pollution and protection of the environment, and hazardous
waste disposal, would have a material adverse effect on the Business taken as a
whole.
(b) Schedule 4.25 sets forth an accurate and complete
list of all currently pending Action, notices of any proposed or possible
Actions, relating to environmental, health, and safety matters, including
pollution and protection of the environment, and Hazardous Substances (as
defined in CERCLA) related to the Business.
(c) Prost is materially in compliance with all material
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules, and timetables contained in any Environmental Permits or
Laws or contained in any code, order, decree, or judgment issued, entered,
promulgated, or approved thereunder;
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(d) Schedule 4.25 contains an accurate and complete list
of all corrective actions required by governmental authorities or instances of
noncompliance since January 1, 1992, under all Environmental Permits relating to
the Business.
4.26 ASSETS NECESSARY TO BUSINESS. As a result of the transactions
effected hereby, the Partnership (with respect to Assets owned prior to the
Contribution Date by Prost) (a) will have title to, or a valid leasehold
interest in, all tangible and intangible assets and properties relating to the
Business; (b) will possess valid consents, authorizations, approvals, and
Permits relating to the Business; and (c) will be party to all agreements, in
each case necessary to permit the Partnership to continue to carry on the
Business substantially as presently conducted.
4.27 CUSTOMERS, DISTRIBUTORS, AND SUPPLIERS.
(a) Schedule 4.27(a) sets forth a list of the twenty (20)
largest customers of the Business in the terms of revenue during the fiscal year
ended December 31, 1995, showing the approximate total revenue received by Prost
from each such customer during such fiscal year.
(b) Schedule 4.27(b) sets forth a list of the ten (10)
largest suppliers to the Business, in terms of purchases during the fiscal year
ended December 31, 1995, showing the approximate total purchases by Prost from
each supplier during such fiscal year.
(c) Since January 1, 1996, there has not been any adverse
change in the business relationship of Prost with any customer, distributor, or
supplier which is material to the business or financial condition of the
Business taken as a whole.
4.28 BROKERS. Prost has neither incurred nor will incur any
broker's, finder's, investment banking, or similar fee in connection with this
Agreement or the transactions contemplated by this Agreement.
SECTION 5
REPRESENTATIONS AND WARRANTIES OF BWISS
5.1 ORGANIZATION.
(a) BWISS is a corporation which is duly organized,
validly existing, and in good standing under the laws of the State of California
with the power and authority to own, lease, and operate its properties and to
carry on its business as now being conducted.
(b) The copy of the Articles of Incorporation and all
amendments thereto of BWISS, and the Bylaws, as amended to date, of BWISS, as
certified by its Secretary and delivered to Prost, are true, complete, and
correct copies of the Articles of Incorporation and Bylaws, as amended and
presently in effect, of BWISS. Copies are attached hereto as Schedule 5.1.
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5.2 AUTHORITY. BWISS has the power and authority to execute and
deliver this Agreement, the Partnership Agreement, and the Other Agreements and
to consummate the transactions contemplated hereby and thereby. The execution
and delivery by BWISS of this Agreement, the Partnership Agreement, and the
Other Agreements, as the case may be, and the consummation of the transactions
contemplated hereby and thereby, have been duly authorized by the Board of
Directors of BWISS and have been approved by the sole shareholder of BWISS; no
other proceedings on the part of BWISS or any other person or entity, whether
pursuant to the Articles of Incorporation or Bylaws of BWISS or by law or
otherwise, are necessary to authorize BWISS to enter into this Agreement, the
Partnership Agreement, and the Other Agreements, as the case may be, or to
consummate the transactions contemplated hereby and thereby; and each of this
Agreement, the Partnership Agreement; and each Other Agreement will be the
legal, valid, and binding obligation of BWISS.
5.3 NO VIOLATIONS. Except as set forth in Schedule 5.3, neither
the execution or delivery of this Agreement, the Partnership Agreement, or the
Other Agreements, nor the consummation of the transactions contemplated hereby
or thereby:
(a) Requires any filing or registration with, or consent,
authorization, approval, or Permit of, any governmental or regulatory authority
on the part of BWISS;
(b) Violates or will violate (i) any order, writ,
injunction, judgment, decree, or award of any court or governmental or
regulatory authority or (ii) to the knowledge of BWISS, violates or will violate
any "Law," as defined in Section 4.24 of this Agreement, of any governmental or
regulatory authority to which BWISS or any of its respective properties or
assets are subject;
(c) Violates or will violate, or conflicts with or will
conflict with, any provision of, or constitutes a default under, the Articles of
Incorporation or Bylaws of BWISS; or
(d) Violates or breaches or constitutes a default (or an
event which, with notice or lapse of time or both, would constitute a default)
under, or give rise to a right to terminate, any mortgage, contract, agreement,
deed of trust, license, lease, or other instrument, arrangement, commitment,
obligation, understanding, or restriction of any kind to which BWISS is a party
or by which its properties may be bound.
5.4 BROKERS. BWISS has neither incurred nor will incur any
broker's, finder's, investment banking, or similar fee in connection with the
transactions contemplated by this Agreement.
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SECTION 6
COVENANTS
6.1 CONDUCT OF BUSINESS OF PROST PENDING THE CONTRIBUTION DATE.
Prost agrees that from the date hereof and prior to the Contribution Date or
earlier termination of this Agreement:
(a) Prost shall use its reasonable best efforts to carry
on the Business in the usual, regular and ordinary course in substantially the
same manner as heretofore conducted, maintain its current Licenses and Permits,
keep available the services of its present officers and key employees and
preserve its relationships with customers, suppliers and others having business
dealings with it to the end that its goodwill and on-going businesses shall be
unimpaired at the Contribution Date, except such impairment as would not have a
material adverse effect on the business, assets, operations or financial
condition of Prost. Prost shall use its reasonable best efforts to (i) maintain
insurance coverages and its books, accounts and records in the usual manner
consistent with prior practices; (ii) comply in all material respects with all
laws, ordinances and regulations of governmental entities applicable to Prost;
(iii) maintain and keep its properties and equipment in good repair, working
order and condition, ordinary wear and tear excepted; and (iv) perform in all
material respects its obligations under all contracts and commitments to which
it is a party or by which it is bound.
(b) Except as required or permitted by this Agreement,
Prost shall not and shall not propose to (i) amend its Certificate of Limited
Partnership or Limited Partnership Agreement, or except as required by court
order, hold any meeting of partners or (other than in opposition to a
solicitation by a third party) solicit any partner action by written consent,
(ii) issue or authorize or propose the issuance of partnership interests or any
other securities; (iii) declare, set aside or make any distribution payable in
cash or property or (iv) directly or indirectly redeem, purchase or otherwise
acquire or agree to redeem, purchase or otherwise acquire any partnership
interests of Prost.
(c) Prost shall not (i) except as required or permitted
by this Agreement, issue, deliver or sell or agree to issue, deliver or sell any
additional interests in Prost, or rights of any kind to acquire any interests in
Prost, or incur any liability in respect of (a) borrowed money, (b) capitalized
lease obligations, (c) deferred purchase price of property or services (other
than trade payables in the ordinary course) and (d) guarantees of any of the
foregoing ("Indebtedness") (other than pursuant to existing lines of credit for
use in the ordinary course of business and consistent with past practices) or
any option, rights or warrants to acquire, or securities convertible into,
partnership interests; (ii) except as required or permitted by this Agreement,
acquire, lease or dispose or agree to acquire, lease or dispose of any capital
assets or any other assets other than in the ordinary course of business; (iii)
incur additional Indebtedness or encumber or grant a security interest in any
asset or enter into any other transaction other than in each case in the
ordinary course of business (iv) acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial equity interest in, or by any
other manner, any business or any corporation, partnership, association or other
business organization or division thereof; or (v) enter into any contract,
agreement, commitment or
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arrangement with respect to any of the foregoing.
(d) Prost shall not, except as expressly permitted by
this Agreement or required to comply with applicable law or this Agreement, (i)
adopt, enter into, terminate or amend any bonus, profit sharing, compensation,
severance, termination, stock option, pension, retirement, deferred
compensation, employment or other Benefit Plan, agreement, trust, fund or other
arrangement for the benefit or welfare of any director, officer or current or
former employee, (ii) increase in any manner the compensation or fringe benefits
of any director or officer or any employee (except, with respect to employees,
for normal increases in the ordinary course of business that are consistent with
past practice and that, in the aggregate, do not result in a material increase
in benefits or compensation expense to Prost relative to the level in effect
prior to such amendment), (iii) pay any benefit not provided under any existing
plan or arrangement, (iv) grant any awards under any bonus, incentive,
performance or other compensation plan or arrangement (including, without
limitation, the grant of stock options, stock appreciation rights, stock based
or stock related awards, performance units or restricted stock, or the removal
of existing restrictions in any Benefit Plan or agreements or awards made
thereunder), (v) take any action to fund or in any other way secure the payment
of compensation or benefits under any employee plan, agreement, contract or
arrangement other than in the ordinary course of business consistent with past
practice or (vi) adopt, enter into, amend or terminate any contract, agreement,
commitment or arrangement to do any of the foregoing.
(e) Between the date hereof and the Contribution Date,
(i) Prost shall provide BWISS within 25 days after the end of each month such
financial statements as are customarily prepared by Prost on a monthly basis;
(ii) Prost shall consult with BWISS on a regular basis with respect to all
operating decisions which could be expected to result in a material change in
the business of Prost as presently operated or which are not in the ordinary
course of business; and (iii) Prost shall permit representatives of BWISS and
prospective providers of information, documents, facilities and personnel as
they may from time to time request.
6.2 APPROVAL OF PARTNERS. Prost shall (a) cause a meeting of its
partners to be duly called and held in accordance with the laws of the State of
California and Prost's certificate of limited partnership and limited
partnership agreement as soon as reasonably practicable for the purpose of
voting on the adoption and approval of this Agreement, the Other Agreements and
the Partnership Agreement (the "Proposal"), (b) recommend to its partners
approval of the Proposal, (c) use its best efforts to obtain the necessary
approval of its partners, and (d) in cooperation with BWISS mail to partners a
transmittal letter in form and substance reasonably satisfactory to BWISS to be
used by such partners in forwarding their partnership interests certificates, if
any, for surrender and exchange. Except with the prior written consent of BWISS,
neither Prost nor Prost's General Partner shall distribute any materials to
Prost's partners in connection with the Proposal other than such information as
BWISS deems appropriate.
6.3 THIRD PARTY CONSENTS. Each party to this Agreement shall use
its best efforts to obtain, as soon as reasonably practicable, all permits,
authorizations, consents, waivers and
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approvals from third parties or governmental authorities necessary to consummate
this Agreement and the transactions contemplated hereby or thereby, including,
without limitation, any permits, authorizations, consents, waivers and approvals
required in connection with the Proposal.
6.4 EMPLOYEE MATTERS.
(a) The Partnership shall offer employment with the
Partnership to each employee of Prost engaged primarily in the Business (such
employees are hereinafter referred to as the "Business Employees") who on the
Contribution Date is actively employed by Prost or who was actively employed by
Prost but is on authorized leave of absence, military service, or layoff with
recall rights as of the Contribution Date, but shall exclude any other inactive
or former Business Employee, including any person who is on short-term or
long-term disability or who has terminated his or her employment, retired, or
died on or before the Contribution Date. All such Business Employees who are
offered employment by the Partnership and who accept such employment shall be
collectively referred to as the "Transferred Employees."
(b) The Partnership shall indemnify and hold Prost and
its Affiliates harmless from any liability, loss, damage, or expense Prost or
its Affiliates may incur as a result of any claims made subsequent to the
Contribution Date relating to severance and severance claims arising with
respect to any Business Employee because of the failure of the Partnership to
offer such Business Employee employment in accordance with Section 6.4(a) of
this Agreement. Prost shall retain all liabilities and obligations arising from
the termination or severance of any Business Employee solely as a result of such
Employee's failure to accept an offer of employment pursuant to Section 6.4(a)
of this Agreement which is made on terms and conditions which are in accordance
with the provisions of Section 6.4(d) of this Agreement.
(c) Prost covenants and agrees not to solicit or hire for
employment with Prost or any of its Affiliates any Transferred Employee without
the consent of BWISS, such covenant and agreement to terminate two (2) years
after the Contribution Date. Except as specifically provided for in this
Agreement, Prost covenants and agrees to retain all responsibility and liability
with respect to the vested accrued benefits (including any claims with respect
to any medical benefits that were incurred but not reported prior to the
Contribution Date as of the Contribution Date) of the Transferred Employees
(including any beneficiary or dependent thereof) under Prost employee welfare
benefit plans, employee pension benefit plans, and employee fringe benefit
arrangements and any other liabilities or obligations relating to Prost employee
benefits or compensation.
(d) Except for persons entering into the Employment
Agreements attached to the Partnership Agreement, the Partnership covenants and
agrees to pay to any Transferred Employee who accepts or continues, as the case
may be, at-will employment with the Partnership with a rate of base salary at
least equal to such Transferred Employee's rate of base salary on the
Contribution Date, and to provide such Transferred Employee with a title and
responsibilities comparable to those of such Transferred Employee on the
Contribution Date.
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For a period of one (1) year commencing on the Contribution Date, the
Partnership covenants and agrees to provide the Transferred Employees such
employee welfare benefit plans, employee pension benefit plans, and employee
fringe benefit arrangements which, in the aggregate, are at least as favorable
as the benefits presently provided to Business Employees under the plans and
arrangements listed on Schedule 4.17.
SECTION 7
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
7.1 SURVIVAL; INDEMNIFICATION.
(a) The covenants, agreements, representations, and
warranties of the parties hereto contained herein or in any certificate or other
writing delivered pursuant hereto or in connection herewith shall survive the
Contribution Date until December 31, 2001, except that (i) any covenants,
agreements, representations, or warranties relating to Tax matters shall extend
until the expiration of the applicable statutory period of limitations (giving
effect to any waiver or extension thereof) and (ii) the indemnity provisions set
forth in Sections 7.1(b)(ii), 7.1(b)(iii) and 7.1(b)(v) of this Agreement shall
extend without limit as to time. Notwithstanding the preceding sentence, any
covenant, agreement, representation, or warranty in respect of which indemnity
may be sought under this Section 7 shall survive the time at which it would
otherwise terminate pursuant to such sentence, if notice of the inaccuracy or
breach thereof giving rise to such indemnity shall have been given to the party
against whom such indemnity may be sought, prior to such time.
(b) Prost and its successors and assigns (each an
"Indemnitor"), jointly and severally, hereby agree to indemnify each Indemnitee
and Indemnitee Affiliate (as each is defined in Section 7.4 of this Agreement)
against and agree to hold it harmless from any and all damage, loss, liability,
and expense (including, without limitation, reasonable expenses of investigation
and attorney's fees and expenses in connection with any action, suit,
proceeding, claim, investigation, or other loss) (a "Loss") incurred or suffered
by such Indemnitee arising out of (i) any breach of any covenant or agreement or
of any inaccuracy or omission in any representation or warranty made by Prost
pursuant to this Agreement; (ii) the failure of Prost to perform any obligation
or liability of the Business not assumed by the Partnership pursuant to this
Agreement or relating to the Excluded Assets for which indemnification
provisions are set forth in Section 7.3 of this Agreement; (iii) or relating to
claims by third parties in connection with the contribution by Prost of the
Business to the Partnership; (iv) any and all losses, claims, demands,
penalties, fines, settlements, or damages arising under U.S. or any state or
local Environmental Laws and relating to conditions, events, actions,
violations, obligations, or circumstances that exist in whole or part prior to
the Contribution Date; and (v) any breach of any covenant or agreement or of any
inaccuracy or omission in any representation or warranty made by Prost pursuant
to this Agreement and at the time such representation or warranty was made,
Prost knew it was false with the intent to deceive Indemnitee or an Indemnitee
Affiliate.
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7.2 LIMITATIONS OF INDEMNIFICATION. Notwithstanding anything
contained in this Section 7 to the contrary, the Indemnitors shall be required
to indemnify each Indemnitee and Indemnitee Affiliate against and hold it
harmless from all Loss (other than relating to Taxes) with respect to Sections
7.1(b)(i) and 7.1(b)(iv) of this Agreement only to the extent that the aggregate
amount of such Loss exceeds Five Thousand Dollars ($5,000.00) (the "Liability
Threshold"). In the event that the aggregate amount of all Loss (other than
relating to Taxes) with respect to Sections 7.1(b)(i) and 7.1(b)(iv) of this
Agreement sustained by the Indemnitees or Indemnitee Affiliates exceeds the
Liability Threshold, and the Indemnitors are required to indemnify such
Indemnitees, the Indemnitors shall be responsible for payment for all Loss with
respect to Sections 7.1(b)(i) and 7.1(b)(iv) of this Agreement in excess of the
Liability Threshold; provided, however, that in no event shall the amount of
Loss (other than relating to Taxes) with respect to Sections 7.1(b)(i) and
7.1(b)(iv) of this Agreement payable by the Indemnitors exceed in the aggregate
the value of Prost's Capital Contribution.
7.3 TAX INDEMNIFICATION WITH RESPECT TO TAX LIABILITY.
(a) Except to the extent such Taxes are set forth in the
Contribution Date Balance Sheet and subject to Section 7.3(i) hereof, Prost
shall indemnify and hold harmless each Indemnitee from (i) any liability for Tax
of Prost which is incurred in or attributable to the Tax Indemnification Period;
and (ii) any liability, cost, expense (including, without limitation, reasonable
expenses of investigation and reasonable attorneys' fees and expenses), loss,
damages, assessment, settlement, or judgment arising out of or incident to the
imposition, assessment, or assertion of any liability described in subclauses
(i) and (ii) hereof, including those incurred in the contest in good faith of
appropriate proceedings for the imposition, assessment, or assertion of any tax
(subject to the provisions of Section 7.3(e) hereof), and any liability of any
Indemnitee by reason of being a transferee of the assets of Prost with respect
to any liability for Tax of Prost which is incurred or attributable to the Tax
Indemnification Period. The sum of (i) and (ii) above is referred to herein as a
"Tax Loss."
(b) In the case of any Taxes that are imposed, assessed,
or asserted on a periodic basis and are payable for a Taxable period that
includes (but does not end on) the Contribution Date, the portion of such Taxes
related to the portion of such Taxable period ending on the Contribution Date
and the portion of such Taxes that is incurred in or attributable to the
Pre-Contribution Tax Period shall (i) in the case of any Tax other than a Tax
imposed on, measured by, or related to revenues, gross or net income, receipts,
gains, or compensation, be deemed to be the amount of such Tax for the entire
Taxable period multiplied by a fraction, the numerator of which is the number of
days in the Pre-Contribution Tax Period and the denominator of which is the
number of days in the entire Taxable period, and (ii) in the case of any Tax
imposed on, measured by, or related to revenues, gross or net income, receipts,
gains, or compensation, be deemed equal to the amount of such Tax for the entire
Taxable period multiplied by a fraction, the numerator of which is the revenues,
gross or net income, receipts, gains, or compensation, as the case may be,
attributable to the Tax Indemnification Period and the denominator of which is
the total amount of revenues, gross or net income, receipts, gains, or
compensation for the entire Taxable period.
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(c) Upon the incurrence by any Indemnitee of any Tax Loss
or any Loss relating to an excluded Tax Liability (as defined in Section 1.5(i)
hereof), Prost shall discharge its obligations to indemnify such Indemnitee
against such Tax Loss or Loss by paying to the Indemnitee in U.S. dollars an
amount equal to the amount of such Tax Loss or Loss. Any payment pursuant to
this Section 7.3(c) or Section 7.1 hereof relating to an Excluded Tax Liability
shall be delivered no later than five (5) days prior to the first date on which
such Indemnitee is required (without incurring interest or penalties) under
applicable law to make any payment with respect to or as a result of such Tax
Loss or Loss. The Partnership shall deliver to Prost, upon the incurrence of a
Tax Loss or any Loss relating to an Excluded Tax Liability by any Indemnitee,
written notice describing such Tax Loss or Loss and stating the amount thereof,
the amount of the indemnity payment requested, and the first date on which such
Indemnitee is required (without incurring interest or penalties) to make any
payment with respect to or as a result of such Tax Loss or Loss. Any payment
required under this Section 7.3(c) or any Loss relating to an Excluded Tax
Liability and not made when due shall bear interest at the federal short-term
rate under Section 1274 of the Code for each day until paid.
(d) If any Indemnitee receives a refund or reduces its
Tax liability by using a credit of any Tax in respect of the Tax Indemnification
Period or any Excluded Tax Liability, such Indemnitee shall pay to Prost the
amount of such refund or credit within thirty (30) days of the date on which
such refund or credit is received or used by such Indemnitee. The Partnership
agrees that, upon the request of Prost, the Partnership shall file, or cause an
Indemnitee to file, a claim for refund in such form as Prost may reasonably
request of any Tax in respect of the Tax Indemnification Period or any Excluded
Tax Liability provided that the Partnership or an Indemnitee shall not be
required to file such a claim if such claim would adversely affect the Tax
liability of the Partnership, or any of its Affiliates or, after the
Contribution Date. Prost shall have the sole right to prosecute such claim for
refund (by suit or otherwise) at Prost's expense and with counsel of Prost's
choice. The Partnership agrees that it will cooperate, and cause each Indemnitee
to cooperate, fully with Prost and its counsel in connection therewith.
(e) The Partnership agrees to give prompt notice to Prost
of the assertion of any claim, or the commencement of any suit, action,
proceeding, audit, or assessment in respect of which indemnity may be sought
hereunder or under Section 7.1 of this Agreement relating to an Excluded Tax
Liability, and of any Loss, (specifying with reasonable particularity the basis
therefor) and will give Prost such information with respect thereto as Prost may
reasonably request. Prost may, at its own expense, participate in and, upon
notice to the Partnership, assume the defense of any such suit, action,
proceeding, or audit; Prost shall thereafter consult with the Partnership upon
the Partnership's reasonable request for such consultation from time to time
with respect to such suit, action, proceeding, or audit and shall not, without
Company's consent, agree to any settlement or assert any position with respect
to any Tax if such settlement or position could adversely affect the Tax
liability of the Partnership, any of its Affiliates, or, after the Contribution
Date, Prost. If Prost assumes such defense, the Partnership shall have the right
(but not the duty) to participate in the defense thereof and to employ counsel,
at its own expense, separate from the counsel employed by Prost provided that
ultimate control shall
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remain with Prost. Prost shall be liable for the fees and expenses of counsel
employed by the Partnership for any period during which Prost has not assumed
the defense thereof. Whether or not Prost chooses to defend or prosecute any
claim, all of the parties hereto shall cooperate in the defense or prosecution
thereof.
(f) Prost shall not be liable under this Section 7.3 or
Section 7.1 of this Agreement relating to an Excluded Tax Liability with respect
to any Tax resulting from a claim or demand the defense of which Prost was not
offered the opportunity to assume as provided under Section 7.3(e) of this
Agreement. No investigation by the Partnership or any of its Affiliates at or
prior to the Contribution Date shall relieve Prost of any liability hereunder.
(g) If any adjustments shall be made to any Tax return
relating to Prost in respect of the Business for any Pre-Contribution Tax Period
which result in any Tax detriment to Prost or any Affiliate thereof with respect
to such period and any Tax benefit to the Partnership or any Affiliate thereof
for any Taxable period ending after the Contribution Date, Prost shall be
entitled to the benefit of such Tax benefit, and the Partnership shall pay to
Prost the amount of such Tax benefit at such time or times as and to the extent
that the Partnership or any Affiliate thereof actually realizes such benefit
through a refund of Tax or reduction in the amount of Tax which the Partnership
or any Affiliate thereof otherwise would have had to pay if such adjustment had
not been made. If any adjustments (including any adjustment arising by reason of
a refund claim) shall be made to any Tax return relating to the Partnership or
Prost for any Taxable period after the Contribution Date which result in any Tax
detriment to the Partnership or any Affiliate thereof with respect to such
period and any Tax benefit to Prost or any Affiliate thereof for any
Pre-Contribution Tax Period, the Partnership shall be entitled to the benefit of
such Tax benefit, and Prost shall pay to the Partnership the amount of such Tax
benefit at such time or times as and to the extent that Prost or any Affiliate
thereof actually realizes such benefit through a refund of Tax or reduction in
the amount of Tax which Prost or any such Affiliate otherwise would have had to
pay if such adjustment had not been made.
(h) If the Partnership or any Affiliate thereof realizes
such a Tax benefit in a taxable period ending after the Contribution Date with
respect to a Tax Loss through a refund of Tax or reduction in the amount of Tax
which the Partnership or any Affiliate thereof otherwise would have to pay then,
(i) if such benefit is actually realized prior to the indemnity payment being
made, the amount of such benefit shall reduce the amount of the indemnity
payment otherwise required to be made hereunder, and (ii) if such benefit is
actually realized subsequent to the indemnity payment or contribution being
made, the Partnership or such Affiliate shall pay the amount of such benefit to
Prost at such time as such benefit is actually realized.
(i) With respect to liability for Tax of Prost incurred
in or attributable to the Pre-Contribution Tax Period in respect of any item
which gave rise to an amount included in the provision for deferred income taxes
on the Contribution Date Balance Sheet, Prost shall pay to an Indemnitee an
amount equal to the amount of such Tax liability, minus the present value of (i)
any deduction, amortization, exclusion from income, or tax credit allowable to
such
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Indemnitee which would not be allowable but for an adjustment with respect to
which Prost is obligated to indemnify such Indemnitee ("the Tax Benefit"),
multiplied (ii) by the maximum applicable tax rate in effect at such time or, in
the case of a credit, by 100 percent (the product of (i) and (ii) in the
preceding clause shall be referred to as "the Hypothetical Tax Benefit"). The
present value of the Hypothetical Tax Benefit shall be determined based on the
federal mid-term rate under Section 1274 of the Code in effect at the time the
indemnification payment is made, compounded annually for the number of years
between the year to which the adjustment relates and the year on which such Tax
Benefit would be allowable under law whether or not the Indemnitee could derive
any actual tax savings as a result thereof.
7.4 DEFINITIONS. For the purpose of this Agreement, the following
terms have the following meanings:
(a) "Affiliate" means, with respect to any person, any
person directly or indirectly controlling, controlled by, or under common
control with such other person.
(b) "Code" means the Internal Revenue Code of 1986, as
amended.
(c) "Indemnitee" means the Partnership, any of its
Affiliates, and BWISS.
(d) "Indemnitee Affiliate" means the employees,
successors, and assigns of each Indemnitee, and, with respect to each corporate
Indemnitee, its directors, officers, and shareholders.
(e) "Pre-Contribution Tax Period" means any Tax Period
ending on or before the close of business on the Contribution Date, or, in the
case of any Tax period which includes, but does not end on, the Contribution
Date, the portion of such period up to and including the Contribution Date.
(f) "Tax" means (i) any net income, alternative or add-on
minimum tax, gross income, gross receipts, sales, use, ad valorem, franchise,
capital, paid-up capital, profits, greenmail, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom, duty, or other tax, governmental
fee, or other like assessment or charge of any kind whatsoever, together with
any interest or any penalty, addition to tax, or additional amount imposed by
any governmental authority (a "Taxing Authority") responsible for the imposition
of any such tax (domestic or foreign), and (ii) liability for the payment of any
amounts of the type described in (i) as a result of any express obligations to
indemnify any other Person.
(g) "Tax Asset" means any net operating loss or other Tax
loss, net capital loss, investment Tax credit, foreign Tax credit, charitable
deduction, or any other credit or Tax attribute of Prost which could reduce
Taxes (including, without limitation, deductions and credits related to
alternative minimum Taxes).
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(h) "Tax Indemnification Period" means (i) any
Pre-Contribution Tax Period, or (ii) with respect to any Tax described in clause
(ii) of Section 7.4(f), the survival period of the indemnification obligation
under the applicable contract.
7.5 CONTROL OF LITIGATION.
(a) The Indemnitees and Indemnitee Affiliates agree to
give prompt notice to the Indemnitors of the assertion of any claim, or the
commencement of any suit, action, or proceeding in respect of which indemnity
may be sought under Section 7.1(b) of this Agreement and of any Loss which any
such Indemnitee deems to be within Section 7.1(b) of this Agreement other than
relating to Taxes (specifying with reasonable particularity the basis therefor)
and will give the Indemnitors such information with respect thereto as the
Indemnitors may reasonably request. The Indemnitors may, at their own expense,
participate in and, upon notice to such Indemnitee, assume the defense of any
such suit, action, or proceeding; provided that the Indemnitors' counsel is
reasonably satisfactory to such Indemnitee, the Indemnitors shall thereafter
consult with such Indemnitee upon such Indemnitee's reasonable request for such
consultation from time to time with respect to such suit, action, or proceeding,
and the Indemnitors shall not, without such Indemnitee's consent, which consent
shall not be unreasonably withheld, settle or compromise any such suit, action,
or claim. If the Indemnitors assume such defense, such Indemnitees shall have
the right (but not the duty) to participate in the defense thereof and to employ
counsel, at their own expense, separate from the counsel employed by the
Indemnitors. For any period during which the Indemnitors have not assumed the
defense thereof, the Indemnitors shall be liable for the fees and expenses of
counsel employed by any Indemnitee; provided, however, that the Indemnitors
shall not be liable for the fees or expenses of more than one counsel employed
by any Indemnitee in any jurisdiction for all Indemnitees. If the Indemnitees
assume the defense thereof, the Indemnitees shall thereafter consult with the
Indemnitors upon the Indemnitors' reasonable request for such consultation from
time to time with respect to such suit, action, or proceeding and the
Indemnitees shall not, without the Indemnitors' consent, which consent shall not
be unreasonably withheld, settle or compromise any such suit, action, or claim.
Whether or not the Indemnitors choose to defend or prosecute any claim, all of
the parties hereto shall cooperate in the defense or prosecution thereof.
(b) The Indemnitors shall not be liable under Section
7.1(b) hereof with respect to any Loss resulting from a claim or demand the
defense of which the Indemnitors were not offered the opportunity to assume as
provided under Section 7.5(a) hereof to the extent the Indemnitors' liability
under Section 7.1(b) hereof is prejudiced as a result thereof. No investigation
by any Indemnitee or Indemnitee Affiliate prior to the Contribution Date shall
relieve any Indemnitor of any liability hereunder.
7.6 TRANSFER TAXES. Prost shall pay, or cause to be paid, all
Taxes or recording fees imposed on any transfers by Prost of real property and
tangible and intangible personal property, including without limitation
Intellectual Property, applicable to the transfers of the Assets contemplated by
this Agreement and all sales and use Taxes applicable to transfers by Prost of
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the Assets contemplated by this Agreement.
7.7 COOPERATION ON TAX MATTERS. Prost and the Partnership shall
cooperate fully, as and to the extent reasonably requested by the other party,
in connection with any audit, litigation, or other proceeding with respect to
Taxes. Such cooperation shall include the retention and (upon the other party's
request) the provision of records and information which are reasonably relevant
to any such audit, litigation, or other proceeding and making employees
available on a mutually convenient basis to provide additional information and
explanation of any material provided hereunder. The Partnership and Prost agree
(a) to retain all books and records which are relevant to the determination of
the Tax liabilities pertinent to the Assets and Prost relating to any
Pre-Contribution Tax Period until the expiration of the applicable statute of
limitations and to abide by all record retention agreements entered into with
any Taxing Authority, and (b) to give the other party reasonable written notice
prior to destroying or discarding any such books and records and, if the other
party so requests, the Partnership or Prost, as the case may be, shall allow the
other party to take possession of such books and records.
7.8 ELECTIONS. Prior to the Contribution Date, without the prior
written consent of BWISS, neither Prost nor any Affiliate of Prost shall make or
change any election, change an annual accounting period, adopt or change any
accounting method, file any amended Return, enter into any closing agreement,
settle any Tax claim or assessment relating to Prost, surrender any right to
claim a refund of Taxes, consent to any extension or waiver of the limitation
period applicable to an Tax claim or assessment relating to Prost, take any
other action, or omit to take any action, if any such election, adoption,
change, amendment, agreement, settlement, surrender, consent, or other action or
omission that had (or will have) the effect of increasing the Tax liability of
Prost, the Partnership, or any Affiliate of the Partnership.
7.9 TAX RETURNS OF PROST. With respect to any Tax return required
to be filed by Prost for its taxable period which includes (but does not end on)
the Contribution Date, the Partnership shall provide Prost and its authorized
representatives with copies of such completed Tax return and a statement (with
which the Partnership will supply supporting schedules and information) setting
forth the amount of Tax shown on such Tax return that is allocable to Prost
pursuant to Section 7.3(b) hereof (the "Statement") at least forty-five (45)
business days prior to the due date (including any extension thereof) for the
filing of such Tax return. Reasonable costs, fees, and expenses relating to the
preparation of such Tax return shall be borne equally by Prost and the
Partnership. Prost shall have the right at its own expense to review such Tax
return and Statement prior to the filing of such Tax return. If Prost, within
ten (10) business days after delivery of the Statement, notifies the Partnership
in writing that it objects to any items on such Statement, specifying with
particularity any such item and stating the specific factual or legal basis for
any such objection, the Partnership and Prost shall resolve in good faith and
use their best efforts to resolve such items. If the dispute is not resolved
within twenty (20) days after receipt by the Partnership of such notice, the
disputed items shall be resolved pursuant to Section 7.10 hereof and such Tax
return shall be filed consistently therewith. Not later than the later of five
(5) days before the due date for payment of Taxes with respect to such Tax
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return or, in the event of a dispute, five (5) days after notice to Prost of the
resolution thereof, Prost shall contribute to the Partnership or the Partnership
shall distribute to Prost, as the case may be, an amount equal to the difference
between (a) the Taxes shown on the Statement as being allocable to Prost
pursuant to Section 7.10 hereof or in such notice (as the case may be) and (b)
any payment made by Prost or any Affiliate thereof prior to the Contribution
Date in respect of such Taxes.
7.10 CERTAIN DISPUTES. To the extent provided in Section 7.9
hereof, disputes arising under such Section and not resolved by mutual agreement
as stated therein shall be resolved by an accounting firm with no affiliation or
relationship whatsoever with the Partnership, Prost, or its Affiliates (the
"Accounting Referee"), chosen and mutually acceptable to both the Partnership
and Prost within five (5) days of the date on which the need to choose the
Accounting Referee arises. The Accounting Referee shall resolve any disputed
items within thirty (30) days of having the item referred to it pursuant to such
procedures as it may require. The costs, fees, and expenses of the Accounting
Referee shall be borne equally by the Partnership and Prost.
7.11 OTHER TAX MATTERS. Any payment by Prost to the Partnership or
any other Indemnitee or Indemnitee Affiliate or any payment by the Partnership
or any other Indemnitee to Prost made under this Section 7 will be treated as
Capital Contributions to the Partnership or distributions from the Partnership
for federal income tax purposes, provided that such payments will not affect the
Capital Account of, any other contributions to be made by, or the distributions
or allocations to be made to Prost under the Partnership Agreement.
SECTION 8
CONDITIONS TO CLOSING; TERMINATION
8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE CLOSING.
The respective obligations of each party to effect the closing of the
transaction contemplated by this Agreement and the Partnership Agreement shall
be subject to the fulfillment of all of the following conditions precedent at or
prior to the Contribution Date:
(a) The closing of a public offering of BWI's common
stock realizing gross proceeds (before any deductions, including, but not
limited to, underwriters' compensation and expenses) of at least $8,000,000;
(b) This Agreement, the Partnership Agreement and the
Other Agreements shall have been approved and adopted by (i) the requisite vote
of the Board of Directors and shareholders of Prost's General Partner, (ii) the
requisite vote of the Board of Directors and sole shareholder of BWISS, and
(iii) the requisite vote of Prost partners;
(c) No governmental entity or federal or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, injunction or
other order (whether temporary, preliminary or permanent) which is in effect and
which materially restricts, prevents or prohibits consummation
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of the transactions contemplated by this Agreement; provided, however, that the
parties shall use their reasonable best efforts to cause any such decree,
judgment, injunction or other order to be vacated or lifted; and
(d) All licenses, permits, registrations, authorizations,
consents, waivers, orders or other approvals required to be obtained, and all
filings, notices or declarations required to be made, by Prost, BWISS, or the
Partnership in order to consummate the Proposal and the transactions
contemplated hereunder shall have been obtained from, and made with, all
required governmental entities, without any material condition thereto.
8.2 CONDITIONS TO OBLIGATION OF BWISS TO EFFECT THE CLOSING. The
obligation of BWISS to effect the closing of the transaction contemplated by
this Agreement and the Partnership Agreement is subject to fulfillment of all of
the following conditions precedent at or prior to the Contribution Date:
(a) The representations and warranties of Prost set forth
herein are true and correct in all material respects as of the date hereof and
as of the Contribution Date. Any matter which would otherwise constitute a
failure to comply with or conform to a representation or warranty by Prost
hereunder shall not be deemed to be such a failure if BWISS has consented to the
same in writing.
(b) Prost shall have performed, satisfied and complied
with all covenants, agreements, and conditions required to be performed by it.
(c) At the closing, Prost shall have delivered to, or
have made available to BWISS at the offices of Prost, all of the following:
(1) a certificate of Prost, executed by the
President and Chief Financial Officer of Prost's General Partner, to the effect
that each of the conditions specified in Sections 8.2(a), 8.2(b), 8.2(e) and
8.2(g) have been satisfied and that this Agreement and the transactions
contemplated hereby were approved by the requisite vote of the Prost partners;
(2) resolutions duly adopted by the Board of
Directors of Prost's General Partner's authorizing the transactions which are
the subject of this Agreement, certified by the Secretary of Prost's General
Partner;
(3) certificates issued as of the most recent
practicable date, by the appropriate governmental authorities with respect to
the good standing of Prost in the jurisdiction in which Prost is organized;
(4) certificates executed by the Secretary of
Prost's General Partner to the effect that there have been no amendments to the
charter documents attached as Schedule 4.1 hereof, since the date of this
Agreement;
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(5) the original books of account and other
records of Prost;
(6) a balance sheet of the assets and
liabilities to be contributed by Prost dated as of a date no more than ten (10)
business days before the Contribution Date ("Closing Balance Sheet"). The
Closing Balance Sheet shall be provided to BWISS at least five (5) business days
before the Contribution Date and shall be certified by the Chief Financial
Officer of Prost's General Partner that the Closing Balance Sheet was prepared
from the books and records of Prost in conformity with U.S. Generally Accepted
Accounting Principles consistently applied and fairly present the financial
condition of the assets and liabilities to be contributed by Prost as of the
date stated therein. If BWISS shall notify Prost within three (3) business days
after receipt of the Closing Balance Sheet that it disputes any matter with
respect to such Closing Balance Sheet, then any such matters (the "Disputed
Matters") shall be submitted to an arbitrator which shall be a certified public
accounting firm ("Arbitrator") mutually selected by BWISS and Prost within two
(2) business days after such notice unless the parties agree in writing to
extend such period in an attempt to negotiate a settlement. The Arbitrator shall
consider only the Disputed Matters. The Arbitrator shall act promptly to resolve
all Disputed Matters and its decision with respect to all Disputed Matters shall
be final and binding upon the parties hereto and shall not be appealable to any
court. The costs and expenses of the Arbitrator shall be shared equally by Prost
and BWISS, except that the Arbitrator shall have the authority to award the
reimbursement of such expenses to the prevailing party;
(7) such other documents, records and other
items as shall be necessary for the operation of the Business;
(d) The Other Agreements, substantially in the form
attached to the Partnership Agreement, shall be executed by Prost or its
Affiliates, as applicable.
(e) Prost shall have obtained and delivered to BWISS all
consents set forth in Schedules 4.4, 4.21 and 4.22 annexed hereto.
(f) From and after the date hereof, there shall have
occurred or be threatened no event relative to the assets or business of Prost
which is reasonably likely, individually or in the aggregate, to have a material
adverse effect on the business, assets, operations or financial condition of
Prost.
(g) There shall not be pending or threatened before any
governmental authority any action, suit or proceeding which, if adversely
determined, would (i) make the consummation of this Agreement illegal, (ii)
require the divestiture by the Partnership of all or a material portion of the
business or assets as a result of the transactions contemplated hereby, (iii)
impose limitations which adversely affect to a significant extent the ability of
the Partnership to exercise full rights of ownership of the assets of the
Business, as currently conducted by Prost, as a result of the transactions
contemplated hereby, (iv) prevent the consummation of this Agreement or (v)
cause this Agreement to be rescinded following consummation of this Agreement,
and no judgment with respect to any of the foregoing shall be in effect.
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(h) All proceedings in connection with the transactions
contemplated by this Agreement shall be in form and substance reasonable
satisfactory to BWISS and its Counsel, and BWISS shall have received all such
counterpart originals or certified or other copies of such documents and
proceedings in connection with such transactions as BWISS reasonably requests.
8.3 CONDITIONS TO OBLIGATION OF PROST TO EFFECT THE TRANSACTION.
The obligations of Prost and its General Partner to effect the Transaction are
subject to the fulfillment of all of the conditions precedent at or prior to the
Contribution Date:
(a) The representations and warranties of BWISS set forth
herein are true and correct in all material respects as of the date hereof and
the Contribution Date. Any matter which would otherwise constitute a failure to
comply with or conform to a representation or warranty by Prost hereunder shall
not be deemed to be such a failure if Prost has consented to the same in
writing.
(b) BWISS has or shall have performed, satisfied and
complied with all covenants, agreements and conditions required to be performed
by it.
(c) At the closing, BWISS shall deliver to Prost the
following:
(1) a certificate of BWISS executed by the
President and Chief Financial Officer of BWISS to the effect that each of the
conditions specified in Sections 8.3(a), 8.3(b), 8.3(e) and 8.3(f) have been
satisfied;
(2) resolutions adopted by the Board of
Directors of BWISS authorizing the transactions contemplated hereby, certified
by the Secretary of BWISS;
(3) certificates issued by appropriate
governmental authorities evidencing, as of the most recent practicable date, the
good standing of BWISS in its state of incorporation.
(d) The Other Agreements, substantially in the form
attached to the partnership Agreement, shall be executed by BWISS or its
Affiliates, as applicable.
(e) BWISS shall have obtained and delivered to Prost all
consents set forth in Schedules 5.3 and 5.5 annexed hereto.
(f) There shall not be pending or threatened before any
governmental authority any action, suit or proceeding which, if adversely
determined would (i) prevent the consummation of the transaction contemplated by
this Agreement, or (ii) cause such transaction to be rescinded following
consummation of the transaction contemplated by this Agreement, and no judgment
with respect to any of the foregoing shall be in effect.
(g) All legal and corporate proceedings in connection
with the transactions
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contemplated by this Agreement shall be in form and substance reasonably
satisfactory to Prost and Prost's Counsel, and Prost shall have received all
such counterpart originals or certified or other copies of such documents and
proceedings in connection with such transactions as Prost reasonably requests.
8.4 TERMINATION. This Agreement may be terminated at any time
prior to the Contribution Date, whether before or after approval by the partners
of Prost:
(a) by mutual consent of Prost and BWISS; or
(b) by either Prost or BWISS if (i) the Contribution Date
shall not have been consummated on or before March 31, 1997 (the "Termination
Date"), (ii) the requisite vote of the partners of Prost to approve this
Agreement and the transactions contemplated hereby and thereby shall not be
obtained at the meetings, or any adjournments thereof, called therefor, (iii)
any governmental or regulatory body, the consent of which is a condition to the
obligations of Prost or BWISS to consummate the transactions contemplated
hereby, shall have determined not to grant its consent and all appeals of such
determination shall have been taken and have been unsuccessful, or (iv) any
court of competent jurisdiction in the United States or any State shall have
issued an order, judgment or decree (other than a temporary restraining order)
restraining, enjoining or otherwise prohibiting the transactions contemplated
hereby and such order, judgment or decree shall have become final and
nonappealable.
(c) In the event of termination of this Agreement by
either Prost or BWISS, as provided in Section 8.4(a) or (b), this Agreement
shall forthwith become void and there shall be no liability on the part of
either BWISS, Prost or BWI or their respective officers or directors, except
that nothing in this Section 8.4 shall relieve any party from liability for any
breach of this Agreement.
8.5 BREAK UP FEES. In the event of termination of this Agreement
under Section 8.4, other than arising from the breach of this Agreement by a
party hereto, and each party hereto shall otherwise be responsible for their own
disbursements and expenses incurred in the transactions contemplated hereby,
except BWISS shall pay Prost's reasonable legal and accounting fees in
connection with negotiating the agreement contemplated hereby.
SECTION 9
MISCELLANEOUS PROVISIONS
9.1 AMENDMENT AND MODIFICATION. This Agreement may be amended,
modified, or supplemented only by written agreement of Prost and BWISS.
9.2 WAIVER OF COMPLIANCE; CONSENTS. Any failure of a party to
comply with any obligation, covenant, agreement, or condition herein may be
waived by the other party; provided, however, that any such waiver may be made
only by a written instrument signed by the party granting such waiver, but such
waiver or failure to insist upon strict compliance with
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such obligation, covenant, agreement, or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure. Whenever this
Agreement requires or permits consent by or on behalf of any party hereto, such
consent shall be given in writing in a manner consistent with the requirements
for a waiver of compliance as set forth in this Section 9.2, with appropriate
notice in accordance with Section 9.8 of this Agreement.
9.3 ASSIGNMENT. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. No party may assign any of its
rights hereunder without the written consent of the other party. Nothing in this
Agreement, expressed or implied, is intended or shall be construed to confer
upon any person other than the parties, any successors and permitted assigns,
any rights, remedy, or claim under or by reason of this Agreement or any
provisions herein contained.
9.4 FURTHER ASSURANCES. From time to time, at the request of Prost
or the Partnership and without further consideration, each party, at its own
expense, will execute and deliver such other documents, and take such other
action, as Prost or the Partnership may reasonably request in order to
consummate more effectively the transactions contemplated hereby and to vest in
the Partnership good and marketable title to the Assets. Prost hereby
constitutes and appoints, effective as of the Contribution Date, the Partnership
and its successors and permitted assigns as the true and lawful attorney of
Prost with full power of substitution in the name of the Partnership or in the
name of Prost, but for the benefit of the Partnership, to collect for the
account of the Partnership any items of Assets and to institute and prosecute
all proceedings which the Partnership may in its reasonable discretion deem
proper in order to assert or enforce any right, title, or interest in, to, or
under the Assets, and to defend or compromise any and all action, suits, or
proceedings in respect of the Assets. The Partnership shall be entitled to
retain for its own account any amounts collected pursuant to the foregoing
powers, including any amounts payable as interest in respect thereof.
9.5 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the Laws of the State of California without regard
to its conflicts of law doctrines.
9.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument and shall become a binding
Agreement when one or more of the counterparts have been signed by each of the
parties and delivered to the other party.
9.7 PUBLICITY. Neither of the parties will make any disclosure of
the transactions contemplated by this Agreement, the Partnership Agreement or
the Other Agreements, or any discussions in connection therewith, without the
prior written consent of the other party. The preceding sentence shall not apply
to any disclosure required to be made by Law or the regulations of any stock
exchange(s) as reasonably determined by counsel to the party determining that
such disclosure is required, except that such party, whenever practicable, shall
be required to consult with the other party concerning the timing and content of
such disclosure
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before making it.
9.8 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered by hand
or mailed by registered or certified mail (return receipt requested) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
If to Prost: with a copy to:
------------ ---------------
Prost Partners, L.P. Wild, Carter & Tipton
821 L Street 246 W. Shaw
Modesto, CA 95354 Fresno, CA 93704
Attn: Garith Helm Attn: Bruce Brown, Esq.
If to BWISS: with a copy to:
------------ ---------------
BWI - St. Stan's, Inc. Hecht & Steckman, P.C.
9800 S. Sepulveda Blvd., Suite 720 60 East 42nd Street, Suite 5101
Los Angeles, CA 90045 New York, NY 10165-5101
Attn: Frederik Rodenhuis Attn: James G. Smith, Esq.
If to the Partnership: with a copy to:
---------------------- ---------------
BWI-Prost Partners BWI - St. Stan's, Inc.
821 L Street 9800 S. Sepulveda Blvd., Suite 720
Modesto, CA 95354 Los Angeles, CA 90045
Attn: Garith Helm Attn: Frederik Rodenhuis
and with a copy to:
-------------------
Hecht & Steckman, P.C.
60 East 42nd Street, Suite 5101
New York, NY 10165-5101
Attn: James G. Smith, Esq.
9.9 SPECIFIC PERFORMANCE. Each of the parties acknowledge that
money damages would not be a sufficient remedy for any breach of this Agreement
and that irreparable harm would result if this Agreement were not specifically
enforced. Therefore, the rights and obligations of the parties under this
Agreement shall be enforceable by a decree of specific performance issued by any
court of competent jurisdiction, and appropriate injunctive relief may be
applied for and granted in connection therewith. A party's right to specific
performance shall be in addition to all other legal or equitable remedies
available to such party.
9.10 HEADINGS. The article and section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
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9.11 ENTIRE AGREEMENT. This Agreement, including the exhibits,
schedules, and other documents and instruments referred to herein, together with
the Partnership Agreement and the Other Agreements, embodies the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
9.12 SEVERABILITY. If any one or more provisions contained in this
Agreement shall, for any reason, be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such invalid, illegal, or unenforceable provision had never
been contained herein.
9.13 INCONSISTENCY OR CONFLICT. In the event of any inconsistency
or conflict between any provision of this Agreement and any provision of any of
the Other Agreements, the provisions of this Agreement shall govern. In the
event of any inconsistency or conflict between any provision of this Agreement
and any provision of the Partnership Agreement, the provision of the Partnership
Agreement shall govern. However, to the extent possible, the Agreement,
Partnership Agreement and Other Agreements shall be interpreted to give effect
to the provisions contained in each such document.
9.14 EXHIBITS AND SCHEDULES. All Exhibits and Schedules attached
hereto are hereby incorporated in and made a part as if set forth in full
herein.
9.15 ARBITRATION. Any dispute arising under this Agreement or the
transactions contemplated thereby shall be arbitrated before the American
Arbitration Association at its offices located in San Francisco, California.
9.16 ATTORNEYS' FEES. If any legal action, whether in court or
arbitration, arises under this Agreement or by reason of any asserted breach of
it, the prevailing party shall be entitled to recover all costs and expenses,
including reasonable attorneys' and expert witness fees, incurred in enforcing
or attempting to enforce any of the terms, covenants or conditions.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of _____________________, 1996.
PROST PARTNERS, L.P. BWI-ST. STAN'S, INC.
By:______________________________ By:______________________________
Garith Helm, President of Frederik G.M. Rodenhuis, President and
Stanislaus Brewing Company, Inc., Chief Executive Officer
General Partner
<PAGE> 42
AGREEMENT OF PARTNERSHIP
OF
BWI-PROST PARTNERS,
A CALIFORNIA PARTNERSHIP
<PAGE> 43
TABLE OF CONTENTS
Page
SECTION 1 - THE PARTNERSHIP
1.1 FORMATION................................................. 1
1.2 NAME...................................................... 1
1.3 PURPOSE................................................... 1
1.4 PLACE OF BUSINESS......................................... 2
1.5 TERM...................................................... 2
1.6 STATUTORY COMPLIANCE...................................... 2
1.7 TITLE TO PROPERTY......................................... 2
1.8 PAYMENTS OF INDIVIDUAL OBLIGATIONS........................ 2
1.9 INDEPENDENT ACTIVITIES; TRANSACTIONS WITH AFFILIATES...... 2
1.10 DEFINITIONS............................................... 3
SECTION 2 - PARTNERS' CAPITAL CONTRIBUTIONS
2.1 INITIAL CAPITAL CONTRIBUTIONS............................ 12
2.2 ADDITION CAPITAL CONTRIBUTIONS........................... 12
2.3 LOANS BY PARTNERS TO THE PARTNERSHIP..................... 14
2.4 OTHER MATTERS............................................ 14
SECTION 3 - ALLOCATIONS
3.1 PROFITS.................................................. 14
3.2 LOSSES................................................... 15
3.3 SPECIAL ALLOCATIONS...................................... 15
3.4 CURATIVE ALLOCATIONS..................................... 16
3.5 OTHER ALLOCATION RULES................................... 16
3.6 TAX ALLOCATIONS: CODE SECTION 704(C).................... 17
SECTION 4 - DISTRIBUTIONS
4.1 DISTRIBUTIONS............................................ 17
4.2 AMOUNTS WITHHELD......................................... 19
SECTION 5 - MANAGEMENT AND OPERATIONS
5.1 JOINT MANAGEMENT COMMITTEE............................... 20
5.2 AUTHORITY OF JOINT MANAGEMENT COMMITTEE.................. 20
5.3 MEETINGS................................................. 22
5.4 DUTIES................................................... 22
5.5 RULES AND PROCEDURES..................................... 22
5.6 DUTY OF CARE............................................. 22
5.7 DEADLOCK BREAKING........................................ 22
SECTION 6 - INDEMNIFICATION OF PARTNERS
6.1 GENERAL.................................................. 22
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Page
6.2 ENVIRONMENTAL............................................ 22
6.3 PARTNERSHIP EXPENSES..................................... 23
6.4 LIMITATIONS.............................................. 23
SECTION 7 - REPRESENTATIONS AND WARRANTIES
7.1 PROST.................................................... 23
7.2 BWISS.................................................... 24
SECTION 8 - ACCOUNTING, BOOKS AND RECORDS
8.1 ACCOUNTING, BOOKS AND RECORDS............................ 25
8.2 REPORTS.................................................. 25
8.3 TAX RETURNS; INFORMATION................................. 26
8.4 SPECIAL BASIS ADJUSTMENT................................. 26
8.5 TAX MATTERS PARTNER...................................... 26
SECTION 9 - AMENDMENTS; MEETINGS
9.1 AMENDMENTS............................................... 26
SECTION 10 - TRANSFER OF INTERESTS
10.1 RESTRICTIONS ON TRANSFER................................. 27
10.2 RIGHT OF FIRST REFUSAL................................... 27
10.3 PERMITTED TRANSFERS...................................... 27
10.4 GENERAL TRANSFER PROVISIONS.............................. 27
10.5 TAX ALLOCATIONS AND CASH DISTRIBUTION.................... 28
10.6 COMPLIANCE............................................... 28
SECTION 11 - WITHDRAWALS; ACTION FOR PARTITION; BREACHES
11.1 WAIVER OF PARTITION...................................... 28
11.2 COVENANT NOT TO WITHDRAW OR DISSOLVE..................... 29
11.3 CONSEQUENCES OF VIOLATION OF COVENANTS................... 29
11.4 BREACH PAYMENTS.......................................... 30
11.5 NO BONDING............................................... 30
11.6 NET EQUITY............................................... 30
SECTION 12 - BUY-OUT
12.1 BUY-OUT PROVISION........................................ 31
12.2 NONSOLICITATION.......................................... 31
12.3 HIRING OF BWISS' EMPLOYEES............................... 32
12.4 NONDISCLOSURE OF CONFIDENTIAL INFORMATION................ 32
12.5 INTELLECTUAL PROPERTY RIGHTS............................. 33
12.6 PARTNERSHIP MATERIALS.................................... 33
ii
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Page
SECTION 13 - DISSOLUTION AND WINDING UP
13.1 LIQUIDATING EVENTS....................................... 34
13.2 WINDING UP............................................... 34
13.3 COMPLIANCE WITH CERTAIN REQUIREMENTS OF REGULATIONS;..... 35
13.4 DEEMED DISTRIBUTION AND RECONTRIBUTION................... 35
13.5 RIGHTS OF PARTNERS....................................... 36
13.6 NOTICE OF DISSOLUTION.................................... 36
13.7 RIGHT OF FIRST REFUSAL................................... 36
SECTION 14 - MISCELLANEOUS
14.1 NOTICES.................................................. 39
14.2 BINDING EFFECT........................................... 39
14.3 CONSTRUCTION............................................. 39
14.4 SEVERABILITY............................................. 39
14.5 INCORPORATION BY REFERENCE............................... 39
14.6 FURTHER ACTION........................................... 39
14.7 GOVERNING LAW............................................ 39
14.8 COUNTERPART EXECUTION.................................... 39
14.9 ARBITRATION.............................................. 40
14.10 ATTORNEYS' FEES.......................................... 40
iii
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This AGREEMENT OF PARTNERSHIP OF BWI-PROST PARTNERS, a California
partnership, ("Agreement") is entered into and shall be effective as of the
Contribution Date (as defined in Section 1.7 of the Contribution Agreement
attached hereto as Exhibit A) by and among Prost Partners, L.P. ("Prost") and
BWI-St. Stan's, Inc., pursuant to the provisions of the California Uniform
Partnership Act, on the following terms and conditions:
WHEREAS, Prost currently owns and operates a brewery and brewpub
located in Modesto, California doing business as St. Stan's Brewing Company, and
Beverage Works, Inc. ("BWI"), which owns all of the outstanding shares of
BWI-St. Stan's, Inc. ("BWISS"), is seeking to acquire or enter into partnership
arrangements with at least two other breweries in the United States, which are
anticipated to be consummated upon the closing of an initial public offering of
BWI common shares; and
WHEREAS, Prost and BWI have skills, proprietary technologies and
know-how in producing, marketing, distributing and selling craft beers and other
beverages, which could be used to develop novel and cost-competitive products
and processes; and
WHEREAS, the parties hereto desire to create a partnership for the
purpose of developing their technologies and skills and producing such products
and processes.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the mutual
promises set forth herein and intending to be legally bound, the parties hereto
do hereby agree as follows:
SECTION 1
THE PARTNERSHIP
1.1 FORMATION. The Partnership is hereby formed as a California general
partnership effective as of the Contribution Date pursuant to, in accordance
with, and for purposes of, the provisions of the Act.
1.2 NAME. The name of the Partnership shall be BWI-Prost Partners and
all business of the Partnership shall be conducted in such name. The Partnership
shall hold all of its property in the name of the Partnership and not in the
name of any Partner.
1.3 PURPOSE.
(a) The business of the Partnership is (i) developing, promoting,
producing, distributing and selling St. Stan's Brewing Company products, and
(ii) cooperating with BWI and its subsidiaries and partners in the developing,
promoting, producing, distributing and selling of those entities' products.
(b) The Partnership shall be a partnership only for the purpose
specified in this Section 1.3. Except as otherwise provided in this Agreement,
the Partnership shall not engage in any other activity or business and no
Partner shall have any authority to hold itself out as a general agent of
another Partner in any other business or activity.
<PAGE> 47
1.4 PLACE OF BUSINESS. The principal place of business of the
Partnership shall be at 821 L Street, Modesto, California, or at such other
place within or without the State of California as may be determined by the
Joint Management Committee.
1.5 TERM. The term of the Partnership shall commence on the
Contribution Date as defined in Section 1.7 of the Contribution Agreement and
shall continue until the winding up and liquidation of the Partnership and its
business is completed following a "Liquidating Event," as provided in Section 13
hereof.
1.6 STATUTORY COMPLIANCE. The Partnership shall exist under and be
governed by, and this Agreement shall be construed in accordance with, the
applicable laws of the State of California. The Partners shall make all filings
and disclosures required by, and shall otherwise comply with, all such laws. The
Partners shall execute and file in the appropriate records any assumed or
fictitious name certificates and other documents and instruments as may be
necessary or appropriate with respect to the formation of, and conduct of
business by, the Partnership.
1.7 TITLE TO PROPERTY. All real and personal property owned by the
Partnership shall be owned by the Partnership as an entity and no Partner shall
have any ownership interest in such property in its individual name or right,
and each Partners's interest in the Partnership shall be personal property for
all purposes. Except as otherwise provided in this Agreement, the Partnership
shall hold all of its real and personal property in the name of the Partnership
and not in the name of any Partner.
1.8 PAYMENTS OF INDIVIDUAL OBLIGATIONS. The Partnership's credit and
assets shall be used solely for the benefit of the Partnership, and no asset of
the Partnership shall be transferred or encumbered for or in payment of any
individual obligation of a Partner.
1.9 INDEPENDENT ACTIVITIES; TRANSACTIONS WITH AFFILIATES.
(a) Each Partner and any of its Affiliates shall be required to
devote only such time to the affairs of the Partnership as such Partner
determines in its sole discretion may be necessary to manage and operate the
Partnership, and each such Person, to the extent not otherwise directed by such
Partner, shall be free to serve any other Person or enterprise in any capacity
that it may deem appropriate in its discretion.
(b) Insofar as permitted by applicable law, each Partner (acting on
its own behalf) and its Affiliates may, except as otherwise set forth in this
Agreement, engage in whatever activities they choose, without having or
incurring any obligation to offer any interest in such activities to the
Partnership or any Partner and neither this Agreement nor any activity
undertaken pursuant hereto shall prevent any Partner or its Affiliates from
engaging in such activities, or require any Partner to permit the Partnership or
any Partner or its Affiliates to participate in any such activities, and as a
material part of the consideration for the execution of this Agreement by each
Partner, each Partner hereby waives, relinquishes, and renounces any such right
or claim of participation.
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1.10 DEFINITIONS. Capitalized words and phrases used in this Agreement
have the following meanings:
(a) "Act" means the California Uniform Partnership Act, as amended
from time to time (or any corresponding provisions of succeeding law).
(b) "Adverse Act" means, with respect to any Partner, any of the
following:
(i) A failure of such Partner to make any Capital Contribution
required pursuant to any provision of this Agreement;
(ii) A Transfer of all or any portion of such Partner's
interest in the Partnership except as expressly permitted or required by this
Agreement;
(iii) Any termination, dissolution or liquidation of a
corporation or partnership which is a Partner, or the taking of any action by
its directors, majority shareholders or general partners looking to the
termination, dissolution or liquidation of such Partner, unless substantially
all assets of such Partner are transferred, or are to be transferred, to a
Wholly Owned Affiliate of such Partner;
(iv) The Bankruptcy of such Partner or the occurrence of any
other event which would permit a trustee or receiver to acquire control of the
affairs or assets of such Partner; or
(v) A determination that such Partner has taken an action, or
has failed to take an action within the scope of its duties hereunder, that
results, or can reasonably be expected to result in, such Partner becoming
liable to indemnify the Partnership for a material sum pursuant to any provision
of this Agreement or that would justify a decree of dissolution of the
Partnership under the Act.
(c) "Affiliate" means, with respect to any Person, (i) any Person
directly or indirectly controlling, controlled by or under common control with
such Person, (ii) any Person owning or controlling ten percent (10%) or more of
the outstanding voting interests of such Person, (iii) any officer, director, or
general partner of such Person, or (iv) any Person who is an officer, director,
general partner, trustee, or holder of ten percent (10%) or more of the voting
interests of any Person described in clauses (i) through (iii) of this sentence.
For purposes of this definition, the term "controls," "is controlled by," or "is
under common control with" shall mean the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
person or entity, whether through the ownership of voting securities, by
contract or otherwise.
(d) "Agreement" means this Agreement of Partnership, as amended
from time to time. Words such as "herein," "hereinafter," "hereof," "hereto",
and "hereunder" refer to this Agreement as a whole, unless the context otherwise
requires.
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<PAGE> 49
(e) "Bankruptcy" means, with respect to any Person, a "Voluntary
Bankruptcy" or an "Involuntary Bankruptcy." A "Voluntary Bankruptcy" means, with
respect to any Person, the inability of such Person generally to pay its debts
as such debts become due, or an admission in writing by such Person of its
inability to pay its debts generally or a general assignment by such Person for
the benefit of creditors; the filing of any petition or answer by such Person
seeking to adjudicate it a bankrupt or insolvent, or seeking for itself any
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief, or composition of such Person or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking,
consenting to, or acquiescing in the entry of an order for relief or the
appointment of a receiver, trustee, custodian, or other similar official for
such Person or for any substantial part of its property; or corporate action
taken by such Person to authorize any of the actions set forth above. An
"Involuntary Bankruptcy" means, with respect to any Person, without the consent
or acquiescence of such Person, the entering of an order for relief or approving
a petition for relief or reorganization or any other petition seeking any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or other similar relief under any present or future bankruptcy, insolvency or
similar statute, law or regulation, or the filing of any such petition against
such Person which petition shall not be dismissed within ninety (90) days, or,
without the consent or acquiescence of such Person, the entering of an order
appointing a trustee, custodian, receiver or liquidator of such Person or of all
or any substantial part of the property of such Person which order shall not be
dismissed within sixty (60) days.
(f) "Business Day" means a day of the year on which banks are not
required or authorized to close in Los Angeles, California.
(g) "Capital Account" means, with respect to any Partner, the
Capital Account maintained for such Person in accordance with the following
provisions:
(i) To each Person's Capital Account there shall be credited
such Partner's Capital Contributions, such Partner's distributive share of
Profits and any items in the nature of income or gain which are specially
allocated pursuant to Section 3.3 or Section 3.4 hereof, and the amount of any
Partnership liabilities assumed by such Partner or which are secured by any
Property distributed to such Partner.
(ii) To each Partner's Capital Account there shall be debited
the amount of cash and the Gross Asset Value of any Property distributed to such
Partner pursuant to any provision of this Agreement, such Partner's distributive
share of Losses and any items in the nature of expenses or losses which are
specially allocated pursuant to Section 3.3 or Section 3.4 hereof, and the
amount of any liabilities of such Partner assumed by the Partnership or which
are secured by any property contributed by such Partner to the Partnership. If a
promissory note is distributed to a Partner by the Partnership that is the maker
of such note, such Partner's Capital Account will be decreased with respect to
such note only when there is a taxable disposition of such note by the Partner
or when the Partnership make principal payments on the note. The previous
sentence shall not apply if a note distributed to a Partner by the Partnership
who is the maker of such note is readily tradable on an established securities
market.
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Furthermore, the Capital Account of a Partner whose interest in the Partnership
is liquidated will be reduced to the extent of (i) the fair market value, at the
time of distribution of any negotiable promissory note (of which the Partnership
is the maker) that the Partnership distributes to the Partner on or after the
date such Partner's interest is liquidated and within the time specified in
Regulations Section 1.704-1(b)(2)(ii)(b)(2), and (ii) the fair market value, at
the time of liquidation of the unsatisfied portion of any negotiable promissory
note (of which the Partnership is the maker) that the Partnership previously
distributed to the Partner. For purposes of the preceding sentence, the fair
market value of a note will be no less than the outstanding principal balance of
such note, provided that such note bears interest at a rate no less than the
applicable federal rate at the time of valuation.
(iii) In the event any interest in the Partnership is
transferred in accordance with the terms of this Agreement, the transferee shall
succeed to the Capital Account of the transferor to the extent it relates to the
transferred interest.
(iv) In determining the amount of any liability for purposes of
Sections 1.10(g)(i) and 1.10(g)(ii) hereof, there shall be taken into account
Code Section 752(c) and any other applicable provisions of the Code and
Regulations.
The foregoing provisions and the other provisions of the Agreement relating to
the maintenance of Capital Accounts are intended to comply with Regulations
Section 1.704-1(b)(2)(iv), and shall be interpreted and applied in a manner
consistent with such Regulations. In the event the Joint Management Committee
shall determine that it is prudent to modify the manner in which the Capital
Accounts, or any debits or credits thereto (including, without limitation,
debits or credits relating to liabilities which are secured by contributed or
distributed property or which are assumed by the Partnership or the Partners),
are computed in order to comply with such Regulations, the Joint Management
Committee may make such modification, provided that it is not likely to have a
material effect on the amounts distributable to any Partner pursuant to Section
13 hereof upon the dissolution of the Partnership. The Joint Management
Committee also shall (i) make any adjustments that are necessary or appropriate
to maintain equality between the Capital Accounts of the Partners and the amount
of Partnership capital reflected on the Partnership's balance sheet, as computed
for book purposes in accordance with Regulations Section 1.704-1(b)(2)(iv)(g),
and (ii) make any appropriate modifications in the event unanticipated events
might otherwise cause this Agreement not to comply with Regulations Section
1.704-1(b)(2)(iv).
(h) "Capital Contributions" means, with respect to any Partner,
the amount of money and the initial Gross Asset Value of any property (other
than money) contributed to the Partnership or the principal amount of
Partnership debts assumed with respect to the Partnership interest held by such
Partner pursuant to the terms of this Agreement. The principal amount of a
promissory note which is not readily traded on an established securities market
and which is contributed to the Partnership by the maker of the note (or by a
Person related to the maker of the note within the meaning of Regulations
Section 1.704-1(b)(2)(ii)(c)) shall not be included in the Capital Contribution
of any Partner until the Partnership makes a taxable
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disposition of the note or until (and to the extent) principal payments are made
on the note, all in accordance with Regulations Section 1.704-1(b)(2)(iv)(d)(2).
(i) "Code" means the Internal Revenue Code of 1986, as amended from
time to time (or any corresponding provisions of succeeding law.)
(j) "Debt" means (i) any indebtedness for borrowed money or
deferred purchase price of property or evidenced by a note, bonds, or other
instruments, (ii) obligations as lessee under capital leases, (iii) obligations
secured by any mortgage, pledge, security interest, encumbrance, lien or charge
of any kind existing on any asset owned or held by the Partnership whether or
not the Partnership has assumed or become liable for the obligations secured
thereby, (iv) any obligation under any interest rate swap agreement (the
principal amount of such obligation shall be deemed to be the notional principal
amount on which such swap is based), and (v) obligations under direct or
indirect guarantees of (including obligations (contingent or otherwise) to
assure a creditor against loss in respect of) indebtedness or obligations of the
kinds referred to in clauses (i), (ii), (iii) and (iv) above, provided that Debt
shall not include obligations in respect of any accounts payable that are
incurred in the ordinary course of the Partnership's business and are not
delinquent or are being contested in good faith by appropriate proceedings.
(k) "Depreciation" means, for each Fiscal Year, an amount equal to
the depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such Fiscal Year, except that if the Gross Asset Value
of an asset differs from its adjusted basis for federal income tax purposes at
the beginning of such Fiscal Year, Depreciation shall be an amount which bears
the same ratio to such beginning Gross Asset Value as the federal income tax
depreciation, amortization, or other cost recovery deduction for such Fiscal
Year bears to such beginning adjusted tax basis; provided, however, that if the
adjusted basis for federal income tax purposes of an asset at the beginning of
such Fiscal Year is zero, Depreciation shall be determined with reference to
such beginning Gross Asset Value using any reasonable method selected by the
Joint Management Committee.
(l) "Environmental Laws" means any federal, state or local statute,
code, ordinance, rule, regulation, permit, consent, approval, license, judgment,
order, writ, judicial decision, common law rule, decree, agency interpretation,
injunction or other authorization or requirement whenever promulgated, issued,
or modified, including the requirement to register underground storage tanks,
relating to:
(i) emissions, discharges, spills, releases or threatened
releases of pollutants, contaminants, Hazardous Substances (as hereinafter
defined), materials containing Hazardous Substances, or hazardous or toxic
materials or wastes into ambient air, surface water, groundwater, watercourses,
publicly or privately owned treatment works, drains, sewer systems, wetlands,
septic systems or onto land;
(ii) the use, treatment, storage, disposal, handling,
manufacturing,
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transportation, or shipment of Hazardous Substances, materials containing
Hazardous Substances or hazardous and/or toxic wastes, material, products or
by-products (or of equipment or apparatus containing Hazardous Substances) as
defined in or regulated under the following statutes and their implementing
regulations: the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801
et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et
seq., the Comprehensive Environmental Response, Compensation and Liability Act,
as amended by the Superfund Amendments and Reauthorization Act, 42 U.S.C.
Section 9601 et seq., and/or the Toxic Substances Control Act, 15 U.S.C. Section
2601 et seq., each as amended from time to time; or
(iii) otherwise relating to pollution or the protection of
human health or the environment.
(m) "Fiscal Year" means (i) the period commencing on the
Contribution Date and ending on December 31, 1996, (ii) any subsequent twelve
(12) month period commencing on January 1 and ending on December 31, or (iii)
any portion of the period described in clause (ii) for which the Partnership is
required to allocate Profits, Losses and other items of Partnership income,
gain, loss or deduction pursuant to Section 3 hereof.
(n) "Gross Asset Value" means, with respect to any asset, tangible
or intangible, the asset's adjusted basis for federal income tax purposes,
except as follows:
(i) The initial Gross Asset Value of any asset contributed by a
Partner to the Partnership shall be the gross fair market value of such asset,
as determined by the Partners;
(ii) The Gross Asset Values of all Partnership assets shall be
adjusted to equal their respective gross fair market values, as determined by
the Partners, as of the following times: (a) the acquisition of an additional
interest in the Partnership by any new or existing Partner in exchange for more
than a de minimis Capital Contribution; (b) the distribution by the Partnership
to a Partner of more than a de minimis amount of Property as consideration for
an interest in the Partnership; (c) the liquidation of the Partnership within
the meaning of Regulations Section 1.704-1(b)(2)(ii)(g); and (d) when
calculating Net Equity under Section 11.6; provided, however, that adjustments
pursuant to clauses (a) and (b) above shall be made only if the Partners
reasonably determine that such adjustments are necessary or appropriate to
reflect the relative economic interests of the Partners in the Partnership;
(iii) The Gross Asset Value of any Partnership asset
distributed to any Partner shall be adjusted to equal the gross fair market
value of such asset on the date of distribution as determined by the distributee
and the Partners; and
(iv) The Gross Asset Values of Partnership assets shall be
increased (or decreased) to reflect any adjustments to the adjusted basis of
such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to
the extent that such adjustments are taken into account in determining Capital
Accounts pursuant to Regulations Section
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<PAGE> 53
1.704-1(b)(2)(iv)(m) and Sections 1.10(z)(vi) and 3.3(e) hereof; provided,
however, that Gross Asset Values shall not be adjusted pursuant to this Section
1.10(n)(iv) to the extent the Partners determine that an adjustment pursuant to
Section 1.10(n)(ii) hereof is necessary or appropriate in connection with a
transaction that would otherwise result in an adjustment pursuant to this
Section 1.10(n)(iv).
If the Gross Asset Value of an asset has been determined or adjusted pursuant to
Section 1.10(n)(i), Section 1.10(n)(ii), or Section 1.10(n)(iv) hereof, such
Gross Asset Value shall thereafter be adjusted by the Depreciation taken into
account with respect to such asset for purposes of computing Profits and Losses.
In the event that the Partners are unable to determine the gross fair market
value for the purpose of determining the Gross Asset Value of any asset under
this Section 1.10(n), then the gross fair market value shall be the Gross
Appraised Value.
(o) "Gross Appraised Value" of an asset, tangible or intangible, as
of any day, shall be equal to the gross fair market value of the asset as of
such day. Gross Appraised Value shall be determined as follows:
(i) At any time after the thirtieth (30th) day a request is
made by either Partner to determine the gross fair market value of any asset,
either Partner may give notice to the other Partner that the gross fair market
value is to be determined under this Section 1.10(o). Such notice shall
designate the First Appraiser and the other Partner shall appoint the Second
Appraiser within ten (10) Business Days of receiving such notice designating the
First Appraiser.
(ii) If the Second Appraiser is timely designated, the First
and Second Appraisers shall meet within ten (10) days of such appointment and
shall endeavor, within twenty (20) days of such appointment, to agree upon, and
give written notice to the Partnership, the Partners, and the firm of
independent certified public accountants regularly employed by the Partnership,
of the gross fair market value of the asset (the "Appraisers' Notice"). The
agreed value shall be the asset's gross fair market value.
(iii) If an Appraisers' Notice is not given during such period,
then at any time after such period, either the Partner who appointed the First
Appraiser or the Partner who appointed the Second Appraiser, by written notice
to the First Appraiser and Second Appraiser, may demand that they appoint a
Third Appraiser (the "Third Appraiser"). If the First Appraiser and Second
Appraiser have not either given an Appraisers' Notice or appointed the Third
Appraiser (who shall have agreed to serve) by the twentieth (20th) day after
such demand, either the Partner who appointed the First Appraiser or the Partner
who appointed the Second Appraiser may request any judge of the Superior Court
of the County of Los Angeles, State of California to appoint the Third
Appraiser. After the appointment of the Third Appraiser, the gross fair market
value shall be the amount included in an Appraisers' Notice subscribed to by at
least two (2) of the three (3) appraisers; provided that before subscribing to a
Gross Appraised Value, the Third Appraiser shall meet at least once with the
First Appraiser and the Second
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<PAGE> 54
Appraiser to discuss in good faith the appraisal of the asset. If two (2) of the
appraisers have not given an Appraisers' Notice within twenty (20) days of the
appointment of the Third Appraiser, the gross fair market value of the asset
shall be determined solely by the Third Appraiser, who shall give an Appraisers'
Notice within thirty (30) days of his appointment.
(iv) If a Second Appraiser is not timely appointed in the
manner provided by this Section 1.10(o), the gross fair market value shall be
determined solely by the First Appraiser who shall give an Appraisers' Notice of
such gross fair market value within ten (10) days of the last day on which the
Second Appraiser could have been timely designated.
(v) Each appraiser appointed hereunder shall be disinterested
and shall be qualified to appraise property similar to the asset.
(vi) As used in this Section 1.10(o), as of any day, the "gross
fair market value" of the asset means (1) the maximum amount that a single buyer
would reasonably be expected to pay for the asset on such day, free and clear of
all liens and encumbrances, in a single cash purchase, taking into account the
current condition and use of the asset, increased by (2) the additional amount,
if any, that such buyer would pay for any existing favorable financing or leases
on the asset, and decreased by (3) the amount, if any, that such buyer would
subtract from the unencumbered fair market value of the asset by reason of any
existing unfavorable financing or leases. When determining Gross Appraised Value
for purposes of Section 11.6, the Appraiser(s) under this Section 1.10(o) shall
not appraise the intangible assets, but total intangible assets of the Business
shall be deemed to equal (i) net income before interest, taxes, depreciation and
amortization (as determined under U.S. Generally Accepted Accounting Principles)
for the twelve (12) full calendar months preceding the date of the breach (ii)
multiplied by three (3).
(vii) The costs and expenses of the Appraisers shall be born
equally by the parties.3
(p) "Nonrecourse Deductions" has the meaning set forth in Section
1.704-2(b)(1) of the Regulations.
(q) "Nonrecourse Liability" has the meaning set forth in Section
1.704-2(b)(3) of the Regulations.
(r) "Partner Nonrecourse Debt" has the meaning set forth in Section
1.704-2(b)(4) of the Regulations.
(s) "Partner Nonrecourse Debt Minimum Gain" means an amount, with
respect to each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain
that would result if such Partner Nonrecourse Debt were treated as a Nonrecourse
Liability, determined in accordance with Section 1.704-2(i)(3) of the
Regulations.
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(t) "Partner Nonrecourse Deductions" has the meaning set forth in
Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the Regulations.
(u) "Partners" means those entities executing this Agreement as
Partners. "Partner" means any one of the Partners.
(v) "Partnership" means the general partnership formed by this
Agreement and the partnership continuing the business of this Partnership in the
event of dissolution as herein provided.
(w) "Partnership Minimum Gain" has the meaning set forth in
Regulations Sections 1.704-2(b)(2) and 1.704-2(d).
(x) "Percentage Interest" means, with respect to any Partner, the
percentage interest set forth below such Partner's name in Section 2.1. In the
event any Partnership interest is transferred in accordance with the provisions
of this Agreement, the transferee of such interest shall succeed to the
Percentage Interest of his transferor to the extent it relates to the
transferred interest.
(y) "Person" means any individual, partnership, corporation, trust,
or other entity.
(z) "Profits" and "Losses" means, for each Fiscal Year, an amount
equal to the Partnership's taxable income or loss for such Fiscal Year,
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss, or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
(i) Any income of the Partnership that is exempt from federal
income tax and not otherwise taken into account in computing Profits or Losses
pursuant to this Section 1.10(z) shall be added to such taxable income or loss;
(ii) Any expenditures of the Partnership described in Code
Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures
pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken
into account in computing Profits or Losses pursuant to this Section 1.10(z)
shall be subtracted from such taxable income or loss;
(iii) In the event the Gross Asset Value of any Partnership
asset is adjusted pursuant to Section 1.10(n)(ii) or Section 1.10(n)(iii)
hereof, the amount of such adjustment shall be taken into account as gain or
loss from the disposition of such asset for purposes of computing Profits or
Losses;
(iv) Gain or loss resulting from any disposition of Property
with respect to which gain or loss is recognized for federal income tax purposes
shall be computed by
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reference to the Gross Asset Value of the Property disposed of, notwithstanding
that the adjusted tax basis of such Property differs from its Gross Asset Value;
(v) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable income or loss,
there shall be taken into account Depreciation for such Fiscal Year, computed in
accordance with Section 1.10(k) hereof;
(vi) To the extent an adjustment to the adjusted tax basis of
any Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is
required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken
into account in determining Capital Accounts as a result of a distribution other
than in liquidation of a Partner's interest in the Partnership, the amount of
such adjustment shall be treated as an item of gain (if the adjustment increases
the basis of the asset) or loss (if the adjustment decreases the basis of the
asset) from the disposition of the asset and shall be taken into account for
purposes of computing Profits or Losses; and
(vii) Notwithstanding any other provision of this Section
1.10(z), any items which are specially allocated pursuant to Sections 3.3 and
3.4 hereof shall not be taken into account in computing Profits or Losses.
The amounts of the items of Partnership income, gain, loss or deduction
available to be specially allocated pursuant to Sections 3.3 and 3.4 hereof
shall be determined by applying rules analogous to those set forth in Sections
1.10(z)(i) through 1.10(z)(vi) above.
(aa) "Property" means all real and personal property acquired by
the Partnership and any improvements thereto, and shall include both tangible
and intangible property.
(ab) "Regulations" means the Income Tax Regulations, including
Temporary Regulations, promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).
(ac) "Transfer" means, as a noun, any voluntary or involuntary
transfer, sale, or other disposition and, as a verb, voluntarily or
involuntarily to transfer, sell, or otherwise dispose of.
(ad) "Wholly Owned Affiliate" of any Person shall mean (i) an
Affiliate of such Person one hundred percent (100%) of the voting stock or
beneficial ownership of which is owned directly by such Person, or by any Person
who, directly or indirectly, owns one hundred percent (100%) of the voting stock
or beneficial ownership of such Person, (ii) an Affiliate of such Person who,
directly or indirectly, owns one hundred percent (100%) of the voting stock or
beneficial ownership of such Person, and (iii) any Wholly Owned Affiliate of any
Affiliate described in clause (i) or clause (ii) of this Section 1.10(ad).
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SECTION 2
PARTNERS' CAPITAL CONTRIBUTIONS
2.1 INITIAL CAPITAL CONTRIBUTIONS. The names, addresses, and Percentage
Interests of the Partners are as follows:
BWI-ST. STAN'S, INC. PROST PARTNERS, L.P.
9800 S. Sepulveda Blvd. c/o Stanislaus Brewing Company, Inc.
Suite 720 821 L Street
Los Angeles, CA 90045 Modesto, CA 95354
Percentage Interest: 51.00% Percentage Interest: 49.00%
The initial Capital Contributions are set forth in the Contribution Agreement
attached hereto as Exhibit A.
2.2 ADDITIONAL CAPITAL CONTRIBUTIONS.
(a) No Partner shall be obligated to make any additional Capital
Contribution except as otherwise set forth herein.
(b) BWISS shall make additional Capital Contributions to the
Partnership in the total principal amount of $2,295,000 less the total amount of
Assumed Debts as determined under Section 1.6 of the Contribution Agreement as
at the Contribution Date. For the purpose of this Section 2.2(b), the difference
shall be referred to herein as the "Periodic Capital Contribution."
(i) The Periodic Capital Contribution after being reduced by
the Net Current Assets Decrease (as defined herein) shall be referred to herein
as the "Three Year Contribution."
(ii) BWISS shall pay to the Partnership interest at the rate
equal to ten percent (10%) multiplied by a fraction the numerator of which shall
be equal to the Three Year Contribution and the denominator of which shall be
the sum of the Three Year Contribution and the Net Current Assets Decrease.
Interest will stop accruing after the Three Year Contribution has been paid.
BWISS may prepay any or all of the Periodic Capital Contribution. Accrued
interest shall be payable quarterly on the last day of January, April, July and
October in each year commencing after the date the first principal payment is
due under this Section 2.2(b)(iii).
(iii) Principal payments shall be as follows:
(1) $100,000 eighteen (18) months after the Contribution
Date;
(2) $100,000 twenty-one (21) months after the Contribution
Date;
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(3) $100,000 twenty-four (24) months after the
Contribution Date;
(4) $100,000 twenty-seven (27) months after the
Contribution Date;
(5) $100,000 thirty (30) months after the Contribution
Date;
(6) $100,000 thirty-three (33) months after the
Contribution Date;
(7) The principal balance of the Three Year Contribution
thirty- six (36) months after the Contribution Date;
(8) The Net Current Assets Decrease sixty (60) months
after the Contribution Date.
(iv) If the public offering contemplated under Section 8.1(a)
of the Contribution Agreement results in gross proceeds in excess of
$10,000,000, BWISS shall make a principal payment on the Periodic Capital
Contribution within 30 days of the Contribution Date equal to 10% of the gross
proceeds raised in such public offering up to a maximum of $300,000.
(v) The "Net Current Assets Decrease" shall be equal to (1) the
net current assets as stated in the Contributed Business Balance Sheet in
accordance with Section 4.5 of the Contribution Agreement less (2) the net
current assets as stated in the Closing Balance Sheet in accordance with Section
8.2 of the Contribution Agreement. For purposes of this Section 2.2(b)(v) only,
the Closing Balance Sheet shall be no dated later than December 31, 1996. Net
Current Assets Decrease shall be zero if the net current assets as stated in the
Closing Balance Sheet is greater than the net current assets as stated in the
Contributed Business Balance Sheet. Net current assets shall be defined as
current assets less current liabilities. Net Current Assets Decrease shall be
exclusive of any (i) advances made by BWISS or its Affiliates to Prost; (2) of
the kegs acquired by BWISS or its Affiliates for the benefit of Prost to the
extent the kegs are included in the current assets; and (3) any accounting
changes since the date of the Contributed Business Balance Sheet.
(vi) Example. Assume the Contribution Date is October 31, 1996.
Assume Prost's net current assets as of April 30, 1996 are ($28,000) and net
current assets as of October 31, 1996 are ($108,000). The Net Current Assets
Decrease is ($80,000). Assume the Periodic Capital Contribution (after deducting
the amount under Section 1.6) is $1,150,000. The Three Year Contribution equals
$1,070,000. The interest rate would be 9.3% calculated as follows: 10% X
($1,070,000/$1,150,000) = 9.3%.
Interest accrues on the outstanding principal balance from October 31, 1996
through October 31, 1999, payable quarterly. The first interest payment is made
on April 30, 1998. Principal is
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paid as follows:
<TABLE>
<S> <C> <C> <C>
$100,000 April 30, 1998 $100,000 April 30, 1999
$100,000 July 31, 1998 $100,000 July 31, 1999
$100,000 October 31, 1998 $470,000 October 31, 1999
$100,000 January 31, 1999 $ 80,000 October 31, 2001
</TABLE>
2.3 LOANS BY PARTNERS TO THE PARTNERSHIP. In the event that at least
four members of the Joint Management Committee determine that the Partners'
initial Capital Contributions under Section 2.1 are insufficient to meet the
Partnership's costs, expenses, obligations, liabilities and charges, or to make
any expenditure authorized by this Agreement, the Joint Management Committee may
request the Partners to advance funds to the Partnership. The Partnership must
offer both Partners equal opportunity to make loans on the same terms. All
amounts so advanced shall take the form of a loan and shall bear interest at the
federal funds rate plus 7%. Both Partners shall have the initial opportunity to
participate in any such advance in proportion to their then Percentage
Interests. Such loans shall be repayable solely out of property or assets of the
Partnership, in accordance with the provisions of Section 5.2, and no Partner
shall have any personal liability on account thereof, nor shall there be any
recourse to such Partner's assets.
2.4 OTHER MATTERS.
(a) Except as otherwise provided in this Agreement, no Partner
shall demand or receive a return of its Capital Contributions or withdraw from
the Partnership without the consent of all Partners. Under circumstances
requiring a return of any Capital Contributions, no Partner shall have the right
to receive property other than cash except as may be specifically provided
herein.
(b) No Partner shall receive any interest, salary, or drawing with
respect to its Capital Contributions or its Capital Account or for services
rendered on behalf of the Partnership or otherwise in its capacity as Partner,
except as otherwise provided in this Agreement.
(c) Except as otherwise provided in this Section 2 and Section 10
hereof, relating to Transfers of Partnership interests, no Person shall be
admitted to the Partnership as a Partner without the unanimous consent of the
Partners.
SECTION 3
ALLOCATIONS
3.1 PROFITS. After giving effect to the special allocations set forth
in Sections 3.3 and 3.4 hereof, Profits for any Fiscal Year shall be allocated
among the Partners in proportion to their Percentage Interests.
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3.2 LOSSES. After giving effect to the special allocations set forth in
Sections 3.3 and 3.4 hereof, Losses for any Fiscal Year shall be allocated among
the Partners in proportion to their Percentage Interests.
3.3 SPECIAL ALLOCATIONS. The following special allocations shall be
made in the following order:
(a) Minimum Gain Chargeback. Except as otherwise provided in
Section 1.704-2(f) of the Regulations, notwithstanding any other provision of
this Section 3, if there is a net decrease in Partnership Minimum Gain during
any Partnership Fiscal Year, each Partner shall be specially allocated items of
Partnership income and gain for such Fiscal Year (and, if necessary, subsequent
Fiscal Years) in an amount equal to such Partner's share of the net decrease in
Partnership Minimum Gain, determined in accordance with Regulations Section
1.704-2(g). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Partner
pursuant thereto. The items to be so allocated shall be determined in accordance
with Sections 1.704-2(f)(6) and 1.704-2(j)(2) of the Regulations. This Section
3.3(a) is intended to comply with the minimum gain chargeback requirement in
Section 1.704-1(f) of the Regulations and shall be interpreted consistently
therewith.
(b) Partner Minimum Gain Chargeback. Except as otherwise provided
in Section 1.704-1(i)(4) of the Regulations, notwithstanding any other provision
of this Section 3, if there is a net decrease in Partner Nonrecourse Debt
Minimum Gain attributable to a Partner Nonrecourse Debt during any Partnership
Fiscal Year, each Partner who has a share of the Partner Nonrecourse Debt
Minimum Gain attributable to such Partner Nonrecourse Debt, determined in
accordance with Section 1.704-2(i)(5) of the Regulations, shall be specially
allocated items of Partnership income and gain for such Fiscal Year (and, if
necessary, subsequent Fiscal Years) in an amount equal to such Partner's share
of the net decrease in Partner Nonrecourse Debt Minimum Gain attributable to
such Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Partner
pursuant thereto. The items to be so allocated shall be determined in accordance
with Sections 1.704-2(i)(4) and 1.704-2(j)(2) of the Regulations. This Section
3.3(b) is intended to comply with the minimum gain chargeback requirement in
Section 1.704-2(i)(4) of the Regulations and shall be interpreted consistently
therewith.
(c) Nonrecourse Deductions. Nonrecourse Deductions for any Fiscal
Year shall be specially allocated among the Partners in proportion to their
Percentage Interests.
(d) Partner Nonrecourse Deductions. Any Partner Nonrecourse
Deductions for any Fiscal Year shall be specially allocated to the Partner who
bears the economic risk of loss with respect to the Partner Nonrecourse Debt to
which such Partner Nonrecourse Deductions are attributable in accordance with
Regulations Section 1.704-2(i)(1).
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(e) Code Section 754 Adjustment. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) or
Code Section 743(b) is required, pursuant to Regulations Section
1.704-1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be
taken into account in determining Capital Accounts as the result of a
distribution to a Partner in complete liquidation of its interest in the
Partnership, the amount of such adjustment to the Capital Accounts shall be
treated as an item of gain (if the adjustment increases the basis of the asset)
or loss (if the adjustment decreases such basis) and such gain or loss shall be
specially allocated to the Partners in accordance with their interests in the
Partnership in the event Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or
to the Partners to whom such distribution was made in the event Regulations
Section 1.704-1(b)(2)(iv)(m)(4) applies.
(f) Allocations Relating to Taxable Issuance of Partnership
Interests. Any income, gain, loss or deduction realized as a direct or indirect
result of the issuance of an interest in the Partnership to a Partner (the
"Issuance Items") shall be allocated among the Partners so that, to the extent
possible, the net amount of such Issuance Items, together with all other
allocations under this Agreement to each Partner, shall be equal to the net
amount that would have been allocated to each such Partner if the Issuance Items
had not been realized.
3.4 CURATIVE ALLOCATIONS. The allocations set forth in Sections 3.3(a),
3.3(b), 3.3(c), 3.3(d) and 3.3(e) hereof (the "Regulatory Allocations") are
intended to comply with certain requirements of the Regulations. It is the
intent of the Partners that, to the extent possible, all Regulatory Allocations
shall be offset either with other Regulatory Allocations or with special
allocations of other items of Partnership income, gain, loss, or deduction
pursuant to this Section 3.4. Therefore, notwithstanding any other provision of
this Section 3 (other than the Regulatory Allocations), the Joint Management
Committee shall make such offsetting special allocations of Partnership income,
gain, loss or deduction in whatever manner it determines appropriate so that,
after such offsetting allocations are made, each Partner's Capital Account
balance is, to the extent possible, equal to the Capital Account balance such
Partner would have had if the Regulatory Allocations were not part of the
Agreement and all Partnership items were allocated pursuant to Sections 3.1 and
3.2 hereof. In exercising its discretion under this Section 3.4, the Joint
Management Committee shall take into account future Regulatory Allocations under
Sections 3.3(a) and 3.3(b) that, although not yet made, are likely to offset
other Regulatory Allocations previously made under Sections 3.3(c) and 3.3(d).
3.5 OTHER ALLOCATION RULES.
(a) The Partners are aware of the income tax consequences of the
allocations made by this Section 3 and hereby agree to be bound by the
provisions of this Section 3 in reporting their shares of Partnership income and
loss for income tax purposes.
(b) For purposes of determining the Profits, Losses, or any other
items allocable to any period, Profits, Losses, and any such other items shall
be determined on a daily, monthly, or other basis, as determined by the Joint
Management Committee using any
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permissible method under Code Section 706 and the Regulations thereunder.
(c) Solely for purposes of determining a Partner's proportionate
share of the "excess nonrecourse liabilities" of the Partnership, within the
meaning of Regulations Section 1.752-3(a)(3), the Partners' interests in
Partnership profits are in proportion to their Percentage Interests.
(d) To the extent permitted by Section 1.704-2(h)(3) of the
Regulations, the Joint Management Committee shall endeavor not to treat
distributions as having been made from the proceeds of a Nonrecourse Liability
or a Partner Nonrecourse Debt.
3.6 TAX ALLOCATIONS: CODE SECTION 704(C). In accordance with Code
Section 704(c) and the Regulations thereunder, income, gain, loss, and deduction
with respect to any property contributed to the capital of the Partnership
shall, solely for tax purposes, be allocated among the Partners so as to take
account of any variation between the adjusted basis of such property to the
Partnership for federal income tax purposes and its initial Gross Asset Value.
In the event the Gross Asset Value of any Partnership asset is adjusted pursuant
to Section 1.10(n)(ii) hereof, subsequent allocations of income, gain, loss, and
deduction with respect to such asset shall take account of any variation between
the adjusted basis of such asset for federal income tax purposes and its Gross
Asset Value in the same manner as under Code Section 704(c) and the Regulations
thereunder. Any elections or other decisions relating to such allocations shall
be made by the Joint Management Committee in any manner that reasonably reflects
the purpose and intention of this Agreement. Allocations pursuant to this
Section 3.6 are solely for purposes of federal, state, and local taxes and shall
not affect, or in any way be taken into account in computing, any Person's
Capital Account or share of Profits, Losses, other items, or distributions
pursuant to any provisions of this Agreement.
SECTION 4
DISTRIBUTIONS
4.1 DISTRIBUTIONS. Except as provided in Section 13.2 hereof, all
distributions shall be made in accordance with the following:
(a) Subject to Section 4.1(b), distributions to the Partners by the
Partnership shall be made as frequently and in such amounts as may be
unanimously determined by the Partners; provided, however, that the aggregate
amount of each such distribution shall be that amount which such Partners
reasonably determine is not required to be retained by the Partnership to meet
the reasonably foreseeable cash requirements and needs of the business of the
Partnership and establish an adequate reserve for the payment of Partnership
liabilities and contingencies.
(b) Prost shall receive priority distributions as follows:
(i) Prost shall receive quarterly distributions in the amount
of $2,500;
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provided Prost has a positive Capital Account immediately after such
distributions; and
(ii) Prost shall receive distributions from the Partnership in
the total principal amount of $2,295,000 less the total amount of Assumed Debts
as determined under Section 1.6 of the Contribution Agreement as at the
Contribution Date. For the purpose of this Section 4.1(b)(ii), the difference
shall be referred to herein as the "Periodic Distribution."
(A) The Periodic Distribution after being reduced by the
Net Current Assets Decrease (as defined herein) shall be referred to herein as
the "Three Year Distribution."
(B) Prost shall receive from the Partnership interest at
the rate equal to ten percent (10%) multiplied by a fraction the numerator of
which shall be equal to the Three Year Distribution and the denominator of which
shall be the sum of the Three Year Distribution and the Net Current Assets
Decrease. Interest will stop accruing after the Three Year Distribution has been
paid. The Partnership may prepay any or all of the Periodic Distribution.
Accrued interest shall be payable quarterly on the last day of January, April,
July and October in each year commencing after the date the first principal
payment is due under this Section 4.1(b)(ii)(C).
(C) Principal payments shall be as follows:
(1) $100,000 eighteen (18) months after the
Contribution Date;
(2) $100,000 twenty-one (21) months after the
Contribution Date;
(3) $100,000 twenty-four (24) months after the
Contribution Date;
(4) $100,000 twenty-seven (27) months after the
Contribution Date;
(5) $100,000 thirty (30) months after the
Contribution Date;
(6) $100,000 thirty-three (33) months after the
Contribution Date;
(7) The principal balance of the Three Year
Distribution thirty-six (36) months after the Contribution Date;
(8) The Net Current Assets Decrease sixty (60) months
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after the Contribution Date.
(iv) If the public offering contemplated under Section 8.1(a)
of the Contribution Agreement results in gross proceeds in excess of
$10,000,000, Prost shall receive a principal payment on the Periodic
Distribution within 45 days of the Contribution Date equal to 10% of the gross
proceeds raised in such public offering up to a maximum of $300,000.
(v) The "Net Current Assets Decrease" shall be equal to (1) the
net current assets as stated in the Contributed Business Balance Sheet in
accordance with Section 4.5 of the Contribution Agreement less (2) the net
current assets as stated in the Closing Balance Sheet in accordance with Section
8.2 of the Contribution Agreement. For purposes of this Section 4.1(b)(v) only,
the Closing Balance Sheet shall be dated no later than December 31, 1996. Net
Current Assets Decrease shall be zero if the net current assets as stated in the
Closing Balance Sheet is greater than the net current assets as stated in the
Contributed Business Balance Sheet. Net current assets shall be defined as
current assets less current liabilities. Net Current Assets Decrease shall be
exclusive of any (i) advances made by BWISS or its Affiliates to Prost; (2) of
the kegs acquired by BWISS or its Affiliates for the benefit of Prost to the
extent the kegs are included in the current assets; and (3) any accounting
changes since the date of the Contributed Business Balance Sheet.
(c) All distributions governed by this Section 4.1 and which exceed
the amounts distributed pursuant to Section 4.1(b) shall be divided among the
Partners as follows:
(i) First, to Partners who have "Surplus Adjusted Capital
Accounts" as of the date of distribution in proportion to and to the extent of
each such Partner's Surplus Adjusted Capital Account; and
(ii) The balance, if any, to all Partners in proportion to
their Percentage Interests.
(d) The "Surplus Adjusted Capital Account" of a Partner as of the
date of distribution shall be equal to the excess, if any, of its Capital
Account as of such day over its "Required Capital Account" as of such day. The
"Required Capital Account" of a Partner as of the date of distribution shall be
an amount equal to the product of (i) the aggregate Capital Accounts of all
Partners as of such day, multiplied by (ii) such Partner's Percentage Interest.
4.2 AMOUNTS WITHHELD. All amounts withheld pursuant to the Code or any
provision of any state or local tax law with respect to any payment,
distribution or allocation to the Partnership or the Partners shall be treated
as amounts distributed to the Partners pursuant to this Section 4 for all
purposes under this Agreement. The Joint Management Committee is authorized to
withhold from distributions, or with respect to allocations, to the Partners and
to pay over to any federal, state, or local government any amounts required to
be so withheld pursuant to the Code or any provisions of any other federal,
state or local law and shall allocate such amounts to the Partners with respect
to which such amount was withheld.
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SECTION 5
MANAGEMENT AND OPERATIONS
5.1 JOINT MANAGEMENT COMMITTEE. The Partnership shall have a joint
management committee (the "Joint Management Committee") consisting of five
members. Each Partner shall appoint two members of the Joint Management
Committee, and the fifth member shall be appointed by BWISS, at its sole
discretion, after conferring with Prost. A member of the Joint Management
Committee appointed by a Partner may be removed at any time, with or without
cause, by the appointing Partner. Replacement members of the Joint Management
Committee shall be appointed as described above.
5.2 AUTHORITY OF JOINT MANAGEMENT COMMITTEE.
(a) Except as otherwise expressly provided in this Agreement, all
decisions respecting any matter set forth herein or otherwise affecting or
arising out of the conduct of the business of the Partnership shall be made by
the Joint Management Committee and the Joint Management Committee shall have the
exclusive right and full authority to manage, conduct and operate the
Partnership's business. The Joint Management Committee shall have all rights and
powers provided in the Act and otherwise provided by law, except to the extent
such powers may be expressly limited by this Agreement. Absent approval of both
Partners, transactions between the Partnership and the Partners or the Partners'
Affiliates shall be arms-length and intended to profit the Partnership. Except
as otherwise expressly provided in this Agreement, the Joint Management
Committee is hereby granted the right, power and authority to do on behalf of
the Partnership all things which, in its sole judgment, are necessary, proper or
desirable to carry out the aforementioned duties and responsibilities, including
but not limited to the right, power and authority from time to time to do the
following:
(i) acquire by purchase, lease, or otherwise any real or
personal property which may be necessary, convenient, or incidental to the
accomplishment of the purposes of the Partnership;
(ii) operate, maintain, finance, improve, construct, own, sell,
convey, assign, and lease any real or personal property necessary, convenient,
or incidental to the accomplishment of the purposes of the Partnership;
(iii) borrow money and issue evidences of indebtedness
necessary, convenient, or incidental to the accomplishment of the purposes of
the Partnership, and secure the same by mortgage, pledge, or other lien on any
Partnership Property; provided, however, the affirmative vote of four members of
the Joint Management Committee shall be required to cause the Partnership to
borrow money or to enter into, incur, or otherwise become liable for any other
obligation if after entering into, incurring or otherwise becoming liable for
such obligation, the aggregate amount of money to be paid pursuant to, or upon
termination of, all such obligations shall exceed $200,000, however, approval of
three members is only required for transactions in the ordinary course of
business or working capital financing up to 70% of
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accounts receivable and 20% of inventory under usual and customary terms and
conditions;
(iv) to cause to be paid all amounts due and payable by the
Partnership to any person or entity;
(v) to employ such agents, employees, managers, accountants,
attorneys, consultants and other persons, including itself, necessary or
appropriate to carry out the business and affairs of the Partnership, whether or
not such any persons so employed are affiliated or related to either Partner,
and to pay such fees, expenses, salaries, wages and other compensation to such
persons as it shall in its sole discretion determine;
(vi) to pay, extend, renew, modify, adjust, submit to
arbitration, prosecute, defend or compromise, upon such terms as it may
determine and upon such evidence as it may deem sufficient, any obligation,
suit, liability, cause of action or claim, including taxes, either in favor of
or against the Partnership;
(vii) to pay any and all fees and to make any and all
expenditures which it, in its sole discretion, deems necessary or appropriate in
connection with the organization of the Partnership, the management of the
affairs of the Partnership, and the carrying out of its obligations and
responsibilities under this Agreement;
(viii) to the extent that funds of the Partnership are, in the
Joint Management Committee's judgment, not immediately required for the conduct
of the Partnership's business, temporarily invest the excess funds in deposits
or securities as determined in the good faith of the Joint Management Committee.
(ix) to acquire, prosecute, maintain, protect and defend or
cause to be protected and defended all patents, patent rights, tradenames,
trademarks, copyrights and service marks, and all applications with respect
thereto and all proprietary information which may be held by the Partnership;
(x) to enter into, execute, acknowledge and deliver any and all
contracts, agreements or other instruments necessary or appropriate to carry on
the business of the Partnership as set forth herein; and
(xi) to cause to be paid all taxes, charges and assessments
that may be levied, assessed or imposed upon any of the assets of the
Partnership, unless the same are contested by the Joint Management Committee on
behalf of the Partnership.
(b) With respect to all of its obligations, powers and
responsibilities under this Agreement, the Joint Management Committee is
authorized to execute and deliver, for and on behalf of the Partnership, such
notes and other evidence of indebtedness, contracts, agreement, assignments,
deeds, leases, loan agreements, mortgages and other security instruments and
agreements as it deems proper, all on such terms and conditions as it deems
proper.
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5.3 MEETINGS. The Joint Management Committee shall meet at such times
and from time to time as it may determine. Members of the Joint Management
Committee shall receive from the Partnership reimbursement for any reasonable
out-of-pocket travel expenses incurred in connection with their attendance at
meetings of the Joint Management Committee.
5.4 DUTIES. The Joint Management Committee shall undertake such tasks,
and have such responsibilities, as it may determine are necessary to oversee and
supervise the business of the Partnership; provided, however, that the
activities of the Joint Management Committee and each member thereof (acting in
such capacity) shall be limited to those permitted under the Act. Except as
provided otherwise in this Agreement or the Act, all approvals, disapprovals and
other actions taken by the Joint Management Committee shall be authorized by a
majority of the Joint Management Committee members then holding office.
5.5 RULES AND PROCEDURES. The Joint Management Committee shall have the
authority to adopt rules and procedures, not inconsistent with this Agreement,
relating to the conduct of its affairs.
5.6 DUTY OF CARE. The members of the Joint Management Committee shall
exercise their best judgment in carrying out their functions for the
Partnership. The members of the Joint Management Committee shall not be liable
to any Partner for actions taken in good faith without gross negligence or a
willful disregard of their duties. Each member of the Joint Management Committee
shall be fully protected and justified with respect to any action or omission
taken or suffered by him in good faith if such action or omission is taken or
suffered in reliance upon and in accordance with the opinion or advice as to
matters of law of legal counsel, or as to matters of accounting of accountants,
selected by him with reasonable care.
5.7 DEADLOCK BREAKING. In the event that the Joint Management Committee
is unable to vote on an issue because there is not a majority, the issue will be
submitted for the determination by the Partners.
SECTION 6
INDEMNIFICATION OF PARTNERS
6.1 GENERAL. The Partnership, its receiver or its trustee (in the case
of its receiver or trustee, to the extent of the Property) shall indemnify, save
harmless, and pay all judgments and claims against each Partner or any partners,
officers or directors of such Partner relating to any liability or damage
incurred by reason of any act performed or omitted to be performed by such
Partner in connection with the business of the Partnership, including attorneys'
fees incurred by such Partner or any partners, officers or directors of such
Partner in connection with the defense of any action based on any such act or
omission, which attorneys' fees may be paid as incurred, including all such
liabilities under federal and state securities laws (including the Securities
Act of 1933, as amended) as permitted by law.
6.2 ENVIRONMENTAL. The Partnership, its receiver, or its trustee (in
the case of its
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receiver or trustee, to the extent of the Property) shall indemnify and hold
harmless, to the maximum extent permitted by law, each Partner from and against
any and all liabilities, sums paid in settlement of claims (if such settlement
is consented to by the Joint Management Committee), obligations, charges,
actions (formal or informal), claims (including, without limitation, claims for
personal injury under any theory or for real or personal property damage),
liens, taxes, administrative proceedings, losses, damages (including, without
limitation, punitive damages), penalties, fines, court costs, administrative
service fees, response and remediation costs, stabilization costs, encapsulation
costs, treatment, storage or disposal costs, groundwater monitoring or
environmental study, sampling or monitoring costs, other causes of action, and
any other costs and reasonable expenses (including, without limitation,
reasonable attorneys', experts', and consultants' fees and disbursements and
investigating, laboratory and data review fees) imposed upon or incurred by any
Partner (whether or not indemnified against by any other party) arising from and
after the date of this Agreement directly or indirectly out of:
(a) the past, present, or future treatment, storage, disposal,
generation, use, transport, movement, presence, release, threatened release,
spill, installation, sale, emission, injection, leaching, dumping, escaping or
seeping of any Hazardous Substances or material containing or alleged to contain
Hazardous Substances at or from any past, present, or future properties or
assets of the Partnership; and/or
(b) the violation or alleged violation by the Partnership or any
third party of any Environmental Laws with regard to the past, present, or
future ownership, operation, use, or occupying of any property or asset of the
Partnership.
6.3 PARTNERSHIP EXPENSES. The Partnership shall indemnify, save
harmless, and pay all expenses, costs, or liabilities of any Partner who for the
benefit of the Partnership makes any deposit, acquires any option, or makes any
other similar payment or assumes any obligation in connection with any property
proposed to be acquired by the Partnership and who suffers any financial loss as
the result of such action.
6.4 LIMITATIONS.
(a) Notwithstanding anything to the contrary in any of Sections
6.1, 6.2 and 6.3 above, no Partner shall be indemnified from any liability for
fraud, bad faith, willful misconduct, or gross negligence.
(b) Notwithstanding anything to the contrary in any of Sections
6.1, 6.2, and 6.3 above, in the event that any provision in any of such Sections
is determined to be invalid in whole or in part, such Section shall be enforced
to the maximum extent permitted by law.
SECTION 7
REPRESENTATIONS AND WARRANTIES
7.1 PROST. As of the date hereof, each of the statements in this
Section 7.1 shall be
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a true, accurate and full disclosure of all facts relevant to the matters
contained therein, and such warranties and representations shall survive the
execution of this Agreement. Prost hereby represents and warrants (to the extent
possible on the Contribution Date) that:
(a) Prost is a duly organized limited partnership validly existing
under the laws of the State of California and has the requisite power and
authority to enter into and carry out the terms of this Agreement.
(b) All action required to be taken by Prost and any partner
thereof to consummate this Agreement has been taken and no further approval of
any board, partner, court, or other body is necessary to permit Prost to
consummate this Agreement.
(c) To the best of its knowledge, neither the execution and
delivery of this Agreement, nor the performance or the compliance with this
Agreement, has resulted (or will result) in any violation of, or be in conflict
with, or invalidate, cancel, or make inoperative, or interfere with, or
constitute a default under, any charter, bylaw, partnership agreement,
indenture, trust agreement, mortgage, deed of trust, contract, agreement,
permit, judgment, decree or order, to which Prost is a party or would be bound
and there is no default and no event or omission has occurred which, but for the
passing of time or the giving of notice, or both, would constitute a default on
the part of Prost under this Agreement or the transactions contemplated thereby.
(d) To the best of its knowledge, there is no action, proceeding or
investigation, pending or threatened (nor any basis therefor) which questions,
directly or indirectly, the validity or enforceability of this Agreement as to
Prost.
(e) No representation, warranty or covenant of Prost in this
Agreement, or in any document or certificate furnished or to be furnished to
BWISS pursuant hereto, contains or will contain any untrue statement of material
facts or omits or will omit to state material facts necessary to make the
statements or facts contained therein not misleading. All such representations,
warranties or statements of Prost are based, to the best of Prost's knowledge,
upon current, accurate and complete information as of the time of their making,
and there have been, to the best of Prost's knowledge no changes in such
information subsequent thereto.
7.2 BWISS. As of the date hereof each of the statements in this Section
7.2 shall be a true, accurate and full disclosure of all facts relevant to the
matter contained therein, and such warranties and representations shall survive
the execution of this Agreement. BWISS hereby represents and warrants (to the
extent possible on the Contribution Date) that:
(a) BWISS is a duly organized corporation validly existing under
the laws of the State of California and has the requisite power and authority to
enter into and carry out the terms of this Agreement.
(b) All corporate action required to be taken by BWISS to
consummate this
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Agreement has been taken and that no further approval of any board, court, or
other body is necessary to permit BWISS to consummate this Agreement.
(c) To the best of its knowledge, neither the execution and
delivery of this Agreement, nor the performance of or the compliance with this
Agreement, has resulted (or will result) in any violation of, or be in conflict
with, or invalidate, cancel, or make inoperative, or interfere with, or
constitute a default under any charter, bylaw, partnership agreement, trust
agreement, mortgage, deed of trust, indenture, contract, agreement, permit,
judgment, decree, or order, to which BWISS is a party or would be bound and
there is no default and no event or omission has occurred which, but for the
passing of time or the giving of notice, or both, would constitute a default on
the part of BWISS under this Agreement or the transactions contemplated thereby.
(d) To the best of its knowledge, there is no action, proceeding or
investigation, pending or threatened (nor any basis therefor), which questions,
directly or indirectly, the validity or enforceability of this Agreement as to
BWISS.
(e) No representation, warranty or covenant of BWISS in this
Agreement, or in any document or certificate furnished or to be furnished to
Prost pursuant hereto, contains or will contain any untrue statement of material
facts or omits or will omit to state material facts necessary to make the
statements or facts contained therein not misleading. All such representations,
warranties or statements of BWISS are based, to the best of BWISS' knowledge,
upon current, accurate and complete information as of the time of their making,
and there have been, to the best of BWISS' knowledge, no change in such
information subsequent thereto.
SECTION 8
ACCOUNTING, BOOKS AND RECORDS
8.1 ACCOUNTING, BOOKS AND RECORDS. The Partnership shall maintain at
its principal place of business separate books of account for the Partnership
which shall show a true and accurate record of all costs and expenses incurred,
all charges made, all credits made and received, and all income derived in
connection with the operation of the Partnership business in accordance with
U.S. Generally Accepted Accounting Principles consistently applied and, to the
extent inconsistent therewith, in accordance with this Agreement. The
Partnership shall prepare its operational monthly, quarterly and annual reports
in accordance with U.S. Generally Accepted Accounting Principles consistently
applied and shall use the accrual method of accounting for tax purposes, and
shall keep its books accordingly. Each Partner shall, at its sole expense, have
the right, at any time without notice to any other Partner, to examine, copy,
and audit the Partnership's books and records during normal business hours.
8.2 REPORTS.
(a) In General. The Joint Management Committee shall be responsible
for the preparation of financial reports of the Partnership and the coordination
of financial matters of
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the Partnership with the Partnership's accountants.
(b) Reports. Within forty (40) days after the end of each Fiscal
Year and within forty (40) days after the end of any fiscal quarter, the Joint
Management Committee shall cause each Partner to be furnished with a copy of the
balance sheet of the Partnership as of the last day of the applicable period, a
statement of income or loss for the Partnership for such period, and a statement
of the Partnership's cash flow for such period prepared in accordance with U.S.
Generally Accepted Accounting Principles consistently applied. Annual statements
shall also include a statement of the Partners' Capital Accounts and changes
therein for such Fiscal Year prepared in accordance with U.S. Generally Accepted
Accounting Principles consistently applied. At the discretion of the Joint
Management Committee, annual financial statements may be audited by the
Partnership's accountants selected by the Joint Management Committee. Either
Partner may request the Joint Management Committee cause the Partnership's
accountants, who shall be selected by the Joint Management, to audit or review
the annual financial statements; provided, however, that the requesting Partner
shall pay the cost of such audit.
8.3 TAX RETURNS; INFORMATION. The Joint Management Committee shall
cause the Partnership's accountants to prepare all income and other tax returns
of the Partnership and shall cause the same to be filed in a timely manner. The
Joint Management Committee shall furnish to each Partner a copy of each such
return, together with any schedules or other information which each Partner may
require in connection with such Partner's own tax affairs.
8.4 SPECIAL BASIS ADJUSTMENT. In connection with any Permitted Transfer
of a Partnership interest, the Joint Management Committee shall cause the
Partnership, at the written request of the transferor or the transferee, on
behalf of the Partnership and at the time and in the manner provided in
Regulations Section 1.754-1(b), to make an election to adjust the basis of the
Partnership's property in the manner provided in Sections 734(b) and 743(b) of
the Code, and such transferee shall pay all costs incurred by the Partnership in
connection therewith, including, without limitation, reasonable attorneys' and
accountants' fees.
8.5 TAX MATTERS PARTNER. BWISS is specially authorized to act as the
"Tax Matters Partner" under the Code and in any similar capacity under state or
local law.
SECTION 9
AMENDMENTS
9.1 AMENDMENTS. Amendments to this Agreement may be proposed by any
Partner. Following such proposal, the Partner shall submit to the other Partner
a verbatim statement of any proposed amendment, providing that counsel for the
Partnership shall have approved of the same in writing as to form. The Partner
shall seek the written vote of the other Partner on the proposed amendment or
shall call a meeting to vote thereon and to transact any other business that it
may deem appropriate. A proposed amendment shall be adopted and be effective as
an amendment hereto if it receives the affirmative vote of the other Partner.
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SECTION 10
TRANSFER OF INTERESTS
10.1 RESTRICTIONS ON TRANSFER. Except as expressly provided for in this
Agreement, no Partner may, without the consent of the other Partner, sell,
convey, transfer, assign, mortgage, pledge, hypothecate encumber or otherwise
dispose in any way (a "Transfer") all or any portion of its Partnership Interest
or any interest it may have in any property of the Partnership, or withdraw or
retire from the Partnership. Any such attempted Transfer, withdrawal or
retirement not permitted hereunder shall be null and void.
10.2 RIGHT OF FIRST REFUSAL. If a Partner consents to a proposed
Transfer or the prohibitions contained in Section 10.1 are determined by a court
of competent jurisdiction to be unenforceable, then a Partner (the "Initiating
Partner") desiring to Transfer its Interest shall nevertheless notify ("Offering
Notice") the other Partner (the "Responding Partner") of its intention to do so.
The Responding Partner shall have the right to elect to purchase from the
Initiating Partner all (but not less than all) of the Interest referred to in
the Offering Notice at a price to be agreed upon by the Partners for a period of
30 days after the giving of the Offering Notice by delivering in writing to the
Initiating Partner notice of its intent to purchase the portion of the Interest
of the Initiating Partner covered by the Offering Notice. If a purchase price
cannot be agreed upon within such 30 day period, the purchase price shall be
determined by a panel of three valuation consultants, one chosen by each of the
Partners and the third chosen by the other valuation consultants. Within 45 days
thereafter, the purchase by the Responding Partner of said Interest shall be
consummated on the terms and conditions so agreed upon. If within the 30-day
period during which the Responding Partner has the right to elect to purchase
the Initiating Partner's Interest it does not make such election, then the
Initiating Partner, within 30 days after the expiration of said 30-day period,
may undertake and complete the Transfer to any Person the identity of which was
disclosed in the Offering Notice. The Transfer shall not be undertaken at a
lower price or upon more favorable terms than the purchase price determined as
above. If the Initiating Partner receives an offer from a third party that
contains terms more favorable to the terms originally offered to the Responding
Partner, the Initiating Partner must offer the Responding Partner the
opportunity to purchase the Initiating Partners interest on the more favorable
terms offered by the third party. If the Initiating Partner does not consummate
the original proposed Transfer or any subsequent modified Transfer within 60
days after the date of the Offering Notice, or within the time scheduled for
closing by the purchasing Person, whichever is later, then all the restrictions
of this Section 10.2 shall apply though no Offering Notice had been given.
10.3 PERMITTED TRANSFERS. A Partner shall have the right to Transfer
all or a portion of its interest in the Partnership to any Person who is (1) a
Wholly Owned Affiliate of such Partner, (2) any other Partner, or (3) any Person
upon consent of the other Partner.
10.4 GENERAL TRANSFER PROVISIONS. All transfers shall be by instrument
in form and substance satisfactory to counsel for the Partnership and shall
contain an expression by the assignee of its intention to accept the assignment
and to accept and adopt all of the terms and
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provisions of this Agreement, as the same may have been amended, and shall
provide for the payment by the assignor of all reasonable expenses incurred by
the Partnership in connection with such assignment, including, without
limitation, the necessary amendments to this Agreement to reflect such Transfer.
The transferor shall execute and acknowledge all such instruments, in form and
substance reasonably satisfactory to the Partnership's counsel, as may be
necessary or desirable to effectuate such Transfer. In no event shall the
Partnership dissolve or terminate upon the admission of any permitted Partner to
the Partnership or upon any permitted Transfer of an interest in the Partnership
by any Partner. Each Partner hereby waives its right to dissolve, liquidate or
terminate the Partnership in such event. Upon completion of a Transfer in
compliance with this Agreement, the transferor shall be released from all future
obligations occurring under this Agreement after the date of such Transfer
provided the assignee of such transferor assumes all such obligations of the
transferor. However, the transferor shall remain liable for its obligations
under this Agreement occurring on or prior to the date of such Transfer. Any
Transfer not made in accordance with the terms of this Agreement shall be void.
10.5 TAX ALLOCATIONS AND CASH DISTRIBUTION. If an Interest is
transferred, the net profits or losses allocable, and cash distributable, to the
holder of such Interest for the then fiscal year shall be allocated
proportionately between the transferor and the transferee based upon the number
of days during such fiscal year for which each party was the owner of the
transferred interest. However, if such parties agree that such net profits or
losses and cash are to be allocated and distributed based upon an interim
closing of the Partnership books, and such parties agree to pay all expenses
incurred by the Partnership in connection therewith and so notify the
Non-Transferring Partner, then all such net profits or losses and cash shall be
allocated and distributed between the transferor and transferee based upon an
interim closing of the Partnership's books and records.
10.6 COMPLIANCE. Notwithstanding anything to the contrary in this
Agreement, at law or in equity, no Partner shall Transfer or otherwise deal with
any Interest in a way that would cause a default under any material agreement to
which the Partnership is a party or by which it is bound.
SECTION 11
WITHDRAWALS; ACTION FOR PARTITION;
BREACHES
11.1 WAIVER OF PARTITION. No Partner shall, either directly or
indirectly, take any action to require partition, file a bill for Partnership
accounting or appraisement of the Partnership or of any of its assets or
properties or cause the sale of any Partnership property, and notwithstanding
any provisions of applicable law to the contrary, each Partner (and each of its
legal representatives, successors, or assigns) hereby irrevocably waives any and
all rights it may have to maintain any action for partition or to compel any
sale with respect to its Partnership interest, or with respect to any assets or
properties of the Partnership, except as expressly provided in this Agreement.
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11.2 COVENANT NOT TO WITHDRAW OR DISSOLVE. Notwithstanding any
provision of the Act, each Partner hereby covenants and agrees that the Partners
have entered into this Agreement based on their mutual expectation that all
Partners will continue as Partners and carry out the duties and obligations
undertaken by them hereunder and that, except as otherwise expressly required or
permitted hereby, each Partner hereby covenants and agrees not to (a) take any
action to file a certificate of dissolution or its equivalent with respect to
itself, (b) take any action that would cause a Voluntary Bankruptcy of such
Partner, (c) withdraw or attempt to withdraw from the Partnership, (d) exercise
any power under the Act to dissolve the Partnership, (e) Transfer all or any
portion of its interest in the Partnership, (f) petition for judicial
dissolution of the Partnership, or (g) demand a return of such Partner's
contributions or profits (or a bond or other security for the return of such
contributions or profits) without the consent of the other Partner.
11.3 CONSEQUENCES OF VIOLATION OF COVENANTS. Notwithstanding anything
to the contrary in the Act, if a Partner (a "Breaching Partner") attempts to (i)
cause a partition in breach of Section 11.1 hereof, (ii) withdraw from the
Partnership or dissolve the Partnership or take any action in breach of Section
11.2 hereof, or (iii) commit an Adverse Act and not cure such Adverse Act within
120 days, the Partnership shall continue and such Breaching Partner shall be
subject to this Section 11.3. In such event, the following shall occur:
(a) The Breaching Partner shall immediately cease to be a Partner
and shall have no further power to act for or bind the Partnership;
(b) The other Partner shall continue to have the right to possess
the Partnership's property and goodwill and to conduct its business and affairs;
(c) The Breaching Partner shall be liable in damages, without
requirement of a prior accounting, to the Partnership for all costs and
liabilities that the Partnership or any Partner may incur as a result of such
breach;
(d) The Partnership shall have no obligation to pay to the
Breaching Partner its contributions, capital, or profits, but may, by notice to
the Breaching Partner within thirty (30) days of his withdrawal, elect to make
Breach Payments (as hereinafter defined) to the Breaching Partner in complete
satisfaction of the Breaching Partner's interest in the Partnership;
(e) If the Partnership does not elect to make Breach Payments
pursuant to Section 11.3(d) hereof, the Partnership shall treat the Breaching
Partner as if he were an unadmitted assignee of the interest of the Breaching
Partner and shall make distributions to the Breaching Partner only of those
amounts otherwise payable with respect to such interest hereunder;
(f) The Partnership may apply any distributions otherwise payable
with respect to such interest (including Breach Payments) to satisfy any claims
it may have against the Breaching Partner;
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(g) The Breaching Partner shall have no right to inspect the
Partnership's books or records or obtain other information concerning the
Partnership's operations, and, if the Breaching Partner is in possession of the
Partnership's books and records, the Breaching Partner shall turn over the books
and records to the other Partner;
(h) The Breaching Partner shall continue to be liable to the
Partnership for any unpaid Capital Contributions required hereunder with respect
to such interest and to be jointly and severally liable with the other Partners
for any debts and liabilities (whether actual or contingent, known or unknown)
of the Partnership existing at the time the Breaching Partner withdraws or
dissolves; and
(i) Notwithstanding anything to the contrary hereinabove provided,
unless the Partnership has elected to make Breach Payments to the Breaching
Partner in satisfaction of its interest, the Partnership may offer and sell (on
any terms that are not manifestly unreasonable) the interest of the Breaching
Partner to any other Partners or other Persons on the Breaching Partner's
behalf, provided that any Person acquiring such interest becomes a Partner with
respect to such interest and agrees to perform the duties and obligations
imposed by this Agreement on the Breaching Partner.
11.4 BREACH PAYMENTS. For purposes hereof, Breach Payments shall be
made in four installments, each equal to one-fourth of the Breach Amount,
payable on the next four (4) consecutive anniversaries of the breach by the
Breaching Partner, with simple interest accrued from the date of such breach
through the date each such installment is paid on the unpaid balance of such
Breach Amount at 10 percent (10%) per annum. The Breach Amount shall be an
amount equal to the greater of $1 or the Net Equity of the Breaching Partner's
interest on the day of such breach, computed in accordance with Section 11.6
hereof. The Partnership may, at its sole election, prepay all or any portion of
the Breach Payments or interest accrued thereon at any time without penalty.
11.5 NO BONDING. Notwithstanding anything to the contrary in the Act,
the Partnership shall not be obligated to secure the value of the Breaching
Partner's interest by bond or otherwise; provided, however, that if a court of
competent jurisdiction determines that, in order to continue the business of the
Partnership such value must be so secured, the Partnership may provide such
security. If the Partnership provides such security, the Breaching Partner shall
not have any right to participate in Partnership profits or distributions during
the term of the Partnership, or to receive any interest on the value of such
interest. For this purpose, the value of the interest of the Breaching Partner
shall be the greater of $1 or the Net Equity of such interest as of the
effective date of the Breaching Partner's withdrawal.
11.6 NET EQUITY. The "Net Equity" of a Breaching Partner's interest in
the Partnership, as of any day, shall be the amount that would be distributed to
such Partner in liquidation of the Partnership pursuant to Section 13 hereof if
(1) all of the Partnership's assets were sold for their Gross Asset Values, (2)
the Partnership paid its accrued, but unpaid, liabilities and established
reserves for the payment of reasonably anticipated contingent or unknown
liabilities, and (3) the
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Partnership distributed the remaining proceeds to the Partners in liquidation,
all as of such day, provided that in determining such Net Equity, no reserve for
contingent or unknown liabilities shall be taken into account if such Partner
(or its successor in interest) agrees to indemnify the Partnership and the other
Partner for the Breaching Partner's portion of any such reserve. The Net Equity
of a Partner's interest in the Partnership shall be determined, without audit or
certification, from the books and records of the Partnership by the firm of
independent certified public accountants regularly employed by the Partnership.
The Net Equity of a Partner's interest shall be determined within thirty (30)
days of the day upon which such accountants are apprised in writing of the Gross
Asset Values, and the amount of such Net Equity shall be disclosed to the
Partnership and each of the Partners by written notice. The Net Equity
determination of such accountants shall be final and binding in the absence of a
showing of gross negligence or willful misconduct.
SECTION 12
BUY-OUT
12.1 BUY-OUT PROVISION. BWISS shall have the right to purchase all of
Prost's interest in the Partnership as determined herein.
(a) For a period ending at 11:59 P.M. P.S.T. on the date three
years after the Contribution Date, BWISS may give Prost notice of BWISS' intent
to exercise its buy-out right ("Election Notice"). As a result of the giving of
such Election Notice under this Section 12.1(a), Prost shall be bound to sell to
BWISS Prost's entire interest in the Partnership in the amount of $2,205,000
plus any distributions not made to Prost under Section 4.1(b)(ii) as of the date
of the Election Notice. The effect of giving the Election Notice shall terminate
any obligation the Partnership has to make any distributions to Prost.
(b) The closing of the purchase and sale of the interest under
Section 12.1(a) shall occur on a date and time mutually determined by the
Partners, but no later than the thirtieth day following the date of the Election
Notice. At the closing the Partners shall execute such documents and instruments
of conveyance as may be necessary or appropriate to confirm the transactions
contemplated hereby, including, without limitation, the Transfer of the
Partnership interest and the assumption of the obligations with respect to the
portion of the interest transferred. The reasonable costs of such Transfer and
closing including, without limitation, attorneys' fees and filing fees, shall be
divided equally between the Partners.
(c) If BWISS does not make the Election Notice prior to the
expiration of the buy-out provision pursuant to Section 12.1(a), such failure
shall be deemed a Liquidating Event under Section 13.1.
12.2 NONSOLICITATION. At all times after the date of the Election
Notice until the end of the fifth year following the Election Notice or BWISS
Purchase Offer (under Section 13.7 (b)) ("Post BWISS Election Period"), each of
Prost and Stanislaus Brewing Company, Inc. agrees that both will not (directly
or indirectly) call on or solicit or divert or take away from BWISS
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or its Affiliates the business of (including, without limitation, by divulging
to any competitor or potential competitor of BWISS or its Affiliates the name
of), any person, firm, corporation or other entity who or which at the date of
the Election Notice or BWISS Purchase Offer was, or at any time during the three
years preceding the Election Notice or BWISS Purchase Offer had been, a customer
of the Partnership, BWISS, or BWISS' Affiliates or whose identity is known to
Prost or Stanislaus Brewing Company, Inc. at the date of the Election Notice or
BWISS Purchase Offer as one whom the Partnership, BWISS, or BWISS' Affiliates
intends to solicit within the succeeding year. Nothing contained in this Section
12.2 shall affect or be deemed to affect in any manner any other provision of
this Agreement.
12.3 HIRING OF BWISS' EMPLOYEES. During the Post BWISS Election Period,
each of Prost and Stanislaus Brewing Company, Inc. agrees not to (directly or
indirectly) hire or offer employment to any employee of the Partnership, BWISS,
or BWISS' Affiliates whose employment is continued by the Partnership, BWISS, or
BWISS' Affiliates after the Election Notice or BWISS Purchase Offer unless the
Partnership, BWISS, or BWISS' Affiliates first terminates the employment of such
employee. Nothing contained in this Section 12.3 shall affect or be deemed to
affect in any manner any other provision of this Agreement.
12.4 NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) At all times after the date of the Election Notice or BWISS
Purchase Offer, Prost, Stanislaus Brewing Company, Inc., and their Affiliates
shall keep confidential and will not directly or indirectly divulge to anyone
nor use or otherwise appropriate for their own benefit, or on behalf of any
other person, firm, partnership or corporation by whom any of them might
subsequently be employed or otherwise associated or affiliated with, any
Confidential Information (as defined herein). For this purpose, "Confidential
Information" means any and all customer lists, product formulations,
arrangements with distributors, marketing information or strategies, trade
secrets or other confidential information of any kind, nature or description
concerning any matters affecting or relating to the business of the Partnership,
BWISS, or BWISS' Affiliates which derives economic value, actual or potential,
from not being generally known to the public or to other persons who can obtain
economic value from its disclosure or use. Nothing contained in this Section
12.4(a) shall affect or be deemed to affect in any manner any other provision of
this Agreement.
(b) At all times after the date of the Prost Purchase Offer (under
Section 13.7(a)), BWISS and its Affiliates shall keep confidential and will not
directly or indirectly divulge to anyone nor use or otherwise appropriate for
their own benefit, or on behalf of any other person, firm, partnership or
corporation by whom any of them might subsequently be employed or otherwise
associated or affiliated with, any Confidential Information (as defined herein).
For this purpose, "Confidential Information" means any and all customer lists,
product formulations, arrangements with distributors, marketing information or
strategies, trade secrets or other confidential information of any kind, nature
or description concerning any matters affecting or relating to the business of
the Partnership, Prost or Prost's Affiliates which derives economic value,
actual or potential, from not being generally known to the public or to other
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persons who can obtain economic value from its disclosure or use. Nothing
contained in this Section 12.4(b) shall affect or be deemed to affect in any
manner any other provision of this Agreement.
12.5 INTELLECTUAL PROPERTY RIGHTS.
(a) On and after the date of the Election Notice or BWISS Purchase
Offer, all intellectual property rights, whether or not patentable or
copyrightable, which (i) are made or developed with the equipment, supplies,
facilities, product formulations, trade secrets, time or other assets of the
Partnership or (ii) relate to the business, including anticipated research or
development, of the Partnership are and shall remain the sole property of BWISS
and upon request made by BWISS, Prost shall assign any and all rights, including
patents and patent rights, trademark and trade dress rights Prost may have
therein to BWISS. Nothing contained in this Section 12.5(a) shall affect or be
deemed to affect in any manner any other provision of this Agreement.
(b) On and after the date of the Prost Purchase Offer all
intellectual property rights, whether or not patentable or copyrightable, which
(i) are made or developed with the equipment, supplies, facilities, product
formulations, trade secrets, time or other assets of the Partnership or (ii)
relate to the business, including anticipated research or development, of the
Partnership are and shall remain the sole property of Prost and upon request
made by Prost, BWISS shall assign any and all rights, including patents and
patent rights, trademark and trade dress rights BWISS may have therein to Prost.
Nothing contained in this Section 12.5(b) shall affect or be deemed to affect in
any manner any other provision of this Agreement.
12.6 PARTNERSHIP MATERIALS.
(a) On and after the date of the Election Notice or BWISS Purchase
Offer, all reports and analysis, designs, drawings, contracts, contractual
arrangements, specifications, computer software, computer hardware and other
equipment, computer printouts, computer disks, documents, memoranda, notebooks,
correspondence, files, lists and other records, and the like, and all
photocopies or other reproductions thereof, affecting or relating to the
business of the Partnership shall be and remain the sole property of BWISS.
Nothing contained in this Section 12.6(a) shall affect or be deemed to affect in
any manner any other provision of this Agreement.
(b) On and after the date of the Prost Purchase Offer all reports
and analysis, designs, drawings, contracts, contractual arrangements,
specifications, computer software, computer hardware and other equipment,
computer printouts, computer disks, documents, memoranda, notebooks,
correspondence, files, lists and other records, and the like, and all
photocopies or other reproductions thereof, affecting or relating to the
business of the Partnership shall be and remain the sole property of Prost.
Nothing contained in this Section 12.6(b) shall affect or be deemed to affect in
any manner any other provision of this Agreement.
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SECTION 13
DISSOLUTION AND WINDING UP
13.1 LIQUIDATING EVENTS. The Partnership shall dissolve and commence
winding up and liquidating upon the first to occur of any of the following
("Liquidating Events"):
(a) December 31, 2016
(b) The sale of all or substantially all of the Property;
(c) The vote of the Partners;
(d) The happening of any other event that makes it unlawful or
impossible to carry on the business of the Partnership;
(e) Any event which causes there to be only one Partner; or
(f) The failure of BWISS to make the Election Notice in
accordance with Section 12.1.
The Partners hereby agree that, notwithstanding any provision of the Act, the
Partnership shall not dissolve prior to the occurrence of a Liquidating Event.
If it is determined, by a court of competent jurisdiction, that the Partnership
has dissolved prior to the occurrence of a Liquidating Event, the Partners
hereby agree to continue the business of the Partnership without a winding up or
liquidation.
13.2 WINDING UP. Upon the occurrence of a Liquidating Event, the
Partnership shall continue solely for the purpose of winding up its affairs in
an orderly manner, liquidating its assets, and satisfying the claims of its
creditors and Partners and no Partner shall take any action that is inconsistent
with, or not necessary to or appropriate for, winding up the Partnership's
business and affairs. To the extent not inconsistent with the foregoing, all
covenants and obligations in this Agreement shall continue in full force and
effect until such time as the Property has been distributed pursuant to this
Section 13.2 and the Partnership has terminated. The Joint Management Committee
shall be responsible for overseeing the winding up and liquidation of the
Partnership, shall take full account of the Partnership's liabilities and
Property, shall cause the Property to be liquidated as promptly as is consistent
with obtaining the fair market value thereof, and shall cause the proceeds
therefrom, to the extent sufficient therefor, to be applied and distributed in
the following order:
(a) First, to the payment and discharge of all of the Partnership's
debts and liabilities to creditors other than Partners;
(b) Second, to the payment and discharge of all of the
Partnership's debts and liabilities to Partners; and
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(c) The balance, if any, to the Partners in accordance with their
Capital Accounts, after giving effect to all contributions, distributions, and
allocations for all periods.
The Joint Management Committee shall not receive any additional compensation for
any services performed pursuant to this Section 13. Each Partner understands and
agrees that by accepting the provisions of this Section 13.2 setting forth the
priority of the distribution of the assets of the Partnership to be made upon
its liquidation, such Partner expressly waives any right which it, as a creditor
of the Partnership, might otherwise have under the Act to receive distributions
of assets pari passu with the other creditors of the Partnership in connection
with a distribution of assets of the Partnership in satisfaction of any
liability of the Partnership, and hereby subordinates to said creditors any such
right.
13.3 COMPLIANCE WITH CERTAIN REQUIREMENTS OF REGULATIONS; DEFICIT
CAPITAL ACCOUNTS. In the event the Partnership is "liquidated" within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g), (a) distributions shall be
made pursuant to this Section 13 to the Partners who have positive Capital
Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2), and (b)
if any Partner's Capital Account has a deficit balance (after giving effect to
all contributions, distributions, and allocations for all Fiscal Years,
including the Fiscal Year during which such liquidation occurs), such Partner
shall contribute to the capital of the Partnership the amount necessary to
restore such deficit balance to zero in compliance with Regulations Section
1.704-1(b)(ii)(b)(3). In the discretion of the Joint Management Committee, a pro
rata portion of the distributions that would otherwise be made to the Partners
pursuant to Section 13.2(c) hereof may be:
(a) distributed to a trust established for the benefit of the
Partners for the purposes of liquidating Partnership assets, collecting amounts
owed to the Partnership, and paying any contingent or unforeseen liabilities or
obligations of the Partnership or of the Partners arising out of or in
connection with the Partnership. The assets of any such trust shall be
distributed to the Partners from time to time, in the reasonable discretion of
the Joint Management Committee, in the same proportions as the amount
distributed to such trust by the Partnership would otherwise have been
distributed to the Partners pursuant to Section 13.2 hereof; or
(b) withheld to provide a reasonable reserve for Partnership
liabilities (contingent or otherwise) and to reflect the unrealized portion of
any installment obligations owed to the Partnership, provided that such withheld
amounts shall be distributed to the Partners as soon as practicable.
13.4 DEEMED DISTRIBUTION AND RECONTRIBUTION. Notwithstanding any other
provisions of this Section 13, in the event the Partnership is liquidated within
the meaning of Regulations Section 1.704-1(b)(2)(ii)(g) but no Liquidating Event
has occurred, the Property shall not be liquidated, the Partnership's
liabilities shall not be paid or discharged, and the Partnership's affairs shall
not be wound up. Instead, the Partnership shall be deemed to have distributed
the Property in kind to the Partners, who shall be deemed to have assumed and
taken subject to all
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Partnership liabilities, all in accordance with their respective Capital
Accounts and if any Partner's Capital Account has a deficit balance (after
giving effect to all contributions, distributions, and allocations for all
Fiscal Years, including the Fiscal Year during which such liquidation occurs),
such Partner shall contribute to the capital of the Partnership the amount
necessary to restore such deficit balance to zero in compliance with Regulations
Section 1.704-1(b)(2)(ii)(b)(3). Immediately thereafter, the Partners shall be
deemed to have recontributed the Property in kind to the Partnership, which
shall be deemed to have assumed and taken subject to all such liabilities.
13.5 RIGHTS OF PARTNERS. Except as otherwise provided in this
Agreement, (a) each Partner shall look solely to the assets of the Partnership
for the return of its Capital Contributions and shall have no right or power to
demand or receive property other than cash from the Partnership and (b) neither
Partner shall have priority over the other Partner as to the return of his
Capital Contributions, distributions, or allocations.
13.6 NOTICE OF DISSOLUTION. In the event a Liquidating Event occurs or
an event occurs that would, but for provisions of Section 13.1 hereof, result in
a dissolution of the Partnership, the Joint Management Committee shall, within
thirty (30) days thereafter, (a) provide written notice thereof to each of the
Partners and to all other parties with whom the Partnership regularly conducts
business (as determined in the discretion of the Joint Management Committee),
and (b) publish notice of such dissolution in a newspaper of general circulation
in each place in which the Partnership regularly conducts business (as
determined in the discretion of the Joint Management Committee).
13.7 RIGHT OF FIRST REFUSAL. In the event BWISS fails to make the
Election Notice thereby causing a Liquidating Event pursuant to Section 13.1(f),
the Joint Management Committee shall not cause the winding up of the Partnership
pursuant to Section 13.2 if either Partner exercises its right of first refusal
pursuant to this Section 13.7.
(a) Prost shall have the right to buy all of BWISS' interest in the
Partnership based on the Appraised Value of the Partnership as of the date of
the Liquidating Event pursuant to Section 13.1(f). Within ten (10) Business Days
after receipt of the Appraisers' Notice, as defined herein, Prost may give
written notice to BWISS to exercise Prost's right to acquire all of BWISS'
interest in the Partnership for the purchase price equal to the Appraised Value
multiplied by BWISS' Percentage Interest (the "Prost Purchase Offer"). BWISS
shall be obligated to accept the Prost Purchase Offer. The closing shall take
place within thirty (30) days after Prost gives written notice of the Prost
Purchase Offer. The Prost Purchase Offer may, at the election of Prost, be paid
at the end of one year from the date of the Prost Purchase Offer; provided,
however, that (i) Prost shall grant BWISS a security interest in all existing
and after acquired equipment, inventory, and tangible personal property of the
Partnership and the proceeds derived from the sale thereof, (ii) Prost shall
grant BWISS a security interest in all accounts receivables and proceeds, (iii)
Prost shall grant BWISS a security interest on the real property located at 821
L Street, Modesto, California, (iv) Prost shall execute a promissory note
providing for payment of principal and accrued interest at the end of one year
from the date of
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<PAGE> 82
the Prost Purchase Offer at the federal applicable rate then prevailing however
interest shall not accrue until 90 days after the date of the Prost Purchase
Offer, and (v) Prost shall execute such additional documents as reasonably
requested by BWISS to effectuate the foregoing.
(b) If Prost fails to give BWISS the Prost Purchase Offer within
ten (10) Business Days after receipt of the Appraisers' Notice, as defined
herein, BWISS shall have the right to buy all of Prost's interest in the
Partnership based on the Appraised Value of the Partnership as of the date of
the Liquidating Event pursuant to Section 13.1(f). Within twenty (20) Business
Days after receipt of the Appraisers' Notice, as defined herein, BWISS may give
written notice to Prost to exercise BWISS' right to acquire all of Prost's
interest in the Partnership for the purchase price equal to the Appraised Value
multiplied by Prost's Percentage Interest (the "BWISS Purchase Offer"). Prost
shall be obligated to accept the BWISS Purchase Offer. The closing shall take
place within thirty (30) days after BWISS gives written notice of the BWISS
Purchase Offer. The BWISS Purchase Offer may, at the election of BWISS, be paid
at the end of one year from the date of the BWISS Purchase Offer; provided,
however, that (i) BWISS shall grant Prost a security interest in all existing
and after acquired equipment, inventory, and tangible personal property of the
Partnership and the proceeds derived from the sale thereof, (ii) BWISS shall
grant Prost a security interest in all accounts receivables and proceeds, (iii)
BWISS shall grant Prost a security interest on the real property located at 821
L Street, Modesto, California, (iv) BWISS shall execute a promissory note
providing for payment of principal and accrued interest at the end of one year
from the date of the BWISS Purchase Offer at the federal applicable rate then
prevailing however interest shall not accrue until 90 days after the date of the
BWISS Purchase Offer, and (v) BWISS shall execute such additional documents as
reasonably requested by BWISS to effectuate the foregoing.
(c) If neither Partner appoints the First Appraiser within ten (10)
Business Days of the Liquidating Event pursuant to Section 13.1(f), or if
neither the Prost Purchase Offer or the BWISS Purchase Offer is timely made, the
Joint Management Committee shall commence winding up the Partnership in
accordance with Section 13.
(d) The Appraised Value shall be determined as follows:
(i) Within ten (10) Business Days of the Liquidating Event
pursuant to Section 13.1(f), one Partner shall designate the First Appraiser and
the other Partner shall appoint the Second Appraiser within ten (10) Business
Days of receiving such notice designating the First Appraiser.
(ii) If the Second Appraiser is timely designated, the First
and Second Appraisers shall meet within ten (10) Business Days of such
appointment and shall endeavor, within thirty (30) Business Days of such
appointment, to agree upon, and give written notice to the Partners of the
Appraised Value (the "Appraisers' Notice"). The agreed value shall be the
Appraised Value.
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<PAGE> 83
(iii) If an Appraisers' Notice is not given during such period,
then at any time after such period, either BWISS or Prost, by written notice to
the First Appraiser and Second Appraiser (with a copy to the other Partner) may
demand that they appoint a Third Appraiser (the "Third Appraiser"). If the First
Appraiser and Second Appraiser have not either given an Appraisers' Notice or
appointed the Third Appraiser (who shall have agreed to serve) by the twentieth
(20th) Business Day after such demand, either BWISS or Prost may request any
judge of the Superior Court of the County of Los Angeles, State of California to
appoint the Third Appraiser. After the appointment of the Third Appraiser, the
Appraised Value shall be the amount included in an Appraisers' Notice subscribed
to by at least two (2) of the three (3) appraisers; provided that before
subscribing to an Appraised Value, the Third Appraiser shall meet at least once
with the First Appraiser and the Second Appraiser to discuss in good faith the
appraisal of the Partnership. If two (2) of the appraisers have not given an
Appraisers' Notice within twenty (20) Business Days of the appointment of the
Third Appraiser, the Appraised Value shall be determined solely by the Third
Appraiser, who shall give an Appraisers' Notice within thirty (30) days of his
appointment.
(iv) If a Second Appraiser is not timely appointed in the
manner provided by this Section 13.7, the Appraised Value shall be determined
solely by the First Appraiser who shall give an Appraisers' Notice of such
Appraised Value within ten (10) Business Days of the last day on which the
Second Appraiser could have been timely designated.
(v) Each appraiser appointed hereunder shall be disinterested
and shall be qualified to appraise assets similar to the Partnership's assets.
(vi) As used in this Section 13.7, as of any day, the
"Appraised Value" of the Partnership means (1) the maximum amount that one or
more buyers would reasonably be expected to pay for (A) all tangible assets of
the Partnership plus (B) net income before interest, taxes, depreciation and
amortization (as determined under U.S. Generally Accepted Accounting Principles)
for the twelve (12) full calendar months preceding the Prost Purchase Offer or
BWISS Purchase Offer, whichever is applicable, multiplied by three (3) (2) less
all accrued Partnership liabilities (as determined under U.S. Generally Accepted
Accounting Principles). Either Partner exercising its right under this Section
13.7 shall execute an indemnification agreement reasonably acceptable to the
other Partner's counsel obligating the buying Partner to indemnify the other
Partner and its Affiliates for any obligations or expenses, including reasonable
legal fees, incurred by the Partnership.
(vii) The costs and expenses of the Appraisers shall be born
equally by the parties.
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<PAGE> 84
SECTION 14
MISCELLANEOUS
14.1 NOTICES. Any notice, payment, demand, or communication required or
permitted to be given by any provision of this Agreement shall be in writing and
sent by overnight courier, or by telephone or facsimile, if such telephone
conversation or facsimile is followed by a hard copy of the telephone
conversation or facsimile communication sent by overnight courier, charges
prepaid, addressed as follows or to such other address as such Person may from
time to time specify by notice to the Partners: if to the Partnership, to the
Partnership at the address set forth in Section 1.4 hereof; and if to a Partner,
to such Partner at the address set forth in Section 2.1. Any such notice shall
be deemed to be delivered, given, and received as of the date so delivered.
14.2 BINDING EFFECT. Except as otherwise provided in this Agreement,
every covenant, term, and provision of this Agreement shall be binding upon and
inure to the benefit of the Partners and their respective heirs, legatees,
representatives, successors, transferees, and assigns.
14.3 CONSTRUCTION. Every covenant, term, and provision of this
Agreement shall be construed simply according to its fair meaning and not
strictly for or against any Partner. The terms of this Agreement are intended to
embody the economic relationship among the Partners and shall not be subject to
modification by, or be conformed with, any actions by the Internal Revenue
Service except as this Agreement may be explicitly so amended and except as may
relate specifically to the filing of tax returns. Section and other headings
contained in this Agreement are for reference purposes only and are not intended
to describe, interpret, define, or limit the scope, extent, or intent of this
Agreement or any provision hereof.
14.4 SEVERABILITY. Every provision of this Agreement is intended to be
severable. If any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the validity or
legality of the remainder of this Agreement.
14.5 INCORPORATION BY REFERENCE. Every exhibit, schedule, and other
appendix attached to this Agreement and referred to herein is not incorporated
in this Agreement by reference unless this Agreement expressly otherwise
provides.
14.6 FURTHER ACTION. Each Partner agrees to perform all further acts
and execute, acknowledge, and deliver any documents which may be reasonably
necessary, appropriate, or desirable to carry out the provisions of this
Agreement.
14.7 GOVERNING LAW. The laws of the State of California shall govern
the validity of this Agreement, the construction of its terms, and the
interpretation of the rights and duties of the Partners.
14.8 COUNTERPART EXECUTION. This Agreement may be executed in any
number of counterparts with the same effect as if all of the Partners had signed
the same document. All
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<PAGE> 85
counterparts shall be construed together and shall constitute one agreement.
14.9 ARBITRATION. Any dispute arising under this Agreement or the
transactions contemplated thereby shall be arbitrated before the American
Arbitration Association at its offices located in San Francisco, California.
14.10 ATTORNEYS' FEES. If any legal action, whether in court or
arbitration, arises under this Agreement or by reason of any asserted breach of
it, the prevailing party shall be entitled to recover all costs and expenses,
including reasonable attorneys' and expert witness fees, incurred in enforcing
or attempting to enforce any of the terms, covenants or conditions.
IN WITNESS WHEREOF, the parties have executed this Agreement of
Partnership as of September ______, 1996.
PROST PARTNERS, L.P. BWI-ST. STAN'S, INC.
By: By:
------------------------------ -----------------------------------
Garith Helm, President of Frederik G.M. Rodenhuis, President and
Stanislaus Brewing Company, Inc., Chief Executive Officer
General Partner
40 of 40
<PAGE> 86
ASSIGNMENT AGREEMENT
This Assignment Agreement ("Agreement") is made by and between BWI-St.
Stan's, Inc., a California corporation ("BWISS"), a wholly owned subsidiary of
Beverage Works, Inc., and Stanislaus Brewing Company, Inc., a California
corporation ("Stanislaus"). This Agreement shall be effective as of the closing
date pursuant to Section 12.1(b) or Section 13.7(b) of the Agreement of
Partnership of BWI-Prost Partners.
In consideration of the promises, mutual covenants and agreements set
forth herein, BWISS and Stanislaus agree as follows:
1. Assignment. Stanislaus hereby sells, assigns, transfers and conveys
free and clear of all liens, claims and encumbrances of any kind, to BWISS, its
successors and assigns, all rights Stanislaus has in and to the goodwill and
intangible property used in the operation of the business known as St. Stan's
Brewing Company, including, but not limited to, the intangible property listed
on Exhibit "A" attached hereto. Such rights assigned include the right to
enforce those rights against any third party liable for past, present or future
infringement, and the right to any money or other consideration which is
obtained or due from any such enforcement, whether through judgment, settlement,
licensing or otherwise.
2. Relationship Created by Agreements. Each of the parties hereto as
separate and independent legal entities. Nothing herein contained shall be
construed or deemed hereby to create a principal/agent relationship between the
parties nor any form of partnership or joint venture.
3. Good Title. Stanislaus shall not sell, transfer, convey, assign,
encumber or otherwise dispose of the property to be assigned hereunder from the
date of this Agreement without the written consent of BWISS.
4. Modification. This Agreement may be modified only by a written
consent of the parties.
5. Assignment. This Agreement shall be binding on and enure to the
benefit of the parties hereto and their respective successors and permitted
assigns. No party may assign any of its rights hereunder without the written
consent of the other party.
6. Further Assurances. At the request of BWISS and without further
consideration, Stanislaus will execute and deliver such other documents, and
take such other action as BWISS may reasonably request in order to consummate
the transactions contemplated hereby and to vest in BWISS good and marketable
title to the property transferred hereunder.
7. Governing Law. The validity, construction and performance of this
Agreement shall be governed by the laws of the State of California.
<PAGE> 87
8. Entire Agreement. This Agreement embodies the entire agreement and
understanding of the parties hereto.
9. Counterparts. This Agreement may be executed in counterparts.
BWI-ST. STAN'S, INC. STANISLAUS BREWING COMPANY
By: By:
----------------------------- ------------------------------
Frederik G.M. Rodenhuis Garith Helm
Chief Executive Officer President
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<PAGE> 1
EXHIBIT 2.3
SHARE PURCHASE AGREEMENT
dated as of
______________ 1996
by and among
BEVERAGE WORKS, INC.
(the "Buyer")
and
ORANGE EMPIRE BREWING COMPANY
(the "Company")
and
JOHN BARNICOAT
NORMAN KRETSCHMAR
MICHAEL HAGERMAN
KENNETH MCMILLIN
(the "Management Shareholders")
and
those individuals whose names
are set forth on Schedule 1.1
who are not Management Shareholders
(the "Non-Management Shareholders")
<PAGE> 2
TABLE OF CONTENTS
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ARTICLE I - PURCHASE AND SALE OF THE SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Purchase and Sale of the Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Default by a Shareholder at the Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Post-Closing Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.5 [Intentionally Omitted] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.6 Payment of Certain Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.7 Concurrent Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE II - THE CLOSING AND TRANSFER OF THE SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLES III AND IV - REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE V - ADDITIONAL COVENANTS AND AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 Conduct of Business Pending Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.2 Records and Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.3 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.4 Additional Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.5 No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.6 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.7 Equipment Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.8 [Intentionally Omitted] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.9 Riverside National Bank Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.10 Updating of Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.11 Financial Statements of Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE VI - CONDITIONS PRECEDENT TO OBLIGATIONS
OF THE BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.1 Accuracy of Warranties; Performance of Covenants . . . . . . . . . . . . . . . . . . . . . . . 14
6.2 Regulatory Consents, Authorizations, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.3 No Pending Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.4 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.5 No Adverse Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.6 Force majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.7 Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.8 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.9 Further Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.10 Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.11 Concurrent Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.12 [Intentionally Omitted] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.13 Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.14 Initial Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.15 Absence of Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.16 Shareholder Debt; Equipment Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
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ARTICLE VII - CONDITIONS PRECEDENT TO OBLIGATIONS OF
EACH OF THE SHAREHOLDERS AND THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.1 Accuracy of Warranties; Performance of Covenants . . . . . . . . . . . . . . . . . . . . . . . 18
7.2 Regulatory Consents, Authorizations, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.3 No Pending Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.4 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.5 No Adverse Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.6 Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.7 Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.8 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.9 Further Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.10 Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.11 Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.12 Concurrent Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.13 Initial Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE VIII - EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE IX - SURVIVAL OF REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS; INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE IX - SURVIVAL OF REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS; INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.2A Indemnification by Each of the Shareholders as
to Title to, and Transferability of, Shares . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.2B Indemnification by Each of the Management
Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.3 Indemnification by the Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.4 Event of Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.5 Notice and Demand, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.6 Limitation on Indemnification Amount;
Other Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
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ARTICLE X - MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.1 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.2 Entire Understanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.3 Waiver and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.4 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.6 Severability; Relationship of the Parties . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.8 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.9 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.10 Governing Law and Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.11 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.12 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.13 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.14 Representation by Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.15 No Interpretation Against Draftsman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.16 Termination by Mutual Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.17 Termination for Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
- iii -
<PAGE> 5
EXHIBITS
EXHIBIT SUBJECT
I [Intentionally Omitted]
II Form of Management Agreement
III Agreement Not to Compete
IV A. Representations and Warranties of each of the
Sellers and the Shareholder
B. Representations and Warranties of Buyer
V Opinion of Counsel to the Company and the Shareholders
VI Opinion of Counsel to the Buyer
- iv -
<PAGE> 6
EXHIBIT 2.3
SHARE PURCHASE AGREEMENT
THIS SHARE PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of this 10th day of September, 1996 by and among BEVERAGE WORKS,
INC., a California Corporation (the "Buyer"), on the one hand, and ORANGE
EMPIRE BREWING COMPANY, a California corporation (the "Company") and JOHN
BARNICOAT, NORMAN KRETSCHMAR, MICHAEL HAGERMAN and KENNETH MCMILLIN
(individually, a "Management Shareholder," and collectively, the "Management
Shareholders") and those individuals whose names and addresses are set forth on
Schedule 1.1, attached hereto and made a part hereof by this reference,
(individually, a "Non-Management Shareholder," and collectively, the
"Non-Management Shareholders") (the Management Shareholders and the
Non-Management Shareholders may hereinafter be referred to individually, as a
"Shareholder," and collectively, as the "Shareholders"), on the other hand.
RECITALS
WHEREAS, the Shareholders own all of the issued and outstanding shares
of capital stock of the Company (the "Shares"); and
WHEREAS, the Buyer desires to purchase from the Shareholders and the
Shareholders desire to sell to the Buyer, on the terms and subject to the
conditions of this Agreement, the Shares, in exchange for the Purchase Price
(as hereinafter defined), as more specifically set forth in this Agreement;
NOW, THEREFORE, in consideration of the respective mutual covenants,
promises, representations and warranties contained herein and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE SHARES
1.1 Purchase and Sale of the Shares. On the basis of the
representations and warranties contained herein, and subject to the terms,
conditions and other provisions contained herein, the Shareholders shall sell,
transfer, assign and deliver to the Buyer, and the Buyer shall purchase and
accept from the Shareholders, on the Closing Date (as hereinafter defined) all
right, title and interest in and to, the Shares, in exchange for the payment
and delivery to each Shareholder of his or her portion of the aggregate
Purchase Price (as hereinafter defined), as specifically set forth on Schedule
1.1 attached hereto.
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1.2 Default by a Shareholder at the Closing. Notwithstanding the
provisions of Section 1.1, if any Shareholder shall fail or refuse to deliver
any of the Shares owned by such Shareholder, or, if any Shareholder shall fail
or refuse to consummate the transactions described in this Agreement prior to
or on the Closing Date, such failure or refusal shall not relieve such
Shareholder of any obligations under this Agreement, and the Buyer, at its
option and without prejudice to its rights against such Shareholder, may either
(i) acquire the remaining Shares which it is entitled to acquire hereunder with
a proportional revision to the Purchase Price, or (ii) refuse to make such
acquisition and thereby terminate all of its obligations under this Agreement.
Each of the Shareholders acknowledges and agrees that the Shares are unique and
otherwise not available and that in addition to any other remedies, the Buyer
may invoke any equitable remedies to enforce delivery of the Shares hereunder,
including, without limitation, an action or suit for specific performance
against any Shareholder who shall fail or refuse to deliver any of the Shares
owned by such Shareholder or who shall fail or refuse to consummate the
transactions described in this Agreement.
1.3 Purchase Price. Subject to Section 1.4 of this Agreement, the
aggregate purchase price (the "Purchase Price") for the Shares is payable as
follows:
(i) Two Hundred Fourty-Seven Thousand Four Hundred Seventy
Nine (247,479) shares of Common Stock, no par value per share (the "Common
Stock") of the Buyer to be delivered at the Closing; and
(ii) One Hundred Thirty Thousand (130,000) shares of Common
Stock of the Buyer (the "Earn-Out Shares"), to be paid as follows:
(a) The Earn-Out Shares shall be delivered as calculated
hereinbelow based on the performance of the Company in the period commencing
at 12:01 a.m. on the Closing Date and ending at 11:59 p.m. on December 31, 1998
(the "Measurement Period") as follows:
(I) For each barrel of beer that the Company
produces, ships and sells above Twelve Thousand (12,000) and up to and
including Thirty-Seven Thousand (37,000) barrels of beer in the Measurement
Period, then the Shareholders shall be entitled to receive four (4) Earn-Out
Shares up to a maximum of One Hundred Thousand (100,000) Earn-Out Shares if the
Company produces, ships and sells Thirty-Seven Thousand (37,000) or more
barrels of beer during the Measurement Period;
(II) If the Company produces, ships and sells
Forty-Five Thousand (45,000) or more barrels of beer in the Measurement Period,
then the Shareholders shall be entitled to receive as a bonus an additional
Thirty Thousand (30,000) Earn-Out Shares;
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(III) For purposes of making the above calculations,
the number of barrels of beer produced by the Company will include (a) all
Riverside product produced irrespective of the location of production, (b) all
Humpback barrels produced at the Company's premises, (c) all Naked Aspen
barrels produced at the Company's premises, (d) all beers produced for Trader
Joe's under the proposed private label program, excluding, however, Heritage
Brewing's Red Pig and related products contract with The Cabo Group, Inc., (e)
all San Luis Obispo keg business produced at the Company's premises and (f) all
kegs of beer produced as identified on Schedule 1.3 attached hereto and not
otherwise specified in (a) through (e) above, inclusive, which are produced on
a contract basis at the Company's premises; and
(IV) During the Measurement Period, the Company
covenants and agrees to provide up to 80 percent of the current potential
maximum capacity (i.e., 24,000 barrels out of a 30,000 barrel capacity) per
year for production of the products specified hereinabove and in the event that
such product is not produced because of capacity constraints at the Company's
premises and additional capacity cannot be provided elsewhere, then the parties
agree to negotiate in good faith to adjust the number of barrels required for
the Company to produce, ship and sell in order for the Shareholders to be
entitled to receive any or all of the Earn-Out Shares; and
(V) If earned, the Earn-Out shares will be
delivered to the individual Non-Management Shareholders in the percentages
specified on Schedule 1.1 and the delivery thereof shall be effected not later
than January 31, 1999.
1.4 Post-Closing Adjustments.
(i) Preparation of Closing Date Balance Sheet. Within 90
days after the Closing Date, the Company shall prepare a balance sheet for the
Company as of the Closing Date (the "Closing Date Balance Sheet"). The Closing
Date Balance Sheet shall be prepared in accordance with United States Generally
Accepted Accounting Principles ("GAAP"), using the same methods and criteria
employed by the Company in connection with preparation of its Latest Balance
Sheet (as hereinafter defined) to the extent such methods are consistent with
GAAP, and shall present fairly the Company's financial position as of the
Closing Date. Upon completion of the Closing Date Balance Sheet, copies
thereof shall promptly be provided to Michael Hagerman and Norman Kretschmar as
the representatives of the Shareholders (collectively, the "Shareholder
Representative").
(ii) Resolution of Disputes. If the Shareholder
Representative shall notify the Buyer within 15 days after receipt of the
Closing Date Balance Sheet that the Shareholders dispute any
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<PAGE> 9
matter with respect to such Closing Date Balance Sheet, then any such matters
(the "Disputed Matters") shall be submitted to arbitration in Los Angeles
County, California within 30 days after such notice unless the parties agree in
writing to extend such 30-day period in an attempt to negotiate a settlement of
such Disputed Matters. The arbitrator (the "Arbitrator") shall be an
accounting firm (the "Accounting Firm") mutually agreed to by the Shareholder
Representative and the Buyer. Any reference herein to the Accounting Firm
shall be deemed to include a reference to any member or employee thereof (who
is a certified public accountant) which any such firm may designate as the
Arbitrator on its behalf. If within 20 days following the expiration of the
30-day period referred to above or any extension thereof the Shareholder
Representative and the Buyer shall have failed to agree upon the selection of
the Arbitrator or any such Arbitrator selected by them shall not have agreed to
perform the services called for hereunder, the Arbitrator shall thereupon be
selected in accordance with the rules of the American Arbitration Association,
which or who may be willing to perform such services, other than any such firm
which is then employed by any of the Shareholders, the Company or the Buyer or
any affiliate thereof. The Arbitrator shall consider only the Disputed Matters
and the arbitration shall be conducted in accordance with the rules of the
American Arbitration Association then in effect. The Arbitrator shall act
promptly to resolve all Disputed Matters and its decision with respect to all
Disputed Matters shall be final and binding upon the parties hereto and shall
not be appealable to any court. The costs and expenses of the Arbitrator shall
be shared equally by the Shareholders and the Buyer, except that Arbitrator
shall have the authority to award the reimbursement of such expenses to the
prevailing party.
(iii) Determination of Closing Net Book Value. The
Purchase Price has been determined on the assumption, and the parties have
entered into this Agreement with the reasonable expectation, that the excess
(the "Closing Net Book Value") of (1) the total assets of the Company as of the
Closing Date, over (2) the total liabilities of the Company as of the Closing
Date, will be $ X , which is based on the Latest Balance Sheet. As
used herein, the terms "total assets" and "total liabilities" shall mean the
aggregate amount of all assets or liabilities, respectively, of the Company
(whether classifiable in accordance with GAAP as current or long-term)
determined in accordance with GAAP and applied on a basis consistent with the
Latest Balance Sheet.
(iv) Adjustment of Purchase Price; Payment.
(a) The Purchase Price shall be increased dollar for
dollar by the amount by which the Closing Net Book Value on the
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<PAGE> 10
Closing Date is greater than $___X__ plus $350,000, without giving effect to
the transactions contemplated by Section 5.9 of this Agreement. Within 15 days
after receipt by the Shareholders of the Closing Date Balance Sheet, the Buyer
shall pay the net amount of any increase to the Purchase Price, as calculated
in accordance with this Section 1.4, to the Shareholders in shares of Common
Stock of the Buyer valued at $8.00 per share; provided, however, that if there
are any Disputed Matters, any payment finally determined to be due either by
agreement or by arbitration shall be made by the Buyer within 10 days after
such determination.
(b) The Purchase Price shall be decreased dollar
for dollar by the amount by which the Closing Net Book Value on the Closing
Date is less than $ X minus $350,000. Within 15 days after receipt by
the Shareholders of the Closing Date Balance Sheet, the Shareholders shall pay
the net amount of any decrease to the Purchase Price, as calculated in
accordance with this Section 1.4, to the Buyer in shares of Common Stock of the
Buyer valued at $8.00 per share; provided, however, that if there are any
Disputed Matters, any payment finally determined to be due either by agreement
or by arbitration shall be made by the Shareholders within 10 days after such
determination. Any such payment required to be made by the Shareholders to the
Buyer shall be paid by the individual Shareholders in the percentages specified
on Schedule 1.1; provided, further, however that each Management Shareholder
shall be jointly and severally liable to pay the full amount due pursuant to
this provision to the Buyer in shares of Common Stock of the Buyer valued at
$8.00 per share.
1.5 [Intentionally Omitted].
1.6 Payment of Certain Taxes. Any sales, use, transfer or other
tax arising from or relating to the Shares to be sold contemplated herein,
shall be paid by and shall be solely the responsibility of the Shareholders.
1.7 Concurrent Agreements. Concurrently herewith, (i) the Buyer
and certain of the Shareholders are entering into a management agreement, a
form of which is attached hereto as Exhibit II (the "Management Agreement");
and (ii) the Buyer, on the one hand, and each of the Management Shareholders
are entering into an Agreement Not to Compete, a form of which attached hereto
as Exhibit III (the "Agreement Not to Compete"). The Management Agreement and
the Agreements Not to Compete are collectively referred to herein as the
"Concurrent Agreements". Each of the Concurrent Agreements shall be effective
concurrently with the Closing (as hereinafter defined).
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ARTICLE II
THE CLOSING AND TRANSFER OF THE SHARES
2.1 Closing. The Closing of the transactions contemplated
by this Agreement (the "Closing") shall take place on that date (the "Closing
Date") which is the latest to occur of: (i) the date of the closing of the
Buyer's initial public offering as such date is set forth in the Prospectus for
such initial public offering; (ii) the first business day thereafter as all of
the conditions to the Closing set forth in Articles VI and VII hereof shall
have been satisfied or waived in accordance with the respective terms thereof,
(iii) the latest date which may from time to time be designated in writing by
the Buyer, but not later than the Latest Date (as defined hereinbelow), if on
March 30, 1997, there is any claim, action, suit or proceeding, at law or in
equity, or by or before any government or governmental instrumentality or
agency, threatened or pending against any of the Shareholders, the Company, any
Subsidiary (as hereinafter defined) or the Buyer for the purpose of enjoining or
preventing the consummation of the transactions contemplated by this Agreement,
or otherwise claiming that this Agreement or the consummation thereof is
improper, or which might materially affect the right of the Buyer to purchase
the Shares; or (iv) any other date mutually agreed upon in writing by the Buyer,
the Shareholders and the Company. The Closing shall take place at the offices
of Donahue & Mesereau, 1900 Avenue of the Stars, Suite 2700, Los Angeles,
California 90067. If for any reason the Closing does not occur by March 30,
1997 (the "Latest Date"), either the Shareholder Representative, the Company or
the Buyer may unilaterally terminate this Agreement and all further obligations
of the parties hereunder shall thereupon terminate, except that it is expressly
agreed and understood that a party's right to pursue all legal rights and
remedies for breach of contract or otherwise hereunder, including, without
limitation, damages relating thereto, shall survive such termination unimpaired.
2.2 Deliveries. At the Closing, each of the Shareholders shall
transfer and deliver to the Buyer good and marketable title to the Shares owned
by such Shareholder immediately prior to the Closing, free and clear of any and
all liens, claims, mortgages, charges, commission arrangements, title retention
agreements, covenants, restrictions, options, purchase agreements, security
agreements, security interests, encumbrances and adverse interests of any kind
or nature whatsoever (each, an "Adverse Interest"), other than those disclosed
to the Buyer in writing and approved by the Buyer in writing, by delivering to
the Buyer the certificates for the Shares to be sold by such Shareholder in
negotiable form,
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<PAGE> 12
duly endorsed in blank, or with separate notarized or guaranteed stock transfer
powers attached thereto and signed in blank, in exchange for the delivery by
the Buyer to the Shareholders of the Purchase Price as specified in Section
1.3. In addition, at the Closing, each of the parties shall execute and
deliver each and every Concurrent Agreement to which such party is also a
party. At the Closing, the Shareholders will make available to the Buyer the
written resignations of all of the directors and officers of the Company and
each Subsidiary effective as of the Closing and shall cause to be made
available to the successor directors and officers of the Company and each
Subsidiary all minute books, stock record books, books of account, corporate
seals, contracts, agreements, plans commitments, understandings and other
documents, instruments and papers belonging to the Company and each Subsidiary
and shall cause full possession and control of all of the assets, properties,
business, goodwill and rights of every kind and description, real and personal,
tangible and intangible, choate or inchoate, wherever situated belonging to the
Company and each Subsidiary (collectively, the "Assets") and of all other
things and matters pertaining to the operation of the existing and prospective
business, operations, facilities and other Assets, financial condition, results
of operations, finances, markets, products, competitive position, inventory and
other supplies, customers and customer relations and personnel of the Company
and each Subsidiary (collectively, the "Business") to be transferred and
delivered to the directors and officers elected to succeed the resigned
directors and officers of the Company and each Subsidiary. At the Closing, the
Shareholders shall also deliver to the Buyer, and the Buyer shall deliver to
the Shareholders, the certificates, opinions and other instruments and
documents referred to in Articles VI and VII of this Agreement. At any time
and from time to time after the Closing Date, the parties shall duly execute,
acknowledge and deliver all such further assignments, conveyances, instruments
and documents, and will take such other action consistent with the terms of
this Agreement, in each case, as may be reasonably necessary to assign,
transfer and convey to the Buyer good and marketable title to the Shares, free
and clear of any and all Adverse Interests, to carry out the transactions
contemplated by this Agreement, and to comply with the terms hereof.
ARTICLES III AND IV
REPRESENTATIONS AND WARRANTIES
Each of the Management Shareholders (jointly and severally as to each
other, but only up to their respective percentages of liability as specified on
Schedule 1.1) and the Company, jointly and severally, represent and warrant to,
and agree with, the Buyer,
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its successors and assigns, as of the date hereof, as set forth in Section A of
Exhibit IV attached hereto, the entirety of which is hereby incorporated into
this Agreement by this reference. The Buyer represents and warrants to, and
agrees with, each of the Shareholders and the Company, each of their or its
successors and assigns, as the case may be, as of the date hereof, as set forth
in Section B of Exhibit IV attached hereto, the entirety of which is hereby
incorporated into this Agreement by this reference.
ARTICLE V
ADDITIONAL COVENANTS AND AGREEMENTS
5.1 Conduct of Business Pending Closing. Until the Closing Date,
except as may be approved by the Buyer in writing or as otherwise expressly
provided in this Agreement, the Company shall, and the Shareholders shall cause
the Company to:
(i) operate the Business only in the ordinary course and
in substantially the same manner as it has been operated in the past and not
sell any of the Assets except for sales from inventory in the ordinary course
of business;
(ii) not issue, repurchase or redeem or commit to issue,
repurchase or redeem, any shares of its capital stock, any options or other
rights to acquire such stock or any securities convertible into or exchangeable
for such stock;
(iii) not declare or pay any dividend on, or make any other
distribution with respect to, the Shares;
(iv) not (a) incur any amount of long or short-term debt
for money borrowed, (b) guarantee or agree to guarantee the obligations of
others, (c) indemnify or agree to indemnify others, or (d) incur any other
direct or indirect liability, indebtedness, obligation, expense, claim,
deficiency or endorsement of or by any person of any type, whether accrued,
absolute, contingent, matured, unmatured or otherwise (collectively,
"Liabilities");
(v) keep in full force and effect insurance covering
the Company, each Subsidiary, the Assets and the Business comparable in
amount and scope of coverage to that now maintained;
(vi) maintain the tangible Assets in good condition and
working order, ordinary wear and tear excepted and maintain the title to and
enforceability of claims pursuant to any intangible rights or Assets;
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(vii) use its best efforts to retain the Company's
employees and maintain the Business so that such employees will remain
available to the Company on and after the Closing Date and to maintain existing
relationships with suppliers, customers and others having business dealings
with the Company and its Subsidiaries and otherwise to preserve the goodwill of
the Business so that such relationships and goodwill will be preserved on and
after the Closing Date;
(viii) not amend the Articles of Incorporation or By-Laws of
the Company or any Subsidiary;
(ix) not merge with or into any other corporation,
partnership, association or entity or sell, assign, transfer, pledge or
encumber any part of the Assets or agree to do any of the foregoing;
(x) not enter into any written or oral contract,
agreement, lease, plan, commitment, arrangement, undertaking, practice,
authorization, obligation, instrument or other document that is or may be
binding on any person or its property under applicable law (each, a "Contract,"
and collectively, the "Contracts") that is material and not in the ordinary
course of business consistent with past practice, nor permit any amendment or
termination of any material contract;
(xi) not waive any rights of value or rights that would
otherwise accrue to the Company after the Closing Date;
(xii) not increase the salaries of, or make any bonus or
similar payments to or establish or modify any employee benefits plans for, any
of the Company's directors, officers or employees or enter into or modify any
employment, consulting or similar Contracts with any such persons or agree to
do any of the foregoing;
(xiii) continue to maintain all employee benefit plans in
accordance with applicable rules and regulations, and ensure that no employee
benefit plan, or any trust related thereto, shall be amended or terminated
prior to the Closing Date, except for any such amendment as may be required to
comply with applicable rules and regulations;
(xiv) collect its accounts receivable in the ordinary
course of business consistent with past practice;
(xv) pay its accounts payable in the ordinary course of
business consistent with past practice and not fail to pay or discharge when
due any Liabilities;
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<PAGE> 15
(xvi) use its best efforts to help the Shareholders
complete the transactions contemplate by this Agreement and obtain the
satisfaction of the conditions specified in Article VI;
(xvii) promptly notify the Buyer of (a) a breach of or
default under any Contract, (b) the occurrence of an event that with the
passage of time, the giving of notice, or both would constitute a breach of or
default under any Contact, or (c) the occurrence of an event that with or
without the passage of time, the giving of notice, or both, would give rise to
a right of termination, renegotiation or acceleration under any Contract
(collectively, a "Default"), the threat or commencement of any litigation, or
any development that occurs before the Closing that could in any way materially
affect the Company, the Assets or the Business;
(xviii) use its best efforts to obtain any consents or
approvals required under any Contracts or otherwise that are necessary to
complete the transactions contemplated by this Agreement or to avoid a Default
under any such Contracts;
(xix) comply with all rules and regulations applicable to
it and to the conduct of its and their, as the case may be, Business;
(xx) provide the Buyer with such financial and other
reports of the Business as may be reasonably requested;
(xxi) not make any capital expenditures in excess of
$5,000; and
(xxii) promptly disclose to the Buyer in writing any
information set forth in any Schedule attached hereto which no longer is
correct and any information of the nature of that set forth in any such
Schedule which arises after the date hereof and which would have been required
to be included in any such Schedule if such information had obtained on the
date hereof.
5.2 Records and Documents. Each of the Shareholders and the
Company hereby grant the Buyer and its agents and representatives, at their
request, access to and the right to make copies, at the Buyer's expense, of all
records of the Company and the Shareholders that relate to the Business as
conducted prior to the Closing as may be necessary, useful, desirable or
appropriate in connection with the Buyer's operation of the Business after the
Closing. By way of example, and without limiting the generality of the
foregoing, the Shareholders shall, and they shall cause the Company to (i) give
to the Buyer's officers, employees, counsel, accountants and other
representatives free and full access to and the right to inspect, during normal
business hours, all of the
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<PAGE> 16
Assets, records, Contracts and other documents relating to the Business, (ii)
permit them to consult with the officers, employees, accountants, counsel and
agents of the Company for the purpose of making such investigation of the
Company, the Business and the Assets as the Buyer shall desire to make,
provided that such investigation shall not unreasonably interfere with the
Company's business operations, and (iii) furnish to the Buyer all such
documents and copies of documents and records and information with respect to
the Company's affairs and copies of any working papers relating thereto as the
Buyer shall from time to time reasonably request.
5.3 Publicity. Each party hereto agrees not to issue any press
release or otherwise make any public statement in any general circulation
medium with respect to the transactions contemplated by this Agreement, without
the consent, which shall not be unreasonably withheld, of the Shareholder
Representative (in the case of releases or statements issued or made by the
Buyer) or the Buyer (in the case of releases or statements issued or made by
any of the Shareholders or the Company), except as may be required by law, in
which event such press release or public statement shall be made only after
consultation with the Shareholder Representative and the Company, on the one
hand, or the Buyer, on the other hand, as the case may be; provided, however,
that the Shareholder Representative consents to the Buyer issuing a press
release or public statement with respect to Buyer's filing a registration
statement with the United States Securities and Exchange Commission.
5.4 Additional Agreements. Subject to the terms and conditions
herein provided, each of the parties hereto shall use its reasonable best
efforts to bring about the transactions contemplated by this Agreement, as soon
as reasonably practicable, including the execution and delivery of all
instruments and other documents, and shall take or cause to be taken such
further actions necessary, proper or desirable to carry out the intent and
purposes of, and consummate the transactions contemplated by, this Agreement.
No party will take or knowingly permit to be taken any action or do or
knowingly permit to be done anything in the conduct of its business, or
otherwise, which would be contrary to or in breach of any of the terms or
provisions of this Agreement, or which would cause any of the representations
or warranties contained herein to become untrue or incomplete.
5.5 No Solicitation. The Company will not, and will authorize its
officers, directors, employees, agents or other representatives (including any
broker, financial advisor, attorney, accountant or other agent) not to, and the
Shareholders will not,
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<PAGE> 17
and will cause their agents or other representatives (including any broker,
financial advisor, attorney, accountant or other agent) not to, and the
Shareholders will cause the Company not to, directly or indirectly, initiate
contact with, solicit or encourage or take any action to facilitate (including
by way of furnishing information), any proposal or inquiry by, or enter into or
take any action to facilitate any discussions or negotiations with, or provide
any information or assistance to, any third party (other than the Buyer as
contemplated in Section 5.2 of this Agreement or appropriate regulatory
authorities) concerning any acquisition (whether by merger, purchase of assets,
or otherwise) of any or all shares of capital stock of the Company or any
material portion of the assets of the Company. The Company or the
Shareholders, as the case may be, will notify the Buyer immediately upon
receipt of any inquiry, proposal or offer relating to any of the foregoing.
5.6. Tax Returns. The Shareholders will prepare and file all
federal, foreign, state or local tax returns required to be filed for any
period ending on or before the Closing Date, and will pay all federal, foreign,
state and local income taxes (including interest and penalties relating
thereto) due for the periods covered by such returns.
5.7 Equipment Leases. Brewery Leasing Company ("BLC"), the holder
of the equipment leases for $________ of brewing equipment and restaurant
equipment and any other equipment used by the Company and its Subsidiaries in
the Business, covenants and agrees to (i) reduce the effective interest rate of
such lease(s) to twelve percent (12%), (ii) extend such leases by that number
of months which is equal to the number of months payments on each such lease is
in arrears for calendar year 1995, and (iii) provide that all such equipment
may be purchased by the Buyer upon the expiration of such leases for an
aggregate of $1.00, it being understood and agreed by the Buyer that such
provisions will not be effective until immediately after the Closing. In
addition, BLC covenants and agrees to forgive any lease payment that it was to
receive for the period from January 1, 1996 through September 30, 1996, which
payments total $140,448.
5.8 [Intentionally Omitted].
5.9 Riverside National Bank Loan.
(i) The Company shall obtain the agreement of Michael
Hagerman, Norman Kretschmar and Riverside National Bank ("RNB") to modify and
amend the loan (the "Riverside Loan") from RNB to the Company and Riverside
Brewing Company, Inc. ("RBC") which is evidenced by that certain promissory
note dated May 10, 1996 and is identified as Loan Number 121399771 such that
concurrently with the Closing, the Riverside Loan will be evidenced by two
Promissory
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notes, one in the principal amount of $220,940.67, the makers of which shall be
Michael Hagerman and Norman Kretschmar ("Loan I") and the other in the
principal amount of the principal balance of the Riverside Loan on the date of
Closing less the principal amount of Loan I, the makers of which shall be the
Company and RBC ("Loan II"). To induce Michael Hagerman and Norman Kretschmar
to assume Loan I, Buyer shall issue to Michael Hagerman and Norman Kretschmar,
pro rata, that number of shares of the Buyer's Common Stock equal to the
principal balance of Loan I divided by 8, said shares to be delivered at the
Closing. In addition, if, on January 1, 1999, the per share "Fair Market
Value" (as hereinafter defined) of the Buyer's Common Stock is equal to or less
than $6.00, then the Buyer agrees to issue to Michael Hagerman and Norman
Kretschmar an additional 9,227 shares no later than January 10, 1999.
(ii) The Company shall obtain the agreement of RNB to
release the Company and each of its Subsidiaries from all of their respective
obligations under and pursuant to the Riverside Loan and to terminate any and
all financing statements that it filed against the assets of the Company and
any of its Subsidiaries effective as of the Closing, provided, however, that
RNB may take a security interest for Loan II in the tangible fixed assets of
the Company and RBC as such assets exist on the Closing Date but not in the
proceeds of such tangible fixed assets or in any after acquired assets or
properties.
(iii) "Fair Market Value" means the average of the daily
closing prices for fifteen (15) consecutive trading days commencing immediately
before the date of such computation. The closing price for each day shall be
the last reported sales price regular way or in case no such reported sale
takes place on such day, the average of the closing bid and asked prices
regular way for such day, in either case on the principal national securities
exchange on which the shares are listed or admitted to trading, of it they are
not listed or admitted to trading on any national securities exchange, but are
traded in the over-the-counter market, the closing sale price of the Common
Stock or, in case no sale is publicly reported, the average of the
representative closing bid and asked quotations for the Common Stock on the
National Association of Securities Dealers Automated Quotation ("NASDAQ")
system or any comparable system, or if the Common Stock is not listed on the
NASDAQ system or any comparable system, the closing price of the Common Stock
or, in case no sale is publicly reported, the average of the closing bid and
asked prices as furnished by two members of the National Association of
Securities Dealers selected from time to time by the Company for that purpose,
or if there are no closing bid and asked prices available, "Fair Market Value"
shall be determined by the Board of Directors of the Buyer in good faith.
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5.10 Updating of Schedules. The Company shall notify the Buyer of
any changes, additions or events which may cause any change in or addition to
any of the Schedules attached hereto or to any of the documents delivered to
the Buyer pursuant to the terms of this Agreement promptly after the occurrence
of the same and again at the Closing by delivery of appropriate updates to all
Schedules and documents previously delivered. No such notification or delivery
of updates made shall be deemed to cure any breach of any representation and
warranty made in this Agreement, nor shall any such notification or delivery of
updates be considered to constitute or give rise to a waiver by the Buyer of
any condition set forth in this Agreement.
5.11 Financial Statements of Subsidiary. Each of the Company and
Buyer covenant and agree to provide each Shareholder Representative with the
monthly financial statements that are produced by the Subsidiary for the
Buyer's management.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE BUYER
Unless, at the Closing, each of the following conditions is either
satisfied or waived by the Buyer in writing, the Buyer shall not be obligated
to purchase the Shares and shall not otherwise be obligated to consummate or
effect the transactions contemplated by this Agreement. The Buyer shall have
the right to waive in writing any or all of the foregoing conditions precedent
to the obligations of the Buyer; provided, however, that no waiver by the Buyer
of any conditions precedent to the obligations of the Buyer shall constitute a
waiver by the Buyer of any other condition precedent.
6.1 Accuracy of Warranties; Performance of Covenants. The
representations and warranties of each of the Shareholders and the Company
contained or incorporated herein shall be true, accurate and correct on the
date hereof and on the Closing Date, and each of the Shareholders and the
Company shall have performed each and every obligation and complied with each
and every agreement and covenant required by this Agreement to be performed or
complied with on or prior to the date hereof and the Closing Date,
respectively. Each of the documents required to be delivered by each of the
Shareholders and the Company to the Buyer hereunder shall be in form and
substance reasonably satisfactory to the Buyer.
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<PAGE> 20
6.2 Regulatory Consents, Authorizations, etc. All consents,
authorizations, orders and approvals of, and filings and registrations with,
any governmental commission, board or other regulatory body which are required
in connection with the execution and delivery of this Agreement and the
consummation by each party hereto of the transactions contemplated on its part
hereby, shall have been obtained or made, other than consents, authorizations,
orders, approvals, filings and registrations as to which the failure to obtain
or make will not, after the Closing, (i) materially and adversely affect the
assets, properties, operations, prospects, or the condition, financial or
otherwise, or the results of operations of the Business, (ii) limit the right
of the Buyer to own each of the Assets or conduct any material aspect of the
Business, or (iii) subject the Buyer, any of its Subsidiaries or affiliates or
any of its or their respective directors or officers to liability on the ground
that it or they have breached any law or regulation or have otherwise acted
improperly in relation to the transactions contemplated by this Agreement.
6.3 No Pending Action. No (i) claim, investigation, action, suit,
proceeding or litigation, either administrative or judicial, at law or in
equity, by any governmental or regulatory commission, agency or other body or
authority or by any other person, firm, corporation or other entity shall have
been instituted, threatened or pending on the Closing Date (a) which challenges
or seeks to prohibit, enjoin, restrict or delay the consummation of this
Agreement or any of the transactions contemplated by this Agreement, or any of
the conditions to the consummation of the transactions contemplated by this
Agreement, (b) which claims damages against the Buyer or any of the
Shareholders, the Company or any Subsidiary as a result of the consummation of
the transactions contemplated hereby or otherwise claims that this Agreement or
the consummation thereof is improper, or (c) which in the reasonable opinion of
the Buyer, could materially or adversely affect the right of the Buyer to own
the Assets or to conduct any aspect of the Business after the Closing, or the
ability of each of the Shareholders and the Company to consummate the
transactions contemplated hereby, and (ii) injunction or restraining order
shall be in effect prohibiting the transactions contemplated by this Agreement.
6.4 No Material Adverse Change. There shall have been no material
and adverse change in the Assets, condition, financial or otherwise, operations
or prospects of the Business since April 30, 1996. There shall be no
conditions existing or threatened with respect to the Assets, condition,
financial or otherwise, operations or prospects of the Business that might be
expected to have a material and adverse effect on any of them.
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<PAGE> 21
6.5 No Adverse Laws. There shall not have been enacted or
promulgated by any federal, state or local governmental agency, body or entity,
any statute, ordinance or regulation which has a material and adverse affect
upon the Assets, condition, financial or otherwise, operations or prospects of
the Business.
6.6 Force Majeure. All or any material part of the Assets of the
Business shall not have been adversely affected in any way by any act of God,
fire, flood, war, legislation (proposed or enacted) or other event or
occurrence, whether or not covered by insurance.
6.7 Third Party Consents. All consents of third parties,
including, without limitation, lenders and lessors of the Company and
governmental authorities, which are required for the consummation of the
transactions contemplated hereby shall have been obtained in writing on terms
and conditions and in form and substance satisfactory to the Buyer in its sole
and absolute discretion, including, without limitation, estoppel certificates.
6.8 Authority. The Buyer shall have received from the Company a
copy of the resolutions of its Board of Directors and of the Shareholders
authorizing the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby. Said resolutions shall be certified
by a duly authorized officer of the Company as being true and correct and in
full force and effect as of the Closing Date. The Buyer shall also have
received a certificate of incumbency executed by the Secretary of the Company
certifying the names, titles and signatures of the officers authorized to
execute and deliver this Agreement and the other documents contemplated hereby
to be executed and delivered by the Company, and further certifying that the
Articles of Incorporation and Bylaws of the Company delivered to the Buyer at
the Closing have been validly adopted, have not been amended or modified and
are in full force and effect.
6.9 Further Actions. All proceedings to be taken in connection
with the consummation of the transactions contemplated by this Agreement, and
all certificates, documents and instruments incidental thereto, shall be
reasonably satisfactory in form and substance to the Buyer, and the Buyer shall
have received copies of such documents and instruments as the Buyer and its
counsel may reasonably request in connection with such transactions.
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<PAGE> 22
6.10 Certificates. Prior to or at the Closing, the Buyer shall
have received from each of the Shareholders and the Company a certificate dated
the Closing Date and signed by the President and Secretary of the Company and
by each of the Shareholders certifying that the conditions set forth in Section
6.1, 6.2, 6.3, 6.4, 6.5, 6.6 and 6.7 hereof have been satisfied. Prior to or
at the Closing, the Buyer shall have also received from the Company or the
Shareholders, as appropriate, (a) a certificate from the Secretary of State of
the State of California to the effect that the Company is in good standing or
subsisting in such jurisdiction and listing all charter documents of the
Company on file, (b) a certificate from the Secretary of State or other
appropriate official in each state in which the Company is qualified or
licensed to do business as a foreign corporation to the effect that the Company
is in good standing in such state, (c) a certificate as to the tax status of
the Company from the appropriate official in the State of California and each
state in which the Company is qualified or licensed to do business as a foreign
corporation and (d) such additional supporting documentation and other
information with respect to the transactions contemplated hereby as the Buyer
or its counsel may reasonably request.
6.11 Concurrent Agreements. Each of the Shareholders and the
Company shall have delivered to the Buyer executed originals of each of the
Concurrent Agreements to which they are parties.
6.12 [Intentionally Omitted]
6.13 Legal Opinion. The Buyer shall have received the legal
opinion, dated the Closing Date, of counsel to the Shareholders and the Company
in the form attached hereto as Exhibit V.
6.14 Initial Public Offering. The registration statement relating
to the Buyer's initial public offering shall have been declared effective by
the Securities and Exchange Commission (the "SEC"), the closing contemplated by
the prospectus (the "Prospectus") which forms a part of such registration
statement shall have occurred and the Buyer shall have received an aggregate of
$6,000,000 as shown in the column entitled Price to Public-Total on the cover
page of the final Prospectus and in addition the Price per Share shall not be
less than $8.00, unless such initial public offering is priced on a unit basis
(i.e., including warrants), in which case the Price per Share shall be not less
than $7.90.
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<PAGE> 23
6.15 Absence of Liens. At or prior to the Closing Date, the Buyer
shall have obtained a Uniform Commercial Code search report dated as of a date
not more than five days prior to the Closing Date issued by the Secretary of
State of the State of California indicating that there are no filings under the
Uniform Commercial Code on file with such Secretary of State which name the
Company as debtor or otherwise indicting any lien on the Assets, except for
liens otherwise disclosed in the Schedules hereto and which the Buyer has
agreed to assume.
6.16 Equipment Leases and Riverside National Bank Debt. The
agreements contemplated by Section 5.7 and 5.9 shall have been obtained and
shall be in full force and effect.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH
OF THE SHAREHOLDERS AND THE COMPANY
Unless, at the Closing, each of the following conditions is either
satisfied, or waived by each of the Shareholders and the Company in writing,
the Shareholders shall not be obligated to sell the Shares and shall not be
otherwise obligated to consummate or effect the transactions contemplated by
this Agreement. Each of the Shareholders and the Company shall have the right
to waive in writing any or all of the foregoing conditions precedent to the
obligations of each of the Shareholders and the Company, respectively;
provided, however, that no waiver by any of the Shareholders or the Company of
any conditions precedent to the obligations of said Shareholders or the Company
shall constitute waiver by said Shareholder or the Company of any other
condition precedent.
7.1 Accuracy of Warranties; Performance of Covenants. The
representations and warranties of the Buyer contained or incorporated herein
shall be true, accurate and correct on the date hereof and on the Closing Date,
and the Buyer shall have performed each and every obligation and complied with
each and every covenant required by this Agreement to be performed or complied
with on its part on or prior to the date hereof and the Closing Date,
respectively. Each of the documents required to be delivered by the Buyer to
each of the Shareholders and the Company hereunder shall be in form and
substance reasonably satisfactory to each of the Shareholders and the Company.
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<PAGE> 24
7.2 Regulatory Consents, Authorizations, etc.. All consents,
authorizations, orders and approvals of, and filings and registrations with,
any governmental commission, board or other regulatory body which are required
in connection with the execution and delivery of this Agreement and the
consummation by each party hereto of the transactions contemplated on its part
hereby, shall have been obtained or made, other than consents, authorizations,
orders, approvals, filings and registrations as to which the failure to obtain
or make will not, after the Closing, materially and adversely affect the right
of the Shareholders to receive the Purchase Price.
7.3 No Pending Action. No (i) claim, investigation, action, suit,
proceeding or litigation, either administrative or judicial, at law or in
equity, by any governmental or regulatory commission, agency or other body or
authority or by any other person, firm corporation or other entity shall have
been instituted, threatened or pending on the Closing Date (a) which challenges
or seeks to prohibit, enjoin, restrict or delay the consummation of this
Agreement or any of the transactions contemplated by this Agreement, or any of
the conditions to the consummation of the transactions contemplated by this
Agreement or (b) which claims damages against the Buyer or any of the
Shareholders or the Company as a result of the consummation of the transactions
contemplated hereby or otherwise claims that this Agreement or the consummation
thereof is improper, and (ii) injunction or restraining order shall be in
effect prohibiting the transactions contemplated by this Agreement.
7.4 No Material Adverse Change. There shall have been no material
and adverse change in the assets, condition, financial or otherwise, operations
or prospects of the business of Buyer since April 30, 1996. There shall be no
conditions existing or threatened with respect to the assets, condition,
financial or otherwise, operations or prospects of the business of Buyer that
might be expected to have a material and adverse effect on any of them.
7.5 No Adverse Laws. There shall not have been enacted or
promulgated by any federal, state or local governmental agency, body or entity,
any statute, ordinance or regulation which has a material and adverse affect
upon the assets, condition, financial or otherwise, operations or prospects of
the Buyer.
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<PAGE> 25
7.6 Force Majeure. All or any material party of the assets of
Buyer shall not have been adversely affected in any way by any act of God,
fire, flood, war, legislation (proposed or enacted) or other event or
occurrence, whether or not covered by insurance.
7.7 Third party Consents. All consents of third parties,
including, without limitation, governmental authorities, which are required for
the consummation of the transactions contemplated hereby shall have been
obtained in writing on terms and conditions and in form and substance
reasonably satisfactory to the Shareholder Representative.
7.8 Authority. The Shareholder Representative shall have received
from the Buyer a copy of the resolutions of its Board of Directors authorizing
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby. Said resolutions shall be certified by a
duly authorized officer of the Buyer as being true and correct and in full
force and effect as of the Closing Date. The Shareholder Representative shall
also have received a certificate of incumbency executed by the Secretary of the
Buyer certifying the names, titles and signatures of the officers authorized to
execute and deliver this Agreement and the other documents contemplated hereby
to be executed and delivered by the Company, and further certifying that the
Articles of Incorporation and Bylaws of the Buyer delivered to the Shareholder
Representative at the Closing have been validly adopted, have not been amended
or modified and are in full force and effect.
7.9 Further Actions. All proceedings to be taken in connection
with the consummation of the transactions contemplated by this Agreement, and
all certificates, documents and instruments incidental thereto, shall be
reasonably satisfactory in form and substance to the Shareholder
Representative, and the Shareholder Representative shall have received copies
of such documents and instruments as the Shareholders Representative and
counsel for the Company may reasonably request in connection with such
transactions.
7.10 Certificate. Prior to the Closing, each of the Shareholders
and the Company shall have received from the Buyer a certificate dated the
Closing Date and signed by the President and Secretary of the Buyer certifying
that the conditions set forth in Sections 7.1, 7.2, 7.3, 7.4, 7.5, 7.6, 7.7 and
7.13 hereof have been satisfied.
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<PAGE> 26
7.11 Legal Opinion. The Company and the Shareholders shall have
received the legal opinion, dated the Closing Date, of counsel to the Buyer in
the form attached as Exhibit VI.
7.12 Concurrent Agreements. The Buyer shall have delivered to each
of the Shareholders executed originals of each of the Concurrent Agreements to
which he or she is a party.
7.13 Initial Public Offering. The registration statement relating
to the Buyer's initial public offering shall have been declared effective by
the SEC, the closing contemplated by the Prospectus shall have occurred and the
Buyer shall have received an aggregate of $6,000,000 as shown in the column
entitled Price to Public-Total on the cover page of the Prospectus and in
addition the Price per Share shall not be less than $8.00, unless such initial
public offering is priced on a unit basis (i.e., including warrants), in which
case the Price per Share shall not be less than $7.90.
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<PAGE> 27
ARTICLE VIII
EMPLOYEES
Except pursuant to the terms and conditions of Employment Agreements
which the Buyer intends to present to certain key employees of the Company, the
Buyer shall not be obligated in any way to offer employment to any employee of
the Company or any Subsidiary after the Closing, and the Buyer will not be
responsible or liable in connection with any employment arrangements (whether
written or oral) with employees of the Company or any Subsidiary, or for any
salaries, severance pay, vacation accruals, health insurance benefits and other
benefits owed or payable to any employees of the Company or any Subsidiary;
provided, however, that the Buyer shall be responsible for any salaries,
severance pay, vacation accruals, health insurance benefits or other benefits
owed or payable to employees of the Company or any Subsidiary employed by the
Buyer, the Company or any Subsidiary after the Closing Date.
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<PAGE> 28
ARTICLE IX
SURVIVAL OF REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS; INDEMNIFICATION
9.1 Survival. Each of the representations, warranties, covenants
and agreements of the Buyer, each of the Shareholders and the Company contained
in this Agreement (including those made in the Exhibits and Schedules hereto
and certificates and other documents delivered pursuant to the terms hereof)
shall survive the Closing and shall be fully effective and enforceable for a
period of two years following the Closing provided, however, that any
representation and warranty relating to Taxes shall survive until any
applicable statute of limitations has run; and provided, further, however, that
any representation and warranty relating to title to the shares and transfer of
the Shares to the Buyer shall survive in perpetuity) , notwithstanding any
investigation or examination by, or on behalf of, any party hereto, any notice
of a breach or of a failure to perform, not waived in writing, and the
consummation of the transactions contemplated hereby with knowledge of such
breach or failure.
9.2A Indemnification by Each of the Shareholders as to Title to,
and Transferability of, the Shares. Notwithstanding anything herein to the
contrary, each of the Shareholders, severally and not jointly, hereby agrees to
indemnify, defend and hold harmless the Buyer and every subsidiary and
affiliate of Buyer, and every officer, director, shareholder, employee and
agent of the Buyer and every such subsidiary and affiliate, and the successors
and assigns of each of them, from any and all claims, liabilities, losses,
damages (including without limitation incidental, consequential and punitive
damages), costs and expenses, including court costs, reasonable attorneys'
fees, reasonable accountant's fees investigative fees, expert witness fees and
the costs associated therewith, arising out of or relating to the failure of
any Shareholder to transfer and deliver to the Buyer good and marketable title
to such Shareholder's Shares owned by such Shareholder immediately prior to
Closing, fee and clear of any and all Adverse Interests.
9.2B Indemnification by Each of the Management Shareholders. Each
of the Management Shareholders (jointly and severally as to each other but only
up to their respective percentages of liability as specified on Schedule 1.1),
hereby agrees to indemnify, defend and hold harmless the Buyer and every
subsidiary and affiliate of Buyer, and every officer, director, shareholder
employee and agent of the Buyer and every such subsidiary and affiliate, and
the successors and assigns of each of them, from any and all claims,
liabilities, losses, damages (including without limitation incidental,
consequential and punitive damages), costs and
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<PAGE> 29
expenses, including court costs, reasonable attorneys' fees, reasonable
accountant's fees, investigative fees, expert witness fees and the costs
associated therewith, arising out of or relating to an Event of Breach, as
defined in Section 9.4 hereof, of any Shareholder or the Company except with
respect to any indemnification obligation already undertaken pursuant to
Section 9.2A.
9.3 Indemnification by the Buyer. The Buyer hereby agrees to
indemnify, defend and hold harmless each of the Shareholders and every
affiliate thereof, and every agent of each of the Shareholders and every such
affiliate, and the successors and assigns of each of them, from any and all
claims, liabilities, losses, damages (including without limitation incidental,
consequential and punitive damages), costs and expenses, including court costs
and reasonable attorneys' fees, investigative fees, expert witness fees and the
costs associated therewith, arising out of or relating to an Event of Breach,
as defined in Section 9.4 hereof, of Buyer.
9.4 Event of Breach. As used herein, an "Event of Breach" shall
mean, as to a party, any one or more of the following: (i) any untruth,
inaccuracy or misrepresentation or breach of any of the representations,
warranties, covenants or agreements made by said party in this Agreement; (ii)
any failure of said party to perform or observe any term, provision, covenant,
obligation, agreement or condition on the part of said party to be performed or
observed pursuant to the terms of this Agreement; and (iii) any
misrepresentation of said party in, or omission from, any statement,
certificate, Schedule, Exhibit or other document prepared or furnished by said
party pursuant to the terms of this Agreement. In addition, "Event of Breach"
shall also mean, as to any of the Shareholders and/or the Company, claims or
liabilities of any kind or nature which arise out of, result from or are
related to the operations, ownership, conduct, activities or failure to act of
any of the Management Shareholders, the Company, any Subsidiary or their
respective affiliates prior to or on the Closing Date and irrespective of the
date that any claim, suit or other cause of action related to any of the
foregoing is filed or otherwise instituted against the Company, the Buyer or
any of its subsidiaries or affiliates including, without limitation, claims or
liabilities related to actual, potential or inchoate security interests, liens,
claims, obligations or encumbrances involving the Business (e.g., any claim or
liability relating to, arising out of, or based upon negligence, strict
liability or any express or implied representation, warranty, agreement or
guaranty made by or on behalf of the Company or any Subsidiary, or alleged to
have been made by or on behalf of the Company or any Subsidiary or which is
imposed or asserted to be imposed on the Company or any Subsidiary
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<PAGE> 30
by operation of law or otherwise, in connection with any product designed,
used, rented, sold, manufactured, shipped or installed by or on behalf of the
Company or any Subsidiary, or for any service performed by or on behalf of the
Company or any Subsidiary, in any case prior to or on the Closing Date), and
further, including, without limitation, claims, liabilities or liens which may
result from (i) any commencement, termination or other activity with respect to
any employee benefit plan and (ii) any unpaid federal, foreign, state or local
tax liabilities of the Company or any Subsidiary for all periods (or portions
thereof) ended on or before the Closing Date, together with any interest or
penalties attributable to any such liabilities.
9.5 Notice and Demand, etc. Each indemnified party hereunder
agrees that upon its obtaining actual knowledge of facts indicating that there
may be a basis for a colorable claim for indemnity under the provisions hereof,
including, but not limited to, receipt by it of notice of any demand,
assertion, claim, action or proceeding, judicial or otherwise, by any third
party, it will give prompt written notice thereof to the indemnifying
party(ies) (such written notice being hereinafter referred to as a "Notice of
Claim"), which Notice of Claim shall contain a brief description of the nature
of such claim and an estimate of the dollar amount at issue. The failure of an
indemnified party to send a Notice of Claim shall not relieve the indemnifying
party(ies) from any liability hereunder with respect to any claim except to the
extent such failure results in insufficient time being available to permit the
indemnifying party(ies) or its or their, as appropriate, counsel to effectively
defend any such claim and to make a timely response thereto and thereby
prejudices the indemnifying party's(ies') ability to defend such claim. The
indemnifying party(ies) shall thereupon be obligated to defend, contest or
otherwise protect the indemnified party against any such demand, assertion,
claim, action or proceeding, at the indemnifying party's(ies') sole cost and
expense. The indemnified party shall have the right, but not the obligation,
to participate at its own expense in the defense thereof by counsel of the
indemnified party's choice. In the event that the indemnifying party(ies)
fails timely to defend, contest or otherwise protect against such demand,
assertion, claim, action or proceeding, the indemnified party shall have the
right to do so, including, without limitation, the right to make any compromise
or settlement thereof, and the indemnified party shall have the right to
recover the entire cost thereof from the indemnifying party(ies), including,
without limitation, attorneys' fees, disbursements and amounts paid as a result
of such demand, assertion, claim, action, or proceeding.
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<PAGE> 31
9.6 Limitation on Indemnification Amount; Other Limitations. Each
party hereto agrees that it shall not be permitted to pursue any claim for an
Event or Events of Breach until the aggregate of all such claims for an Event
or Events of Breach exceed $59,999.99 (the "Deductible"); provided however,
that, notwithstanding the Deductible, Buyer shall be permitted to pursue any
claim regardless of amount at issue under Section 9.2A of this Agreement. Any
provision of this Agreement to the contrary notwithstanding, but subject to the
provisions of Section 5.10 of this Agreement, no claim for indemnification
shall lie with respect to any representation or warranty given herein where the
claim is based upon any event, circumstance or condition which is disclosed in
this Agreement or in the Schedules or Exhibits attached and incorporated herein
on the date of this Agreement, it being expressly understood by the parties
that any updating of Schedules that occurs after the date of this Agreement
shall not relieve such party from any indemnification obligation if such
updated schedule adds, deletes, amends or modifies information set forth on
such Schedule as of the date of this Agreement; provided, however, that a claim
for indemnification shall lie with respect to the items set forth on Schedule
9.6; and provided, further however, that a claim for an Event or Events of
Breach relating to a matter set forth on Schedule 9.6 shall not be subject to
the Deductible (i.e., the Buyer shall have the right to seek indemnification
from the first dollar).
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<PAGE> 32
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Brokers. The Buyer, on the one hand, and each of the
Shareholders and the Company, on the other hand, represent and warrant to each
other that, except as set forth on Schedule 10.1 attached hereto, no broker,
investment banker or finder is entitled to any financial advisory fee,
brokerage fee or finder's fee or other similar payment from it or him, as the
case may be, with respect to (i) the execution of this Agreement or (ii) the
transactions contemplated hereby. The Buyer, on the one hand, and each of the
Shareholders and the Company, on the other hand, each agree to indemnify,
defend and hold each other harmless against and in respect of all claims,
losses, liabilities and expenses which may be asserted by any broker or other
person who claims to be entitled to a broker's, finder's or similar fee or
commission from it or him, as the case may be, in respect of the execution of
this Agreement, or the consummation of the transactions contemplated hereby, by
reason of his acting at the request of said person.
10.2 Entire Understanding. This Agreement (including the Schedules
and Exhibits hereto, each of which is incorporated herein and made a part of
this Agreement) and the other agreements and instruments, the execution and
delivery of which are provided for herein, constitute the entire agreement and
understanding of the parties hereto and terminates and supersedes any and all
prior agreements, arrangements and understandings, both oral and written, among
the parties hereto concerning the subject matter of this Agreement.
10.3 Waiver and Amendment. No waiver, amendment, modification or
change of any provision of this Agreement shall be effective unless and until
made in writing and signed by all of the parties hereto. No waiver,
forbearance or failure by any party of its right to enforce any provision of
this Agreement shall constitute a waiver or estoppel of such party's right to
enforce any other provision of this Agreement or a continuing waiver by such
party of compliance with any provision.
10.4 Headings. The headings herein are for convenience only, do
not constitute a part of this Agreement, and shall not be deemed to limit or
affect any of the provisions hereof.
10.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
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<PAGE> 33
10.6 Severability; Relationship of the Parties. The provisions of
this Agreement are intended to be interpreted and construed in a manner so as
to make such provisions valid, binding and enforceable. In the event that any
provision of this Agreement is determined to be partially or wholly invalid,
illegal or unenforceable, then such provision shall be deemed to be modified or
restricted but only to the limited extent reasonably necessary to make such
provision valid, binding and enforceable, or, if such provision cannot be
modified or restricted in a reasonable manner so as to make such provision
valid, binding and enforceable, then such provision shall be deemed to be
excised from this Agreement and the validity, binding effect and enforceability
of the remaining provisions of this Agreement shall not be affected or impaired
in any manner. Nothing in this Agreement shall be interpreted or construed as
creating, expressly or by implication, a partnership, joint venture, agency
relationship or employment relationship (other than pursuant to any Employment
Agreement) between or among the parties hereto or any of their respective
officers, directors, agents, employees or representatives.
10.7 Notices. ALl notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed to
have been delivered three business days after having been mailed in a general
or branch U.S. post office and enclosed in a registered or certified post-paid
envelope; one business day after having been sent by overnight courier; when
telecopied on a business day, or otherwise on the next succeeding business day
thereafter; and, in each case, addressed to the respective parties at the
addresses stated below or to such other changed addresses the parties may have
fixed by notice as provided herein:
If to any of the
Shareholders: To the addresses set forth on Schedule __.
If to the Company: Orange Empire Brewing Company
1229 Columbia Avenue, Suite C-4
Riverside, California 92507
Attention:
Telephone: ( )
Telecopier: ( )
With a copy to: McPeters McAlearney Shimoff & Hatt
615 Brookside Avenue, Suite B
Redlands, California 92373
Attention: John D. McAlearney, Jr.
Telephone: (909) 792-8919
Telecopier: (909) 792-6234
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<PAGE> 34
If to the Buyer: Beverage Works, Inc.
9800 South Sepulveda Blvd., Suite 720
Los Angeles, California 90045
Attention: Mr. Lyle Maul
Chief Financial Officer
Telephone: (310) 642-5643
Telecopier: (310) 642-5645
With a copy to: Donahue & Mesereau
1900 Avenue of the Stars, Suite 2700
Los Angeles, California 90067
Attention: Asher M. Leids, Esq.
Telephone: (310) 277-1441
Telecopier: (310) 277-2888
10.8 Successors and Assigns. This Agreement shall not be assigned
or delegated by any party without the prior written consent of the other
parties hereto, except that the Buyer may assign this Agreement and the rights
under this Agreement after the Closing (i) to one or more subsidiaries or
affiliates of the Buyer or, (ii) to one or more lending institutions for
security purposes so long as Buyer remains primarily liable for its obligations
hereunder. Subject to the preceding sentence, each term and provision of this
Agreement shall be binding upon and enforceable against and inure to the
benefit of any successors or assigns of the Buyer and any successors or assigns
of any of the Shareholders or the Company. Nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the
parties and their respective successors and assigns any rights or remedies
under or by reason of this Agreement.
10.9 Attorney's Fees. If any action (whether it be for contract or
tort, at law or in equity, or otherwise) is brought to enforce or interpret the
provisions of this Agreement or any other agreement or instrument provided for
herein, the prevailing party in such action shall be entitled to recover as an
element of such party's costs of suit, and not as damages, a reasonable
attorneys' fee to be fixed by the court. The prevailing party shall be the
party who is entitled to recover its costs of suit as ordered by the court or
by applicable law or court rules. A party not entitled to recover its costs
shall not recover attorneys' fees. No sum for attorneys' fees shall be counted
in calculating the amount of judgment for purposes of determining whether a
party is entitled to recover its costs or attorneys' fees.
10.10 Governing Law and Jurisdiction. This Agreement shall be
governed by and construed in accordance with the internal substantive laws of
the State of California, without regard to principles of choice of law or
conflict of laws. Each of the
- 29 -
<PAGE> 35
parties hereto recognizes and hereby irrevocably consents to the exclusive
jurisdiction over it or him, as the case may be, of the Federal District Court
for the Central District of California or the Superior Court of California,
County of Los Angeles, in connection with any action or proceeding (whether it
be for contract or tort, at law or in equity, or otherwise) arising out of or
relating in any way to this Agreement, or any other document relating hereto or
delivered in connection with the transactions contemplated hereby.
10.11 Construction. Whenever in this Agreement the context so
requires, references to the masculine shall be deemed to include the feminine
and the neuter, reference to the neuter shall be deemed to include the
masculine and feminine, and references to the plural shall be deemed to include
the singular and the singular to include the plural as appropriate and apparent
in the context used. The disjunctive "or" and the conjunctive "and" shall mean
"and/or" unless otherwise required in the context in which such words are used.
Except as otherwise specified, the agreements, covenants, representations,
warranties, undertakings, liabilities and obligations herein of the Company and
each of the Shareholders are several and not joint. All dollar amounts set
forth in this Agreement or any Exhibit or Schedule attached hereto, are
expressed in terms of U.S. Dollars. All time periods specified herein are to
Pacific time.
10.12 Cooperation. Each party hereto shall cooperate with the other
parties and shall take such further action and shall execute and deliver such
further documents as may be necessary or desirable in order to carry out the
provisions and purposes of this Agreement.
10.13 Expenses. Whether or not the transactions contemplated by
this Agreement and the related agreements are consummated, each party to this
Agreement shall pay its or his, as the case may be, own costs and expenses in
connection with the negotiation, preparation, execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby,
including, but not limited to, attorneys' fees, accountants' fees and other
professional fees and expenses.
10.14 Representation by Counsel. Each party hereto represents and
agrees with the others that such party has been represented by or had the
opportunity to be represented by, independent counsel of such party's own
choosing, and that such party has had the full right and opportunity to consult
with such party's respective attorneys, that to the extent, if any, that such
- 30 -
<PAGE> 36
party desired, such party availed itself or himself of this right and
opportunity, that such party, if an individual, or such party's authorized
officers, have carefully read and fully understand this Agreement in its
entirety and have had it fully explained to them by such party's respective
counsel, that each is fully aware of the contents hereof and its meaning,
intent and legal effect, and that such party, if an individual, or such party's
authorized officer, is competent to execute this Agreement and has executed
this Agreement free from coercion, duress or undue influence. Each party
hereto further represents and agrees with the others that such party has
consulted and is relying solely upon such party's independent counsel as to
tax, legal and related matters concerning this Agreement and consummation of
the transactions contemplated hereby.
10.15 No Interpretation Against Draftsman. This Agreement is the
product of negotiations between the parties hereto, and any rules of
construction relating to interpretation against the draftsman of an agreement
shall not apply to this Agreement.
10.16 Termination by Mutual Consent. This Agreement may be
terminated at any time on or prior to the Closing Date by the mutual written
consent of the parties hereto. In consenting to the termination of this
Agreement, the Shareholder Representative shall have authority to act on behalf
of all Shareholders.
10.17 Termination for Breach. The Buyer may terminate its
obligations under this Agreement at any time prior to the Closing Date if any
of the Shareholders or the Company shall have breached any of their respective
representations, warranties or other obligations under this Agreement in any
material respect. The Shareholders and the Company may likewise terminate
their obligations under this Agreement at any time prior to the Closing Date if
the Buyer shall have breached any of its representations, warranties or other
obligations under this Agreement in any material respect. Such termination may
be effected by written notice from either the Buyer, on the one hand, or the
Shareholders and the Company, on the other hand, as appropriate, citing the
reasons for termination.
- 31 -
<PAGE> 37
subject the terminating party to any liability for any valid termination. For
purposes of this provision only, "material" shall mean __________________.
IN WITNESS WHEREOF, the Buyer, the Company and each of the
Shareholders have executed and delivered this Agreement as of the day and year
first above written.
"MANAGEMENT SHAREHOLDERS"
JOHN C. BARNICOAT, Trustee of the Barnicoat
Living Trust u/d/t December 16, 1986
By:
----------------------------------
Name:
Title:
SECURITY TRUST COMPANY, a California
corporation, as Trustee of IRA
No. 100048-00, FBO John C. Barnicoat
By:
----------------------------------
Name:
Title:
MICHAEL R. HAGERMAN, Trustee of
the Michael and Linda Hagerman 1987
Trust u/d/t dated May 25, 1987
By:
----------------------------------
Name:
Title:
NORMAN KRETSCHMAR
By:
----------------------------------
Norman Kretschmar
- 32 -
<PAGE> 38
MLPF&S CUST FBO NORMAN E. KRETSCHMAR IRA
By:
----------------------------------
Name:
Title:
KENNETH McMILLIN
By:
----------------------------------
Kenneth McMillin
KENNETH McMILLIN and RHONDA McMILLIN
By:
----------------------------------
Kenneth McMillin
By:
----------------------------------
Rhonda McMillin
BREWERY LEASING COMPANY
(as to Section 5.7)
By:
----------------------------------
Name: Michael Hagerman
Title:
"COMPANY"
ORANGE EMPIRE BREWING COMPANY
a California Corporation
By:
----------------------------------
Name:
Title:
"BUYER"
BEVERAGE WORKS, INC.
a California corporation
By:
----------------------------------
Name:
Title:
- 33 -
<PAGE> 39
JOSEPH BENETKA
By:
----------------------------------
Joseph Benetka
JOHN M. HENNESSEY AND JOAN HENNESSEY
By:
----------------------------------
John M. Hennessey
By:
----------------------------------
Joan Hennessey
DEAN IRVING
By:
----------------------------------
Dean Irving
THOR W. KONWIN, Trustee of the
Thor W. Konwin 1992 Living Trust u/d/t
January 13, 1992
By:
----------------------------------
Name:
Title:
RICHARD R. SAUNDERS
By:
----------------------------------
Richard R. Saunders
RICHARD R. SAUNDERS, Trustee of the
Saunders Family Trust u/d/t dated 6/9/92
By:
----------------------------------
Name:
Title:
- 34 -
<PAGE> 40
JIMMY SMITH
By:
----------------------------------
Jimmy Smith
STREIT & PETERS, CPA'S, INC., a
California corporation, formerly
Streit & Peters, CPA's, a partnership
By:
----------------------------------
Name:
Title:
PAUL T. TUCKER
By:
----------------------------------
Paul T. Tucker
WILLIAM E. THOMAS
By:
----------------------------------
William E. Thomas
- 35 -
<PAGE> 41
SPOUSAL CONSENT
I, ____________________, acknowledge that I have read the Share
Purchase Agreement (the "Agreement"), dated as of _______________, 1996 by and
among Beverage Works, Inc., a California corporation (the "Buyer"), Orange
Empire Brewing Company, a California corporation (the "Company") and the
Shareholders (as such term is defined in the Agreement), and that I know and
understand its contents. I am aware that by its provisions, my spouse agrees
to sell all of his shares of common stock (the "Shares") of the Company,
including any community or joint ownership interest I may have in it, on the
occurrence of certain events. I hereby consent to the sale, approve of the
provisions of the Agreement, and agree that I will take no action at any time
to hinder operation of the Agreement, including, without limitation, all
covenants of my spouse contained therein, on those Shares or my interest in
them. Further, I agree that I shall not bequeath to anyone but my spouse any
interest I may have in such Shares (or, to the extent that such Shares would be
affected, in any entity which holds such Shares); that the residuary clause of
my will shall not apply to such Shares (or, to the extent that such Shares
would be affected, to any entity which holds such Shares); and that in the
event of a dissolution of my marriage, I shall make no claim to the Shares of
the Company (or, to the extent that such Shares would be affected, to any
entity which holds such Shares) but shall look to my spouse for compensating
equity apart from any interest in the Company.
Dated as of ____________________, 1996
________________________________
Spouse of:
________________________________
Name of person of whom signatory
is spouse:
- 36 -
<PAGE> 1
EXHIBIT 2.4
DEBT EXCHANGE AGREEMENT
This Debt Exchange Agreement (the "Debt Exchange Agreement") is being
entered into as of the _____ day of __________________, 1996, by and among
Beverage Works, Inc., a California corporation (the "Buyer"), Orange Empire
Brewing Company, a California corporation (the "Company"), and the debtholders
listed on the signature page hereto (each, a "Debtholder" and collectively, the
"Debtholders").
WITNESSETH
WHEREAS, the Buyer, the Company and each of the Debtholders are
entering into a Share Purchase Agreement (the "Share Purchase Agreement") of
event date herewith pursuant to which the Buyer is purchasing all of the issued
and outstanding shares of capital stock of the Company from the shareholders of
the Company, including each of the Debtholders; and
WHEREAS, the Buyer would not enter into the Share Purchase Agreement
unless the Debtholders execute and deliver this Debt Exchange Agreement; and
WHEREAS, the Debtholders are owed in the aggregate $644,000, inclusive
of interest, by the Company (the "Shareholder Debt"), which Shareholder Debt is
represented by various promissory notes in various amounts to each of the
Debtholders (the principal amount owed to each Debtholder is set forth on
Attachment 1).
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions set forth herein and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, it is hereby agreed by
the parties as follows:
1. Debt Exchange Agreement. The Debtholders covenant and agree
to accept as full payment and discharge of the Shareholder Debt their pro rata
amount of the following: (i) $301,000 in cash or by check and (ii) a
non-interest bearing Promissory Note in the original principal amount of
$343,000, said Promissory Note to mature ninety (90) days after the Buyer
closes its initial public offering and to be payable in full in either cash, or
up to maximum of 24,125 shares of the Buyer's Common Stock and/or warrants to
acquire up to a maximum of 50,000 shares of the Buyer's Common Stock at an
exercise price of $5.00 per share (the "Exercise Price"), or any combination
thereof, as is determined by the following formula (the "Pay-Off Formula"):
(i) 24,125 shares of the Buyer's Common Stock and 50,000 warrants,each warrant
entitling the holder thereof to purchase one share of the Buyer's
<PAGE> 2
Common Stock at the Exercise Price; or (ii) provided the Buyer is able to sell
at least 1,000,000 shares of Common Stock for its own account in its initial
public offering, then for each penny that the price per share to the public
that the Buyer receives for its shares of Common Stock in its initial public
offering is above $8.00 per share, then holders of the Shareholder Debt can
elect to receive the following:
(A) $909 in cash, payable by check and (B) up to a maximum of
24,125 shares of the Buyer's Common Stock and up to a maximum 50,000 warrants,
each warrant entitling the holder thereof to purchase one share of the Buyer's
Common Stock at the Exercise Price; the number of shares of Common Stock
available pursuant hereto shall be calculated as follows:
Z = 24,125 - (x/y)
where, Z = the number of shares of the Buyer's Common Stock
available;
X = the amount of cash paid; and
Y = the price per share to the public that the Buyer
received in its initial public offering.
For purposes of illustration only, if the price to the public of one share of
the Buyer's Common Stock in its initial public offering is $10.00 then the
holders of the Shareholder Debt can elect to receive either (i) 24,125 shares
of the Buyer's Common Stock and 50,000 warrants or (ii) $181,000 in cash, 5,945
shares of the Buyer's Common Stock and 50,000 warrants; the amount in (ii)
determined as follows:
(A) Cash payment = $909 x 200 (number of pennies above
$8.00 per share) = $181,800
(B) Number of shares available = 24,125 -(181,800)
---------
= 5,945 10
(C) Number of Warrants = 50,000
2. Effectiveness of Debt Exchange Agreement. The parties hereto
agree that the effectiveness and enforceability of this Agreement is
conditioned upon the closing of the transactions contemplated by the Share
Purchase Agreement.
3. Notices.
a. Addresses Of The Parties: All notices and
communications shall be given and delivered to the parties hereto at the
following addresses:
If to the Debtholder, at the address specified on the signature page
hereto.
2
<PAGE> 3
If to the Buyer and/or the Company, at:
-------------------------------
-------------------------------
-------------------------------
b. Notices: All notices, demands, requests and other
communications shall be in writing and shall be deemed effectively given and
delivered, if delivered in person, or if sent by mail at the earlier of their
receipt or five (5) days after the same have been deposited in a regularly
maintained receptacle for the deposit of U.S. mail, registered or certified,
postage prepaid, and addressed to either party as set forth above.
4. Successors and Assigns. The terms and provisions of this
Agreement shall be binding upon, enforceable by and shall inure to the benefit
of the parties hereto and their respective successors and assigns.
5. Entire Agreement; Amendments. This Agreement embodies all of
the understanding and agreements of the parties relating to the subject matter
hereof, and no reference shall be made to oral agreements and understandings
other than as referred to herein. Any amendments to this Agreement must be in
writing and signed by both parties.
6. Counterparts. This Agreement may be executed by the parties
in two or more counterparts, each of which together shall constitute one and
the same instrument.
7. Waivers. No waiver of any breach or threatened breach of any
section, term, provision and/or covenant of this Agreement shall be deemed to
be a waiver of any preceding or succeeding breach or threatened breach of the
same or any other section, term, provision and/or covenant of this Agreement.
No extension of time for the performance of any obligation or other act
required or permitted by this Agreement shall be deemed to be an extension of
the time for the performance of any other obligation or any other act required
or permitted by this Agreement.
8. Legal Fees and Expenses. In any legal action, lawsuit or
other proceeding to enforce any section, term, provision and/or covenant of
this Agreement or to procure adjudication or determination of the rights of the
parties hereto, the prevailing party shall be entitled to recover from the
other party each and all of such prevailing party's reasonable attorneys' fees,
costs and expenses, not limited to costs of suit, incurred in connection with
such proceeding, whether administrative, at law, in equity or otherwise,
including any and all appeals or petitions relating thereto. This provision
shall be construed as applicable to the entire Agreement. The term "prevailing
party" shall mean the party
3
<PAGE> 4
which the court determines is prevailing. If a court does not make such a
determination, then "prevailing party" shall mean that party which recovers a
greater relief in the action on the contract. A defendant shall be considered
the "prevailing party" when a dismissal is entered its favor, or where neither
the plaintiff nor the defendant obtains any relief.
9. Representation by Counsel. Each party hereto represents,
warrants and agrees with the other that it has been represented by independent
counsel of its own choosing, that it has had the full right and opportunity to
consult with its respective attorneys and has availed itself of this right and
opportunity, that each is fully aware of the contents of this Agreement and its
meaning, intent and legal effect, and that he or its authorized officer, as
appropriate, is competent to execute this Agreement and has executed this
Agreement free from coercion, duress or undue influence.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first set forth above.
THE BUYER
By:
--------------------------------
Name:
Title:
THE COMPANY
By:
--------------------------------
Name:
Title:
THE DEBTHOLDERS:
STREET & PETERS, CPA, INC.
By:
--------------------------------
Name:
Title:
Address:
-----------------------
-----------------------
4
<PAGE> 5
-----------------------------------
Michael Hagerman
Address:
---------------------------
---------------------------
-----------------------------------
Norman Kretschmar
Address:
---------------------------
---------------------------
-----------------------------------
John Barnicoat
Address:
---------------------------
---------------------------
-----------------------------------
Richard Sanders
Address:
---------------------------
---------------------------
-----------------------------------
Kenneth McMillin
Address:
---------------------------
---------------------------
-----------------------------------
Rhonda McMillin
Address:
---------------------------
---------------------------
-----------------------------------
John Henessey
Address:
---------------------------
---------------------------
-----------------------------------
Joan Henessey
Address:
---------------------------
---------------------------
5
<PAGE> 6
ATTACHMENT 1
<TABLE>
<CAPTION>
Name of Debtholder Principal Amount Owed
- ------------------ ---------------------
<S> <C>
Street & Peters, CPA, Inc. $ 16,463.86
Michael Hagerman 184,000.00 and
83,000.00
Norman Kretschmar 132,718.10 and
22,000.00
John Barnicoat 96,132.00
Richard Sanders and Kenneth McMillin 52,508.91
Kenneth and Rhonda McMillin 25,500.00
John and Joan Henessey 3,825.00
</TABLE>
6
<PAGE> 7
EXHIBIT IV
A. Representations and Warranties of each of the Management Shareholders
and the Company. Each of the Management Shareholders and the Company hereby
jointly and severally represent and warrant to the Buyer, as of the date hereof
and as of the Closing Date, as follows:
1. Capitalization and Share Ownership. The Company's authorized
capital stock consists of 5,000,000 shares of common stock without par value
(the "Common Stock"). The Company is authorized to issue up to 1,000,000
shares of Common Stock as "Series A Common Shares" and up to 1,000,000 shares
of Common Stock as "Series B Common Shares". No other Series of Common Stock
are currently authorized. There are 454,734 shares of the Company's Common
Stock presently issued and outstanding (previously defined as the "Shares") ,
which Shares are owned by the Shareholders free and clear of any and all
Adverse Interests. All of the Shares have been duly authorized and validly
issued, are fully paid and nonassessable, were not issued in violation of the
terms of any Contract binding upon the Company, and were issued in compliance
with all applicable charter documents of the Company and all applicable federal
and state securities or "blue sky" laws and regulations. No equity securities
of the Company, other than the Shares, are issued or outstanding. Except as
set forth on Schedule 1:(a) there are, and have been, no preemptive rights with
respect to the issuance of the Shares; (b) there are: (i) no existing
Contracts, subscriptions, options, calls, commitments or rights of any
character to purchase or otherwise acquire any shares of capital stock or other
securities of the Company, whether or not presently issued or outstanding, from
any Shareholder, or the Company, at any time or upon the happening of any
stated event; (ii) no outstanding securities that are convertible into or
exchangeable for shares of capital stock or other securities of the Company;
and (iii) no Contracts, subscriptions, options, calls, warrants, commitments or
rights to purchase or otherwise acquire from any Shareholder or the Company any
such convertible or exchangeable securities; and (c) each Shareholder is the
sole owner, beneficially and of record, of that number of the issued and
outstanding shares of capital stock of the Company as appears next to his or
her name in Schedule 1.1 attached hereto, free and clear of any and all Adverse
Interests.
2. Due Organization; Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California, and has full corporate power and authority to own and/or
lease all of the Assets owned or leased by it and to carry on the Business as
now being conducted by it as and where the Assets are now owned or leased by it
and the
-1-
<PAGE> 8
Business is conducted by it. The Company is duly qualified or licensed to do
business as a foreign corporation in and is in good standing in each state set
forth on Schedule 2 where the character of its properties or the nature of its
Business require it to be so qualified. The copies of the Articles of
Incorporation and Bylaws, as amended, of the Company heretofore delivered to
the Buyer are true, complete and correct, and such instruments, as amended, are
in full force and effect. Except for the entities listed on Schedule 2
attached hereto (the "Subsidiaries"), if any, the Company has no subsidiaries
and no stock or other equity or ownership interest (whether controlling or not)
, directly or indirectly, in any corporation, association, partnership (general
or limited), joint venture, limited liability company or other entity.
Schedule 2 sets forth a description of all of the issued and outstanding equity
securities of each of the Subsidiaries. There are, and have been, no
preemptive rights with respect to the issuance of any of the equity Securities
of any Subsidiary. There are: (i) no existing Contracts, subscriptions,
options, calls, commitments or rights of any character to purchase or otherwise
acquire any shares of capital stock or other securities of any Subsidiary,
whether or not presently issued or outstanding, from any Shareholder, or the
Company, at any time or upon the happening of any stated event; (ii) no
outstanding securities that are convertible into or exchangeable for shares of
capital stock or other securities of any Subsidiary; and (iii) no Contracts,
subscriptions, options, calls, warrants, commitments or rights to purchase or
otherwise acquire from any Shareholder or the Company any such convertible or
exchangeable securities. The Company owns, of record and beneficially, all of
the issued and outstanding shares of capital stock of each Subsidiary free and
clear of any and all Adverse Interests.
3. Authority. The Company has the full corporate right, power
and authority to execute and deliver this Agreement and to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
All corporate and other actions required to be taken by the Company to
authorize the execution, delivery and performance of this Agreement and all
transactions contemplated hereby, including the obtaining of any requisite
board of director and shareholder approval, have been duly and validly taken.
Each of the Shareholders has the full right, power and authority, without the
consent of any other person, to execute and deliver this Agreement and to carry
out this Agreement and the transactions contemplated hereby.
4. Validity. The execution, delivery and performance of this
Agreement have been duly authorized by all requisite action, corporate and
other, on the part of the Company and each of the Shareholders, and this
Agreement has been duly executed and delivered by each of the Shareholders and
the Company and constitutes the valid and legally binding obligation of each of
the
-2-
<PAGE> 9
Shareholders and the Company, enforceable against it and him, as the case may
be, in accordance with its terms, except to the extent enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally or by general equitable principles.
5. Non-Contravention. Neither the execution and delivery of this
Agreement by any of the Shareholders or the Company, nor the consummation by
any of the Shareholders or the Company of the transactions contemplated hereby,
do, or would, after the giving of notice or the lapse of time or both, (a)
conflict with, result in a breach of, or constitute a default under, the
Articles of Incorporation or the Bylaws of the Company or any Subsidiary, or
any federal, state or local court or administrative order or process, or any
Contract or other instrument, including any express or implied warranty, to
which any of the Shareholders, the Company or any Subsidiary is a party or by
which any of the Shareholders (or any of their respective rights, properties or
Assets), the Company (or any of its rights, properties or Assets) or any
Subsidiary (or any of their respective rights, properties or Assets) is subject
or bound; (b) conflict with, result in a breach of, or constitute a default
under, any federal, state or local law, statute, rule or regulation; (c) result
in the creation of, or give any party the right to create, any Adverse Interest
upon any right, property or Asset of the Company or any Subsidiary; (d)
terminate, or give any party the right to terminate, amend, abandon or refuse
to perform, any Contract or commitment to which the Company or any Subsidiary
is a party or by which the Company (or any of its rights, properties or Assets)
or any Subsidiary (or any of their respective rights, properties or Assets) is
subject or bound; or (e) accelerate or modify, or give any party thereto the
right to accelerate or modify, the time within which, or the terms under which,
either the Company, any Subsidiary or any third party is to perform any duties
or obligations or receive any rights or benefits under any Contract or
commitment.
6. Force Majeure. The business, properties and Assets of the
Company have not been materially and adversely affected in any way as a result
of any fire, explosion, earthquake, flood, windstorm, accident or any other
casualty, labor trouble, condemnation, requisition or taking of property by any
government or any agency of any government, embargo, riot, act of God or public
enemy, or other similar or dissimilar casualty or event.
7. Plant, Machinery, and Equipment. Schedule 7 attached hereto
sets forth a complete and accurate list of all the plant, machinery, equipment,
furniture, fixtures, and other fixed assets currently used directly or
indirectly in the Business of the Company and any Subsidiary, whether leased or
owned. Except as set forth on Schedule 7 attached hereto, such fixed assets
are owned by the Company or its Subsidiaries free and clear of any and all
Adverse Interests, subject only to liens for current state or local
-3-
<PAGE> 10
property taxes not yet due and are adequate for the conduct of the Business as
it is now being conducted. All items set forth on Schedule 7 are in
reasonably good and usable operating condition and repair for the purpose they
are presently used by the Company and its Subsidiaries, except for ordinary
wear and tear. The Company's and each of the Subsidiaries' operations conform
to the requirements of all applicable laws, except where the failure to conform
would not have a materially adverse effect on such operations. Neither the
Company nor any Subsidiary has received any notice of any violation (which has
not been satisfied or complied with) of environmental, or other laws, statutes,
ordinances, codes or regulations relating to the use of its equipment.
8. Real Property. The Company and its Subsidiaries lease all of
their respective premises under valid and enforceable leases which are not
subject to termination by virtue of the transactions contemplated by this
Agreement. The premises are in reasonably good operating condition and repair,
ordinary wear and tear excepted. Schedule 8 attached hereto sets forth a
complete and accurate list of all the real property leased by the Company and
each of its Subsidiaries and used in the Business. True and correct copies of
all leases listed on Schedule 8 have been delivered to Buyer. Neither the
Company nor any Subsidiary is in default or alleged default of the leases
listed on Schedule 8. The Premises leased by the Company or any Subsidiary do
not violate any zoning regulation or ordinance of the state, city, town or
village in which such real property is located. Neither the Company nor any
Subsidiary has received any notes or notices of any eminent domain proceedings
or of violations of law, or municipal ordinances, orders or requirements noted
in or issued by any department having jurisdiction, against or affecting such
premises. With respect to the leasing of the premises, all existing permits,
approvals, consents and similar authorizations which the Company and each
Subsidiary is legally required to hold in order to occupy the premises as a
tenant are in full force and effect, and there is no action or proceeding
pending or, to the best knowledge of the Company and each of the Shareholders,
threatened, which would have the effect of restricting, terminating,
penalizing, limiting or otherwise making less valuable any of such permits,
approvals, consents or similar authorizations. Neither the Company nor any
Subsidiary is constructing or intending to construct any improvement at such
premises. The Company and each Subsidiary is in compliance with all applicable
environmental and other statutes, regulations, ordinances and requirements
which it is obligated to comply with as tenant of such premises and with regard
to which non-compliance would have a material adverse affect on the Company and
its Subsidiaries, taken as a whole, and neither the Company nor any of the
Shareholders knows of any violation with respect thereto, or any action or
proceeding pending or, to the best of the Company's and each of the
Shareholder's knowledge, threatened, alleging a violation of any such statute
or regulation, except any
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<PAGE> 11
such immaterial and insubstantial violations. Neither the Company nor any of
the Shareholders knows of any violations of any easements or restrictions
relating to such premises which would materially adversely affect the use or
enjoyment of such premises by the Company or any of its Subsidiaries. Any
taxes and other impositions relating to such premises, due and payable, for
which the Company or any Subsidiary is responsible at the date of this
Agreement, have been duly paid.
9. Title to and Condition of the Assets. Except as set forth on
Schedule 9 attached hereto, the Company, directly or indirectly, is the sole
and exclusive legal and equitable owner of all right, title and interest in,
and has good and marketable title to, all of the Assets, free and clear of any
and all Adverse Interests of any kind or nature whatsoever. Each of the owned
tangible Assets of the Company and each Subsidiary, including the fixtures,
vehicles, equipment, machinery, furniture and other tangible assets used in the
Business, is in good repair and in good operating condition, and is suitable
for the purposes for which it presently is being used in the Business and
conform in all material respects to all applicable federal, state and local
laws, rules, regulations and ordinances relating to their use or operation.
Schedule 9 attached hereto sets forth accurate lists and summary descriptions
of all owned tangible Assets not listed on Schedule 7 where the value of an
individual item exceeds $1,000 or where an aggregate of similar items exceeds
$1,000, and of all Contracts and other arrangements and obligations to which
the Company is a party or is otherwise bound which relate in whole or in part
to the owned Assets. Such Assets, and the items listed on Schedule 7,
constitute substantially all of the tangible assets used in or necessary to
conduct the Business.
10. Financial Statements. The Company has delivered to the Buyer
its consolidated Balance Sheets as of December 31, 1995, and April 30, 1996, and
the related consolidated statements of operations, cash flows and shareholders'
equity for the years ended December 31, 1995 and December 31, 1994 and for the
four-month periods ended April 30, 1996 and April 30, 1995, accompanied by the
related accountant's reports, if any (the "Financial Statements"). The April
30, 1996 balance sheet may hereinafter be referred to as the "Latest Balance
Sheet", and the related consolidated statements of operations, cash flows and
shareholders' equity for the four-month period ended on such date may
collectively be referred to as, the "Interim Financial Statements". In
addition, the Company will deliver a balance sheet and related consolidated
statements of operations, cash flows and shareholders' equity for the
eight-month period ended July 31, 1996. The Financial Statements and Interim
Financial Statements are attached hereto as Schedule 10. All such financial
statements and information of or relating to the Company, together with any
notes thereto, are correct and present fairly the financial position of the
Company as of the respective dates indicated and its results of operations, cash
flows and
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<PAGE> 12
shareholders' equity for the respective periods then ended, and were prepared in
conformity with U.S. generally accepted accounting principles as consistently
applied to the financial affairs of the Company ("GAAP").
11. Litigation. Except as set forth on Schedule 11 attached
hereto, there is no suit, action, claim or litigation, or legal,
administrative, arbitration or other proceeding or governmental investigation
or inquiry, pending or, to the best knowledge of each of the Shareholders and
the Company after due inquiry, threatened against or affecting the Company, any
Subsidiary, the Business or any of their respective properties or assets,
including the Assets, and/or any of the Shareholders, and, to the best
knowledge of each of the Shareholders and the Company after due inquiry, there
is no basis for any such suit, action, claim, litigation, proceeding,
investigation or inquiry, nor is there any judgment, decree, injunction,
ruling, award, order or writ of any court, governmental department, commission,
agency, instrumentality, arbitration tribunal or other person outstanding
against, binding upon or involving the Company, any Subsidiary, the Business,
or any of their respective properties or assets, including the Assets, any
directors or officers of the Company in their capacity as such, or any of the
Shareholders. Neither the Company, any Subsidiary nor any of the Shareholders,
nor any of their respective directors, officers, employees or agents, as
appropriate, is currently charged with, or is currently under investigation
with respect to, any violation of any provision of any foreign, federal, state
or local law or administrative regulation in respect of the Business. Neither
any of the Shareholders, the Company, nor any Subsidiary is in default with
respect to any judgment, decree, injunction, ruling, award, order or writ of
any foreign, federal, state or municipal agency or other governmental
department, board, commission, bureau, agency or instrumentality.
12. Legal Compliance.
(a) The Company and each of the Subsidiaries has complied
with all laws, statutes, ordinances, rules, regulations and orders of all
governmental entities applicable to the Business or the Assets, including,
without limiting the generality of the foregoing, Title VII of the Civil Rights
Act of 1964, as amended ("Title VII"), the Age Discrimination in Employment Act
of 1967, as amended ("ADEA") , the Equal Pay Act of 1963, as amended ("EPA"),
the National Labor Relations Act of 1935, as amended ("NLRA"), the Federal
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), the
federal and any California occupational safety health acts, including, but not
limited to, the Occupational Safety and Health Act of 1970, as amended
("OSHA"), and all applicable statutes, regulations, orders and restrictions
relating to environmental standards or controls, except for violations thereof
which, in the aggregate, do not have a material adverse effect on the Business
or the Assets of the Company or any Subsidiary. The
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<PAGE> 13
Company and each of its Subsidiaries has all permits, certificates, licenses,
approvals and other authorizations required in connection with the operation of
the Business by it, all of which are valid and effective and each of which are
listed on Schedule 12(a) attached hereto. The Company and each of its
Subsidiaries has complied in all respects with all obligations under such
permits, certificates, licenses, approvals and other authorizations.
(b) The operations, practices, policies and procedures of
the Company, each of its Subsidiaries and each of their respective employees
have been conducted in compliance with all, and have not given rise to any
loss, liability, damage, costs or expenses under any, applicable federal, state
and local laws, orders, regulations, directives and restrictions concerning
protection of the environment, the disposal of hazardous, toxic or industrial
chemicals, substances or wastes, and health and safety, including, but not
limited to, the following statutes and all orders, rules, regulations,
directives and restrictions issued thereunder or promulgated in connection
therewith: (i) the Clean Air Act, as amended (the "Clean Air Act"); (ii) the
Federal Water Pollution Control Act, as amended (the "Clean Water Act"); (iii)
the Resource Conservation and Recovery Act of 1976, as amended ("RCRA"); (iv)
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended ("CERCLA"); (v) the Toxic Substances Control Act, as amended
("TSCA"); (vi) OSHA; and (vii) all California environmental statutes.
(c) There are no claims, investigations, litigation,
administrative proceedings, judgments or orders, whether pending or, to the
best knowledge of each of the Shareholders or the Company, threatened against
or affecting the Company, any Subsidiary, the Business, any real property
leased or owned by the Company or any Subsidiary (the "Real Property") or any
of the Shareholders, relating to any hazardous substances, hazardous wastes,
discharges, emissions or other forms of pollution (collectively, "EPA Matters")
relating in any way to the Real Property. Neither any of the Shareholders, the
Company nor any Subsidiary has liability for clean-up, compliance or required
capital expenditures in connection with any EPA Matter arising prior to the
date hereof which affect or may affect, materially and adversely, the Business,
the Real Property or the Assets.
(d) No hazardous or toxic substances, within the meaning
of any applicable statute or regulation, are presently stored or otherwise
located at the Real Property which may, in the aggregate, materially and
adversely affect the Business or the Assets, and, further within the definition
of such statutes and regulations, no part of such Real Property or, to the best
knowledge of each of the Shareholders and the Company, adjacent parcels of real
estate, including the groundwater located thereon or thereunder, is presently
contaminated by any such substance which affects or may
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<PAGE> 14
affect, materially and adversely, the Business, the Real Property or the
Assets.
(e) No notice has been issued, and no investigation or
review is pending or, to the best knowledge of each of the Shareholders and the
Company, threatened by any governmental entity, with respect to (i) any alleged
violation by the Company or any Subsidiary of any law, ordinance, rule,
regulation, order, policy or guideline of any governmental entity, or (ii) any
alleged failure of the Company or any Subsidiary to have all permits,
certificates, licenses, approvals and other authorizations required of the
Company or any Subsidiary in connection with the operation of the Business or
the Assets. The Company has furnished the Buyer with copies of all reports or
other documents concerning the Company, each Subsidiary or any of their
respective employees made by the Company or any Subsidiary during the past five
years (i) pursuant to Title VII, to OSHA, the ADEA, EPA, NLRA and ERISA, and
(ii) pursuant to workers' compensation statutes. Neither any of the
Shareholders, the Company nor any Subsidiary has filed a notice or report of
any release of any hazardous and toxic substances, within the meaning of any
applicable statute or regulation, that affects or may affect, materially or
adversely, the Business, the Real Property or the Assets.
(f) The operations of the Company and each Subsidiary have
been conducted in accordance with all applicable laws, regulations and other
requirements of all national governmental authorities, and of all territories,
states, municipalities and other political subdivisions and agencies thereof,
having jurisdiction over the Company and each Subsidiary, including, without
limitation, all such laws, regulations, ordinances and requirements relating to
environmental, antitrust, consumer protection, labor and employment, zoning and
land use, currency exchange, immigration, health, occupational safety, pension,
securities and trading with the enemy matters, except for minor violations that
individually, or in the aggregate, will have no material adverse effect on the
business, operations or financial condition of the Company or any Subsidiary.
Neither the Company, any Subsidiary nor any Shareholder has received any
notification of any asserted present or past failure by the Company or any
Subsidiary to comply with such laws, regulations, ordinances or requirements.
The Company has all permits, authorizations and consents necessary for the
operation of its business as currently conducted.
13. Books of Account; Returns and Reports; Taxes.
(a) The books of account (the "Books of Account") of the
Company fairly reflect, in accordance with GAAP, (i) all transactions relating
to the Company and (ii) all items of income and expense, Assets, liabilities,
contingent liabilities and accruals relating to the Company. The Company has
not engaged in any transaction, maintained any bank account or used any
corporate
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<PAGE> 15
funds except for transactions, bank accounts and funds which have been and are
reflected in the normally maintained books and records of the Company.
(b) For purposes of this Agreement, "Taxes" or "Tax"
means all net income, capital gains, gross income, gross receipts, sales, use,
ad Valorem, franchise, profits, license, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, property (real and personal), or
windfall profit taxes, customs duties, or other taxes, fees, assessments, or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax, or additional amounts imposed by any taxing authority
("Taxing Authority") on the Company.
(c) The Company has filed or will file when due all
federal, foreign, state and local tax returns, tax information returns,
reports, and estimates for all years and periods (and portions thereof) for
which the due date (with extensions) is on or before the Closing Date. All
such returns, reports and estimates were or will be prepared in the manner
required by applicable law, and reflect or will reflect the liability for Taxes
of the Company in all material respects and all Taxes shown thereby to be
payable and all assessments received by the Company have been paid or will be
paid when due.
(d) Schedule 13 attached hereto sets forth a list of all
jurisdictions in which the Company has filed or will file income or franchise
tax returns for each taxable period (or portion thereof) ending on or before
the Closing Date.
(e) The Company has withheld or will withhold amounts
from its employees and has filed or will file all federal, foreign, state and
local returns and reports with respect to employee income tax withholding and
social security and unemployment Taxes for all periods (or portions thereof)
ending on or before the Closing Date, in compliance with the provisions of the
Internal Revenue Code of 1986, as amended (the "Code") and all other applicable
federal, foreign, state and local laws.
(f) The Company has paid, or had provided a sufficient
reserve on the Latest Balance Sheet for the payment of, all federal, foreign,
state, and local Taxes with respect to all periods (or portions thereof) ending
on or before the date of the Latest Balance Sheet.
(g) Except as set forth on Schedule 13 attached hereto,
no federal, foreign, state or local income tax returns of the Company have been
examined or audited by the Internal Revenue Service or complimentary foreign,
state or local revenue service, and any deficiencies or assessments, including
interest and penalties thereon, claimed or made as a result of such
examinations or audits have been paid or provided for.
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<PAGE> 16
(h) There are no material claims or investigations by any
Taxing Authority pending or to the best knowledge of the Shareholders
threatened against the Company for any past due Taxes, and there has been no
waiver of any applicable statute of limitations or extension of the time for
the assessment of any Tax against the Company.
(i) The Company has not made, signed, or filed, nor will
it make, sign, or file any consent under Section 341(f) of the Code with
respect to any taxable period ending on or before the Closing Date.
(j) The Company is not now, and never has been, a member
of any consolidated federal income tax group, and it is not now, and never has
been a party to any agreement relating to the sharing of any liability for, or
payment of, Taxes with any other person or entity.
(k) Notwithstanding any other provision contained in this
Agreement, each of the Shareholders and the Company are satisfied as to, and
have relied solely upon their respective tax advisors with respect to, the
incidents of taxation which will or may result from the transactions
contemplated by this Agreement.
14. No Material Adverse Developments. Since the date of the
Latest Balance Sheet, there has not been any change or any development
involving a prospective change, which has materially and adversely affected, or
may materially and adversely affect, the condition, financial or otherwise,
prospects, Assets, properties, or results of operation of the Business or the
Company.
15. No Consents. Except as set forth on Schedule 15 attached
hereto, no permit, consent, approval, novation, authorization or other order
of, or filing with, any governmental authority, board or other regulatory body
or any other person is required in connection with the execution, delivery and
consummation of this Agreement by any of the Shareholders or the Company and
the consummation of the transactions contemplated hereby.
16. [Intentionally Omitted]
17. Information. Each of the Management Shareholders and the
Company have furnished and will continue to furnish to the Buyer detailed
information with respect to the Business and the properties, Assets and
financial condition of the Company, and each of the Management Shareholders and
the Company acknowledge that the Buyer has relied and will rely thereon in
entering into this Agreement and consummating the transactions contemplated by
this Agreement. All information contained in the Schedules and Exhibits
attached to this Agreement and in the documents furnished to the Buyer by any
of the Management Shareholders or by the Company pursuant to or in connection
with this Agreement or otherwise is,
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<PAGE> 17
and shall be at the Closing, true, correct and complete. True, correct and
complete copies, all underlying documents incorporated or referred to in such
Schedules and Exhibits, or in documents otherwise furnished to the Buyer by any
of the Management Shareholders or the Company, as the same have been amended,
have been furnished to the Buyer by the Company and the Management
Shareholders. This Agreement and the Schedules and Exhibits attached hereto,
taken as a whole, do not contain any untrue statement by any of the Management
Shareholders or the Company of a material fact or any omission by any of the
Management Shareholders or the Company to state a material fact required to be
stated by any of the Management Shareholders or the Company therein or
necessary to make any statement by any of the Management Shareholders or the
Company therein not misleading.
18. Accounts Receivable; Inventory. All accounts receivable as
set forth on the Latest Balance Sheet or arising since the Latest Balance Sheet
date (a) have arisen only in the ordinary course of business consistent with
past practice for goods sold and delivered or services performed and (b) are
collectible in full at the recorded amounts thereof (free of any, and subject
to no, known defenses, setoffs or counterclaims) in the ordinary course of
business, net of any allowance for doubtful accounts reflected in the Latest
Balance Sheet. The inventory as set forth on the Latest Balance Sheet or
arising since the Latest Balance Sheet date was acquired and has been
maintained in accordance with the regular business practices of the Company,
consists of new and unused items of a quality and quantity usable or saleable
in the ordinary course of business of the Company consistent with past
practice, and is valued in accordance with GAAP. None of such inventory is
obsolete, unusable, slow moving, damaged or unsalable in the ordinary course of
the Company's business consistent with past practice.
19. Directors and Officers. Schedule 19 hereto is a true, correct
and complete list of all the Directors and Officers of the Company and each
Subsidiary.
20. Location of Assets. Except for certain items located at the
respective locations set forth opposite their description on Schedule 20
attached hereto, all of the Assets are located at the Real Property.
21. Leases. Set forth on Schedule 21 attached hereto is an
accurate and complete list of all leases pursuant to which the Company leases
personal property. A true and complete copy of each such lease has been
delivered to the Buyer, and no changes have been made therein since the date of
such delivery. Each such lease is valid, binding and enforceable in accordance
with its terms, there are no existing defaults by the Company or any third
party thereunder and no event has occurred which (with or without notice,
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<PAGE> 18
lapse of time or both) would constitute a material default thereunder by any
party.
22. [Intentionally Omitted]
23. Employee Benefit Plans and Arrangements. Schedule 23 attached
hereto contains a complete list of all employee benefit plans, whether formal
or informal, whether or not set forth in writing, and whether covering one
person or more than one person, sponsored or maintained by the Company. For
the purposes hereof, the term "employee benefit plan" includes all plans,
funds, programs, policies, arrangements, practices, customs and understandings
providing benefits of economic value to any employee, former employee, or
present or former beneficiary, dependent or assignee of any such employee or
former employee, other than regular salary, wages or commissions paid
substantially concurrently with the performance of the services for which paid.
Without limitation, the term "employee benefit plan" includes all employee
welfare benefit plans within the meaning of section 3(l) of ERISA and all
employee pension benefit plans within the meaning of section 3(2) of ERISA.
Each plan providing benefits which are funded through a policy of insurance is
indicated by the word "insured" placed by the listing of the plan in Schedule
23.
[ADDITIONAL REPS TO COME DEPENDING UPON PLANS DISCLOSED]
24. Intellectual Property Matters. In the conduct of the
Business, the Company did or does not utilize any patent, trademark, trade
name, service mark, copyright, software, license, trade secret or know-how
except as listed on Schedule 24 hereto (the "Intellectual Property"), all of
which Intellectual Property is owned by or is licensed to the Company or its
Subsidiaries as more particularly designated on Schedule 24. Any Intellectual
Property owned by the Company is free and clear of any and all Adverse
Interests. Neither the Company nor any Subsidiary infringes upon or unlawfully
or wrongfully use any patent, trademark, trade name, service mark, copyright,
license or trade secret owned or claimed by another. Neither the Company nor
any Subsidiary is in default under, nor has received any notice of any claim of
infringement or any other claim or proceeding relating to, any such patent,
trademark, trade name, service mark, copyright, license or trade secret.
Except as set forth on Schedule 24, no present or former employee of the
Company or any Subsidiary and no other person owns or has any proprietary,
financial or other interest, direct or indirect, in whole or in part, in any
patent, trademark, trade-name, service mark, license or copyright, or in any
application therefor, or in any trade secret, which the Company owns, possesses
or uses in its operations as now or heretofore conducted. Schedule 24 hereto
lists all license, confidentiality or nondisclosure agreements to which the
Company, any Subsidiary or any of their respective employees engaged in the
Business is a party which relates to the Business.
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<PAGE> 19
25. Absence of Undisclosed Liabilities. Neither the Company nor
any Subsidiary has any material liabilities, secured or unsecured, accrued or
contingent, choate or inchoate, except (a) as and to the extent reflected or
reserved against in the Interim Financial Statements or (b) as disclosed in
writing in this Agreement or the Schedules and Exhibits attached hereto.
26. Insurance. Schedule 26 hereto contains a description of all
insurance policies held by the Company and each Subsidiary concerning the
Business and the Assets including amounts and lines of coverage and a
description of all claims pending, if any. The Company and each Subsidiary
maintained and now maintains (a) insurance, of a type customary for businesses
similar to the Business, on all the Assets covering property damage and loss of
income by fire or other casualty, and (b) insurance protection against all
liabilities, claims, and risks against which it is customary to insure.
Neither the Company nor any Subsidiary is in default with respect to payments
of premiums on any such policy and no notice of cancellation or non-renewal of
any such coverage has been received. There are no provisions in such insurance
policies for retroactive or retrospective premium adjustments. Neither the
Company nor any Management Shareholder knows or has reason to know of the
occurrence of any event which reasonably might form the basis of any claim
against the Company, any Subsidiary, the Business or the Assets or which might
increase the insurance premiums payable for any such coverage. There are no
outstanding performance bonds covering or issued for the benefit of the Company
or any Subsidiary. Except as set forth on Schedule 26, no claim is pending
under any such policy and such policies are in full force and effect.
27. Employees. Schedule 27 hereto sets forth the names and
current annual salary rates or current hourly wages of all present employees of
the Company and each Subsidiary, together with the average number of hours
worked per week, the date of the last salary increase, the date of commencement
of employment of each employee with the Company or any Subsidiary, and a
summary of salary, bonuses and other compensation, if any, paid or payable to
each of such persons for or in respect of that portion of the 1996 calendar
year ending on the Latest Balance Sheet date. Schedule 27 hereto also sets
forth the earnings for each of such employees as reflected on Form W-2 for the
1995 calendar year. Schedule 27 hereto also sets forth the total accrued
vacation pay that each employee is entitled to receive, which amounts are
properly and accurately reflected on the Company's Books of Account and
properly and accurately reserved on the Company's Financial Statements. Except
as set forth on Schedule 27 attached hereto, at the Latest Balance Sheet Date
there were, at the date hereof there are and at the Closing Date there will be,
no bonuses, profit sharing, incentives, commissions or other compensation of
any kind with respect to work done prior to the Latest Balance Sheet, the date
hereof or the Closing Date, respectively, due to or expected by present or
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<PAGE> 20
former employees of the Company and each Subsidiary not fully paid prior to
such date (other than accrued payroll charges in the ordinary course of
business consistent with past practice for the pay period during which this
Agreement is executed or the Closing occurs) or, with respect to work done
prior to the date of the Latest Balance Sheet, not fully accrued on the Latest
Balance Sheet.
28. Union Activity. Neither the Company nor any Subsidiary has
any collective bargaining agreements with any labor union or other
representative of employees. No strike, slowdown, picketing or work stoppage
by any union or other group of employees against the Company or any Subsidiary,
and no secondary boycott with respect to their respective products or services,
lockout by the Company or any Subsidiary of any of their respective employees
or any other labor trouble or other occurrence, event or condition of a similar
character, has occurred or been threatened.
29. Transactions with Affiliates. Except as set forth on Schedule
29 attached hereto, neither any of the Shareholders nor any director or officer
of the Company or any Subsidiary, or any member of his or her immediate family
or any other of its, his or her affiliates, owns or has an ownership interest
in any corporation or other entity that is or was during the last three years a
party to, or in any property which is or was during the last three years the
subject of, Contracts, business arrangements or relationships of any kind with
the Company or any Subsidiary or any predecessors thereto. All such disclosed
transactions between the Company, any Subsidiary and any of the Shareholders or
any affiliate have been on substantially the same terms and conditions as
similar transactions between non-affiliated parties and are properly recorded
on the Books of Account of the Company.
30. Contracts; Delivery of Documents. Schedule 30 attached hereto
contains a complete and accurate list of all written Contracts and other
documents and summaries of any material oral Contracts (including all
amendments, supplements, modifications or waivers currently in effect) binding
upon the Company or any Subsidiary, and other commitments of the Company or any
Subsidiary (including all incomplete and proposed capital expenditure
projects). Each of such Contracts and commitments is in full force and effect
and, to the best of the Company's or any Shareholder's knowledge, no party to
any such Contract or commitment is in default or alleged default thereunder.
To the extent any consent is required for the assignment of any such Contract
or commitment, all such required consents have been obtained by the Company or
the Shareholders, as appropriate. The Company and the Shareholders have
delivered to the Buyer true, correct and complete copies of the Company's and
each Subsidiaries' charter documents and Bylaws and all written Contracts and
other documents described in this Agreement or set forth in any Schedule
attached hereto.
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<PAGE> 21
31. [Intentionally Omitted]
32. Conduct of Business. Since the Latest Balance Sheet date, the
Business has been operated in the manner described in Section 5.1 and the
Company has not taken any action that would have been prohibited by Section 5.1
had that Section been effective since the Latest Balance Sheet date.
33. Additional Information. Schedule 33 attached hereto contains
accurate lists and summary descriptions of the following:
(a) the names of all persons authorized to borrow money
or incur or guarantee indebtedness on behalf of the Company and each
Subsidiary; and
(b) the names of all persons holding powers of attorney
from the Company and each Subsidiary and a summary statement of the terms
thereof;
34. Corporate Records. The minute books of the Company and each
Subsidiary are current and contain correct and complete copies of all charter
documents of the Company and each Subsidiary, respectively, including all
amendments thereto and restatements thereof, and of all minutes of meetings,
resolutions and other actions and proceedings of their respective shareholders
and boards of directors and all committees thereof, duly signed by the
Secretary or an Assistant Secretary, and the stock record book of the Company
is also current, correct and complete and reflects the issuance of all of the
Shares to the Shareholders and the stock record book of each Subsidiary is also
current, correct and complete and reflects the issuance of each of such
Subsidiaries' equity securities to the Company.
35. Foreign Investment in Real Property Tax Act. The Company is
not now and has never been a "United States real property holding corporation"
for purposes of Section 897 (c) (2) of the Code and the Treasury Regulations
thereunder ("FIRPTA").
36. No Erosion of Customer Base. There have been no recent
contract cancellations or other events resulting in a material erosion in the
Company's customer base.
37. Permits, Licenses, Etc. Schedule 37 attached hereto lists all
permits, licenses, franchises, concessions, zoning variances and other
governmental approvals, authorizations and orders which have been obtained and
are currently used in connection with the conduct of the Business by the
Company and each Subsidiary. Such permits, licenses, franchises, concessions,
variances, approvals, authorizations and orders constitute all governmental
approvals and authorizations necessary under all applicable local, state or
federal laws and regulations for the operation of the Business by the Company
and each Subsidiary as it
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<PAGE> 22
has been heretofore conducted, and the Business has been conducted in
compliance with all such applicable laws and regulations. All such permits,
licenses, franchises, concessions, variances, approvals, authorizations and
orders are presently in full force and effect; to the best of the Company's and
each Shareholder's knowledge, no suspension or cancellation of any of them is
threatened; and the consummation of this transaction does not affect the
validity or effectiveness of, and does not require the consent or approval of
any party to, or any other person or governmental agency having jurisdiction
over, any such permit, license, franchise, concession, variance, approval,
authorization or order, except such consents or approvals as has been obtained.
Without in any way limiting the generality of the foregoing, Schedule 37
attached hereto contains a separate list of all permits, licenses, franchises,
concessions and other governmental approvals and authorizations relating to the
brewing, making, distilling, transporting or otherwise handling of alcoholic
beverages (the "Alcohol Licenses"). Each of such Alcohol Licenses is presently
in full force and effect, duly and validly issued and appropriate and adequate
for the conduct of the Business. Except as set forth on Schedule 37 attached
hereto, neither the Company nor any Subsidiary requires any Alcohol Licenses
for the operation of the Business.
B. Representations and Warranties of the Buyer. The Buyer hereby
represents and warrants to the Company and each of the Shareholders as of the
date hereof, and as of the Closing Date, as follows:
1. Due Organization; Qualification. The Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California, and has full corporate power and authority to own and/or
lease all of the assets owned or leased by it, and to carry on its business as
now being conducted by it as and where its assets are now owned or leased by it
and its business conducted. The Buyer is duly qualified or licensed to do
business as a foreign corporation in and is in good standing where the
character of its properties or the nature of its business require it to be so
qualified. The copies of the Articles of Incorporation and Bylaws, as amended,
of the Buyer heretofore delivered to the Shareholder Representative are true,
complete and correct, and such instruments, as amended, are in full force and
effect.
2. Authority. The Buyer has full corporate right, power and
authority, without the consent of any other person, to execute and deliver this
Agreement and to carry out the transactions contemplated hereby. All corporate
and other actions required to be taken by the Buyer to authorize the execution,
delivery and performance of this Agreement and all transactions contemplated
hereby will have been duly and properly taken as of the Closing.
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<PAGE> 23
3. Validity. This Agreement constitutes the valid and legally
binding obligation of the Buyer, enforceable against it in accordance with its
terms, except to the extent enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting creditors
rights generally or by general equitable principles.
4. Non-Contravention. Neither the execution and delivery of this
Agreement by the Buyer nor the consummation by the Buyer of the transactions
contemplated hereby, do, or would, after the giving of notice or the lapse of
time or both, (a) conflict with, result in a breach of, or constitute a default
under, the Articles of Incorporation or the Bylaws of the Buyer, or any
federal, state or local court or administrative order or process, or any other
material agreement, contract, commitment or other instrument, including any
express or implied warranty, to which the Buyer is a party or by which the
Buyer (or its assets or properties) is subject or bound; (b) conflict with,
result in a breach of, or constitute a default under, any federal, state, or
local law, statute, rule or regulation; or (c) violate or conflict with any
other material restriction of any kind or character whatsoever to which the
Buyer is subject.
5. Capitalization and Share Ownership. The Buyer's authorized
capital stock consists of 20,000,000 shares of common stock, no par value per
share ("Buyer's Common Stock") and 5,000,000 preferred shares. As of July 18,
1996, there are issued and outstanding 2,412,863 shares of Buyer's Common Stock
and no preferred shares. All of such shares have been duly authorized and
validly issued, are fully paid and nonassessable, were not issued in violation
of the terms of any Contract binding upon the Buyer, and were issued in
compliance with all applicable charter documents of the Buyer and all
applicable federal and state securities or "blue sky" laws and regulations.
There are, and have been, no preemptive rights with respect to the issuance of
such shares.
6. Authorization of Common Stock and Convertible Instruments.
The issuance of the shares of Buyer's Common Stock at the Closing has been duly
authorized by all necessary corporate action and, when issued as contemplated
by this Agreement, will be duly authorized and validly issued, fully paid and
nonassessable, and issued in compliance with all applicable charter documents
of the Buyer and such issuances will not be in violation of the terms of any
Contract binding upon the Buyer.
7. Financial Statements. The Buyer has delivered or will deliver
to the Company and/or the Shareholder Representative its consolidated Balance
Sheets as of December 31, 1995, April 30, 1996, and the related consolidated
statements of operations, cash flows and shareholder's equity for the years then
ended, accompanied by the related accountant's reports, if any. In addition,
the Buyer has delivered or will deliver to the Shareholder Representative its
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<PAGE> 24
internally prepared, unaudited consolidated Balance Sheet as of April 30, 1996,
1996 (the "Buyer's Latest balance Sheet"), and the related unaudited
consolidated statements of operations, cash flows and shareholder's equity for
the four month period ended on such date, which are attached hereto as Schedule
B.7 attached hereto. All such financial statements and information of or
relating to the Buyer, together with any notes thereto, are correct and present
fairly the financial position of the Buyer as of the respective dates indicated
and its results of operations, cash flows and shareholder's equity for the
respective periods then ended (subject to normal year-end adjustments), and
were prepared in conformity with GAAP consistently applied.
8. Litigation. Except as set forth on Schedule B.8 attached
hereto, there is no suit, action, claim or litigation, or legal,
administrative, arbitration or other proceeding or governmental investigation
or inquiry, pending or, to the best knowledge of the Buyer after due inquiry,
threatened against or affecting the Buyer, any subsidiary of the Buyer (the
"Buyer's Subsidiaries"), its Business or any of their respective properties or
assets which would have a material adverse effect on the Buyer, its business or
assets, and, to the best knowledge of the Buyer after due inquiry, there is no
basis for any such suit, action, claim, litigation, proceeding, investigation
or inquiry nor is there any judgment, decree, injunction, ruling, award, order
or writ of any court, governmental department, commission, agency,
instrumentality, arbitration tribunal or other person outstanding against,
binding upon or involving the Buyer, the Buyer's Subsidiaries, its business or
any of their respective properties or assets which would have a material
adverse effect on the Buyer, its business or assets. Neither the Buyer, the
Buyer's Subsidiaries nor, to the best of the Buyer's knowledge, any of their
respective directors, officers, employees or agents, as appropriate, is
currently charged with, or is currently under investigation with respect to,
any violation of any provision of any foreign, federal, state or local law or
administrative regulation in respect of the Buyer's business. Neither the
Buyer nor any of the Buyer's Subsidiaries is in default with respect to any
judgment, decree, injunction, ruling, award, order or writ or any foreign,
federal, state or municipal agency or other governmental department, board,
commission, bureau, agency or instrumentality which would have a material
adverse effect on the Buyer, its business or assets.
9. Compliance with Law. The operations of the Buyer and each of
the Buyer's Subsidiaries have been conducted in accordance with all applicable
laws, regulations and other requirements of all national governmental
authorities, and of all territories, states, municipalities and other political
subdivisions and agencies thereof, having jurisdiction over the Buyer or the
Buyer's Subsidiaries, as the case may be, including, without limitation, all
such laws, regulations, ordinances and requirements relating to environmental,
antitrust, consumer protection, labor and employ-
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<PAGE> 25
ment, zoning and land use, currency exchange, immigration, health, occupational
safety, pension, securities and trading with the enemy matters, except for minor
violations that individually, or in the aggregate, will have no material adverse
effect on the business, operations or financial condition of the Buyer. Neither
the Buyer nor any of the Buyer's Subsidiaries has received any notification of
any asserted present or past failure by the Buyer or any of the Buyer's
Subsidiaries to comply with such laws, regulations, ordinances or requirements
which have not been satisfactorily corrected prior to the date hereof. The
Buyer and the Buyer's Subsidiaries have all permits, authorizations and consents
necessary for the operation of their respective businesses as currently
conducted.
10. No Material Adverse Developments. Except as set forth on
Schedule B.10 attached hereto, since the date of the Buyer's Latest Balance
Sheet, there has not been any change or any development involving a prospective
change, which has materially and adversely affected, or may materially and
adversely affect, the condition, financial or otherwise, prospects, assets,
properties, or results of operation of the Buyer, the Buyer's Subsidiaries or
their respective businesses.
11. No Consents. Except as set forth on Schedule B.11 attached
hereto, no permit, consent, approval, novation, authorization or other order
of, or filing with, any governmental authority, board or other regulatory body
or any other person is required in connection with the execution, delivery and
consummation of this Agreement by the Buyer and the consummation of the
transactions contemplated hereby.
12. Information; Securities Law Compliance. True, correct and
complete copies of any underlying documents incorporated or referred to in the
Schedules and Exhibits to this Agreement, as the same have been amended, have
been furnished to the Company and/or the Shareholder Representative by the
Buyer.
This Agreement and the Schedules and Exhibits attached hereto, taken
as a whole, do not contain any untrue statement by the Buyer of a material fact
or any omission by the Buyer to state a material fact required to be stated by
the Buyer therein or necessary to make any statement by the Buyer therein not
misleading. Further, none of the information to be included or incorporated by
reference in the registration statement relating to the Buyer's initial public
offering (the "Registration Statement") will at the time it becomes effective,
contain any statement which, at the time and in light of the circumstances
under which it is made, is false or misleading with respect to any material
fact, or which omits to state any material fact required to be stated therein
or necessary in order to make the statements therein not false or misleading.
The Registration Statement will comply as to form in all material respects with
the provisions of the Securities Act of 1933, as
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<PAGE> 26
amended. Notwithstanding the foregoing, the Buyer does not make any
representation or warranty regarding any information supplied by the Company,
the Shareholders, the underwriter or selling shareholders for inclusion in the
Registration Statement.
The disclosure document to be prepared by the Buyer and delivered
pursuant to Regulation D ("Regulation D") of the Securities Act of 1933, as
amended, to shareholders of the Company who are not "accredited investors" as
defined in Regulation D (the "Placement Memorandum") will not contain any
statement which, at the time and in the light of the circumstances in which it
is made, is false or misleading with respect to any material fact, or which
omits to state any material fact required to be stated therein or necessary in
order to make the statements therein not false or misleading. The Placement
Memorandum will comply as to form in all material respects with the provisions
of Regulation D. Notwithstanding the foregoing, the Buyer does not make any
representation or warranty regarding any information supplied by the Company,
the Shareholders, the underwriter or selling shareholders for inclusion in the
Placement Memorandum.
The Buyer has complied and will continue to comply in all material
respects with all federal and state securities laws applicable to it in
connection with the transactions contemplated in this Agreement, except to the
extent that any failure so to comply results from the violation by the Company
or any Shareholder of applicable securities laws or the failure by any
Shareholder to supply information reasonably requested by the Buyer to assure
compliance with such laws.
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<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
BEVERAGE WORKS, INC.
Frederik G.M. Rodenhuis and Lyle R. Maul certify that:
1. They are the PRESIDENT and the SECRETARY, respectively, of Beverage
Works, Inc., a California corporation.
2. The Articles of Incorporation of this corporation is amended and
restated to read as follows:
I
NAME
The name of the corporation is Beverage Works, Inc.
II
PURPOSE
The purpose of the corporation is to engage in any lawful act or
activity for which a corporation may be organized under the GENERAL
CORPORATION LAW of California other than the banking business, the
trust company business or the practice of a profession permitted to be
incorporated by the California Corporations Code.
III
CAPITALIZATION
A. This corporation is authorized to issue two classes of shares, to be
designated "Common Stock" and "Preferred Stock," respectively. The
corporation is authorized to issue 20,000,000 shares of Common Stock
and 5,000,000 shares of Preferred Stock.
B. The Preferred Stock may be issued in any number of series, as
determined by the board of directors. The board may by resolution fix
the designation and number of shares of any such series of Preferred
Stock. The board is authorized to fix or alter the rights, preferences,
privileges, and restrictions pertaining to any wholly unissued series
of Preferred Stock. The board may thereafter in the same manner
increase or decrease the number of shares of any such series of
Preferred Stock (but not below the number of shares of that series then
outstanding).
PAGE 1 OF 2
<PAGE> 2
IV
LIMITATION OF LIABILITY
The liability of the directors of this corporation for monetary damages
shall be eliminated to the fullest extent permissible under California
law.
V
INDEMNIFICATION OF AGENTS
This corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the Corporations Code) for breach of duty to
the corporation and its stockholders through bylaw provisions or
through agreements with the agents, or both, in excess of the
indemnification otherwise permitted by Section 317 of the Corporations
Code, subject to the limits on such excess indemnification set forth in
Section 204 the Corporations Code.
3. The foregoing restatement of Articles of Incorporation, and the
amendments thereto, have been duly approved by the board of directors.
4. The foregoing amendments to the Articles of Incorporation have been
duly approved by the holders of the requisite number of shares of this
corporation in accordance with Section 902 and 903 of California
Corporations Code. The total number of outstanding shares of the
corporation is 2,412,863. The number of shares voting in favor of the
amendments equalled or exceeded the vote required. The percentage vote
required was more than 50%.
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true
and correct of our own knowledge.
DATE:
-----------------------
-----------------------------------
Frederik G.M. Rodenhuis, President
-----------------------------------
Lyle R. Maul, Secretary
PAGE 2 OF 2
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
BEVERAGE WORKS, INC.
A CALIFORNIA CORPORATION
ARTICLE I
OFFICES
Section 1. PRINCIPAL EXECUTIVE OR BUSINESS OFFICES. The board of
directors shall fix the location of the principal executive office of the
corporation at any place within or outside the State of California. If the
principal executive office is located outside California and the corporation has
one or more business offices in California, the board shall fix and designate a
principal business office in California.
Section 2. OTHER OFFICES. Branch or subordinate offices may be
established at any time and at any place by the board of
directors.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of shareholders shall be
held at any place within or outside the State of California designated by the
board of directors. In the absence of a designation by the board, shareholders'
meetings shall be held at the corporation's principal executive office.
Section 2. ANNUAL MEETING. The annual meeting of shareholders
shall be held each year on a date and at a time designated by the board of
directors. The date so designated shall be within five months after the end of
the corporation's fiscal year, and within fifteen months after the last annual
meeting. At each annual meeting, directors shall be elected and any other proper
business within the power of the shareholders may be transacted.
Section 3. SPECIAL MEETING. A special meeting of the shareholders
may be called at any time by the board of directors, by the chair of the board,
by the president, by the secretary or by one or more shareholders holding shares
that in the aggregate are entitled to cast ten percent or more of the votes at
that meeting. If a special meeting is called by anyone other than the board of
directors, the person or persons calling the meeting shall make a request in
writing, delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission, to the chair of the board, the president, or
secretary, specifying the time and date of the meeting (which is not less than
35 nor more than 60 days after receipt of the request) and the general nature of
the business proposed to be transacted. Within 20 days after receipt, the
officer receiving the request shall cause notice to be given to the shareholders
entitled to vote, in accordance with Sections 4
<PAGE> 2
and 5 of this Article II, stating that a meeting will be held at the time
requested by the person(s) calling the meeting, and stating the general nature
of the business proposed to be transacted. If notice is not given within 20 days
after receipt of the request, the person or persons requesting the meeting may
give the notice. Nothing in this paragraph shall be construed as limiting,
fixing, or affecting the time when a meeting of shareholders called by action of
the board may be held.
Section 4. NOTICE OF SHAREHOLDERS' MEETINGS. All notices of
meetings of shareholders shall be sent or otherwise given in accordance with
Section 5 of this Article II, not fewer than 10 nor more than 60 days before the
date of the meeting. Shareholders entitled to notice shall be determined in
accordance with Section 11 of this Article II. The notice shall specify the
place, date, and hour of the meeting, and (i) in the case of a special meeting,
the general nature of the business to be transacted, or (ii) in the case of the
annual meeting, those matters that the board of directors, at the time of giving
the notice, intends to present for action by the shareholders. If directors are
to be elected, the notice shall include the names of all nominees whom the board
intends, at the time of the notice, to present for election. The notice shall
also state the general nature of any proposed action to be taken at the meeting
to approve any of the following matters:
(i) A transaction in which a director has a financial
interest, within the meaning of Section 310 of the California Corporations
Code;
(ii) An amendment of the articles of incorporation under Section
902 of that Code:
(iii) A reorganization under Section 1201 of that Code;
(iv) A voluntary dissolution under Section 1900 of that Code; or
(v) A distribution in dissolution that requires approval of the
outstanding shares under Section 2007 of that Code.
Section 5. MANNER OF GIVING NOTICE: AFFIDAVIT OF NOTICE. Notice
of any shareholders' meeting shall be given either personally or by first-class
mail or telegraphic or other written communication, charges prepaid, addressed
to the shareholder at the address appearing on the corporation's books or given
by the shareholder to the corporation for purposes of notice. If no address
appears on the corporation's books or has been given as specified above, notice
shall be either (1) sent by first-class mail addressed to the shareholder at the
corporation's principal executive office, or (2) published at least once in a
newspaper of general circulation in the county where the corporation's principal
executive office is located. Notice is deemed to have been given at the time
when delivered personally or deposited in the mail or sent
2
<PAGE> 3
by other means of written communication. If any notice or report mailed to a
shareholder at the address appearing on the corporation's books is returned
marked to indicate that the United States Postal Service is unable to deliver
the document to the shareholder at that address, all future notices or reports
shall be deemed to have been duly given without further mailing if the
corporation holds the document available for the shareholder on written demand
at the corporation's principal executive office for a period of one year from
the date the notice or report was given to all other shareholders. An affidavit
of the mailing or other authorized means of giving notice or delivering a
document, of any notice of shareholders' meeting, report, or other document sent
to shareholders, may be executed by the corporation's secretary, assistant
secretary, or transfer agent and, if executed, shall be filed and maintained in
the minute book of the corporation.
Section 6. QUORUM. The presence in person or by proxy of the
holders of a majority of the shares entitled to vote at any meeting of the
shareholders shall constitute a quorum for the transaction of business. The
shareholders present at a duly called or held meeting at which a quorum is
present may continue to do business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority of the shares
required to constitute a quorum.
Section 7. ADJOURNED MEETING; NOTICE. Any shareholders' meeting,
annual or special, whether or not a quorum is present, may be adjourned from
time to time by the vote of the majority of the shares represented at that
meeting, either in person or by proxy, but in the absence of a quorum, no other
business may be transacted at that meeting, except as provided in Section 6 of
this Article II. When any meeting of shareholders, either annual or special, is
adjourned to another time or place, notice of the adjourned meeting need not be
given if the time and place are announced at the meeting at which the
adjournment is taken, unless a new record date for the adjourned meeting is
fixed, or unless the adjournment is for more than 45 days after the date set for
the original meeting, in which case the board of directors shall set a new
record date. Notice of any such adjourned meeting, if required, shall be given
to each shareholder of record entitled to vote at the adjourned meeting, in
accordance with Sections 4 and 5 of this Article II. At any adjourned meeting,
the corporation may transact any business that might have been transacted at the
original meeting.
Section 8. VOTING. The shareholders entitled to vote at any
meeting of shareholders shall be determined in accordance with Section 11 of
this Article II, subject to the provisions of sections 702 through 704 of the
California Corporations Code relating to voting shares held by a fiduciary, in
the name of a corporation, or in joint ownership). The shareholders' vote may be
by voice vote or by ballot, provided, however, that any election
3
<PAGE> 4
for directors must be by ballot if demanded by any shareholder before the voting
has begun. On any matter other than the election of directors, any shareholder
may vote part of the shares the shareholder is to vote in favor of the proposal
and refrain from voting the remaining shares or vote them against the proposal,
but, if the shareholder fails to specify the number of shares that the
shareholder is voting affirmatively, it will be conclusively presumed that the
shareholder's approving vote is with respect to all shares that the shareholder
is entitled to vote. If a quorum is present (or if a quorum has been present
earlier at the meeting but some shareholders have withdrawn), the affirmative
vote of a majority of the shares represented and voting, provided such shares
voting affirmatively also constitute a majority of the number of shares required
for a quorum, shall be the act of the shareholders unless the vote of a greater
number or voting by classes is required by law or by the articles of
incorporation. At a shareholders' meeting at which directors are to be elected,
no shareholder shall be entitled to cumulate votes (i.e., cast for any candidate
a number of votes greater than the number of votes which that shareholder
normally would be entitled to cast), unless the candidates' names have been
placed in nomination before commencement of the voting and a shareholder has
given notice at the meeting, before the voting has begun, of the shareholder's
intention to cumulate votes. If any shareholder has given such a notice, then
all shareholders entitled to vote may cumulate their votes for candidates in
nomination, and may give one candidate a number of votes equal to the number of
directors to be elected multiplied by the number of votes to which that
shareholder's shares are normally entitled, or distribute the shareholder's
votes on the same principle among any or all of the candidates, as the
shareholder thinks fit. The candidates receiving the highest number of votes, up
to the number of directors to be elected, shall be elected.
Section 9. WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS.
The transactions of any meeting of shareholders, either annual or special,
however called and noticed and wherever held, shall be as valid as though they
were had at a meeting duly held after regular call and notice, if a quorum is
present either in person or by proxy, and if each person entitled to vote who
was not present in person or by proxy, either before or after the meeting, signs
a written waiver of notice or a consent to holding the meeting or an approval of
the minutes of the meeting. The waiver of notice or consent need not specify
either the business to be transacted or the purpose of any annual or special
meeting of the shareholders, except that, if action is taken or proposed to be
taken for approval of any of those matters specified in section 601(f) of the
California Corporations Code, i.e.,
(i) A transaction in which a director has a financial
interest, within the meaning of Section 310 of the California Corporations
Code;
4
<PAGE> 5
(ii) An amendment of the articles of incorporation under Section
902 of that Code;
(iii) A reorganization under Section 1201 of that Code;
(iv) A voluntary dissolution under Section 1900 of that Code;
or
(v) A distribution in dissolution that requires approval of the
outstanding shares under Section 2007 of that Code.
The waiver of notice or consent is required to state the general nature of the
action or proposed action. All waivers, consents, and approvals shall be filed
with the corporate records or made a part of the minutes of the meeting. A
shareholder's attendance at a meeting also constitutes a waiver of notice of
that meeting, unless the shareholder at the beginning of the meeting objects to
the transaction of any business on the ground that the meeting was not lawfully
called or convened. In addition, attendance at a meeting does not constitute a
waiver of any right to object to consideration of matters required by law to be
included in the notice of the meeting which were not so included, if that
objection is expressly made at the meeting.
Section 10. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A
MEETING. Any action that could be taken at an annual or special meeting of
shareholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action so taken, is signed by the holders
of outstanding shares having not less than the minimum number of votes that
would be necessary to authorize or take that action at a meeting at which all
shares entitled to vote on that action were present and voted. Directors may be
elected by written consent of the shareholders without a meeting only if the
written consents of all outstanding shares entitled to vote are obtained, except
that vacancies on the board (other than vacancies created by removal) not filled
by the board may be filled by the written consent of the holders of a majority
of the outstanding shares entitled to vote. All consents shall be filed with the
secretary of the corporation and shall be maintained in the corporate records.
Any shareholder or other authorized person who has given a written consent may
revoke it by a writing received by the secretary of the corporation before
written consents of the number of shares required to authorize the proposed
action have been filed with the secretary. Unless the consents of all
shareholders entitled to vote have been solicited in writing, prompt notice
shall be given of any corporate action approved by shareholders without a
meeting by less than unanimous consent, to those shareholders entitled to vote
who have not consented in writing. As to approvals required by California
Corporations Code section 310 (transactions in which a director has a financial
interest), section 317 (indemnification of corporate agents), section 1201
(corporate reorganization), or section 2007 (certain
5
<PAGE> 6
distributions on dissolution), notice of the approval shall be given at least
ten days before the consummation of any action authorized by the approval.
Notice shall be given in the manner specified in Section 5 of this Article II.
Section 11. RECORD DATE FOR SHAREHOLDER NOTICE OF MEETING,
VOTING, AND GIVING CONSENT.
(a) For purposes of determining the shareholders entitled to
receive notice of and vote at a shareholders' meeting or give written consent to
corporate action without a meeting, the board may fix in advance a record date
that is not more than 60 nor less than 10 days before the date of a
shareholders' meeting, or not more than 60 days before any other action.
(b) If no record date is fixed:
(i) The record date for determining shareholders
entitled to receive notice of and vote at a shareholders' meeting shall be the
business day next preceding the day on which notice is given, or if notice is
waived as provided in Section 9 of this Article II the business day next
preceding the day on which the meeting is held.
(ii) The record date for determining shareholders
entitled to give consent to corporate action in writing without a meeting, if no
prior action has been taken by the board, shall be the day on which the first
written consent is given.
(iii) The record date for determining shareholders
for any other purpose shall be as set forth in Section 1 of Article VIII of
these bylaws.
(c) A determination of shareholders of record entitled to receive
notice of and vote at a shareholders' meeting shall apply to any adjournment of
the meeting unless the board fixes a new record date for the adjourned meeting.
However, the board shall fix a new record date if the adjournment is to a date
more than 45 days after the date set for the original meeting.
(d) Only shareholders of record on the corporation's books at the
close of business on the record date shall be entitled to any of the notice and
voting rights listed in subsection (a) of this section, notwithstanding any
transfer of shares on the corporation's books after the record date, except as
otherwise required by law.
Section 12. PROXIES. Every person entitled to vote for directors
or on any other matter shall have the right to do so either in person or by one
or more agents authorized by a written proxy signed by the person and filed with
the secretary of the corporation. A proxy shall be deemed signed if the
shareholder's
6
<PAGE> 7
name is placed on the proxy (whether by manual signature, typewriting,
telegraphic transmission, or otherwise) by the shareholder or the shareholder's
attorney in fact. A validly executed proxy that does not state that it is
irrevocable shall continue in full force and effect unless (i) revoked by the
person executing it, before the vote under that proxy, by a writing delivered to
the corporation stating that the proxy is revoked, or by attendance at the
meeting and voting in person by the person executing the proxy or by a
subsequent proxy executed by the same person and presented at the meeting; or
(ii) written notice of the death or incapacity of the maker of that proxy is
received by the corporation before the vote pursuant to that proxy is counted;
provided, however, that no proxy shall be valid after the expiration of 11
months from the date of the proxy, unless otherwise provided in the proxy. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of sections 705(e) and 705(f) of the Corporations
Code of California.
Section 13. INSPECTORS OF ELECTION. Before any meeting of
shareholders, the board of directors may appoint any persons other than nominees
for office to act as inspectors of election at the meeting or its adjournment.
If no inspectors of election are so appointed, the chair of the meeting may, and
on the request of any shareholder or a shareholder's proxy shall, appoint
inspectors of election at the meeting. The number of inspectors shall be either
one or three. If inspectors are appointed at a meeting on the request of one or
more shareholders or proxies, the holders of a majority of shares or their
proxies present at the meeting shall determine whether one or three inspectors
are to be appointed. If any person appointed as inspector fails to appear or
fails or refuses to act, the chair of the meeting may, and upon the request of
any shareholder or a shareholder's proxy shall, appoint a person to fill that
vacancy. These inspectors shall: (a) determine the number of shares outstanding
and the voting power of each, the shares represented at the meeting, the
existence of a quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots, or consents; (c) hear and determine all challenges
and questions in any way arising in connection with the right to vote; (d) count
and tabulate all votes or consents; (e) determine when the polls shall close;
(f) determine the result; and (g) do any other acts that may be proper to
conduct the election or vote with fairness to all shareholders.
ARTICLE III
DIRECTORS
Section 1. POWERS. Subject to the provisions of the California
General Corporation Law and any limitations in the articles of incorporation and
these bylaws relating to action required to be approved by the shareholders or
by the outstanding shares, the business and affairs of the corporation shall be
managed and all
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corporate powers shall be exercised by or under the direction of the board of
directors. Without prejudice to these general powers, and subject to the same
limitations, the board of directors shall have the power to:
(a) Select and remove all officers, agents, and employees of the
corporation; prescribe any powers and duties for them that are consistent with
law, with the articles of incorporation, and with these bylaws; fix their
compensation; and require from them security for faithful service.
(b) Change the principal executive office or the principal
business office in the State of California from one location to another; cause
the corporation to be qualified to do business in any other state, territory,
dependency, or country and conduct business within or outside the State of
California; and designate any place within or outside the State of California
for holding any shareholders' meeting or meetings, including annual meetings.
(c) Adopt, make, and use a corporate seal; prescribe the forms of
certificates of stock; and alter the form of the seal and certificates.
(d) Authorize the issuance of shares of stock of the corporation
on any lawful terms, in consideration of money paid, labor done, services
actually rendered, debts or securities canceled, or tangible or intangible
property actually received.
(e) Borrow money and incur indebtedness on behalf of the
corporation, and cause to be executed and delivered for the corporation's
purposes, in the corporate name, promissory notes, bonds, debentures, deeds of
trust, mortgages, pledges, hypothecations, and other evidences of debt and
securities.
Section 2. NUMBER AND QUALIFICATION OF DIRECTORS. The authorized
number of directors shall be no fewer than five (5) nor more than nine (9). The
exact number of authorized directors shall be six (6) until changed, within the
limits specified above, by a bylaw amending this section, duly adopted by the
board of directors or by the shareholders. The maximum or minimum number of
directors cannot be changed, nor can a fixed number be substituted for the
maximum and minimum numbers, except by an amendment to this bylaw duly approved
by a majority of the outstanding shares entitled to vote. An amendment that
would reduce the minimum number to fewer than five, however, cannot be adopted
if the votes cast against its adoption at a shareholders' meeting or the shares
not consenting to an action by written consent are equal to more than one-sixth
(16- 2/3 percent) of the outstanding shares entitled to vote. No amendment may
change the stated maximum number of authorized directors to a number greater
than two times the stated minimum number minus one.
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Section 3. ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors
shall be elected at each annual meeting of the shareholders to hold office until
the next annual meeting. Each director, including a director elected to fill a
vacancy, shall hold office until the expiration of the term for which elected
and until a successor has been elected and qualified. No reduction of the
authorized number of directors shall have the effect of removing any director
before that director's term of office expires.
Section 4. VACANCIES. A vacancy in the board of directors shall
be deemed to exist: (a) if a director dies, resigns, or is removed by the
shareholders or an appropriate court, as provided in sections 303 or 304 of the
California Corporations Code; (b) if the board of directors declares vacant the
office of a director who has been convicted of a felony or declared of unsound
mind by an order of court; (c) if the authorized number of directors is
increased; or (d) if at any shareholders' meeting at which one or more directors
are elected the shareholders fail to elect the full authorized number of
directors to be voted for at that meeting. Any director may resign effective on
giving written notice to the chair of the board, the president, the secretary,
or the board of directors, unless the notice specifies a later effective date.
If the resignation is effective at a future time, the board may elect a
successor to take office when the resignation becomes effective. Except for a
vacancy caused by the removal of a director, vacancies on the board may be
filled by approval of the board or, if the number of directors then in office is
less than a quorum, by (1) the unanimous written consent of the directors then
in office, (2) the affirmative vote of a majority of the directors then in
office at a meeting held pursuant to notice or waivers of notice complying with
section 307 of the Corporations Code, or (3) a sole remaining director. A
vacancy on the board caused by the removal of a director may be filled only by
the shareholders, except that a vacancy created when the board declares the
office of a director vacant as provided in clause (b) of the first paragraph of
this section of the bylaws may be filled by the board of directors. The
shareholders may elect a director at any time to fill a vacancy not filled by
the board of directors. The term of office of a director elected to fill a
vacancy shall run until the next annual meeting of the shareholders, and such a
director shall hold office until a successor is elected and qualified.
Section 5. PLACE OF MEETINGS; TELEPHONE MEETINGS. Regular
meetings of the board of directors may be held at any place within or outside
the State of California as designated from time to time by the board. In the
absence of a designation, regular meetings shall be held at the principal
executive office of the corporation. Special meetings of the board shall be held
at any place within or outside the State of California designated in the notice
of the meeting, or if the notice does not state a place, or if there is no
notice, at the principal executive office of the corporation. Any meeting,
regular or special, may be held by conference telephone or
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similar communication equipment, provided that all directors participating can
hear one another.
Section 6. ANNUAL DIRECTORS' MEETING. Immediately after each
annual shareholders' meeting, the board of directors shall hold a regular
meeting at the same place, or at any other place that has been designated by the
board of directors, to consider matters of organization, election of officers,
and other business as desired. Notice of this meeting shall not be required
unless some place other than the place of the annual shareholders' meeting has
been designated.
Section 7. OTHER REGULAR MEETINGS. Other regular meetings of the
board of directors shall be held without call at times to be fixed by the board
of directors from time to time. Such regular meetings may be held without
notice.
Section 8. SPECIAL MEETINGS. Special meetings of the board of
directors may be called for any purpose or purposes at any time by the chair of
the board, the president, any vice president, the secretary, or any two
directors. Special meetings shall be held on four days' notice by mail or
forty-eight hours' notice delivered personally or by telephone or telegraph.
Oral notice given personally or by telephone may be transmitted either to the
director or to a person at the director's office who can reasonably be expected
to communicate it promptly to the director. Written notice, if used, shall be
addressed to each director at the address shown on the corporation's records.
The notice need not specify the purpose of the meeting, nor need it specify the
place if the meeting is to be held at the principal executive office of the
corporation.
Section 9. QUORUM. A majority of the authorized number of
directors shall constitute a quorum for the transaction of business, except to
adjourn as provided in Section 11 of this Article III. Every act or decision
done or made by a majority of the directors present at a meeting duly held at
which a quorum is present shall be regarded as the act of the board of
directors, subject to the provisions of Corporations Code section 310 (as to
approval of contracts or transactions in which a director has a direct or
indirect material financial interest); section 311 (as to appointment of
committees), and section 317(e) (as to indemnification of directors). A meeting
at which a quorum is initially present may continue to transact business,
despite a withdrawal of directors, if any action taken is approved by at least a
majority of the required quorum for that meeting.
Section 10. WAIVER OF NOTICE. Notice of a meeting, although
otherwise required, need not be given to any director who (i) either before or
after the meeting signs a waiver of notice or a consent to holding the meeting
without being given notice; (ii) signs an approval of the minutes of the
meeting; or (iii) attends
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the meeting without protesting the lack of notice before or at the beginning of
the meeting. Waivers of notice or consents need not specify the purpose of the
meeting. All waivers, consents, and approvals of the minutes shall be filed with
the corporate records or made a part of the minutes of the meeting.
Section 11. ADJOURNMENT TO ANOTHER TIME OR PLACE. Whether or not
a quorum is present, a majority of the directors present may adjourn any meeting
to another time or place.
Section 12. NOTICE OF ADJOURNED MEETING. Notice of the time and
place of resuming a meeting that has been adjourned need not be given unless the
adjournment is for more than 24 hours, in which case notice shall be given,
before the time set for resuming the adjourned meeting, to the directors who
were not present at the time of the adjournment. Notice need not be given in any
case to directors who were present at the time of adjournment.
Section 13. ACTION WITHOUT A MEETING. Any action required or
permitted to be taken by the board of directors may be taken without a meeting,
if all members of the board of directors individually or collectively consent in
writing to that action. Any action by written consent shall have the same force
and effect as a unanimous vote of the board of directors. All written consents
shall be filed with the minutes of the proceedings of the board of directors.
Section 14. FEES AND COMPENSATION OF DIRECTORS. Directors and
members of committees of the board may be compensated for their services, and
shall be reimbursed for expenses, as fixed or determined by resolution of the
board of directors. This section shall not be construed to preclude any director
from serving the corporation in any other capacity, as an officer, agent,
employee, or otherwise, or from receiving compensation for those services.
ARTICLE IV
COMMITTEES
Section 1. COMMITTEES OF THE BOARD. The board of directors may,
by resolution adopted by a majority of the authorized number of directors,
designate one or more committees, each consisting of two or more directors. The
board may designate one or more directors as alternate members of any committee,
to replace any absent member at a committee meeting. The appointment of
committee members or alternate members requires the vote of a majority of the
authorized number of directors. A committee may be granted any or all of the
powers and authority of the board, to the extent provided in the resolution of
the board of directors establishing the committee, except with respect to:
(a) Approving any action for which the California Corporations
Code also requires the approval of the shareholders or of the
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outstanding shares;
(b) Filling vacancies on the board of directors or any
committee of the board;
(c) Fixing directors' compensation for serving on the board or
a committee of the board;
(d) Adopting, amending, or repealing bylaws;
(e) Amending or repealing any resolution of the board of
directors that by its express terms is not so amendable or
repealable;
(f) Making distributions to shareholders, except at a rate or
in a periodic amount or within a price range determined by the
board of directors; or
(g) Appointing other committees of the board or their members.
Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and action
of committees shall be governed by, and held and taken in accordance with, bylaw
provisions applicable to meetings and actions of the board of directors, with
such changes in the context of those bylaws as are necessary to substitute the
committee and its members for the board of directors and its members, except
that (a) the time of regular meetings of committees may be determined either by
resolution of the board of directors or by resolution of the committee; (b)
special meetings of committees may also be called by resolution of the board of
directors; and (c) notice of special meetings of committees shall also be given
to all alternative members who shall have the right to attend all meetings of
the committee. The board of directors may adopt rules for the governance of any
committee not inconsistent with these bylaws.
ARTICLE V
OFFICERS
Section 1. OFFICERS. The officers of the corporation shall be a
president, a secretary, and a chief financial officer. The corporation may also
have, at the discretion of the board of directors, a chair of the board, one or
more vice presidents, one or more assistant secretaries, one or more assistant
treasurers, and such other officers as may be appointed in accordance with
Section 3 of this Article V. Any number of offices may be held by the same
person.
Section 2. APPOINTMENT OF OFFICERS. The officers of the
corporation, except for subordinate officers appointed in accordance with
Section 3 of this Article V, shall be appointed annually by the board of
directors, and shall serve at the pleasure of the board of directors.
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Section 3. SUBORDINATE OFFICERS. The board of directors may
appoint, and may empower the president to appoint other officers as required by
the business of the corporation, whose duties shall be as provided in the
bylaws, or as determined from time to time by the board of directors or the
president.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Any officer
chosen by the board of directors may be removed at any time, with or without
cause or notice, by the board of directors. Subordinate officers appointed by
persons other than the board under Section 3 of this Article V may be removed at
any time, with or without cause or notice, by the board of directors or by the
officer by whom appointed. Officers may be employed for a specified term under a
contract of employment if authorized by the board of directors; such officers
may be removed from office at any time under this section, and shall have no
claim against the corporation or individual officers or board members because of
the removal except any right to monetary compensation to which the officer may
be entitled under the contract of employment. Any officer may resign at any time
by giving written notice to the corporation. Resignations shall take effect on
the date of receipt of the notice, unless a later time is specified in the
notice. Unless otherwise specified in the notice, acceptance of the resignation
is not necessary to make it effective. Any resignation is without prejudice to
the rights, if any, of the corporation to monetary damages under any contract of
employment to which the officer is a party.
Section 5. VACANCIES IN OFFICES. A vacancy in any office
resulting from an officer's death, resignation, removal, disqualification, or
from any other cause shall be filled in the manner prescribed in these bylaws
for regular election or appointment to that office.
Section 6. CHAIRMAN OF THE BOARD. The president shall be the
chairman and shall preside, if present, at board meetings and shall exercise and
perform such other powers and duties as may be assigned from time to time by the
board of directors.
Section 7. PRESIDENT. The president shall be the corporation's
general manager and chief executive officer and, subject to the control of the
board of directors, shall have general supervision, direction, and control over
the corporation's business and its officers. The managerial powers and duties of
the president shall include, but are not limited to, all the general powers and
duties of management usually vested in the office of president of a corporation,
and the president shall have other powers and duties as prescribed by the board
of directors or the bylaws. The president shall preside at all meetings of the
shareholders and, in the absence of the chairman of the board or if there is no
chairman of the board, shall also preside at meetings of the board of directors.
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Section 8. VICE PRESIDENTS. If desired, one or more vice
presidents may be chosen by the board of directors in accordance with the
provisions for appointing officers set forth in Section 2 of this Article V. In
the absence or disability of the president, the president's duties and
responsibilities shall be carried out by the highest ranking available vice
president if vice presidents are ranked, or if not, by a vice president
designated by the board of directors. When so acting, a vice president shall
have all the powers of and be subject to all the restrictions on the president.
Vice presidents of the corporation shall have such other powers and perform such
other duties as prescribed from time to time by the board of directors, the
bylaws, or the president.
Section 9. SECRETARY
(a) Minutes. The secretary shall keep, or cause to be kept,
minutes of all of the shareholders' meetings and of all other board meetings. If
the secretary is unable to be present, the secretary, or if there is no
secretary the presiding officer of the meeting, shall designate another person
to take the minutes of the meeting. The secretary shall keep, or cause to be
kept, at the principal executive office or such other place as designated by the
board of directors, a book of minutes of all meetings and actions of the
shareholders, of the board of directors, and of committees of the board. The
minutes of each meeting shall state the time and place the meeting was held;
whether it was regular or special; if special, how it was called or authorized;
the names of directors present at board or committee meetings; the number of
shares present or represented at shareholders' meetings; an accurate account of
the proceedings; and when it was adjourned.
(b) Record of Shareholders. The secretary shall keep, or cause to
be kept, at the principal executive office or at the office of the transfer
agent or registrar, a record or duplicate record of shareholders. This record
shall show the names of all shareholders and their addresses, the number and
classes of shares held by each, the number and date of share certificates issued
to each shareholder, and the number and date of cancellation of any certificates
surrendered for cancellation.
(c) Notice of Meetings. The secretary shall give notice, or cause
notice to be given, of all shareholders' meetings, board meetings, and meetings
of committees of the board for which notice is required by statute or by the
bylaws. If the secretary or other person authorized by the secretary to give
notice fails to act, notice of any meeting may be given by any other officer of
the corporation.
(d) Other Duties. The secretary shall keep the seal of the
corporation, if any, in safe custody. The secretary shall have such other powers
and perform other duties as prescribed by the board of directors or by the
bylaws.
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Section 10. CHIEF FINANCIAL OFFICER. The chief financial officer
shall keep or cause to be kept adequate and correct books and records of
accounts of the properties and business transactions of the corporation,
including accounts of its assets, liabilities, receipts, disbursements, gains,
losses, capital, retained earnings, and shares. The books of account shall at
all reasonable times be open to inspection by any director. The chief financial
officer shall (1) deposit corporate funds and other valuables in the
corporation's name and to its credit with depositaries designated by the board
of directors; (2) make disbursements of corporate funds as authorized by the
board; (3) render a statement of the corporation's financial condition and an
account of all transactions conducted as chief financial officer whenever
requested by the president or the board of directors; and (4) have other powers
and perform other duties as prescribed by the board of directors or the bylaws.
Unless the board of directors has elected a separate treasurer, the chief
financial officer shall be deemed to be the treasurer for purposes of giving any
reports or executing any certificates or other documents.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES, AND OTHER AGENTS
Section 1. AGENTS, PROCEEDINGS, AND EXPENSES. For the purposes of
this Article, "agent" means any person who is or was a director, officer,
employee, or other agent of this corporation, or who is or was serving at the
request of this corporation as a director, officer, employee, or agent of
another foreign or domestic corporation, partnership, joint venture, trust or
other enterprise, or who was a director, officer, employee, or agent of a
foreign or domestic corporation that was a predecessor corporation of this
corporation or of another enterprise at the request of such predecessor
corporation; "proceeding" means any threatened, pending, or completed action or
proceeding, whether civil, criminal, administrative, or investigative; and
"expenses" includes, without limitation, attorney fees and any expenses of
establishing a right to indemnification under Section 4 or Section 5(d) of this
Article VI.
Section 2. ACTIONS OTHER THAN BY THE CORPORATION. This
corporation shall have the power to indemnify any person who was or is a party,
or is threatened to be made a party, to any proceeding (other than an action by
or in the right of this corporation to procure a judgment in its favor) by
reason of the fact that such person is or was an agent of this corporation,
against expenses, judgments, fines, settlements, and other amounts actually and
reasonably incurred in connection with such proceeding if that person acted in
good faith and in a manner that the person reasonably believed to be in the best
interests of this corporation and, in the case of a criminal proceeding, had no
reasonable cause to believe the conduct of that person was unlawful. The
termination
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of any proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent shall not, of itself, create a presumption
that the person did not act in good faith and in a manner that the person
reasonably believed to be in the best interests of this corporation or that the
person had reasonable cause to believe that the person's conduct was not
unlawful.
Section 3. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. This
corporation shall have the power to indemnify any person who was or is a party,
or is threatened to be made a party, to any threatened, pending, or completed
action by or in the right of this corporation to procure a judgment in its favor
by reason of the fact that such person is or was an agent of this corporation,
against expenses actually and reasonably incurred by such person in connection
with the defense or settlement of that action, if such person acted in good
faith, in a manner such person believed to be in the best interests of this
corporation and its shareholders. No indemnification shall be made under this
Section 3 for the following:
(a) With respect to any claim, issue, or matter on which such
person has been adjudged to be liable to this corporation in the performance of
such person's duty to the corporation and its shareholders, unless and only to
the extent that the court in which such proceeding is or was pending shall
determine on application that, in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for expenses and then
only to the extent that the court shall determine;
(b) Amounts paid in settling or otherwise disposing of a
pending action without court approval; or
(c) Expenses incurred in defending a pending action that is
settled or otherwise disposed of without court approval.
Section 4. SUCCESSFUL DEFENSE BY AGENT. To the extent that an
agent of this corporation has been successful on the merits in defense of any
proceeding referred to in Section 2 or 3 of this Article VI, or in defense of
any claim, issue, or matter therein, the agent shall be indemnified against
expenses actually and reasonably incurred by the agent in connection therewith.
Section 5. REQUIRED APPROVAL. Except as provided in Section 4 of
this Article VI, any indemnification under this Section shall be made by the
corporation only if authorized in the specific case, after a determination that
indemnification of the agent is proper in the circumstances because the agent
has met the applicable standard of conduct set forth in Section 2 or 3 by one of
the following:
(a) A majority vote of a quorum consisting of directors who
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are not parties to such proceeding;
(b) Independent legal counsel in a written opinion if a quorum
of directors who are not parties to such a proceeding is not
available;
(c) (i) The affirmative vote of a majority of shares of this
corporation entitled to vote represented at a duly held meeting at which a
quorum is present; or
(ii) the written consent of holders of a majority of the
outstanding shares entitled to vote (for purposes of this subsection 5(c), the
shares owned by the person to be indemnified shall not be considered outstanding
or entitled to vote thereon); or
(d) The court in which the proceeding is or was pending, on
application made by this corporation or the agent or the attorney or other
person rendering services in connection with the defense, whether or not such
application by the agent, attorney, or other person is opposed by this
corporation.
Section 6. ADVANCE OF EXPENSES. Expenses incurred in defending
any proceeding may be advanced by the corporation before the final disposition
of such proceeding on receipt of an undertaking by or on behalf of the agent to
repay such amounts if it shall be determined ultimately that the agent is not
entitled to be indemnified as authorized in this Article VI.
Section 7. OTHER CONTRACTUAL RIGHTS. The indemnification provided
by this Article VI shall not be deemed exclusive of any other rights to which
those seeking indemnification may be entitled under any bylaw, agreement, vote
of shareholders or disinterested directors, or otherwise, both as to action in
an official capacity and as to action in another capacity while holding such
office, to the extent such additional rights to indemnification are authorized
in the articles of the corporation. Nothing in this section shall affect any
right to indemnification to which persons other than such directors and officers
may be entitled by contract or otherwise.
Section 8. LIMITATIONS. No indemnification or advance shall be
made under this Article VI, except as provided in Section 4 or
Section 5(d), in any circumstance if it appears:
(a) That it would be inconsistent with a provision of the
articles, bylaws, a resolution of the shareholders, or an agreement in effect at
the time of the accrual of the alleged cause of action asserted in the
proceeding in which expenses were incurred or other amounts were paid, which
prohibits or otherwise limits indemnification; or
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(b) That it would be inconsistent with any condition expressly
imposed by a court in approving settlement.
Section 9. INSURANCE. This corporation may purchase and maintain
insurance on behalf of any agent of the corporation insuring against any
liability asserted against or incurred by the agent in that capacity or arising
out of the agent's status as such, whether or not this corporation would have
the power to indemnify the agent against that liability under the provisions of
this Article VI. Notwithstanding the foregoing, if this corporation owns all or
a portion of the shares of the company issuing the policy of insurance, the
insuring company and/or the policy shall meet the conditions set forth in
section 317(i) of the Corporations Code.
Section 10. FIDUCIARIES OF CORPORATE EMPLOYEE BENEFIT PLAN. This
Article VI does not apply to any proceeding against any trustee, investment
manager, or other fiduciary of an employee benefit plan in that person's
capacity as such, even though that person may also be an agent of the
corporation. The corporation shall have the power to indemnify, and to purchase
and maintain insurance on behalf of any such trustee, investment manager, or
other fiduciary of any benefit plan for any or all of the directors, officers,
and employees of the corporation or any of its subsidiary or affiliated
corporations.
Section 11. SURVIVAL OF RIGHTS. The rights provided by this
Article VI shall continue for a person who has ceased to be an agent and shall
inure to the benefit of the heirs, executors, and administrators of such person.
Section 12. EFFECT OF AMENDMENT. Any amendment, repeal, or
modification of this Article VI shall not adversely affect an agent's right or
protection existing at the time of such amendment, repeal, or modification.
Section 13. SETTLEMENT OF CLAIMS. The corporation shall not be
liable to indemnify any agent under this Article VI for (a) any amounts paid in
settlement of any action or claim effected without the corporation's written
consent, which consent shall not be unreasonably withheld, or (b) any judicial
award, if the corporation was not given a reasonable and timely opportunity to
participate, at its expense, in the defense of such action.
Section 14. SUBROGATION. In the event of payment under this
Article VI, the corporation shall be subrogated to the extent of such payment to
all of the rights of recovery of the agent, who shall execute all papers
required and shall do everything that may be necessary to secure such rights,
including the execution of such documents as may be necessary to enable the
corporation effectively to bring suit to enforce such rights.
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Section 15. NO DUPLICATION OF PAYMENTS. The corporation shall not
be liable under this Article VI to make any payment in connection with any claim
made against the agent to the extent the agent has otherwise actually received
payment, whether under a policy of insurance, agreement, vote, or otherwise, of
the amounts otherwise indemnifiable under this Article.
ARTICLE VII
RECORDS AND REPORTS
Section 1. MAINTENANCE OF SHAREHOLDER RECORD AND INSPECTION BY
SHAREHOLDERS. The corporation shall keep at its principal executive office or at
the office of its transfer agent or registrar, as determined by resolution of
the board of directors, a record of the names and addresses of all shareholders
and the number and class of shares held by each shareholder. A shareholder or
shareholders holding at least 5 percent in the aggregate of the outstanding
voting shares of the corporation have the right to do either or both of the
following:
(a) Inspect and copy the record of shareholders' names and
addresses and shareholdings during usual business hours, on five days' prior
written demand on the corporation, or
(b) Obtain from the corporation's transfer agent, on written
demand and tender of the transfer agent's usual charges for this service, a list
of the names and addresses of shareholders who are entitled to vote for the
election of directors, and their shareholdings, as of the most recent record
date for which a list has been compiled or as of a specified date later than the
date of demand. This list shall be made available within five days after (i) the
date of demand or (ii) the specified later date as of which the list is to be
compiled. The record of shareholders shall also be open to inspection on the
written demand of any shareholder or holder of a voting trust certificate, at
any time during usual business hours, for a purpose reasonably related to the
holder's interests as a shareholder or holder of a voting trust certificate. Any
inspection and copying under this section may be made in person or by an agent
or attorney of the shareholder or holder of a voting trust certificate making
the demand.
Section 2. MAINTENANCE AND INSPECTION OF BYLAWS. The corporation
shall keep at its principal executive office, or if its principal executive
office is not in the State of California, at its principal business office in
this state, the original or a copy of the bylaws as amended to date, which shall
be open to inspection by the shareholders at all reasonable times during office
hours. If the principal executive office of the corporation is outside the State
of California and the corporation has no principal business office in this
state, the secretary shall, on the written request of any shareholder, furnish
to that shareholder a copy of the bylaws as amended to date.
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Section 3. MAINTENANCE AND INSPECTION OF MINUTES AND ACCOUNTING
RECORDS. The minutes of proceedings of the shareholders, board of directors, and
committees of the board, and the accounting books and records shall be kept at
the principal executive office of the corporation, or at such other place or
places as designated by the board of directors. The minutes shall be kept in
written form, and the accounting books and records shall be kept either in
written form or in a form capable of being converted into written form. The
minutes and accounting books and records shall be open to inspection on the
written demand of any shareholder or holder of a voting trust certificate at any
reasonable time during usual business hours, for a purpose reasonably related to
the holder's interests as a shareholder or holder of a voting trust certificate.
The inspection may be made in person or by an agent or attorney, and shall
include the right to copy and make extracts. These rights of inspection shall
extend to the records of each subsidiary of the corporation.
Section 4. INSPECTION BY DIRECTORS. Every director shall have the
absolute right at any reasonable time to inspect all books, records, and
documents of every kind and the physical properties of the corporation and each
of its subsidiary corporations. This inspection by a director may be made in
person or by an agent or attorney and the right of inspection includes the right
to copy and make extracts of documents.
Section 5. ANNUAL REPORT TO SHAREHOLDERS. Inasmuch as, and for as
long as, there are fewer than 100 shareholders, the requirement of an annual
report to shareholders referred to in section 1501 of the California
Corporations Code is expressly waived. However, nothing in this provision shall
be interpreted as prohibiting the board of directors from issuing annual or
other periodic reports to the shareholders, as the board considers appropriate.
Section 6. FINANCIAL STATEMENTS. The corporation shall keep a
copy of each annual financial statement, quarterly or other periodic income
statement, and accompanying balance sheets prepared by the corporation on file
in the corporation's principal executive office for 12 months; these documents
shall be exhibited at all reasonable times, or copies provided, to any
shareholder on demand. If no annual report for the last fiscal year has been
sent to shareholders, on written request of any shareholder made more than 120
days after the close of the fiscal year the corporation shall deliver or mail to
the shareholder, within 30 days after receipt of the request, a balance sheet as
of the end of that fiscal year and an income statement and statement of changes
in financial position for that fiscal year. A shareholder or shareholders
holding five percent or more of the outstanding shares of any class of stock of
the corporation may request in writing an income statement for the most recent
three-month, six-month, or nine-month period (ending more than 30 days before
the date of the request) of the current fiscal year, and a balance sheet of the
corporation as of the end
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of that period. If such documents are not already prepared, the chief financial
officer shall cause them to be prepared and shall deliver the documents
personally or mail them to the requesting shareholders within 30 days after
receipt of the request. A balance sheet, income statement, and statement of
changes in financial position for the last fiscal year shall also be included,
unless the corporation has sent the shareholders an annual report for the last
fiscal year. Quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of independent accountants
engaged by the corporation or the certificate of an authorized corporate officer
stating that the financial statements were prepared without audit from the
corporation's books and records.
Section 7. ANNUAL STATEMENT OF GENERAL INFORMATION.
(a) Every year, during the calendar month in which the original
articles of incorporation were filed with the California Secretary of State, or
during the preceding five calendar months, the corporation shall file a
statement with the Secretary of State on the prescribed form, setting forth the
authorized number of directors; the names and complete business or residence
addresses of all incumbent directors; the names and complete business or
residence addresses of the chief executive officer, the secretary, and the chief
financial officer; the street address of the corporation's principal executive
office or principal business office in this state; a statement of the general
type of business constituting the principal business activity of the
corporation; and a designation of the agent of the corporation for the purpose
of service of process, all in compliance with section 1502 of the Corporations
Code of California.
(b) Notwithstanding the provisions of paragraph (a) of this
section, if there has been no change in the information in the corporation's
last annual statement on file in the Secretary of State's office, the
corporation may, in lieu of filing the annual statement described in paragraph
(a) of this section, advise the Secretary of State, on the appropriate form,
that no changes in the required information have occurred during the applicable
period.
ARTICLE VIII
GENERAL CORPORATE MATTERS
Section 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING.
For purposes of determining the shareholders entitled to receive payment of
dividends or other distributions or allotment of rights, or entitled to exercise
any rights in respect of any other lawful action (other than voting at and
receiving notice of shareholders' meetings and giving written consent of the
shareholders without a meeting), the board of directors may fix in advance a
record date which shall be not more than 60 nor less than 10 days before the
date of the dividend payment, distribution,
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allotment, or other action. If a record date is so fixed, only shareholders of
record at the close of business on that date shall be entitled to receive the
dividend, distribution, or allotment of rights, or to exercise the other rights,
as the case may be, notwithstanding any transfer of shares on the corporation's
books after the record date, except as otherwise provided by statute. If the
board of directors does not so fix a record date in advance, the record date
shall be at the close of business on the later of (1) the day on which the board
of directors adopts the applicable resolution or (2) the 60th day before the
date of the dividend payment, distribution, allotment of rights, or other
action.
Section 2. AUTHORIZED SIGNATORIES FOR CHECKS. All checks, drafts,
other orders for payment of money, notes, or other evidences of indebtedness
issued in the name of or payable to the corporation shall be signed or endorsed
by such person or persons and in such manner authorized from time to time by
resolution of the board of directors.
Section 3. EXECUTING CORPORATE CONTRACTS AND INSTRUMENTS. Except
as otherwise provided in the articles or in these bylaws, the board of directors
by resolution may authorize any officer, officers, agent, or agents to enter
into any contract or to execute any instrument in the name of and on behalf of
the corporation. This authority may be general or it may be confined to one or
more specific matters. No officer, agent, employee, or other person purporting
to act on behalf of the corporation shall have any power or authority to bind
the corporation in any way, to pledge the corporation's credit, or to render the
corporation liable for any purpose or in any amount, unless that person was
acting with authority duly granted by the board of directors as provided in
these bylaws, or unless an unauthorized act was later ratified by the
corporation.
Section 4. CERTIFICATES FOR SHARES. A certificate or certificates
for shares of the capital stock of the corporation shall be issued to each
shareholder when any of the shares are fully paid. In addition to certificates
for fully paid shares, the board of directors may authorize the issuance of
certificates for shares that are partly paid and subject to call for the
remainder of the purchase price, provided that the certificates representing
partly paid shares shall state the total amount of the consideration to be paid
for the shares and the amount actually paid. All certificates shall certify the
number of shares and the class or series of shares represented by the
certificate. All certificates shall be signed in the name of the corporation by
(1) either the chairman of the board of directors, the vice chairman of the
board of directors, the president, or any vice president, and (2) either the
chief financial officer, any assistant treasurer, the secretary, or any
assistant secretary. The signatures on the certificate may be facsimile. If any
officer, transfer, agent, or registrar who has signed a certificate shall have
ceased to be that
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officer, transfer agent, or registrar before that certificate is issued, the
certificate may be issued by the corporation with the same effect as if that
person were an officer, transfer agent, or registrar at the date of issue.
Section 5. LOST CERTIFICATES. Except as provided in this Section
5, no new certificates for shares shall be issued to replace old certificates
unless the old certificate is surrendered to the corporation for cancellation at
the same time. If share certificates or certificates for any other security have
been lost, stolen, or destroyed, the board of directors may authorize the
issuance of replacement certificates on terms and conditions as required by the
board, which may include a requirement that the owner give the corporation a
bond (or other adequate security) sufficient to indemnify the corporation
against any claim that may be made against it (including any expense or
liability) on account of the alleged loss, theft, or destruction of the old
certificate or the issuance of the replacement certificate.
Section 6. SHARES OF OTHER CORPORATIONS: HOW VOTED. Shares of
other corporations standing in the name of this corporation shall be voted by
one of the following persons, listed in order of preference: (1) chairman of the
board, or person designated by the chairman of the board; (2) president, or
person designated by the president; (3) other person designated by the board of
directors. The authority to vote shares granted by this section includes the
authority to execute a proxy in the name of the corporation for purposes of
voting the shares.
Section 7. CONSTRUCTION AND DEFINITIONS. Unless the context
requires otherwise, the general provisions, rules of construction, and
definitions in sections 100 through 195 of the California Corporations Code
shall govern the construction of these bylaws. Without limiting the generality
of this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY BOARD OF DIRECTORS OR SHAREHOLDERS.
Except as otherwise required by law or by the articles of incorporation, these
bylaws may be amended or repealed, and new bylaws may be adopted, by the board
of directors or by the holders of a majority of the outstanding shares entitled
to vote.
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CERTIFICATE OF BYLAWS
OF
BEVERAGE WORKS, INC.
A CALIFORNIA CORPORATION
I, Lyle Maul, the Secretary of Beverage Works, Inc., a California
corporation, (the "Corporation") certify that the foregoing are the true and
correct bylaws of the Corporation.
Dated: November 19, 1995
-------------------------
Lyle Maul, Secretary
<PAGE> 1
EXHIBIT 4.3
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 ("THE ACT") OR QUALIFIED OR REGISTERED UNDER ANY STATE SECURITIES OR
BLUE SKY LAWS. NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED,
SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND SUCH STATE LAWS UNLESS SUCH
OFFER, SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION IS EXEMPT FROM REGISTRATION
OR QUALIFICATION UNDER THE ACT AND SUCH STATE LAWS, IN THE OPINION OF COUNSEL
FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO COUNSEL
FOR THIS CORPORATION.
BEVERAGE WORKS, INC.
CLASS B WARRANT AGREEMENT
RECITALS. This Warrant Agreement dated April 20, 1996 certifies that
the registered owners ("Holders") of the Class B Warrants (herein referred to as
the "Class B Warrants") to purchase shares of the Common Stock, no par value
("Common Stock"), of Beverage Works, Inc., a California corporation (herein
referred to as the "Company") entitles the Holders to purchase from the Company,
for a three (3) year period commencing on the date hereof, one fully-paid and
nonassessable share of Common Stock of the Company at an exercise price (the
"Exercise Price") of $4.75, upon presentation and surrender of the Class B
Warrant certificate at the principal corporate office of the Company, with the
Form of Election to Purchase duly executed, and upon payment of the Exercise
Price per share of such Common Stock.
1. REGISTRATION. The Class B Warrants shall be numbered and shall be
registered in the Class B Warrant Register. The Company shall be entitled to
treat the Holder of any Class B Warrant as the owner in fact thereof for all
purposes and shall not be bound to recognize any equitable or other claim to or
interest in such Class B Warrant on the part of any other person, and shall not
be liable for any registration of transfer of Class B Warrants which are
registered or to be registered in the name of a fiduciary or the nominee of a
fiduciary unless made with actual knowledge that a fiduciary or nominee is
committing a breach of trust in requesting such registration of transfer, or
with such knowledge of such facts that its participation therein amounts to bad
faith.
2. TRANSFER. The Class B Warrants shall be transferable only on the
books of the Company maintained at the Company's principal office upon delivery
thereof duly endorsed by a Holder or by its duly authorized attorney or
representative, or accompanied by proper evidence of succession, assignment, or
authority to transfer. In all cases of transfer by an attorney, the original
letter of attorney, duly approved, or an official copy thereof, duly certified,
shall be deposited and remain with the Company. In case of transfer by
executors, administrators, guardians or other legal representatives, duly
authenticated evidence of their authority shall be produced. Upon any
registration of transfer, the Company shall countersign and deliver new Class B
Warrants to the person entitled thereto.
<PAGE> 2
3. FORM OF CLASS B WARRANTS. The text of the Class B Warrants and of
the form of election to purchase Shares shall be substantially as set forth in
Exhibit "A" attached hereto. The price of Shares and the number of Shares
issuable upon exercise of Class B Warrants are subject to adjustment upon the
occurrence of certain events, all as hereinafter provided. The Class B Warrants
shall be executed on behalf of the Company by its President or one of its Vice
Presidents, under its corporate seal reproduced thereon attested by its
Secretary or an Assistant Secretary. The signature of any of these officers on
the Class B Warrants may be manual or facsimile. Class B Warrants bearing the
manual or facsimile signatures of individuals who were at any time the proper
officers of the Company shall bind the Company, notwithstanding that such
individuals or any one of them shall have ceased to hold such offices prior to
the delivery of such Class B Warrants or did not hold such office on the date of
this Agreement. Class B Warrants shall be dated as of the date of
counter-signature thereof by the Company either upon initial issuance or upon
division, exchange, substitution, or transfer.
4. EXCHANGE. Class B Warrant certificates may be exchanged for another
certificate or certificates entitling the Holder thereof to purchase a like
aggregate number of Shares as the certificate or certificates surrendered then
entitle such Holder to purchase. Any Holder of a Class B Warrant desiring to
exchange Class B Warrant certificates shall make such request in writing
delivered to the Company, and shall surrender, properly endorsed, the
certificate or certificates evidencing the Class B Warrant or Class B Warrants
to be so exchanged. Thereupon, the Company shall countersign and deliver to the
person entitled thereto a new Class B Warrant certificate or certificates, as
the case may be, as so requested.
5. TERM OF CLASS B WARRANTS. Subject to the terms of this Agreement,
each Holder shall have the right, at any time during the period commencing at
10:00 A.M., New York time, on April 20, 1996 until 3:00 P.M. New York time, on
April 19, 1999 (the "Termination Date"), to purchase from the Company the number
of fully paid and nonassessable Shares to which the Holder may at the time be
entitled to purchase pursuant to such Class B Warrants, upon surrender, to the
Company at the principal office of the Company of the certificate or
certificates evidencing the Class B Warrants to be exercised, together with the
form of election to purchase duly completed and signed, and upon payment to the
Company of the Exercise Price, for the number of Shares in respect of which such
Class B Warrants are then exercised.
6. PAYMENT UPON EXERCISE. Payment of the aggregate Exercise Price shall
be made in cash or by certified or cashier's check. Upon such surrender of Class
B Warrants and payment of the Exercise Price as aforesaid, the Company shall
issue and cause to be delivered with all reasonable dispatch to or upon the
written order of the Holder and in such name or names as the Holder may
designate, a certificate or certificates for the number of full Shares so
purchased upon the exercise of such Class B Warrants, together with cash, as
provided in Section 14 hereof, in respect of any fractional Shares otherwise
issuable upon such surrender. Such certificate or certificates shall be deemed
to have been issued and any person so designated to be named therein shall be
deemed to have become a holder of record of such Shares as of the date of the
surrender of such Class B Warrants and payment of the Exercise Price, as
aforesaid; provided, however, that if, at the date of surrender of such Class B
Warrants and payment of
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such Exercise Price, the transfer books for the Shares or other class of stock
purchasable upon the exercise of such Class B Warrants shall be closed, the
certificates for the Shares in respect of which such Class B Warrants are then
exercised shall be issuable as of the date on which such books shall next be
opened (whether before or after the Termination Date) and until such date the
Company shall be under no duty to deliver any certificate for such Shares;
provided further, however, that the transfer books of record, unless otherwise
required by law, shall not be closed at any one time for a period longer than
twenty days. The rights of purchase represented by the Class B Warrants shall be
exercisable, at the election of the Holders thereof either in full or from time
to time in part and, in the event that a certificate evidencing Class B Warrants
is exercised in respect of less than all of the Shares specified therein at any
time prior to the date of expiration of the Class B Warrants, a new certificate
evidencing the remaining Class B Warrant or Class B Warrants will be issued.
7. TAXES. The Company will pay all documentary stamp taxes, if any,
attributable to the initial issuance of Shares issuable upon the exercise of
Class B Warrants; provided, however, that the Company shall not be required to
pay any tax or taxes which may be payable in respect of any transfer involved in
the issue or delivery of any Class B Warrants or certificates for Shares.
8. MUTILATED OR MISSING WARRANTS. In case any of the certificates
evidencing the Class B Warrants shall be mutilated, lost, stolen or destroyed,
the Company may, in its discretion, issue and deliver in exchange and
substitution for and upon cancellation of the mutilated Class B Warrant
certificate, or in lieu of and substitution for the Class B Warrant certificate
lost, stolen or destroyed, a new Warrant certificate of like tenor and
representing an equivalent right or interest; but only upon receipt of evidence
satisfactory to the Company of such loss, theft or destruction of such Warrant
and indemnity, if requested, also satisfactory to them. Applicants for such
substitute Class B Warrant certificate shall also comply with such other
reasonable regulations and pay such other reasonable charges as the Company may
prescribe.
9. RESERVATION OF SHARES. There have been reserved, and the Company
shall at all times keep reserved, out of its authorized Common Stock a number of
shares of Common Stock sufficient to provide for the exercise of the rights of
purchase represented by the outstanding Class B Warrants. The Transfer Agent for
the Common Stock (the "Transfer Agent") and every subsequent transfer agent for
any shares of the Company's capital stock issuable upon the exercise of any of
the rights of purchase aforesaid will be irrevocably authorized and directed at
all times to reserve such number of authorized shares as shall be requisite for
such purpose. The Company will keep a copy of this Agreement on file with the
Transfer Agent for the Common Stock and with every subsequent transfer agent for
any shares of the Company's capital stock issuable upon the exercise of the
rights of purchase represented by the Class B Warrants. The Company will supply
such Transfer Agent with duly executed stock certificates for such purpose and
will provide or otherwise make available any cash which may be payable as
provided herein. All Class B Warrants surrendered in the exercise of the rights
thereby evidenced shall be cancelled by the Company.
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<PAGE> 4
10. ANTI-DILUTION. In case the Company shall (i) pay a dividend in
shares of Common Stock or make a distribution in shares of Common Stock, (ii)
subdivide its outstanding shares of Common Stock, (iii) combine its outstanding
shares of Common Stock into a smaller number of shares of Common Stock or (iv)
issue by reclassification of its shares of Common Stock other securities of the
Company, the number of Shares purchasable upon exercise of each Class B Warrant
immediately prior thereto shall be adjusted so that the Holder of each Class B
Warrant shall be entitled to receive the kind and number of Shares or other
securities of the Company which he would have owned or have been entitled to
receive after the happening of any of such event or any record date with respect
thereto. An adjustment made pursuant to this paragraph (a) shall become
effective immediately after the effective date of such event retroactive to the
record date, if any, for such event. Whenever the number of Shares purchasable
upon the exercise of each Class B Warrant is adjusted, as herein provided, the
Company shall promptly mail by first class mail, postage prepaid, to each Holder
of a Class B Warrant or Class B Warrants notice of such adjustment setting forth
the number of Shares purchasable upon the exercise of each Class B Warrant and
the Exercise Price of such Shares after such adjustment, a brief statement of
the facts requiring such adjustment and the computation by which such adjustment
was made. Such certificate shall be conclusive evidence of the correctness of
such adjustment. The Company shall be entitled to rely on such certificate and
shall be under no duty or responsibility with respect to any such certificate,
except to exhibit the same, from time to time, to any holder of a Class B
Warrant or Class B Warrants desiring an inspection thereof during reasonable
business hours.
11. NO ADJUSTMENT FOR DIVIDENDS. Except as provided in Section 10, no
adjustment in respect of any dividends shall be made during the term of the
Class B Warrants or upon the exercise of the Class B Warrants.
12. PRESERVATION OF PURCHASE RIGHTS UPON RECLASSIFICATION,
CONSOLIDATION, ETC. In case of any consolidation of the Company with or merger
of the Company into another corporation or in case of any sale or conveyance to
another corporation of the property, assets or business of the Company as an
entirety or substantially as an entirety, the Company or such successor or
purchasing corporation, as the case may be, shall execute an agreement that each
Holder of a Class B Warrant shall have the right thereafter upon payment of the
Exercise Price in effect immediately prior to such action to purchase upon
exercise of each Warrant the kind and amount of Shares and other securities and
property which he would have owned or have been entitled to receive after the
happening of such consolidation, merger, sale or conveyance had such Class B
Warrant been exercised immediately prior to such action. Such agreement shall
provide for adjustments, which shall be as nearly equivalent as may be
practicable to the adjustments provided for in Section 10. The Company shall
mail by first class mail, postage prepaid, to the Holder of each Class B
Warrant, notice of the execution of any such agreement. The provisions of this
Section 12 shall similarly apply to successive consolidations, mergers, sales,
or conveyances.
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13. STATEMENT ON WARRANTS. Irrespective of any adjustments in the
number or kind of Shares purchasable upon the exercise of the Class B Warrants,
Class B Warrants theretofore or thereafter issued may continue to express the
same number and kind of Shares as are stated in the Class B Warrants initially
issuable pursuant to this Agreement.
14. FRACTIONAL INTERESTS. The Company shall not be required to issue
fractional Shares on the exercise of Class B Warrants. If more than one Class B
Warrant shall be presented for exercise in full at the same time by the same
Holder, the number of full Shares which shall be issuable upon the exercise
thereof shall be computed on the basis of the aggregate number of Shares
represented by the Class B Warrants so presented. If any fraction of a Share
would, except for the provisions of this Section 14, be issuable on the exercise
of any Class B Warrant (or specified portion thereof), the Company shall pay an
amount in cash equal to the current market price per Share multiplied by such
fraction.
15. NO RIGHTS AS STOCKHOLDER. Nothing contained in this Agreement or in
any of the Class B Warrants shall be construed as conferring upon the Holders or
their transferees the right to vote or to receive dividends or to consent or to
receive notice as stockholders in respect of any meeting of stockholders for the
election of directors of the Company or any other matter, or any rights
whatsoever as stockholders of the Company.
16. NOTICES. Any notice pursuant to this Agreement by the Company or by
the Holder of any Warrant, shall be in writing and shall be deemed to have been
duly given if delivered or mailed, certified mail, return receipt requested:
(a) If to the Company addressed as follows:
Beverage Works, Inc.
9800 S. Sepulveda Blvd., Suite 720
Los Angeles, CA 90045
Attn: Lyle Maul, CFO
with a copy to :
Hecht & Steckman, P.C.
60 East 42nd Street, Suite 5101
New York, NY 10165-5101
Attn: James G. Smith, Esq.
(b) If to the Holder addressed to the address as reflected on
the Company's books.
Any notice mailed pursuant to this Agreement by the Company or to the Holders of
Class B Warrants shall be in writing and shall be deemed to have been duly given
if mailed, postage prepaid, to such Holders at their respective addresses on the
books of the Company.
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17. AMENDMENTS. The Company may from time to time supplement or amend
this Agreement, without the approval of any Holders of Class B Warrants, in
order to cure any ambiguity or to correct or supplement any provision contained
herein which may be defective or inconsistent with any other provisions herein,
or to make any other provisions in regard to matters or questions arising
hereunder which the Company may deem necessary or desirable and which shall not
be inconsistent with the provisions of the Class B Warrants and which shall not
adversely affect the interest of the Holders of Class B Warrants.
18. MERGER OR CONSOLIDATION OF COMPANY. The Company will not merge or
consolidate with or into any other corporation unless the corporation resulting
from such merger or consolidation (if not the Company) shall expressly assume,
by supplemental agreement, the due and punctual performance and observance of
each and every covenant and condition of this Agreement to be performed and
observed by the Company.
19. RESTRICTED SECURITIES. The Class B Warrants and the shares of
Common Stock issuable upon exercise of the Class B Warrants have not been
registered under the Securities Act of 1933, as amended, and that the Class B
Warrants and the shares of Common Stock issuable upon exercise of the Class B
Warrants may be sold, transferred, assigned or disposed of, except in accordance
with such Act and the Rules and Regulations of the Securities and Exchange
Commission promulgated thereunder. Holders consent that the Class B Warrant
certificates and certificates evidencing shares of Common Stock issuable upon
exercise of the Class B Warrants may contain the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 ("THE ACT") OR QUALIFIED OR REGISTERED UNDER ANY
STATE SECURITIES OR BLUE SKY LAWS. NEITHER THE SECURITIES NOR ANY
INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND SUCH STATE LAWS UNLESS SUCH OFFER, SALE,
TRANSFER, PLEDGE OR OTHER DISPOSITION IS EXEMPT FROM REGISTRATION OR
QUALIFICATION UNDER THE ACT AND SUCH STATE LAWS, IN THE OPINION OF
COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY
SATISFACTORY TO COUNSEL FOR THIS CORPORATION.
In the event that the Company has an initial public offering of its Common
Stock, of which there is no assurance, the Class B Warrants and the shares of
Common Stock issuable upon exercise of the Class B Warrants will be registered;
provided, however, that the Class B Warrants and the shares of Common Stock
issuable upon exercise of the Class B Warrants or any portion thereof, may not
be sold for a period of thirteen (13) months after the closing date of the
initial public offering without the prior written consent of the lead
underwriter.
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20. APPLICABLE LAW. This Agreement and each Class B Warrant referred to
hereunder shall be deemed to be a contract made under the laws of the State of
California and for all purposes shall be construed in accordance with the laws
of said state.
21. SUCCESSORS. All the covenants and provisions of this Agreement by
or for the benefit of the Company or the Holders shall bind and inure to the
benefit of their respective successors and assigns hereunder.
22. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Holders of Class B Warrants any legal or equitable right, remedy or claim under
this Agreement and this Agreement shall be for the sole and exclusive benefit of
the Company and the Holders of Class B Warrants.
23. CAPTIONS. The captions of sections and paragraphs of this Agreement
have been inserted for convenience only and shall have no substantive effect.
24. WARRANT AGENT. The Company shall act as the initial warrant agent
in connection with the issuance, transfer and exchange of the certificates and
the exercise of the Class B Warrants. The Company may, without prior consent of
any of the Holders, appoint a successor warrant agent. Notice of the appointment
of a successor warrant agent shall be promptly given by the Company to all
registered Holders.
BEVERAGE WORKS, INC. Attest:
- --------------------------- -----------------------------
By: Frederik G.M. Rodenhuis, By: Lyle R. Maul,
President Secretary
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<PAGE> 8
EXHIBIT C
CALL OPTION
CALL OPTION dated as of November 8, 1995 granted by BEVERAGE WORKS,
INC., a California corporation ("BrewCo") to the Selling Shareholders (as
defined in the Agreement and Plan of Reorganization) of HERITAGE BREWING
COMPANY, INC. ("Heritage").
WHEREAS, simultaneously herewith, Selling Shareholders are exchanging
each share of their stock in Heritage to BrewCo for 0.3866 shares of BrewCo
Common Stock; and
WHEREAS, one of the reasons for exchanging the Heritage stock for
BrewCo stock is that BrewCo intends to have a public offering consummated no
later than December 31, 1996, which will raise gross proceeds of no less than
$5,000,000; and
WHEREAS, BrewCo wishes to give the Selling Shareholders the right to
call on BrewCo to deliver the Heritage shares it owns in its subsidiary in the
event the foregoing public offering is not consummated.
NOW, THEREFORE, BrewCo grants this call option to the Selling
Shareholders on the following terms and conditions:
1. CONDITION PRECEDENT TO THE EXERCISE OF THE CALL OPTION.
BrewCo does not consummate a public offering which generates gross
proceeds of at least $5,000,000 on or before December 31, 1996.
2. EXERCISE PRICE FOR THE CALL OPTION.
The Selling Shareholders must cause Heritage to deliver a promissory
note signed by Heritage with the following provisions:
A. An amount equal to (i) the sum of all payments made by BrewCo to
the holder of the Small Business Administration ("SBA") loan, a copy of which is
attached hereto as Exhibit 1, since the consummation of the acquisition of all
Heritage's voting stock by BrewCo and (ii) the increase in the book value,
before depreciation, of Heritage's capital assets and improvements after the
date that BrewCo acquires all of the voting stock of Heritage.
B. Payments shall be in thirty-six (36) equal monthly
<PAGE> 9
installments and shall be without interest.
C. The payment of the note shall be secured by a lien on the capital
assets and improvements.
3. DELIVERY OF BREWCO SHARES.
The Selling Shareholders shall deliver all shares of BrewCo (previously
issued under the terms of the Plan of Reorganization to Selling Shareholders) to
BrewCo prior to delivery of any Heritage shares to Selling Shareholders. Such
BrewCo shares must be delivered properly endorsed and unencumbered.
4. TERMINATION OF CALL OPTION.
The Call Option shall terminate on the earlier of the closing of a
public offering in the amount of $5,000,000 or June 30, 1997.
Dated: November 8, 1995
BEVERAGE WORKS, INC.
By:
--------------------------------
Frederik G.M. Rodenhuis
President
2
<PAGE> 1
Exhibit 4.9
NOTE AGREEMENT
Beverage Works, Inc., a California corporation (the "Company") and
Frederick Friedman ("Purchaser") (collectively the "Parties"), agree
("Agreement") as follows:
SECTION 1. DESCRIPTION OF NOTE AND COMMITMENT.
Section 1.1. Description of Note. The Company will authorize the issue
and sale of a $500,000 aggregate principal amount 18% promissory note (the
"Note") to be dated the date of issue, to bear interest from such date at the
rate of 18% per annum, simple interest, payable on the fifteenth day of each
month (commencing May 15, 1996) and at maturity until paid to mature on the
earlier of (i) closing of a public offering by the Company with aggregate gross
proceeds of no less than $6,000,000 (the "IPO"), the occurrence of which there
is no guarantee, or (ii) December 31, 1996, whichever shall occur earlier
("Maturity Date"), and to be substantially in the form attached hereto as
Exhibit A.
Section 1.2. Warrants.
(a) The Company shall issue to Purchaser Thirty-Five Thousand
(35,000) Warrants to purchase shares of the Company's Common Stock, no par
value ("Common Stock"). Each Warrant entitles the holder thereof to purchase
from the Company, for a three (3) year period commencing on the date of
issuance of the Warrants, one fully-paid and nonassessable share of Common
Stock at an exercise price (the "Exercise Price") of $4.75. If the IPO has not
closed by the Maturity Date, the Purchaser shall receive an additional
Thirty-Five Thousand (35,000) Warrants on the same terms and conditions.
(b) These Warrants and the shares of Common Stock issuable
upon the exercise of these Warrants will be registered in the Company's IPO.
(c) Purchaser as holder of a Warrant Certificate shall not be
entitled to vote or receive dividends or be deemed the holder of Common Stock
or any other securities of the Company, nor shall anything contained herein be
construed to confer upon Purchaser any of the rights of a shareholder of the
Company. The number of Warrants issued shall be adjusted pro rata in the event
of a Common Stock dividend, Common Stock split, or Common Stock reverse split
by the Company prior to the earlier of exercise or expiration.
Section 1.3. Security Interest. The Note shall be secured by all
equipment, inventory and accounts receivable of the Company. In addition, the
proceeds from the sale of the Note shall be deposited into an escrow account
held at PaineWebber, or such other comparable institution ("Escrow Account").
The Company may immediately withdraw up to $250,000 from the Escrow Account.
The Company may withdraw the remaining proceeds from the sale of the note only
after filing a registration statement with the U.S. Securities and Exchange
Commission for the IPO. The Company shall execute and file with the California
Secretary of State a Form UCC-1 containing such appropriate information to
effectuate this Section 1.3.
<PAGE> 2
SECTION 2. PREPAYMENT OF NOTE.
Section 2.1. The Company may prepay this Note at any time prior to
Maturity without penalty.
SECTION 3. REPRESENTATIONS.
Section 3.1. Purchaser represents, and in entering into this Agreement
the Company understands, that he is acquiring the Note, Warrants and shares
issuable upon exercise of the Warrants for the purpose of investment and not
with a view to the distribution thereof, and that he has no present intention
of selling, negotiating or otherwise disposing of the Note, Warrants and shares
issuable upon exercise of the Warrants. Purchaser further represents that he is
an accredited investor as that term is defined in Rule 501(a) of Regulation D
of the Securities Act. Purchaser has had an opportunity to question
representatives of the Company and to obtain appropriate information concerning
the Company as he has deemed appropriate under the circumstances.
SECTION 4. EVENTS OF DEFAULT.
Section 4.1. Events of Default. Default shall occur (i) in the
payment of interest on the Note when the same shall have become due and such
default shall continue for more than five business days; or (ii) in the payment
of principal on the Note when the same shall have become due and such default
shall continue for more than thirty days ("Event of Default").
SECTION 5. AMENDMENTS, WAIVERS AND CONSENTS.
Section 5.1. Consent Required. Any term, covenant, agreement or
condition of this Agreement may be amended or compliance therewith may be
waived, only upon the Parties' written consent of the Parties. Any such
amendment or waiver shall be binding upon each future holder of the Note and
upon the Company, whether or not the Note shall have been marked to indicate
such amendment or waiver. No such amendment or waiver shall extend to or affect
any obligation not expressly amended or waived or impair any right consequent
thereon.
SECTION 6. MISCELLANEOUS.
Section 6.1. Notices. Any notice, payment, demand or communication
required or permitted to be given by any provision of this Agreement shall be
deemed given if sent by United States Mail, first class, postage prepaid, or by
telephone or facsimile, if such telephone conversation or facsimile is followed
by a hard copy of the telephone conversation or facsimilied communication sent
by United States Mail, first class, postage prepaid, and addressed as follows:
Note Agreement 2 of 3
<PAGE> 3
The Company: The Purchaser:
Mr. Frederik Rodenhuis Frederick Friedman
Brewing Company of America
9800 S. Sepulveda Boulevard, Suite 720 ___________________
Los Angeles, CA 90045
___________________
Section 6.2. Binding Effect. Except as otherwise provided in this
Agreement, every covenant, term, and provision of this Agreement shall be
binding upon and inure to the benefit of the Parties and their respective
heirs, legatees, legal representatives, successors, transferees, and assigns.
Section 6.3. Severability. Every provision of this Agreement is
intended to be severable. If any term or provision hereof is illegal or invalid
for any reason whatsoever, such illegality or invalidity shall not affect the
validity or legality of the remainder of this Agreement.
Section 6.4. Further Action. Each Party, upon the request of any other
Party, agrees to perform all further acts and execute, acknowledge, and deliver
any documents which may be reasonably necessary to carry out the provisions of
this Agreement.
Section 6.5. Arbitration and Governing Law. All disputes relating to
or arising under this Agreement or the transactions contemplated hereby shall
be resolved by binding arbitration before the American Arbitration Association
at its offices at 140 West 51st Street, New York, New York. California law
shall apply in all respects.
Section 6.6. Attorneys' Fees. The prevailing party in any arbitration
shall be entitled to recover costs and expenses, including reasonable
attorneys' fees as determined by the arbitrator.
Section 6.7. Counterpart Execution. This Agreement may be executed in
any number of counterparts with the same effect as if all of the Parties had
signed the same document. All counterparts shall be construed together and
shall constitute one agreement.
IN WITNESS WHEREOF, the Parties have entered into this Agreement by
their signatures below:
THE COMPANY: BEVERAGE WORKS, INC.
Dated:______________ _________________________________
Frederik Rodenhuis,
Chief Executive Officer
THE PURCHASER:
Dated:______________ _________________________________
Frederick Friedman
Note Agreement 3 of 3
<PAGE> 4
EXHIBIT A
$500,000
PROMISSORY NOTE December 31, 1996
1. Beverage Works, Inc., a California corporation (the
"Company"), for value received, hereby promises to pay to Frederick Friedman:
(a) the principal amount of $500,000 on (i) the date of a
close of a public offering by the Company with aggregate gross proceeds of at
least $6,000,000, or (ii) December 31, 1996, whichever shall occur earlier (the
"Maturity Date"); and
(b) interest on the principal amount from time to time
remaining unpaid hereon at the rate of 18% per annum, simple interest, from the
date hereof until the Maturity Date, payable on the fifteenth day of each month
(commencing on May 15, 1996).
2. Both the principal hereof and interest hereon are payable in
United States currency. If any amount of principal or interest on or in respect
of this Note becomes due and payable on any date which is not a Business Day,
such amount shall be payable on the immediately preceding Business Day.
"Business Day" means any day other than a Saturday, Sunday or other day on
which banks in New York are required by law to close or are customarily closed.
3. The Company may prepay this Note at any time prior to Maturity
without penalty.
4. The laws of the State of California shall apply.
BEVERAGE WORKS, INC.
Dated:___________________ _________________________________
Frederik Rodenhuis,
Chief Executive Officer
<PAGE> 1
EXHIBIT 4.10
PROMISSORY NOTE SECURED BY DEED OF TRUST
(Interest Only for Year 1)
(Principal and Interest for Years 2 and 3)
The loan which this note secures was arranged by OWENS FINANCIAL GROUP, INC., a
licensed California Real Estate Broker.
$690,000.00 Walnut Creek, California
October 11, 1994
FOR VALUE RECEIVED, the undersigned, PROST PARTNERS, L.P., a California Limited
Partnership and GARITH L. HELM, Individually ("Maker"), promises to pay to OWENS
FINANCIAL GROUP, INC., a California Corporation, or order ("Payee"), at P.O. Box
2308, Walnut Creek, California 94595, or at any other place that Payee
designates by notice to Maker, the sum of Six Hundred Ninety Thousand and no/100
($690,000.00) in United States Dollars, plus interest on the unpaid balance at
the rate of eleven (11%) percent per annum from November 30, 1994 payable as set
forth in Section 1 below.
1. MONTHLY PAYMENTS
a. Interest Only Payments. Beginning on January 1, 1995 and continuing
on the first day of each and every month thereafter, through and including
October 1, 1995, Maker shall make interest only monthly payments at the rate set
forth above on the unpaid principal balance.
b. Principal and Interest Payments. Beginning on November 1, 1995 and
continuing each and every month thereafter. Maker shall make monthly payments of
principal and interest in the amount of $8,154.50 which will amortize (fully pay
and discharge) the principal and accrued interest over a period of 164 months.
Monthly payments are to be applied first to interest against the unpaid
principal and then to principal.
c. Final Payment. The unpaid principal balance, together with all
accrued and unpaid interest, shall be due and payable on
November 30, 1997 ("Maturity Date").
2. BORROWER'S RIGHT TO PREPAY
Maker has the right to make prepayments of the entire principal balance
or any portion thereof with a -0- prepayment
<PAGE> 2
penalty on the amount so prepaid. The additional charge for prepayment shall
never exceed the amount of interest due at the maturity of this note. A payment
of principal only is known as a "prepayment."
3. USURY LIMITATION
Notwithstanding anything in this note to the contrary, to the extent
the interest payments are subject to limitation by usury law, that portion of
the interest paid that is subject to and exceeds applicable usury limitations
shall be applied to reduce the principal due under the note.
4. DEFAULTS
a. Events of Default. Maker shall be in default of this note upon the
occurrence of any of the following:
(i) Failure of Maker to make any payments, under this note,
when due;
(ii) Failure of Maker to perform or observe any of Maker's
obligations under this note, the deed of trust securing this note (the "Deed of
Trust") or other agreements between the parties; and to commence and proceed
diligently to cure the default within five (5) days after notice is given by
Payee, and in any event to cure the default within ten (10) days after the date
on which notice is given;
(iii) Maker's Sale, transfer and/or assignment of the Security
as provided for in Paragraph 9 of this Promissory Note.
(iv) The filing by Maker of a voluntary petition in
bankruptcy, a petition for reorganization, arrangement or other relief under the
United States Bankruptcy Act, or a voluntary petition for the appointment of a
receiver or comparable relief from creditors under the laws of any state, or the
making by Maker of an assignment of all or substantially all of its assets for
the benefit of creditors;
(v) The adjudication of Maker as bankrupt or insolvent, the
appointment of a receiver of all or substantially all of Maker's assets, or the
entry of an order of reorganization of Maker under the United States Bankruptcy
Act;
b. When Maker is in default, the entire unpaid balance of interest and
principal of this note shall become immediately due and payable at the election
of payee.
5. ATTORNEYS FEES AND COLLECTION COSTS
In the event that Payee should, prior to commencement of any
2
<PAGE> 3
legal action, incur any expenses or attorneys fees in enforcing the terms and
conditions of the Note or Deed of Trust; or upon the commencement of Arbitration
proceedings; or if legal action is instituted to enforce the terms of the Note;
or upon any default by Maker and/or any other person liable on this Note and/or
Deed of Trust, Payee shall be entitled to recover from Maker all costs of
collection and enforcement, including reasonable attorneys fees. For purposes of
this section, the award and recovery of attorneys fees shall survive the entry
of any judgment thereon and shall include, without limitation, fees incurred in
the following: (1) Post Judgment Motions; (2) Contempt Proceedings; (3)
Garnishment, levy, debtor and third party examinations; (4) Discovery; (5)
Bankruptcy proceedings or other litigation; and (6) appeals.
6. LATE CHARGES AND ADDITIONAL INTEREST ON DELINQUENT PRINCIPAL
BALANCE/PAYMENTS
a. Late Charge. Maker recognizes that his default in making the
payment(s) required herein, or pursuant to the deed of trust and/or other
agreements, when due, will result in Payee incurring additional expenses in
servicing the loan, including, but not limited to, reasonable administrative,
processing and accounting charges. If any installment or payment of principal
and/or interest, including balloon payment, if any, due under this note or any
amount due under the deed of trust is not received by Payee within ten (10) days
from the due date of such installment and/or payment, Payee shall be entitled to
damages for the extra time and expense incurred in handling the delinquent
account, but since it is extremely difficult and impractical to ascertain the
extent of such damages, Maker therefore agrees that a reasonable estimate of
such damages to payee is an amount equal to Ten (10%) percent of each payment
which becomes delinquent, but such amount shall not exceed the maximum amount
allowed by law. By placing his initials at the end of this paragraph, Maker
therefore agrees to pay to Payee this late charge not later than the due date of
the next payment and that the late charge(s) shall be secured by the security
documents referred to herein. [Initialed]
b. Additional Interest on Delinquent Principal Balance/Payments, Etc.
Maker recognizes that upon Maker's failure to pay the principal balance upon
maturity, or any portion thereof as otherwise required by the terms of this
note, and/or other payments required to be made by Maker when due, other than
the regular monthly installments, or if Payee makes advances on behalf
of Maker, said failure(s) to pay and/or reimburse Payee for advances will result
in the loss of Payee's use of the money, other administrative expenses, and in
frustration to Payee in meeting its loan commitments.
Payee shall be entitled to damages for the detriment caused thereby,
but since it is extremely difficult and impractical to ascertain the extent of
such damages, Maker therefore agrees that
3
<PAGE> 4
a reasonable estimate of such damages to Payee is an amount equal to interest on
the delinquent and/or advanced amounts from the due date or date of such advance
until paid in full at the rate of Three (3%) percentage points above the
interest rate in effect under this note at the time of any such delinquency or
default. Said amount shall be secured by the security documents referred to
herein. By placing his initials at the end of this Paragraph, Maker hereby
agrees to pay the additional interest provided for in this Paragraph.
[Initialed]
7. INTEREST COMPUTATION
All interest required to be paid pursuant to the terms of this Note
shall be computed on the basis of a three hundred sixty (360) day year.
8. REMEDIES CUMULATIVE
The rights and remedies of Payee under this Note, the Deed of Trust,
and any other instrument or document securing this note are cumulative and may
be pursued singly, successively, or together against Maker, or the property, and
against any other funds or security held by Payee for Maker.
9. SALE, TRANSFER AND/OR ASSIGNMENT OF THE SECURITY
If any part of the real property described in the Deed of Trust given
as security for this Note shall be sold, transferred or assigned or agreed to be
sold, or transferred or assigned, or if Maker exercises its option to purchase
the real property described in the Deed of Trust, as provided for in the Lease,
whether voluntary or involuntary or by operation of law, then this Note shall,
at the option of the Payee, become immediately due and payable.
10. GOVERNING LAW
This Note shall be governed by and construed in accordance with the
laws of the State of California.
11. NOTICES
All notices and other communications to be made pursuant to this Note
shall be in writing and shall be deemed to have been duly given on the date of
service, if served personally on the party to whom service is given, or on the
expiration of forty-eight (48) hours after mailing, if mailed to the party to
whom notice is to be given, by first-class mail, postage prepaid, and properly
addressed as follows:
PROST PARTNERS, L.P.
A California Limited Partnership
4
<PAGE> 5
c/o Garith L. Helm
821 L Street
Modesto, CA 95354
STANISLAUS BREWING CO.
821 L Street
Modesto, CA 95354
Randall Lyle Steele and Susan Steele
c/o Sid Israels
1130 14th Street
Modesto, CA 95353
12. SEVERABILITY
If any part of this Note is determined to be illegal or unenforceable,
all other parts shall remain in effect.
13. NO WAIVER
Failure of Payee to pursue any right or remedy under this Note shall
not constitute a waiver, release or election of Payee's right to pursue the
right or remedy on the basis of the same or subsequent breach.
14. JOINT AND SEVERAL LIABILITY
These obligations and promises shall be joint and several undertakings
of each of the persons signing as Maker, and Payee may proceed against any one
or more of these persons without waiving its right to proceed against any of the
others.
15. RECONVEYANCE
Upon payment of all amounts owing on this Note, Payee shall instruct
the Trustee under the Deed of Trust securing this Note to reconvey the property
from the lien of the Deed of Trust.
16. DEED OF TRUST
This Note is secured by a Deed of Trust of even date executed by PROST
PARTNERS, L.P., a California Limited Partnership, and an assignment of interest
in a lease and sub-lease of even date executed by the undersigned and STANISLAUS
BREWING CO., a California Corporation in favor of Payee.
5
<PAGE> 6
IN WITNESS WHEREOF, Maker has signed and delivered this Note effective as of the
date set forth above.
PROST PARTNERS, L.P.
a California Limited Partnership
By: STANISLAUS BREWING CO.,
a California Corporation,
General Partner
By: /s/ /s/
---------------------------- --------------------------------
Garith L. Helm, Garith L. Helm,
its President Individually
By: /s/
----------------------------
Romy Angle,
its Vice President and Secretary
6
<PAGE> 1
EXHIBIT 10.4
March 8, 1996
ADVICE OF RENTAL INCREASE
In accordance with the terms of the lease dated April 1, 1995 between
Hunsaker-Hunter, Inc. (Lessor) and John Barnicoat, dba Orange Empire Brewing Co.
(Lessee), and located at 1229 Columbia Ave., C2, C3, C4, Riverside, CA 92507,
commencing on April 1, 1995, please be advised that:
B. Effective April 1, 1996, your monthly rental will be increased from
$5,424.00 + 105.00 +452.00 to $5,605.00 + 105.00 + 452.00 per Para. 49 of the
above-referenced lease.
SECURITY DEPOSIT INCREASE: Please forward an additional $181.00 with your next
rental payment. This amount represents the difference between the Security
Deposit/Last Month's Rent currently on deposit, and the new rental rate herein.
All other terms and conditions of the lease are to remain the same.
DLH:jh
9/82
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE-GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
<PAGE> 2
1. BASIC PROVISIONS ("BASIC PROVISION").
1.1 Parties: This Lease ("Lease"), dated for reference purposes only,
April 1, 1995 is made by and between Hunsaker - Hunter, Inc. ("Lessor") and John
Barnicoat, an individual, dba Orange Empire Brewing Co. ("Lessee"),
(collectively the "Parties," or individually a "Party").
1.2(a) Premises: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 1229 Columbia Ave., Suites C-2, C-3, and
C-4 located in the City of Riverside, County of Riverside, State of California,
with zip code 92507, as outlined on Exhibit attached hereto (Premises"). The
"Building" is that certain building containing the Premises and generally
described as (describe briefly the nature of the Building): three multi-tenant
units of approximately 18,080 square feet per the following: Suite C-2: 7,056
sq. ft.: Suite C-3: 5,720 sq. ft.; Suite C-4: 5,304 sq. ft. In addition to
Lessee's rights to use and occupy the Premises as hereinafter specified, Lessee
shall have non-exclusive rights to the Common Areas (as defined in Paragraph 2.7
below) as hereinafter specified, but shall not have any rights to the roof,
exterior walls or utility raceways of the Building or to any other buildings in
the Industrial Center. The Premises, the Building, the Common Areas, the land
upon which they are located, along with all other buildings and improvements
thereon, are herein collectively referred to as the "Industrial Center." (Also
see Paragraph 2.)
1.2(b) Parking: Thirty (30) unreserved vehicle parking spaces
("Unreserved Parking Spaces"): and zero (0) reserved vehicle parking spaces
("Reserved Parking Spaces"). (Also see Paragraph 2.6.)
1.3 Term: 3 years and 0 months ("Original Term") commencing April 1,
1995 ("Commencement Date") and ending March 31, 1998, ("Expiration Date"). (Also
see Paragraph 3.)
1.4 Early Possession: See Addendum, Paragraph 49 ("Early Possession
Date"). (Also see Paragraphs 3.2 and 3.3.)
1.5 Base Rent: $5,424.00 per month ("Base Rent"), payable on the first
day of each month commencing (See Addendum, Paragraph 49 (Also see Paragraph 4.)
*See Addendum, Paragraph 49.
[X] If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum, attached hereto.
1.6(a) Base Rent Paid Upon Execution: $1,854.00 as Base Rent for the
period April 1, 1995 through April 15, 1995*
1.6(b) Lessee's Share of Common Area
[X] Prorata square footage of the Premises as compared to the total square
footage of the multi-tenant park
1.7 Security Deposit: $5,596.00** ("Security Deposit"). (Also see
Paragraph 5.) **See Addendum, Paragraph 50.
1.8 Permitted Use: General Office, manufacturing and warehousing for a
brewery. ("Permitted Use") (Also see Paragraph 6.)
1.9 Insuring Party. Lessor is the "Insuring Party." (Also see Paragraph
8.)
1.10(a) Real Estate Brokers. The following real estate broker(s)
collectively, the "Brokers") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
[X] Grubb & Ellis Company represents both Lessor and Lessee ("Dual
Agency"). (Also see Paragraph 15.)
1.10(b) Payment to Brokers. Upon the execution of this Lease by both
Parties, Lessor shall pay to said
<PAGE> 3
Broker(s) jointly, or in such separate shares as they may mutually designate in
writing, a fee as set forth in a separate written agreement between Lessor and
said Broker(s) (or in the event there is no separate written agreement between
Lessor and said Broker(s), the sum of $(see Exhibit F) for brokerage services
rendered by said Broker(s) in connection with this transaction.
1.11 Guarantor. The obligations of the Lessee under this Lease are to
be guaranteed by (Not applicable). ("Guarantor"). (Also see Paragraph 37.)
1.12 Addenda and Exhibits. Attached hearten is an Addendum or Addenda
consisting of Paragraphs 49 through 58, and Exhibits A through F, all of which
constitute a part of this Lease.
2. Premises, Parking and Common Areas.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental and/or Common Area Operating
Expenses, is an approximation which Lessor and Lessee agree is reasonable and
the rental and Lessee's Share (as defined in Paragraph 1.6(b) based thereon is
not subject to revision whether or not the actual square footage is more or
less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, air conditioning
and heating systems and loading doors, if any, in the Premises, other than those
constructed by Lessee, shall be in good operating condition on the Commencement
Date. If a non-compliance with said warranty exists as of the Commencement Date,
Lessor shall, except as otherwise provided in this Lease, promptly after receipt
of written notice from Lessee setting forth with specificity the nature and
extent of such non-compliance, rectify same at Lessor's expense. If Lessee does
not give Lessor written notice of a non-compliance with this warranty within
thirty (30) days after the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense.
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility installations (defined in Paragraph 7.3(a)) made or to be
made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given within six (6) months following the
Commencement Date and setting forth with specificity the nature and extent of
such non-compliance, take such action, at Lessor's expense, as may be reasonable
or appropriate to rectify the non-compliance. Lessor makes no warranty that the
Permitted Use in Paragraph 1.8 is permitted for the Premises under Applicable
Laws (as defined in Paragraph 2.4).
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has
been advised by the Broker(s)
<PAGE> 4
to satisfy itself with respect to the condition of the Premises (including but
not limited to the electrical and fire sprinkler systems, security,
environmental aspects, seismic and earthquake requirements, and compliance with
the Americans with Disabilities Act and applicable zoning, municipal, county,
state federal laws, ordinances and regulations and any covenants or restrictions
of record (collectively, "Applicable Laws") and the present and future
suitability of the Premises for Lessee's intended use; (b) that Lessee has made
such investigation as it deems necessary with reference to such matters, is
satisfied with reference thereto, and assumes all responsibility therefore as
the same relate to Lessee's occupancy of the Premises and/or the terms of this
Lease; and (c) that neither Lessor, nor any of Lessor's agents, has made any
oral or written representations or warranties with respect to said matters other
than as set forth in this Lease.
2.5 Lessee as Prior Owner/Occupant. The warranties made by Lessor in
this Paragraph 2 shall be of no force or effect if immediately prior to the date
set forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In
such event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
2.6 Vehicle Parking. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick-up trucks, herein called "Permitted Size
Vehicles." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9)
(a) Lessee shall not permit or allow any vehicles that belong
to or are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, contractors or invitees to be loaded, unloaded, or parked in areas
other than those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited
activities described in this Paragraph 2.6, then Lessor shall have the right,
without notice, in addition to such other rights and remedies that it may have,
to remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease,
provide the parking facilities required by Applicable Law.
2.7 Common Areas--Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and interior utility raceways within the Premises that
are provided and designated by the Lessor from time to time for the general
non-exclusive use of Lessor. Lessee and other lessees of the Industrial Center
and their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 Common Areas--Lessee's Rights. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and
<PAGE> 5
regulations or restrictions governing the use of the Industrial Center. Under no
circumstances shall the right herein granted to use the Common Areas be deemed
to include the right to store any property, temporarily or permanently, in the
Common Areas. Any such storage shall be permitted only by the prior written
consent of Lessor or Lessor's designated agent, which consent may be revoked at
any time. In the event that any unauthorized storage shall occur then Lessor
shall have the right, without notice, in addition to such other rights and
remedies that it may have, to remove the property and charge the cost to Lessee,
which cost shall be immediately payable upon demand by Lessor.
2.9 Common Areas--Rules and Regulations. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable Rules and Regulations with respect thereto in
accordance with Paragraph 40. Lessee agrees to abide by and conform to all such
Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees of the Industrial Center.
2.10 Common Areas--Changes. Lessor shall have the right, in Lessor's
sole discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for
maintenance purposes so long as reasonable access to the Premises remains
available;
(c) To designate other land outside boundaries of the
Industrial Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other
changes in, to or with respect to the Common Areas and Industrial Center as
Lessor may, in the exercise of sound business judgment deem to be appropriate.
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 Early Possession. If an Early Possession Date is specified in
Paragraph 1.4 and if Lessee totally or partially occupies the Premises after the
Early Possession Date but prior to the Commencement Date, the obligation to pay
Base Rent shall be abated for the period of such early occupancy. All other
terms of this Lease, however, (including but not limited to the obligations to
pay Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
3.3 Delay in Possession. If for any reason Lessor cannot deliver
possession of the Premises to Lessee by the Early Possession Date, if one is
specified in Paragraph 1.4, or if no Early Possession Date is specified, by the
Commencement Date, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case,
<PAGE> 6
Lessee shall not, except as otherwise provided herein, be obligated to pay rent
or perform any other obligation of Lessee under the terms of this Lease until
Lessor delivers possession of the Premises to Lessee. If possession of the
premises is not delivered to Lessee within sixty (60) days after the
Commencement Date, Lessee may, at its option, by notice in writing to Lessor
within ten (10) days after the end of said sixty (60) day period, cancel this
Lease, in which event the parties shall be discharged from all obligations
hereunder; provided further, however, that if such written notice of Lessee is
not received by Lessor within said ten (10) day period, Lessee's right to cancel
this Lease hereunder shall terminate and be of no further force or effect.
Except as may be otherwise provided, and regardless of when the Original Term
actually commences, if possession is not tendered to Lessee when required by
this Lease and Lessee does not terminate this Lease, as aforesaid, the period
free of the obligation to pay Base Rent, if any, that Lessee would otherwise
have enjoyed shall run from the date of delivery of possession and continue for
a period equal to the period during which the Lessee would have otherwise
enjoyed under the terms hereof, but minus any days of delay caused by the acts,
changes or omissions of Lessee.
4. Rent.
4.1 Base Rent. Lessee shall pay Base Rent and other rent or charges, as
the same may be adjusted from time to time, to Lessor in lawful money of the
United States, without offset of deduction, on or before the day on which it is
due under the terms of this Lease. Base Rent and all other rent and charges for
any period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shall be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.
4.2 Common Area Operating Expenses. Lessee shall pay to Lessor during
the term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6(b)) of all Common Area Operating Expenses, as hereinafter defined,
during each calendar year of the term of this Lease, in accordance with the
following provisions:
(a) "Common Area Operating Expense" are defined, for purposes
of this Lease, as all costs incurred by Lessor relating to the ownership and
operation of the Industrial Center, including, but not limited to, the
following:
(i) The operation, repair and maintenance, in neat,
clean, good order and condition, of the following:
(aa) The Common Areas, including parking
areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, driveways, landscaped areas, striping, bumpers, irrigation systems,
Common Area lighting facilities, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant
directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and
telephone to service the Common Areas.
(iii) Trash disposal, property management and
security services and the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of
Common Areas.
(v) Any increase above the Base Real Property Taxes
(as defined in Paragraph 10.2(b) for the Building and the Common Areas.
<PAGE> 7
(vi) Any "Insurance Cost Increase" (as defined in
Paragraph 8.1).
(vii) The cost of insurance carried by Lessor with
respect to the Common Areas.
(viii) Any deductible portion of an insured loss
concerning the Building or the Common Areas.
(ix) Any other services to be provided by Lessor that
are stated elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property Taxes
that are specifically attributable to the Building or to any other building in
the Industrial Center or to the operation, repair and maintenance thereof, shall
be allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not specifically
attributable to the Building or to any other building or to the operation,
repair and maintenance thereof, shall be equitably allocated by Lessor to all
buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services
set forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation
upon Lessor to either have said improvements or facilities or to provide those
services unless the Industrial Center already has the same, Lessor already
provides the services, or Lessor has agreed elsewhere in this Lease to provide
the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be
payable by Lessee within ten (10) days after a reasonably detailed statement of
actual expenses is presented to Lessee by Lessor. At Lessor's option, however,
an amount may be estimated by Lessor from time to time of Lessee's Share of
annual Common Area Operating Expenses and the same shall be payable monthly or
quarterly, as Lessor shall designate, during each 12-month period of the Lease
term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Common Area
Operating Expenses incurred during the preceding year. If Lessee's payments
under this Paragraph 4.2(d) during said preceding year exceed Lessee's Share as
indicated on said statement, Lessor shall be credited the amount of such
overpayment against Lessee's Share of Common Area Operating Expenses next
becoming due. If Lessee's payments under this Paragraph 4.2(d) during said
preceding year were less than Lessee's Share as indicated on said statement,
Lessee shall pay to Lessor the amount of the deficiency within ten(10)days after
delivery by Lessor to Lessee of said statement.
5. Security Deposit. Lessee shall deposit with Lessor upon Lessee's
execution hereof the Security Deposit set forth in Paragraph 1.7 as security for
Lessee's faithful performance of Lessee's obligations under this Lease. If
Lessee fails to pay Base Rent or other rent or charges due hereunder, or
otherwise Defaults under this Lease (as defined in Paragraph 13.1), Lessor may
use, apply or retain all or any portion of said Security Deposit for the payment
of any amount due Lessor or to reimburse or compensate Lessor for any liability,
cost, expense, loss or damage (including attorneys' fees) which Lessor may
suffer or incur by reason thereof. If Lessor uses or applies all or any portion
of said Security Deposit, Lessee shall within ten (10) days after written
request therefore deposit monies with Lessor sufficient to restore said Security
Deposit to the full amount required by this Lease. Any time the Base
<PAGE> 8
Rent increases during the term of this Lease, Lessee shall, upon written request
from Lessor, deposit additional monies with Lessor as an addition to the
Security Deposit so that the total amount of the Security Deposit shall at all
times bear the same proportion to the ten current Base Rent as the initial
Security Deposit so that the total amount of the Security Deposit shall at all
times bear the same proportion to the then current Base Rent as the initial
Security Deposit bears to the initial Base Rent set forth in Paragraph 1.5.
Lessor shall not be required to keep all or any part of the Security Deposit
separate from its general accounts. Lessor shall, at the expiration or earlier
termination of the term hereof and after Lessee has vacated the Premises, return
to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's
interest herein), that portion of the Security Deposit not used or applied by
Lessor. Unless otherwise expressly agreed in writing by Lessor, no part of the
Security Deposit shall be considered to be held in trust, to bear interest or
other increment for its use, or to be prepayment for any monies to be paid by
Lessee under this Lease.
6. Use.
6.1 Permitted Use.
(a) Lessee shall use and occupy the Premises only for the
Permitted Use set forth in Paragraph 1.8, or any other legal use which is
reasonably comparable thereto, and for no other purpose. Lessee shall not use or
permit the use of the Premises in a manner that is unlawful, creates waste or a
nuisance, or that disturb owners and/or occupants of, or causes damage to the
Premises or neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay
its consent to any written request by Lessee. Lessee's assignees or subtenants,
and by prospective assignees and subtenants of Lessee, its assignees and
subtenants, for a modification of said Permitted Use, so long as the same will
not impair the structural integrity of the improvements on the Premises or in
the Building or the mechanical or electrical systems therein, does not conflict
with uses by other lessees, is not significantly more burdensome to the Premises
or the Building and the improvements thereon, and is otherwise permissible
pursuant to this Paragraph 6. If Lessor elects to withhold such consent, Lessor
shall within five (5) business days after such request give a written
notification of same, which notice shall include an explanation of Lessor's
reasonable objections to the change in use.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous
Substance" as used in this Lease shall mean any product, substance chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or effect,
either by itself or in combination with other materials expected to be on the
Premises, is either: (i) potentially injurious to the public health, safety or
welfare, the environment, or the Premises; (ii) regulated or monitored by any
governmental authority; or (iii) a basis for potential liability of Lessor to
any governmental agency or third party under any applicable statute or common
law theory. Hazardous Substance shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, crude oil or any products or byproducts
thereof. Lessee shall not engage in any activity in or about the Premises which
constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances
without the express prior written consent of
<PAGE> 9
Lessor and compliance in a timely manner (at Lessee's sole cost and expense)
with all Applicable Requirements (as defined in Paragraph 6.3). "Reportable Use"
shall mean (i) the installation or use of any above or below ground storage
tank, (ii) the generation, possession, storage, use, transportation, or disposal
of a Hazardous Substance that requires a permit from, or with respect to which a
report, notice registration or business plan is required to be filed with, any
governmental authority, and (iii) the presence in, on or about the Premises of a
Hazardous Substance with respect to which any Applicable Laws require that a
notice by given to persons entering or occupying the Premises or neighboring
properties. Notwithstanding the foregoing, Lessee may, without Lessor's prior
consent, but upon notice to Lessor and in compliance with all Applicable
Requirements, use any ordinary and customary materials reasonably required to be
used by Lessee in the normal course of the Permitted Use, so long as such use is
not a Reportable Use and does not expose the Premises or neighboring properties
to any meaningful risk of contamination or damage or expose Lessor to any
liability therefor. In addition, Lessor may (but without any obligation to do
so) condition its consent to any Reportable Use of any Hazardous Substance by
Lessee upon Lessee's giving Lessor such additional assurances as Lessor, in its
reasonable discretion, deems necessary to protect itself, the public, the
Premises and the environment against damage, contamination or injury and/or
liability therefor, including but not limited to the installation (and, at
Lessor's option, removal on or before Lease expiration or earlier termination)
of reasonably necessary protective modification to the Premises (such as
concrete encasements) and/or the deposit of an additional Security Deposit under
Paragraph 5 hereof.
(b) Duty to Inform Lessor. If Lessee Knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises or the Building, other than as previously consented
to by Lessor, Lessee shall immediately give Lessor written notice thereof,
together with a copy of any statement, report, notice, registration,
application, permit, business plan, license, claim, action, or proceeding given
to, or received from, any governmental authority or private party concerning the
presence, spill, release, discharge of, or exposure to, such Hazardous Substance
including but not limited to all such documents as may be involved in any
Reportable Use involving the Premises. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including, without limitation, through the plumbing or sanitary sewer
system).
(c) Indemnification. Lessee shall indemnify, protect, defend
and hold Lessor, its agents, employees, lenders and ground lessor, if any, and
the Premises, harmless from and against any and all damages, liabilities,
judgments, costs, claims, liens, expenses, penalties, loss of permits and
attorneys' and consultants' fees arising out of or involving any Hazardous
Substance brought onto the Premises by or for Lessee or by anyone under Lessee's
control. Lessee's obligations under this Paragraph 6.2(c) shall include, but not
be limited to, the effects of any contamination or injury to person, property or
the environment created or suffered by Lessee, and the cost of investigation
(including consultants' and attorneys' fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
<PAGE> 10
Hazardous Substances, unless specifically so agreed by Lessor in writing at the
time of such agreement.
6.3 Lessee's Compliance with Requirements. Lessee shall, at Lessee's
sole cost and expense, fully, diligently and in a timely manner, comply with all
"Applicable Requirements," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including
but not limited to matters pertaining to (i) environmental conditions on, in,
under or about the Premises, including soil and ground water conditions, and
(iii) the use, generation, manufacture, production, installation, maintenance,
removal, transportation, storage, spill, or release of any Hazardous Substance),
now in effect or which may hereafter come into effect. Lessee shall, within five
(5) days after receipt of Lessor's written request, provide Lessor with copies
of all documents and information, including but not limited to permits,
registrations, manifests, applications, reports and certificates, evidencing
Lessee's compliance with any Applicable Requirements specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Requirements.
6.4 Inspection; Compliance with Law. Lessor, Lessor's agents,
employees, contractors and designated representatives, and the holders of any
mortgages, deeds of trust or ground leases on the Premises ("Lenders") shall
have the right to enter the Premises at any time in the case of an emergency,
and otherwise at reasonable times, for the purpose of inspecting the condition
of the Premises and for verifying compliance by Lessee with this Lease and all
Applicable Requirements (as defined in Paragraph 6.3), and Lessor shall be
entitled to employ experts and/or consultants in connection therewith to advise
Lessor with respect to Lessee's activities, including but not limited to
Lessee's installation, operation, use, monitoring, maintenance, or removal of
any Hazardous Substance on or from the Premises. The costs and expenses of any
such inspections shall be paid by the party requesting same, unless a Default or
Breach of this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. Maintenance, Repairs, Utility Installations, Trade Fixtures and
Alterations.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 2.2 (Condition),
2.3 (Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (whether or not such portion of
the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or
<PAGE> 11
not the need for such repairs occurs as a result of Lessee's use, any prior use,
the elements or the age of such portion of the Premises), including, without
limiting the generality of the foregoing, all equipment or facilities
specifically serving the Premises, such as plumbing, heating, air conditioning,
ventilating, electrical, lighting facilities, boilers, fired or unfired pressure
vessels, fire hose connections if within the Premises, fixtures, interior walls,
interior surfaces of exterior walls, ceilings, floors, windows, doors, plate
glass, and skylights, but excluding any items which are the responsibility of
Lessor pursuant to Paragraph 7.2 below. Lessee, in keeping the Premises in good
order, condition and repair, shall exercise and perform good maintenance
practices. Lessee's obligations shall include restorations, replacements or
renewals when necessary to keep the Premises and all improvements thereon or a
part thereof in good order, condition and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure
and maintain a contract, with copies to Lessor, in customary form and substance
for and with a contractor specializing and experienced in the inspection,
maintenance and service of the heating, air conditioning and ventilation system
for the Premises. However, Lessor reserves the right, upon notice to Lessee, to
procure and maintain the contract for the heating, air conditioning and
ventilating systems, and if Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of an emergency, in which case no
notice shall be required), perform such obligations on Lessee's behalf, and put
the Premises in good order, condition and repair, in accordance with Paragraph
13.2 below.
7.2 Lessor's Obligations. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
exterior roof, fire sprinkler and/or standpipe and hose (if located in the
Common Areas) or other automatic fire extinguishing system including fire alarm
and/or smoke detection systems and equipment, fire hydrants, parking lots,
walkways, parkways, driveways, landscaping, fences, signs and utility systems
serving the Common Areas and all parts thereof, as well as providing the
services for which there is a Common Area Operating Expense pursuant to
Paragraph 4.2. Lessor shall not be obligated to paint the exterior or interior
surfaces of exterior walls nor shall Lessor be obligated to maintain, repair or
replace windows, doors or plate glass of the Premises. Lessee expressly wives
the benefit of any statue now or hereafter in effect which would otherwise
afford Lessee the right to make repairs at Lessor's expense of to terminate this
Lease because of Lessor's failure to keep the Building. Industrial Center or
Common Areas in good order, condition and repair.
7.3 Utility Installations, trade Fixtures, Alterations.
(a) Definitions: Consent Required. The term "Utility
Installations" is used in this Lease to refer to
<PAGE> 12
all air lines, power panels, electrical distribution, security, fire protection
systems, communications systems, lighting fixtures, heating, ventilating and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "Trade Fixtures" shall mean Lessee's machinery and equipment which can be
removed without doing material damage to the Premises. The term "Alterations"
shall mean any modification of the improvements on the Premises which are
provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures. "Lessee-Owned Alterations and/or Utility
Installations" are defined as Alterations and/or Utility Installations made by
Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a). Lessee
shall not make nor cause to be made any Alterations or Utility Installations in,
on, under or about the Premises without Lessor's prior written consent. Lessee
may, however, make non-structural Utility Installations to the interior of the
Premises (excluding the roof) without Lessor's consent but upon notice to
Lessor, so long as they are not visible from the outside of the Premises, do not
involve puncturing, relocating or removing the roof or any existing walls, or
changing or interfering with the fire sprinkler or fire detection systems and
the cumulative cost thereof during the term of this Lease as extended does not
exceed $2,500.00.
(b) Consent. Any Alterations or Utility Installations that
Lessee shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written from with detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon; and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and be in compliance with all Applicable
Requirements. Lessee shall promptly upon completion thereof furnish Lessor with
as-built plans and specifications therefor. Lessor may, (but without obligation
to do so) condition its consent to any requested Alteration or Utility
Installation that costs $2,500.00 or more upon Lessee's providing Lessor with a
lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation.
(c) Lien Protection. Lessee shall pay when due all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanic's or material men's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on, or about the Premises, and Lessor shall have
the right to post notices of non-responsibility in or on the Premises as
provided by law. If lessee shall, in good faith, contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense, defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises. If Lessor shall require,
Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount
equal to one and one-half times the amount of such contested lien claim or
demand, indemnifying Lessor
<PAGE> 13
against liability for the same, as required by law for the holding of the
Premises free from the effect of such lien or claim. In addition, Lessor may
require Lessee to pay Lessor's attorneys' fees and costs in participating in
such action if Lessor shall decide it is to its best interest to do so.
7.4 Ownership, Removal, Surrender, and Restoration.
(a) Ownership. Subject to Lessor's right to require their
removal and to cause Lessee to become the owner thereof as hereinafter provided
in this Paragraph 7.4, all Alterations and Utility Installations made to the
Premises by Lessee shall be the property of and owned by Lessee, but considered
a part of the Premises. Lessor may, at any time and at its option, elect in
writing to Lessee to be the owner of all or any specified part of the
Lessee-Owned Alterations and Utility Installations. Unless otherwise instructed
per Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the premises by Lessee.
(b) Removal. Unless otherwise agreed in writing, Lessor may
require that any or all Lessee-Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease, notwithstanding
that their installation may have been consented to by Lessor. Lessor may require
the removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises
by the end of the last day of the Lease term or any earlier termination date,
clean and free of debris and in good operating order, condition and state of
repair, ordinary wear and tear ex excepted. Ordinary wear and tear shall not
include any damage or deterioration that would have been prevented by good
maintenance practice or by Lessee performing all of its obligations under this
Lease. Except as otherwise agreed or specified herein, the Premises, as
surrendered, shall include the Alterations and Utility Installations. The
obligation of Lessee shall include the repair of any damage occasioned by the
installation, maintenance or removal of Lessee's Trade Fixtures, furnishings,
equipment, and Lessee-Owned Alterations and Utility Installations, as well as
the removal of any storage tank installed by or for Lessee, and the removal,
replacement, or remediation of any soil, material or ground water contaminated
by Lessee, all as may then be required by Applicable Requirements and/or good
practice. Lessee's Trade Fixtures shall remain the property of Lessee and shall
be removed by Lessee subject to its obligation to repair and restore the
Premises per this Lease.
8. Insurance; Indemnity.
8.1 Payment of Premium Increases.
(a) As used herein, the term "Insurance Cost Increase" is
defined as any increase in the actual cost of the insurance applicable to the
Building and required to be carried by Lessor pursuant to Paragraphs 8.2(b),
8.3(a) and 8.3(b), ("Required Insurance"), over and above the Base Premium, as
hereinafter defined, calculated on an annual basis. "Insurance Cost Increase"
shall include, but not be limited to, requirements of the holder of a mortgage
or deed of trust covering the Premises, increased valuation of the
<PAGE> 14
Premises, and/or a general premium rate increase. The term "Insurance Cost
Increase" shall not, however, include any premium increases resulting from the
nature of the occupancy of any other lessee of the Building. If the parties
insert a dollar amount in Paragraph 1.9, such amount shall be considered the
"Base Premium." If a dollar amount has not been inserted in Paragraph 1.9 and if
the Building has been previously occupied during the twelve (12) month period
immediately preceding the Commencement Date, the "Base Premium" shall be the
annual premium applicable to such twelve (12) month period. If the Building was
not fully occupied during such twelve (12) month period, the "Base Premium"
shall be the lowest annual premium reasonably obtainable for the Required
Insurance as of the Commencement Date, assuming the most nominal use possible of
the Building. In no event, however, shall Lessee be responsible for any portion
of the premium cost attributable to liability insurance coverage in excess of
$1,000,000 procured under Paragraph 8.2(b).
(b) Lessee shall pay any Insurance Cost Increase to Lessor
pursuant to Paragraph 4.2. Premiums for policy periods commencing prior to, or
extending beyond, the term of this Lease shall be prorated to coincide with the
corresponding Commencement Date or Expiration Date.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force
during the term of this lease a Commercial General Liability policy of insurance
protecting Lessee, Lessor and any Lender(s) whose names have been provided to
Lessee in writing (as additional insureds) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an Additional Insured-Managers or Lessors of Premises" endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
heat, smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "Insured contract"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee not relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) Carried by Lessor. Lessor shall also maintain liability
insurance described in Paragraph 8.2(a) above, in addition to and not in lieu
of, the insurance required to be maintained by Lessee. Lessee shall not be named
as an additional insured therein.
8.3 Property Insurance-Building, Improvements and Rental Value.
(a) Building and improvements. Lessor shall obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and to any Lender(s), insuring against loss or
damage to the Premises. Such insurance shall be for full replacement cost, as
the same shall exist from time to time, or the amount required by any Lender(s),
but in no event more than the commercially reasonable and available insurable
value thereof if, by reason of the unique nature
<PAGE> 15
or age of the improvements involved, such latter amount is less than full
replacement cost. Lessee-Owned Alterations and Utility Installations, Trade
Fixtures and Lessee's Personal property shall be insured by Lessee pursuant to
Paragraph 8.4. If the coverage is available and commercially appropriate,
Lessor's policy or policies shall insure against all risks of direct physical
loss or damage (except the perils of flood and/or earthquake unless required by
a Lender or included in the Base Premium), including coverage for any additional
costs resulting from debris removal and reasonable amounts of coverage for the
enforcement of any ordinance or law regulating the reconstruction or replacement
of any undamaged sections of the Building required to be demolished or removed
by reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered loss, but not including plate glass insurance. Said
policy or policies shall also contain an agreed valuation provision in lieu of
any co-insurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index for
All Urban Consumers for the city nearest to where the Premises are located.
(b) Rental Value. Lessor shall also obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and any Lender(s), insuring the loss of the full rental
and other charges payable by all lessees of the Building to Lessor for one year
(including all Real Property Taxes, insurance costs, all Common Area Operating
Expenses and any scheduled rental increases). Said insurance may provide that in
the event the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the completion
of repairs or replacement of the Premises, to provide for one full year's loss
of rental revenues from the date of any such loss. Said insurance shall contain
an agreed valuation provision in lieu of any co-insurance clause, and the amount
of coverage shall be adjusted annually to reflect the projected rental income,
Real Property Taxes, insurance premium costs and other expenses, if any,
otherwise payable, for the next 12-month period. Common Area Operating Expenses
shall include any deductible amount in the event of such loss.
(c) Adjacent Premises. Lessee shall pay for any increase in
the premiums for the property insurance of the Building and for the Common Areas
or other buildings in the Industrial Center if said increase is caused by
Lessee's acts, omissions, use or occupancy of the Premises.
(d) Lessee's improvements. Since Lessor is the insuring Party,
Lessor shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 Lessee's Property Insurance. Subject to the requirements of
Paragraph 8.5. Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures and Lessee-Owned
Alterations and Utility Installations in, on, or about the Premises similar in
coverage to that carried by Lessor as the Insuring Party under Paragraph
8.3(a)., Such insurance shall be full replacement cost coverage with a
deductible not to exceed $1,000 per occurrence. The proceeds from any such
insurance shall be used by Lessee for the replacement of personal
<PAGE> 16
property and the restoration of Trade Fixtures and Lessee-Owned Alterations and
Utility Installations. Upon request from Lessor, Lessee shall provide Lessor
with written evidence that such insurance is in force.
8.5 Insurance Policies. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policy holders
Rating" of at least B+, V, or such other rating as may be required by a Lender,
as set forth in the most current issue of "Best's Insurance Guide." Lessee shall
not do or permit to be done anything which shall invalidate the insurance
policies referred to in this Paragraph 8. Lessee shall cause to be delivered to
Lessor, within seven (7) days after the earlier of the Early Possession Date or
the Commencement Date, certified copies of, or certificates evidencing the
existence and amounts of, the insurance required under Paragraph 8.2(a) and 8.4.
No such policy shall be cancelable or subject to modification except after
thirty (30) days' prior written notice to Lessor. Lessee shall at least thirty
(30) days prior to the expiration of such policies, furnish Lessor with evidence
of renewals or "insurance binders" evidencing renewal thereof, or Lessor may
order such insurance and charge the cost thereof to Lessee, which amount shall
be payable by Lessee to Lessor upon demand.
8.6 Waiver of Subrogation. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages (whether in contract or in tort) against
the other, for loss or damage to their property arising out of or incident to
the perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 Indemnity. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises. Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, loss of permits, attorneys' and consultants'
fees, expenses and/or liabilities arising out of, involving, or in connection
with, the occupancy of the Premises by Lessee, the conduct of Lessee's business,
any act, omission of neglect of Lessee, its agents, contractors, employees or
invitees, and out of any Default or Breach by Lessee in the performance in a
timely manner of any obligation on Lessee's part to be performed under this
Lease. The foregoing shall include, but not be limited to, the defense or
pursuit of any claim or any action or proceeding involved therein, and whether
or not (in the case of claims made against Lessor) litigated and/or reduced to
judgment. In case any action or proceeding be brought against Lessor by reason
of any of the foregoing matters. Lessee upon notice from Lessor shall defend the
same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be so indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee. Lessee's
<PAGE> 17
employees, contractors, invitees, customers, or any other person in or about the
Premises, whether such damage or injury is caused by or results from fire,
steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, fire sprinklers, wires, appliances,
plumbing, air conditioning or lighting fixtures, or from any other cause,
whether said injury or damage results from conditions arising upon the Premises
or upon other portions of the Building of which the Premises are a part, from
other sources or places, and regardless of whether the cause of such damage or
injury or the means of repairing the same is accessible or not. Lessor shall not
be liable for any damages arising from any act or neglect of any other Lessee or
Lessor nor from the failure by Lessor to enforce the provisions of any other
lease in the Industrial Center. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction
to the Premises, other than Lessee-Owned Alterations and Utility Installations,
the repair cost of which damage or destruction is less than fifty percent (50%)
of the then Replacement Cost (as defined in Paragraph 9.1(d) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
(b) "Premises Total Destruction" shall mean damage or
destruction to the Premises, other than Lessee-Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is fifty percent
(50%) or more of the then Replacement Cost of the Premises (excluding
Lessee-Owned Alterations and Utility Installations and Trade Fixtures)
immediately prior to such damage or destruction. In addition, damage or
destruction to the Building, other than Lessee-Owned Alterations and Utility
Installations and Trade Fixtures of any lessees of the Building, the cost of
which damage or destruction is fifty percent (50%) or more of the then
Replacement Cost (excluding Lessee-Owned Alterations and Utility Installations
and Trade Fixtures of any lessees of the Building) of the Building shall, at the
option of Lessor, be deemed to be Premises Total Destruction.
(c) "Insured Loss" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations and
Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a) irrespective of any deductible amounts
or coverage limits involved.
(d) "Replacement Cost" shall mean the cost to repair or
rebuild the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence
or discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
<PAGE> 18
9.2 Premises Partial Damage--Insured Loss. If Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available. Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, Lessor shall complete them as soon as
reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If Lessor does not receive such funds or assurance within such
ten (10) day period, and if Lessor does not so elect to restore and repair, then
this Lease shall terminate sixty (60) days following the occurrence of the
damage or destruction. Unless otherwise agree, Lessee shall in no event have any
right to reimbursement from Lessor for any funds contributed by Lessee to repair
any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 Partial Damage--uninsured Loss. If Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect), Lessor may at Lessor's
option, either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such damage of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the repair of such damage totally at Lessee's expense and without
reimbursement from Lessor. Lessee shall provide Lessor with the required funds
or satisfactory assurance thereof within thirty (30) days following such
commitment from Lessee. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. If Lessee does not give such
notice and provide the funds or assurance thereof within the times specified
above, this Lease shall terminate as of the date specified in Lessor's notice of
termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
<PAGE> 19
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 9.7.
9.5 Damage Near End of Term. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense repair such damage as soon as reasonably possible and
this Lease shall continue in full force and effect. If Lessee fails to exercise
such option and provide such funds or assurance during such period, then this
Lease shall terminate as of the date set forth in the first sentence of this
Paragraph 9.5.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of (i) Premises Partial Damage or (ii)
Hazardous Substance Condition for which Lessee is not legally responsible, the
Base Rent, Common Area Operating Expenses and other charges, if any, payable by
Lessee hereunder for the period during which such damage or condition, its
repair, remediation or restoration continues, shall be abated in proportion to
the degree to which Lessee's use of the Premises is impaired, but not in excess
of proceeds from insurance required to be carried under Paragraph 8.3(b). Except
for abatement of Base Rent, Common Area Operating Expenses and other charges, if
any, as aforesaid, all other obligations of Lessee hereunder shall be performed
by Lessee, and Lessee shall have no claim against Lessor for any damage suffered
by reason of any such damage, destruction, repair, remediation or restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair of restoration of the
Premises within thirty (30) days after the receipt of such notice, this Lease
shall continue in full force and
<PAGE> 20
effect. "Commence" as used in this Paragraph 9.6 shall mean either the
unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever occurs first.
9.7 Hazardous Substance Conditions. If a hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (In which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but subject
to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may at
Lessor's option either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $100,000 whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the excess costs of (a) investigation and remediation of such
Hazardous Substance Condition to the extent required by Applicable Requirements,
over (b) an amount equal to twelve (12) times the then monthly Base Rent or
$100,000, whichever is greater. Lessee shall provide Lessor with the funds
required of Lessee or satisfactory assurance thereof within thirty (30) days
following said commitment by Lessee. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.8 Termination--Advance Payments. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment
made by Lessee to Lessor and so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 Waiver of Statutes. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby waive
the provisions of any present or future statue to the extent it is inconsistent
herewith.
10. Real Property Taxes.
10.1 Payment of Taxes. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2(a), applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any increases in such amounts over the
Base Real Property Taxes shall be included in the calculation of Common Area
Operating Expenses in accordance with the provisions of Paragraph 4.2.
10.2 Real Property Tax Definitions.
<PAGE> 21
(a) As used herein, the term "Real Property Taxes" shall
include any form of real estate tax or assessment, general, special, ordinary or
extraordinary, and any license fee, commercial rental tax, improvement bond or
bonds, levy or tax (other than inheritance, personal income or estate taxes)
imposed upon the Industrial Center by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school agricultural, sanitary, fire, street, drainage, or other improvement
district thereof, levied against any legal or equitable interest of Lessor in
the Industrial Center or any portion thereof, Lessor's right to rent or other
income therefrom, and/or Lessor's business of leasing the Premises. The term
"Real Property Taxes" shall also include any tax, fee, levy, assessment or
charge, or any increase therein, imposed by reason of events occurring, or
changes in Applicable Law taking effect, during the term of this Lease,
including but not limited to a change in the ownership of the Industrial Center
or in the improvements thereon, the execution of this Lease, or any
modification, amendment or transfer thereof, and whether or not contemplated by
the Parties.
(b) As used herein, the term "Base Real Property Taxes" shall
be the amount of Real Property Taxes, which are assessed against the Premises,
Building or Common Areas in the calendar year during which the Lease is
executed. In calculating Real Property Taxes for any calendar year, the Real
Property Taxes for any real estate tax year shall be included in the calculation
of Real Property Taxes for such calendar year based upon the number of days
which such calendar year and tax year have in common.
10.3 Additional Improvements. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 Joint Assessment. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 Lessee's Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations. Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's Property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
<PAGE> 22
11. Utilities. Lessee shall pay directly for all utilities and services
supplied to the Premises, including but not limited to electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon. If
any such utilities or services are not separately metered to the Premises or
separately billed to the Premises,
<PAGE> 23
lessee shall pay to Lessor a reasonable proportion to be determined by Lessor of
all such charges jointly metered or billed with other premises in the Building,
in the manner and within the time periods set forth in Paragraph 4.2(d).
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law
assign, transfer, mortgage or otherwise transfer or encumber (collectively,
"assign") or sublet all or any part of Lessee's interest in this Lease or in the
Premises without Lessor's prior written consent given under and subject to the
terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any
transaction, or series of transactions (by way of merger, sale, acquisition,
financing, refinancing, transfer, leveraged buy-out or otherwise), whether or
not a formal assignment or hypothecation of this Lease of Lessee's assets
occurs, which results or will result in a reduction of the Net Worth of Lessee,
as hereinafter defined, by an amount equal to or greater than twenty-five
percent (25%) of such Net Worth of Lessee as it was represented to Lessor at the
time of full execution and delivery of this Lease or at the time of the most
recent assignment to which Lessor has consented, or as it exists immediately
prior to said transaction or transactions constituting such reduction, at
whichever time said Net Worth of Lessee was or is greater, shall be considered
an assignment of this Lease by Lessee to which Lessor may reasonably withhold
its consent. "Net Worth of Lessee" for purposes of this Lease shall be the net
worth of Lessee (excluding any Guarantors) established under generally accepted
accounting principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this
Lease without Lessor's specific prior written consent shall, at Lessor's option,
be a Default curable after notice per Paragraph 13.1, or a non-curable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a non-curable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days' written notice ("Lessor's Notice"), increase the monthly Base Rent
for the Premises to the greater of the then fair market rental value of the
Premises, as reasonably determined by Lessor, or one hundred ten percent (110%)
of the Base Rent then in effect. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and rental
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
as reasonably determined by Lessor (without the Lease being considered an
encumbrance or any deduction for depreciation or obsolescence, and considering
the Premises at its highest and best use and in good condition) or one hundred
ten
<PAGE> 24
percent (110%) of the price previously in effect, (ii) any index-oriented rental
or price adjustment formulas contained in this Lease shall be adjusted to
require that the base index be determined with reference to the index applicable
to the time of such adjustment, and (iii) any fixed rental adjustments scheduled
during the remainder of the Lease term shall be increased in the same ratio as
the new rental bears to the Base Rent in effect immediately prior to the
adjustment specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and/or injunctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment of
subletting shall not (i) be effective without the express written assumption by
such assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting
shall not constitute a consent to any subsequent assignment or subletting by
Lessee or to any subsequent or successive assignment or subletting by the
assignee or sublessee. However, Lessor may consent to subsequent sublettings and
assignments of the sublease or any amendments or modifications thereto without
notifying Lessee or anyone else liable under this Lease or the sublease and
without obtaining their consent, and such action shall not relieve such persons
from liability under this Lease of the sublease.
(d) In the event of any Default or Breach of Lessee's
obligation under this Lease, Lessor may proceed directly against Lessee, any
Guarantors or anyone else responsible for the performance of the Lessee's
obligations under this Lease, including any sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor.
(e) Each request for consent to an assignment of subletting
shall be in writing, accompanied by information relevant to Lessor's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including but not limited
to the intended use and/or required modification of the Premises, if any,
together with a non-refundable deposit of $1,000 or ten percent (10%) of the
monthly Base Rent applicable to the portion of the Premises which is the subject
of the proposed assignment or sublease, whichever is greater, as reasonable
consideration for Lessor's considering and processing the request for consent.
Lessee agrees to provide Lessor with such other or additional
<PAGE> 25
information and/or documentation as may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed,
for the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or insonsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph
12.2(c) shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased by an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
Security Deposit increase a condition to Lessor's consent to such transaction.
(h) Lessor, as a condition to giving its consent to any
assignment or subletting, may require that the amount and adjustment schedule of
the rent payable under this Lease be adjusted to what is then the market value
and/or adjustment schedule for property similar to the Premises as then
constituted, as determined by Lessor.
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under the
Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all rentals and income arising from any sublease of all or
a portion of the Premises heretofore or hereafter made by Lessee, and Lessor may
collect such rent and income and apply same toward Lessee's obligations under
this Lease; provided, however, that until a Breach (as defined in Paragraph
13.1) shall occur in the performance of Lessee's obligations under this Lease,
Lessee may, except as otherwise provided in this Lease, receive, collect and
enjoy the rents accruing under such sublease. Lessor shall not, by reason of the
foregoing provision or any other assignment of such sublease to Lessor, nor by
reason of the collection of the rents from a sublessee, be deemed liable to the
sublessee for any failure of Lessee to perform and comply with any of Lessee's
obligations to such sublessee under such Sublease. Lessee hereby irrevocably
authorizes and directs any such sublessee, upon receipt of a written notice from
Lessor stating that a Breach exists in the performance of Lessee's obligations
under this Lease, to pay to Lessor the rents and other charges due and to become
due under the sublease. Sublessee shall rely upon any such statement and request
from Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of
its obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublessee to attorn to Lessor, in which
event Lessor shall undertake the obligations of the sublessor under such
<PAGE> 26
sublease from the time of the exercise of said option to the expiration of such
sublease; provided, however, Lessor shall not be liable for any prepaid rents or
security deposit paid by such sublessee to such sublessor or for any other prior
defaults or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall
further assign or sublet all or any part of the Premises without Lessor's prior
written consent.
(e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the Default
of Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against Lessee
for any such Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "Default" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"Breach" by Lessee is defined as the occurrence of any one of more of the
following Defaults, and where a grace period for cure after notice is specified
herein, the failure by Lessee to cure such Default prior to the expiration of
the applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to
reoccupy same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which endangers
or threatens life or property, where such failure continues for a period of
three (3) days following written notice thereof by or on behalf of Lessor to
Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable
Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1(b), (iii) the recission of an
unauthorized assignment or subletting per Paragraph 12.1, (iv) a Tenancy
Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination of
this Lease per Paragraph 30, (vi) the guaranty of the performance of Lessee's
obligations under this Lease if required under Paragraphs 1.11 and 37, (vii) the
execution of any document requested under Paragraph 42
<PAGE> 27
(easements), or (viii) any other documentation or information which Lessor may
reasonably require of Lessee under the terms of this lease, where any such
failure continues for a period of ten (10) days following written notice by or
on behalf of Lossor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions
or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof
that are to be observed, complied with or performed by Lessee, other than those
described in Subparagraphs 13.1(a), (b) or (c), above, where such Default
continues for a period of thirty (30 days after written notice thereof by or on
behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by Lessee if
Lessee commences such cure within said thirty (30) days period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the
making by Lessee of any general arrangement or assignment for the benefit of
creditors; (ii) Lessee's become a "debtor" as defined in 11 U.S. Code Section
101 or any successor statute thereto (unless, in the case of a petition filed
against Lessee, the same is dismissed within sixty (60) days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this Subparagraph 13.1(e) is contrary to any
applicable law, such provision shall be of not force or effect, and shall not
affect the falidity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of
Lessee or of any Guarantor, given to Lessor by Lessee or any Guarantor, was
materially false.
(g) If the performance of Lessee's obligations under this
Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a
Guarantor's liability with respect to this Lease other than in accordance with
the terms of such guaranty, (iii) a Guarantor's becoming insolvent or the
subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the
guaranty, or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failur, within sixty (60) days following
written notice by or on behalf of Lessor to Lessee of any such event, to provide
Lessor with written alternative assurances of security, which, when coupled with
the then existing resources of Lessee, equals or exceeds the combined financial
resources of Lessee and the Guarantors that existed at the time of execution of
the Lease.
13.2 Remedies. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not
<PAGE> 28
be honored by the bank upon which it is drawn, Lessor, at its own option, may
require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee (as
defined in Paragraph 13.1), with or without further notice or demand, and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee: (i) the worth at the
time of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time award exceeds
the amount of such rental loss that the Lessee proves could be reasonably
avoided; and (iv) any other amount necessary to compensate Lessor for all
detriment proximately caused by the Lessee's failure to perform its obligations
under this Lease or which in the ordinary course of things would be likely to
result therefrom, including but not limited to the cost of recovering possession
of the Premises, expenses of reletting, including necessary renovation and
alteration of the Premises, reasonable attorneys' fees, and that portion of any
leasing commission paid by Lessor in connection with this Lease applicable to
the unexpired term of this Lease. The worth at the time of award of the amount
referred to in provision (iii) of the immediately preceding sentence shall be
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco or the Federal Reserve Bank District in which the Premises
are located at the time of award plus one percent (1%). Efforts by Lessor to
mitigate damages caused by Lessee's Default or Breach of this Lease shall not
waive Lessor's right to recover damages under this Paragraph 13.2. If
termination of this Lease is obtained through the provisional remedy of unlawful
detainer, Lessor shall have the right to recover in such proceeding the unpaid
rent and damages as are recoverable therein, or Lessor may reserve the right to
recover all or any part thereof in a separate suit for such rent and/or damages.
If a notice and grace period required under Subparagraph 13.1(b), (c) or (d) was
not previously given, a notice to pay rent or quit, or to perform or quit, as
the case may be, given to Lessee under any statute authorizing the forfeiture of
leases for unlawful detainer shall also constitute the applicable notice to
grace period purposes required by Subparagraph 13.1(b), (c) or (d). In such
case, the applicable grace period under the unlawful detainer statue shall run
concurrently after the one such statutory notice, and the failure of Lessee to
cure the Default within the greater of the two (2) such grace periods shall
constitute both an unlawful detainer and a Breach of this Lease entitling Lessor
to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in
effect (in California under California Civil Code Section 1951.4) after Lessee's
Breach and recover the rent as it becomes due, provided Lessee has the right to
sublet or assign, subject only to reasonable limitations. Lessor and Lessee
agree that the limitations on assignment and subletting in this Lease are
reasonable. Acts of maintenance or preservation, efforts to relet the Premises,
<PAGE> 29
or the appointment of a receiver to protect the Lessor's interest under this
Lease, shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the state wherein the Premises
are located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 Inducement Recapture in Event of Breach. Any agreement by Lessor
for free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of
such acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or deed of trust covering the
Premises. Accordingly, if any installment of rent or other sum due from Lessee
shall not be received by Lessor or Lessor's designee within ten (10) days after
such amount shall be due, then, without any requirement for notice to Lessee,
Lessee shall pay to Lessor a late charge equal to six percent (6%) of such
overdue amount. The parties hereby agree that such late charge represents a fair
and reasonable estimate of the costs Lessor will incur by reason of late payment
by Lessee. Acceptance of such late charge by Lessor shall in no event constitute
a waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable
<PAGE> 30
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by any Lender(s) whose name and address shall have been furnished to Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (3) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. Condemnation. If the Premises or any portion thereof are taken under
the power of eminent domain or sold under the threat of the exercise of said
power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever first occurs. If more than ten percent (10%) of
the floor area of the Premises, or more than twenty-five percent (25%) of the
portion of the Common Areas designated for Lessee's parking, is taken by
condemnation, Lessee may, at Lessee's option, to be exercised in writing within
ten (10) days after Lessor shall have given Lessee written notice of such taking
(or in the absence of such notice, within ten (10) days after the condemning
authority shall have taken possession) terminate this Lease as of the date the
condemning authority takes such possession. If Lessee does not terminate this
Lease in accordance with the foregoing, this Lease shall remain in full force
and effect as to the portion of the Premises remaining, except that the Base
Rent shall be reduced in the same proportion as the rentable floor area of the
Premises taken bears to the total rentable floor area of the Premises. No
reduction of Base Rent shall occur of the condemnation does not apply to any
portion of the Premises. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made a compensation for diminution of value of the leasehold or for the
taking of the fee, or as severance damages; provided, however, that Lessee shall
be entitled to any compensation, separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above Lessee's Share of
the legal and other expenses incurred by Lessor in the condemnation matter,
repair any damage to the Premises caused by such condemnation authority. Lessee
shall be responsible for the payment of any amount in excess of such net
severance damages required to complete such repair.
15. Brokers' Fees.
15.1 Procuring Cause. The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.
15.2 Additional Terms. Unless Lessor and Broker(s) have otherwise
agreed in writing, Lessor agrees that: (a) if Lessee exercises any Option (as
defined in Paragraph 39.1) grated under this Lease or any Option subsequently
granted or (b) if Lessee acquires any rights to the Premises or other premises
in which Lessor has an interest, or (c) if Lessee remains in possession of the
Premises with the consent of Lessor after the expiration of the term of this
Lease after having failed to exercise an Option, or (d) if said Brokers are the
procuring cause of any other lease of sale entered into between the Parties
pertaining to the Premises and/or any adjacent property in which Lessor has an
interest, or (e) if Base Rent is increased, whether by
<PAGE> 31
agreement or operation of an escalation clause herein, then as to any of said
transactions, Lessor shall pay said Broker(s) a fee in accordance with the
schedule of said Broker(s) in effect at the time of the execution of this Lease.
15.3 Assumption of Obligations. Any buyer or transferee of Lessor's
interest in this Lease, whether such transfer is by agreement or by operation of
law, shall be deemed to have assumed Lessor's obligation under this Paragraph
15. Each Broker shall be an intended third party beneficiary of the provisions
of Paragraph 1.10 and of this Paragraph 15 to the extent of its interest in any
commission arising from this Lease and may enforce that aright directly against
Lessor and its successors.
15.4 Representations and Warranties. Lessee and Lessor each represent
and warrant to the other that it has had no dealings with any person, firm,
broker or finder other than as named in Paragraph 1.10(a) in connection with
the negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction, Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.
16. Tenancy and Financial Statements.
16.1 Tenancy Statement. Each Party (as "Responding Party") shall within
ten (10) days after written notice from the other Party (the "Requesting Party")
execute, acknowledge and deliver to the Requesting Party a statement in writing
in a form similar to the then most current "Tenancy Statement" form published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 Financial Statement. If Lessor desires to finance, refinance, or
sell the Premises or the Building, or any part thereof, Lessee and all
Guarantors shall deliver to any potential lender or purchase designated by
Lessor such financial statements of Lessee and such Guarantors as may be
reasonably required by such lender or purchaser, including but not limited to
Lessee's financial statements for the past three (3) years. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises. In the
event of a transfer of Lessor's title or interest in the Premises or in this
Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit)
any unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relived of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants
<PAGE> 32
in this Lease to be performed by the Lessor shall be binding only upon the
Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within ten (10) days
following the date on which it was due, shall bear interest from the date due at
the prime rate charged by the largest state chartered bank in the state in which
the Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the
terms of this Lease are deemed to be rent.
22. No Prior or other Agreements; Broker Disclaimer. This Lease contains
all agreements between the Parties with respect to any matter mentioned herein,
and no other prior or contemporaneous agreement or understanding shall be
effective. Lessor and Lessee each represents and warrants to the Brokers that it
has made, and is relying solely upon, its own investigation as to the nature,
quality, character and financial responsibility of the other Party to this Lease
and as to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party beneficiary
of the provisions of this Paragraph 22.
23. Notices.
23.1 Notice Requirements. All notices required or permitted by this
Lease shall be in writing and may be delivered in person (by hand or by
messenger or courier service) or may be sent by regular, certified or registered
mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile
transmission during normal business hours, and shall be deemed sufficiently
given if served in a manner specified in this Paragraph 23. The addresses noted
adjacent to a Party's signature on this Lease shall be that Party's address for
delivery or mailing of notice purposes. Either Party may be written notice to
the other specify a different address for notice purposes, except that upon
Lessee's taking possession of the Premises, the Premises shall constitute
Lessee's address for the purpose of mailing or delivering notices to Lessee. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 Date of Notice. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail, the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-
<PAGE> 33
four (24) hours after delivery of the same to the United States Postal Service
or courier. If any notice is transmitted by facsimile transmission or similar
means, the same shall be deemed served or delivered upon telephone or facsimile
confirmation of receipt of the transmission thereof, provided a copy is also
delivered via delivery or mail. If notice is received on a Saturday or a Sunday
or a legal holiday, it shall be deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any such act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent
or similar act by Lessee, or by construed as the basis of an estoppel to enforce
the provision of provisions of this Lease requiring such consent. Regardless of
Lessor's knowledge of a Default or Breach at the time of accepting rent, the
acceptance of rent by Lessor shall not be a waiver of any Default or Breach by
Lessee of any provision hereof. Any payment given Lessor by Lessee may be
accepted by Lessor on account of moneys or damages due Lessor, notwithstanding
any qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. No Right to Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to two hundred percent
(200%) of the Base Rent applicable during the month immediately preceding such
expiration or earlier termination. Nothing contained herein shall be construed
as a consent by Lessor to any holding over by Lessee.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. All provisions of this Lease to be observed
or performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
<PAGE> 34
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 Self-Executing. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that upon written request from Lessor or a Lender in connection with a
sale, financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorneys' Fees. If any Party or Broker brings an action or proceeding
to enforce the terms hereof or declare rights hereunder, the Prevailing Party
(as hereafter defined) in any such proceeding, action, or appeal thereon, shall
be entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "Prevailing Party" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. Lessor shall be entitled to attorneys' fees, costs and expenses
incurred in preparation and service of notices of Default and consulations in
connection therewith, whether or
<PAGE> 35
not a legal action is subsequently commenced in connection with such Default of
resulting Breach. Broker(s) shall be intended third party beneficiaries of this
Paragraph 31.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eighty (180) days of the term hereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of Lessor
shall be without abatement of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the exterior of the
Premises or the Building, except that Lessee may, with Lessor's prior written
consent, install (but not on the roof) such signs as are reasonably required to
advertise Lessee's own business so long as such signs are in a location
designated by Lessor and comply with Applicable Requirements and the signage
criteria established for the Industrial Center by Lessor. The installation of
any sign on the Premises by or for Lessee shall be subject to the provisions of
Paragraph 7 (Maintenance, Repairs, Utility Installations, Trade Fixtures and
Alterations). Unless otherwise expressly agreed herein, Lessor reserves all
rights to the use of the roof of the Building, and the right to install
advertising signs on the Building, including the roof, which do not unreasonably
interfere with the conduct of Lessee's business; Lessor shall be entitled to all
revenues from such advertising signs.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to an
act by or for the other Party, such consent shall not be unreasonably withheld
or delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to his Lease or the Premises,
<PAGE> 36
including but not limited to consents to an assignment a subletting or the
presence or use of a Hazardous Substance, shall be paid by Lessee to Lessor upon
receipt of an invoice and supporting documentation therefor. In addition to the
deposit described in Paragraph 12.2(e), Lessor may, as a condition to
considering any such request by Lessee, require that Lessee deposit with Lessor
an amount of money (in addition to the Security Deposit held under Paragraph 5)
reasonably calculated by Lessor to represent the cost Lessor will incur in
considering and responding to Lessee's request. Any unused portion of said
deposit shall be refunded to Lessee without interest. Lessor's consent to any
act, assignment of this Lease or subletting of the Premises by Lessee shall not
constitute an acknowledgment that no Default or Breach by Lessee of this Lease
exists, nor shall such consent be deemed a waiver of any then existing Default
or Breach, except as may be otherwise specifically stated in writing by Lessor
at the time of such consent.
(b) All conditions to Lessor's consent authorized by this
Lease are acknowledged by Lessee as being reasonable. The failure to specify
herein any particular condition to Lessor's consent shall not preclude the
impositions by Lessor at the time of consent of such further or other
conditions as are then reasonable with reference to the particular matter for
which consent is being given.
37. Guarantor.
37.1 Form of Guaranty. If there are to be any Guarantors of this Lease
per Paragraph 1.11, the form of the guaranty to be executed by each such
Guarantor shall be in the form most recently published by the American
Industrial Real Estate Association, and each such Guarantor shall have the same
obligations as Lessee under this lease, including but not limited to the
obligation to provide the Tenancy Statement and information required in
Paragraph 16.
37.2 Additional Obligations of Guarantor. It shall constitute a Default
of the Lessee under this Lease if any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of the
guaranty called for by this Lease, including the authority of the Guarantor (and
of the party signing on the Guarantor's behalf) to obligate such Guarantor on
said guaranty, and resolution of its board of directors authorizing the making
of such guaranty, together with a certificate of incumbency showing the
signatures of the persons authorized to sign on its behalf, (b) current
financial statements of Guarantor as may from time to time be requested by
Lessor, (c) a Tenancy Statement, or (d) written confirmation that the guaranty
is still in effect.
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises
and the performance of all of the covenants, conditions and provisions on
Lessee's part to be observed and performed under this Lease, Lessee shall have
quiet possession of the Premises for the entire term hereof subject to all of
the provisions of this Lease.
39. Options.
39.1 Definition. As used in this Lease, the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor: (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises
<PAGE> 37
or the right of first refusal to lease other property of Lessor or the right of
first offer to lease other property of Lessor; (c) the right to purchase the
Premises, or the right of first refusal to purchase the Premises, or the right
of first offer to purchase the Premises, or the right to purchase other property
of Lessor, or the right of first refusal to purchase other property of Lessor,
or the right of first offer to purchase the Premises, or the right to purchase
other property of Lessor, or the right of first refusal to purchase other
property of Lessor, or the right of first offer to purchase other property of
Lessor.
39.2 Options Personal to Original Lessee. Each Option granted to Lessee
in this Lease is personal to the original Lessee named in Paragraph 1.1 hereof,
and cannot be voluntarily or involuntarily assigned or exercised by any person
or entity other than said original Lessee while the original Lessee is in full
and actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple
Options to extend or renew this Lease, a later option cannot be exercised unless
the prior Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (1) during
the period commencing with the giving of any notice of Default under Paragraph
13.1 and continuing until the noticed Default is cured, or (ii) during the
period of time any monetary obligation due Lessor from Lessee is unpaid (without
regard to whether notice thereof is given Lessee), or (iii) during the time
Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during the twelve (12) month period immediately preceding the exercise of the
Option, whether or not the Defaults are cured.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a)
(c) All Rights of Lessee under the provisions of an Option
shall terminate and be of no further force or effect, notwithstanding Lessee's
due and timely exercise of the Option, if, after such exercise and during the
term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of
Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessor gives to Lessee three (3) or more notices of separate Defaults under
Paragraph 13.1 during any twelve (12) month period, whether or not the Defaults
are cured, or (iii) if Lessee commits a Breach of this Lease.
40. Rules and Regulations. Lessee agrees that it will abide by, and keep
and observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for
<PAGE> 38
the convenience of other occupants or tenants of the Building and the Industrial
Center and their invitees.
41. Security Measures. Lessee hereby acknowledges that the rental payable
to Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications that Lessor deems necessary, and to cause
the recordation of parcel maps and restrictions, so long as such easements,
rights of way, utility raceways, dedications, maps and restrictions do not
reasonably interfere with the use of the Premises by Lessee. Lessee agrees to
sign any documents reasonably requested by Lessor to effectuate any such
easement rights, dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
44. Authority. If either Party hereto is a corporation, trust or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. Offer. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal
<PAGE> 39
financing or refinancing of the property of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if
more than one person or entity is names herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
<PAGE> 40
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR ATTORNEY'S
REVIEW AND APPROVAL, FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE
CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF ASBESTOS, UNDERGROUND
STORAGE TANKS OR HAZARDOUS SUBSTANCES, NOR REPRESENTATION OR RECOMMENDATION IS
MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE
BROKERS OR THEIR CONTRACTORS, AGENTS, OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT
RELATES; THE PARTIES SHALL RELAY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS
TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS IN A
STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS
LOCATED SHOULD BE CONSULTED.
By: Lessor By: Lessee
Hunsaker - Hunter, Inc. John Barnicoat, an individual,
d.b.a. Orange Empire Brewing Co.
Brian Hunsaker John C. Barnicoat
P. O. Box 2423
Santa Ana, Ca 92707
714 983-1390
714 553-8390
BROKER: Grubb & Ellis Company BROKER: Grubb & Ellis Company
Tim Hawke Nancy Barnicoat
Vice President
1650 Spruce St #500 1650 Spruce St. #500
Riverside, Ca 92507 Riverside, Ca 92507
909 781-4440 909 781-4440
909 781-9942 909 781-9942
<PAGE> 41
ADDENDUM
Page 1 of 2
As referred to in Paragraph 1.12, this is an Addendum attached to the lease
agreement dated April 1, 1995, by and between Hunsaker-Hunter, Inc., Lessor, and
John Barnicoat, an individual, dba ORANGE EMPIRE BREWING COMPANY, Lessee, and
constitutes a part of the attached Lease.
49. Rent Schedule and Possession:
Rent Schedule:
<TABLE>
<CAPTION>
Term Monthly Rent Payment
<S> <C>
4/1/95-7/31/95 $3,708.00+$70.00 (Trash & Normal Water Use)=$3,778.00
8/1/95-3/31/96 $5,424.00+$105.00 (Trash & Normal Water Use)=$5,529.00
4/1/96-3/31/97 $5,605.00+ (Trash & Normal Water Use)*
4/1/97-3/31/98 $5,786.00+ (Trash & Normal Water Use)*
</TABLE>
Upon lease execution by both parties, Lessee shall pay to Lessor one-half rent
for units C-2 and C-4 towards the rent during the period of April 1, 1995,
through April 30, 1995 ($1,854.00). On April 1, 1995, Lessee shall pay to Lessor
$1,854.00 towards the second one-half of rent owned for April 1995.
*The Trash and Normal Water Use Fee of $105.00 is subject to annual change.
Possession:
Lessee currently occupies Stes. C2 and C-4 under prior separate lease agreements
with Lessor. Upon Lease execution of this Lease Agreement, the prior Lease
Agreements between Lessee and Lessor for 1229 Columbia, Stes. C-2 and C-4 will
be terminated and become null and void on March 31, 1995, and this Lease
Agreement will be in full force and effect on April 1, 1995.
Lessee and Lessor acknowledges and agree that 1229 Columbia, Ste. C-3 is
currently occupied by Cory Foods whose lease will expire July 31, 1995, and that
Lessee will have no leasehold rights nor be able to occupy said unit until such
time that Cory Foods vacate said premises. Lessee will not be responsible to pay
rent nor a security deposit for said unit until Cory Foods vacates said
premises.
50. Security Deposit:
Upon lease execution by both parties, Lessor shall transfer Lessee's existing
Security Deposit monies for Stes. C-2 and C-4 of $3,800.00 and apply said monies
towards Lessee's Security Deposit for this Lease Agreement on April 1, 1995.
When Cory Foods vacates 1229 Columbia, Ste. C-3 Lessee shall pay to Lessor
additional Security Deposit monies of $1,696.00 for Ste. C-3.
51. First Right of Negotiation:
Lessee shall have a one-time First Right of Negotiation to lease 1229 Columbia,
Ste. C-1 Lessor shall give written notice to Lessee when Lessor has received an
offer to lease 1229 Columbia C-1. Lessee shall then have forty-eight (48) hours
from receipt of said notice to negotiate a deal and execute a Lease Agreement
for 1229 Columbia, Ste C-1. If Lessee fails to execute a Lease Agreement within
48 hours of said notice, it will be deemed that lessee does not wish to lease
1229 Columbia , Ste. C-1. If Lessee fails to execute a Lease Agreement within 48
hours of said notice, it will be deemed that Lessee does not wish to lease 1229
Columbia, Ste C-1, and Lessee's First Right of Negotiation shall become null and
void and Lessee shall have not further recourse whatsoever to a First Right of
Negotiation to lease 1229 Columbia, Ste C-1.
52. Confidentiality Agreement:
Lessee agrees that under no circumstances shall it discuss any terms and/or
conditions of this Lease Agreement with any other current or future tenants
within Hunter Corporate Plaza.
53. Tenant Improvements:
Lessor shall deliver the warehouse and office areas in broom-clean condition.
Any and all additional tenant improvements, other than those currently existing
in the building shall be constructed at Lessee's sole cost, and must be
permitted and build in accordance with the City of Riverside's building codes
and, prior to construction, must first be reviewed and approved by Lessor in
writing. In the event Lessee punctures the roofing structure for any reason,
then Lessee, shall, at that point, be responsible for any leaking that might
occur thereafter. Furthermore, at Lessor's elections, any and all
<PAGE> 42
additional improvements constructed by Lessee shall be removed at Lessee's
expense upon the termination of the Lease.
Tenant Improvement Allowance:
Lessor shall pay Lessee up to $10,000.00 towards a tenant improvement allowance
when the following events occur: 1) Lessee submits to Lessor copies of paid
invoices for its tenant improvement work; 2) Lessee submits work releases from
all contractors and/or subcontractors who performed works for Lessee; and 3) and
prior to construction of any tenant improvements, receipt of Lessor's approval
for said improvements; and 4) after completion of said improvements, Lessor's
review and inspection of said improvement.
54. Exhibits:
Site Plan (Exhibit A), Lease Highlights (Exhibit B), Hazardous Waste Rider
(Exhibit C), California Health and Safety Code Notice (Exhibit D), Sale/Lease
Americans with Disabilities Act and Hazardous Material Disclosure (Exhibit E),
and Grubb & Ellis Schedule of Commissions (Exhibit F) are attached hereto and
made a part of this Lease Agreement.
55. Signage:
Lessee will be allowed to put up signage that is first approved by the Lessor in
writing and that meets all city codes and regulations.
56. Rent Checks:
Rent Checks are to be made payable to: Hunsaker Hunter Inc.
P O Box 2423
Santa Ana, CA 92707
57. Key Deposit: Waived
58. Mail Key:
As the Lessee, you are responsible for obtaining the mail key for your unit(s).
To receive a key to the mail box, you must go to the Post Office located at 4150
Chicago Ave., in Riverside and pay a $15.00 "key fee."
Lessee: Lessor:
John Barnicoat, an individual Hunsaker Hunter Inc.
dba, Orange Empire Brewing Co.
By:___________________________ By:_____________________________
Name Printed: John Barnicoat Name Printed: R. Brian Hunsaker
Date:_________________________ Date:___________________________
<PAGE> 43
EXHIBIT A
PHOTO OF PARKING LOT
<PAGE> 44
EXHIBIT B
LEASE HIGHLIGHTS
The following information will highlight the answers to the most frequently
asked questions concerning your tenancy:
1. We do not send monthly statements for rent. Mail your rent check on or before
the due date to our office:
P. O. Box 2423
Santa Ana, CA 92707
2. Pay all rents on time to avoid a 6% late charge which is assessed after ten
days from due date.
3. Your lease states "the Lessor is responsible for the exterior walls, roof and
grounds". You, as Lessee, are responsible for the interior, which includes the
plumbing, electrical, walls, ceiling, heat , air conditioning, door and windows.
Your insurance carrier should provide glass coverage.
4. Immediately upon move-in, order all utilities in your name to avoid
interruption of service.
5. As Lessor, our permission must be obtained before making any improvements or
alterations to your unit.
6. Parking is not assigned or reserved. Parking spaces are for in-and-out
parking only. Parking spaces and common areas are not to be used for vehicle
repairs, storage or overflow work from your building.
Please distribute this information to all concerned. If we may be of assistance,
please call our office at (714) 863-1390 and ask for Mike Malone.
HUNSAKER DEVELOPMENT COMPANY
<PAGE> 45
Exhibit C
Grubb & Ellis Company
Commercial Real Estate Services
HAZARDOUS WASTE RIDER
This HAZARDOUS WASTE RIDER ("Rider") is attached to and made a part of that
certain lease dated April 1, 1995, by and between Hunsaker-Hunter Inc. as
Lessor, and John Barnicoat, an individual, dba Orange Empire Brewing Company, as
Lessee. Unless otherwise defined in the Rider, capitalized terms used in this
Rider shall have the same meaning as set forth in the lease.
Lessee, at its sole cost and expense, shall comply with all laws, rules,
regulations, orders and the like relating to the storage use and/or disposal of
hazardous, toxic or radioactive matter, including those materials identified in
Sections 66680 through 66685 of Title 22 of the California Administrative Code,
Division 4, Chapter 30 ("Title 22") as amended from time to time (collectively
"Toxic Materials"). Lessee shall not cause or permit any Toxic Materials to be
brought upon, kept, stored, used or disposed of in or about the premises or the
parking facilities or common areas serving the Premises by Lessee, its agents,
employees, contractors or invitees, without the prior written consent of Lessor,
which consent Lessor may withhold in its sole discretion. Lessee's reach of the
covenants contained herein shall constitute a material default under the lease.
Lessee shall be solely responsible for and shall defend, indemnify and hold
Lessor, Lessor's agents and the Premises harmless from and against all claims,
costs and liabilities, including attorney's fees and costs, arising out of or in
connection with the removal of toxic Materials from the Premises and/or any
adjacent property, including without limitation, any and all restoration work
and materials necessary to return the Premises and any other property of
whatever nature to their condition existing prior to the appearance of the Toxic
Materials on the Premises.
Lessee's obligations hereunder shall survive the termination of the lease.
LESSEE: John Barnicoat, an individual, dba
Orange Empire Brewing Company
By:___________________________
John Barnicoat
Date:_________________________
<PAGE> 46
Exhibit D
CALIFORNIA HEALTH AND SAFETY CODE NOTICE
Recently enacted legislation (California health and Safety Code, sections 25915,
etc.) requires owners of any buildings constructed prior to 1979 to provide
notice to all employees and/or tenants of any asbestos-containing construction
materials (ACM) in the building. This letter is to provide the information
required by the legislation to assist you in making appropriate precautionary
measures before disturbing any ACM and in making appropriate disclosures to your
employees.
A survey to determine the presence of ACM has not been done in your building.
However, ACM is found in the following materials:
ceiling tiles, sprayed-on ceiling materials, floor tiles and mastic,
structural fireproofing, roofing material and mastic, pip insulation,
Masonic board and heating and ventilation system mastic and insulation
This use of ACM is consistent with construction practices at the time your
building was completed and does not indicate any unusual conditions in the
building.
The mere presence of ACM does not necessarily present a health hazard. A hazard
may exist, however when ACM are damages and fibers are released in the air.
Exposure to airborne asbestos fibers can cause lung disease, cancer, and other
serious illnesses. If you have an additional questions, contact your local or
state public health agencies for better understanding of the potential impact
from asbestos exposure.
to minimize and prevent disturbance and release of asbestos, no moving,
drilling, boring, handling or disturbing of any materials described above that
could contain asbestos, should be attempted by anyone. If you intend to handle
or otherwise disturb any of the above-described material that could potentially
contain asbestos, these activities should be undertaken only by licensed
personnel with proper training and equipment for handling ACM.
If any of this material should deteriorate or if you have any further questions
or require additional information, contact Mike Malone at 714 863-1390.
Sincerely,
H&S Management Company for
Hunsaker Development Company
<PAGE> 47
Exhibit E
Grubb & Ellis Company
Commercial Real Estate Services
State of California
SALE/LEASE AMERICANS WITH DISABILITIES ACT
AND HAZARDOUS MATERIALS DISCLOSURE
Property: 1229 Columbia Ave., C2, C3, C4, Riverside, CA 92507
The United States Congress has enacted the Americans With Disabilities Act.
Among other things, this act is intended to make many business establishments
equally assessable to persons with a variety of disabilities; modifications to
real property may be required. State and local laws also may mandate changes.
The real estate brokers in this transaction are not qualified to advise you as
to what, if any, changes may be required now, or in the future. Owners and
tenants should consult the attorneys and qualified design professionals of their
choice for information regarding these matters. Real estate brokers cannot
determine which attorneys or design professionals have the appropriate expertise
in this area.
Various construction materials may contain items that have been or may in the
future be determined to be hazardous (toxic) or undesirable and may need to be
specifically treated/handled or removed. For example, some transformers and
other electrical components contain PCB's, and asbestos has been used in
components such as fire-proofing, heating and cooling systems, air duct
insulation, spray-on and tile acoustical materials, linoleum, floor tiles,
roofing, dry wall and plaster. Due to prior or current uses of the Property or
in the area, the Property may have hazardous or undesirable metals, minerals,
chemicals, hydocarbons, or biological or radioactive items. Expert inspections
are necessary. Current or future laws may require clean up by past, present
and/or future owners and/or operators. It is the responsibility of the
Seller/Lessor and Buyer/tenant to retain qualified experts to detect and correct
such matters and to consult with legal counsel of their choice to determine what
provisions, if any, they may include in transaction documents regarding the
Property.
To the best of Seller/Lessor's knowledge, Seller/Lessor has attached to this
Disclosure copies of all existing surveys and reports known to Seller/Lessor
regarding asbestos and other hazardous materials and undesirable substances
related to the Property. Sellers/Lessor are required under California health and
Safety Code Section 25915 et seq. to disclose reports and surveys regarding
asbestos to certain persons, including their employees, contractors, co-owners,
purchasers and tenants. Buyers/Tenants have similar disclosure obligations.
Seller/Lessors and Buyers/Tenants have additional hazardous materials disclosure
responsibilities to each other under California Health and Safety Code Section
25359.7 and other California laws. Consult your attorney regarding this matter.
Grubb & Ellis Company is not qualified to assist you in this matter or provide
you with other legal or tax advice.
SELLER/LESSOR BUYER/TENANT
Hunsaker - Hunter, Inc. John Barnicoat, an individual dba
Orange Empire Brewing Company
By:_______________ By:______________________
Mike Malone John Barnicoat
<PAGE> 48
GRUBB & ELLIS
Exhibit F
EXCLUSIVE AUTHORIZATION OF SALE AND LEASE
OWNER, hereby grants to GRUBB & ELLIS COMMERCIAL REAL ESTATE SERVICES, a
division of GRUBB & ELLIS COMPANY ("Broker"), the exclusive right to negotiate
as sale and lease(s) with respect to the real property described below (the
"Property") for a period commencing on March 1, 1995, and ending at midnight on
September 1, 1995 (the listing period), unless this Authorization is extended in
writing and signed by both Owner and Broker. The Property is located at
Northeast corner of Columbia and Iowa Avenues in the City of Riverside, County
of Riverside, State of California, and further described as a multi-tenant
industrial park of approximately 118,500 square feet in five separate buildings.
The price and terms of the sale shall be as follows: Not for sale. The lease(s)
shall be for a rental of $.30 gross per sq. ft. for a minimum term of One (1)
year and such other terms and conditions acceptable to the owner of the
Property.
If during the Listing Period an option or right of first refusal to purchase the
Property or any interest therein is granted or an escrow is opened or
negotiations involving the sale, transfer, conveyance or lease of the Property
have commenced and are continuing, then the term of the Listing Period shall be
extended with respect to such transaction(s) and negotiations for a period
through the exercise of such option or right of first refusal, the closing of
such escrow, the termination of such negotiations or the consummations of such
transaction. The term of Listing Period shall be extended one day for each day
the Property is off the market during the Listing Period, not to exceed six
months. The Property shall be considered off the market for any time period
after a purchase and sale agreement, letter of intent or other agreement is
executed by Owner and a buyer and before the transaction contemplated by such
agreement is terminated by the parties thereto.
In consideration of this Authorization and Broker's agreement diligently to
pursue the procurement of a purchaser and tenant(s) for the Property, Owner
agrees to pay Broker commissions as follows:
A. SALES, EXCHANGES AND OTHER TRANSFERS
3. Joint Venture/Exchange: If an exchange or joint venture is effected in lieu
of a sale, a full sales commission shall be paid in accordance with this
Schedule, computed on the basis of the type and fair market value of the
property contributed to the joint venture or properties exchanged. The listing
price stated herein shall be prima facie evidence of the fair market value of
the subject property.
B. LEASES
<TABLE>
<CAPTION>
GROSS LEASE NET LEASE
(where tenant pays all real property taxes)
<S> <C>
6% of the rent for the first 12 months; 7% of the rent for the first 12 months;
6% of the rent for the second 12 months; 7% of the rent for the second 12 months;
5% of the rent for the third 12 months; 6% of the rent for the third 12 months;
4% of the rent for the fourth 12 months; 5% of the rent for the fourth 12 months;
4% of the rent for the fifth 12 months; 5% of the rent for the fifth 12 months;
3% of the rent for the next 60 months; and 4% of the rent for the next 60 months; and
2% of the rent for the balance of the term 3% of the rent for the balance of the term.
</TABLE>
1. Commencement of Rent: For the purpose of computing the amount of the
commission due on a leasing transaction, the first month when the base or
minimum rental commences shall be deemed to be the first monthly of the lease.
2. Term of More than 30 years: If the initial lease term is in excess of 30
years, then the commission shall be calculated only upon the rental to be paid
during the first 30 years of the term of the lease.
3. Month-to-Month Tenancy: The commission shall be 50% of the first month's rent
but in no event less than $400. In the event a month-to-month tenant
subsequently executes a lease, either direct with Owner or through Broker,
within 24 months from the date of first occupancy of the month-to-month tenant
then Broker shall receive a leasing commission with respect to such lease in
accordance with the provisions hereof.
<PAGE> 49
4. Extension of Term or Additional Space Taken: If the term of the lease is
extended or the area of the lease premises is expanded prior to the expiration
of the lease, whether pursuant to an option in or an amendment of the lease or
any other agreement, then one half commission, computed in accordance herewith,
shall be paid upon the exercise of any such option or the making of any such
amendment or agreement. If the term of the lease is extended, such additional
period shall be added to the end of the initial lease term for the purpose of
computing the amount of the commission. If the area of the leased premises is
expanded, one-half leasing commission shall be due for the entire term of such
additional space; unless a lease agreement is extended or additional space is
leased John Barnicoat, in which case a full commission shall be due.
5. Purchase of Property by Tenant: Owner shall pay Broker and sales commission
in the event that a tenant procured during the Listing Period, its successors or
assigns, purchases and Property during the term of the lease or any extensions
thereof or within 180 days after the expirations thereof. whether pursuant to an
option or a right of first refusal in the lease or whether pursuant to any other
agreement between the owner of the Property and such tenant, its successors or
assigns. Said sales commission shall be reduced by the amount of any leasing
commission previously paid by Owner to Broker relating to that portion of the
lease term extending beyond the effective date of such purchase.
Commissions shall be paid through escrow upon the closing of sale or exchange
transactions; absent an escrow, commissions shall be paid upon recordation of a
deed or upon delivery of such deed or other instrument of conveyance if
recordation is deferred more than one month thereafter. In the event of a
contract or agreement of sale, joint venture agreement, business opportunity or
other transaction not involving the delivery of a deed, commissions shall be
paid upon the mutual execution of the agreement evidencing the transaction.
One half of the leasing commission shall be paid upon the mutual execution of a
lease by lessor and tenant, and the balance shall be paid on the date specified
in the lease for the commencement of the term.
Broker is hereby authorized to deduct its commission from any deposits, payments
or other funds paid by a tenant or purchaser in connection with such
transaction.
Owner shall pay said commissions to Broker if during the Listing Period: (a) the
Property or any interest therein is sold, transferred, conveyed or leased by or
through Broker. Owner or any other person or entity; or (b) a purchaser or
tenant is procured by or through Broker, Owner or any other person or entity who
is ready, willing and able to purchase or lease the Property or any interest
therein, including without limitation the granting of an option or right of
first refusal on the terms above stated or other terms acceptable to the owner
of the Property; or (c) any contract for the sale, lease, transfer or conveyance
of the Property or any interest therein is made directly or indirectly by the
owner of the Property; or (d) this Authorization is terminated or the Property
is withdrawn from sale or lease without the written consent of Broker or the
Property is made unmarketable by Owner's voluntary act. Owner shall also pay
said commission to Broker if within one hundred eighty (180) days after the
expiration of the Listing Period: (1) the owner of the Property enters into a
contract for the sale, transfer, conveyance or lease of the Property to any
person or entity which during the term of this Authorization or any extension
hereof made a written offer to purchase or lease the Property, or any interest
therein, whether or not such transaction is consummated on the same or different
terms and conditions contained in such offer or (2) the owner of the Property
enters into a contract for the sale, transfer, conveyance or lease of the
Property to any person or entity with whom Broker has negotiated or to whom
Broker has submitted the Property in an effort to effect a transaction during
the Listing Period and whose name appears on any list of such persons or
entities (the "Registration List") which Broker shall have mailed to Owner at
the address below stated within thirty (30) days following such expiration. In
the event title to the Property is transferred pursuant to foreclosure
proceedings or by a deed in lieu of foreclosure during the Listing Period, and
within one hundred eighty (180) days thereafter the Property or any interest
therein is sold, transferred, conveyed or leased to any person or entity which
during the term of the Listing Period made a written offer to purchase or lease
the Property or which is named on the Registration. List, Owner shall pay Broker
said commission with respect to such transaction. Where the Property is owned by
a partnership or corporation, not publicly traded, the transfer of any of the
capital stock of or a partnership interest in such entity during the term of the
Listing Period shall be deemed to be a sale of the Property or of an interest in
the Property.
Owner agrees to cooperate with broker in effecting a sale and/or lease(s) of the
Property and immediately to refer to broker all inquires of any person or entity
interested in purchasing or leasing the Property. All negotiations are to be
through Broker. Owner agrees to pay all customary escrow, title and revenue
charges and to execute such documents as many be necessary to effect a sale of
the Property. Broker is authorized to accept a deposit from an prospective
purchaser or tenant. In sales and exchange transactions, Broker is authorized,
upon the opening of escrow, to transfer such deposit to the escrow agent for the
account of the purchaser., In the event a transaction is not consummated, any
deposits, payments, including payments, including payments for
<PAGE> 50
options, liquidated damages and other amounts retained by Owner shall be equally
divided between Owner and Broker, except that Broker's portion thereof shall not
exceed the amount of the commission otherwise payable upon the consummation of
such transaction by the terms of this Authorization. Broker is further
authorized to advertise the Property and shall have the exclusive right to place
a sign or signs on the Property if, in Broker's opinion, such would facilitate
the sale or leasing thereof.
It is understood that it is illegal for either Owner or Broker to refuse to
present , sell or lease real property to any person because of race, color,
religion, national origin, sex, martial status, age or physical disability.
Except as disclosed in an addendum hereto signed by both Owner and an officer of
Broker, Owner hereby warrants and represents to Broker that (1) Owner is the
owner of record of the Property or has the legal authority to execute this
Authorization on behalf of such owner, (2) no person or entity has any right to
purchase or lease the Property or to acquire any interest therein by virtue of
any agreement, option or right of first refusal, (3) there are no delinquencies
or defaults under any deed of trust, mortgage or other encumbrance on the
Property, (4) the Property is not subject to the jurisdiction of any court in
any bankruptcy, insolvency, conservatorship or probate proceeding, and (5)
neither Broker nor any salesperson affiliated with Broke has made any promises
ore representations to or agreements with owner not contained herein which in
any manner affect Owner's and Broker's rights and obligations under this
Authorization.
Owner agrees to defend, indemnify and hold Broker harmless from any and all
claims, liabilities, demands and damages arising from any incorrect information
supplied by Owner or any information which Owner fails to supply.
In the event an escrow is opened during the term of this Authorization or any
extension hereof with respect to the sale, transfer or conveyance of the
Property or any interest therein, Owner hereby assigns to Broker and authorizes
and instructs the escrow agent to disburse to Broker the amount of the
compensation provided for herein from the funds payable to Owner.
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE
ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION
DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING
UP ANY RIGHTS YOU MAY POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY
TRIAL. BY INITIALING IN THEY SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS
TO DISCOVERY AND APPEAL, UNLESS SUCH RIGHTS ARE SPECIFICALLY INCLUDED IN THE
"ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION
AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE
AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS
ARBITRATION PROVISION IS VOLUNTARY. WE HAVE READ AND UNDERSTOOD THE FOREGOING
AND AGREE TO SUBMIT DISPUTES ARISING OUT OF MATTERS INCLUDED IN THE "ARBITRATION
OF DISPUTES" PROVISION TO NEUTRAL ARBITRATION.
OWNER________ BROKER________
Arbitration of Disputes. In the event a claim or controversy arises concerning
any failure to pay Broker all or any portion of the amounts provided herein,
Owner and Broker hereby agree that such claim or controversy shall be settled by
final, binding arbitration in accordance with the Commercial Arbitration Rulers
of the American Arbitration Association, which rules are incorporated herein by
reference, provided, however, that all persons nominated to act as arbitrators
of such claim or controversy shall be attorneys at law duly licensed to practice
before the courts of the state where the arbitration is conducted. Judgment upon
the award rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof. Depositions may be taken and other discovery may be
obtained during such arbitration proceedings to the same extent as authorized in
civil judicial proceedings. The unsuccessful party shall pay the costs of
conducting the arbitration. In the event any arbitration proceeding or legal
action to enforce an arbitration award is commenced to recover compensation
hereunder, the prevailing party shall be entitled to recover its expenses and
reasonable attorneys' fees incurred therein from the unsuccessful party.
In the event that Owner and Broker have not elected to resolve commission
disputes by arbitration as provided above, if a claim controversy arises
concerning any failure to pay Broker all or any portion of the amounts provided
herein, the prevailing party shall be entitled to its costs and attorneys' fees
in any legal action regarding the collection of a commission due hereunder.
If there is a failure to make any payment at the time required herein, the
delinquent sum(s) shall bear interest at the rate of 18% per year or the maximum
nonusurious rate for loans permitted by law, whichever is lower.
<PAGE> 51
Owner hereby authorizes Broker to represent and serve as agent for any purchaser
or tenant, or prospective purchaser or tenant, of the Property or of any
interest therein, and Owner hereby waives an conflict of interests which might
arise as a result thereof.
The heirs, transferees, successors and assigns of the parties hereto are duly
bound by the provisions hereof.
NO AMENDMENTS TO OR MODIFICATIONS OF THIS AUTHORIZATION NOR THE TERMINATION OF
THIS AUTHORIZATION SHALL BE VALID OR BINDING UNLESS MADE IN WRITING AND SIGNED
BY BOTH OWNER AND AN OFFICER OF BROKER. OWNER HEREBY ACKNOWLEDGES THAT
SALESPERSONS AFFILIATED WITH BROKER ARE NOT AUTHORIZED TO MAKE OR APPROVE ANY
ADDITIONS TO, DELETIONS FROM OR ALTERATIONS OF THE PRINTED PROVISIONS OF THIS
AUTHORIZATION, OR TO TERMINATE THIS AUTHORIZATION, AND THAT NO SUCH ADDITION,
DELETIONS, ALTERATION OR TERMINATION SHALL BE VALID OR BINDING ON BROKER UNLESS
IN WRITING AND SIGNED BY AN OFFICER OF BROKER, ANY PURPORTED AMENDMENT,
MODIFICATION OR TERMINATION OF THIS AUTHORIZATION WHICH IS ORAL, OR WHICH IS IN
WRITING BUT NOT SIGNED BY BOTH OWNER AND AN OFFICER OF BROKER, SHALL BE VOID AND
OF NO EFFECT WHATSOEVER.
Owner hereby acknowledges that neither Broker nor any salesperson, associated
with Broker is qualified or authorized to give legal or tax advice; if Owner
desires such advice he shall consult with an attorney or accountant.
Owner acknowledges receipt of a copy of this Authorization which Owner has read
and understand.
Dated______________________ Owner: Hunsaker Hunter Inc.
By:________________________ By:________________________
David H. Illsley
Senior Vice President and Sale Manager
<PAGE> 52
LEASE AMENDMENT
Page 1 of 2
This is an amendment to the attached lease agreement dated April 1, 1995, by and
between Hunsaker-Hunter Inc., Lessor, and John Barnicoat, an individual, dba
ORANGE EMPIRE BREWING COMPANY, Lessee, and constitutes a part of the attached
Lease.
Electrical Allowance:
a. Lessor shall pay Lessee $11,000.00 towards the cost of improving the outside
electrical service to allow for the upgrade in electrical power to unit C-2 to
400 amps and unit C4 to 200 amps (per the attached letter and bid from Davidson
Electrical Enterprises, Inc.) when all of the following events occur: 1) Lessee
submits to Lessor copies of paid invoices for its electrical works; 2) Lessee
submits work releases from all contractors and/or subcontractors who performed
work for Lessee; and 3) and prior to the start of any electrical work receipt of
Lessor's approval for said improvements; and 4) after completion of said
electrical work, Lessor's review and inspection of the work that was performed
by Lessee and/or its agents.
b. In consideration for said electrical cost paid by Lessor, the lease rate
shall be increased by $452.00 per month for the entire lease term.
c. Lessors understands and acknowledges the fact that the Lessee may not require
the additional $11,000.00 for said electrical work. In the event Lessee informs
Lessor in writing on or before August 31, 1995, that Lessee does not require
said $11,000.00, then this Amendment shall become null and void; however, all
other terms and conditions of the April 1, 1995, Lease Agreement shall remain in
full force and effect. In the event Lessor does not received written notice on
or before August 31, 1995, that Lessee does not require the $11,000.00 for
electrical work then when all of the above-referenced conditions as outlined in
section "a" of this amendment are satisfied, Lessor shall pay to Lessee a check
for $11,000.00 for said electrical work. Upon payment of said $11,000.00 to
Lessee by Lessor, Lessee shall immediately remit to Lessor a check based upon a
pro rata amount of $452.00 per month from the start date of the Lease Agreement
(April 1, 1995) to the first day of the following month from the date Lessor
pays Lessee said $11,000. Thereafter, Lessee shall pay, in addition to the
monthly rent per paragraph 49 of the Lease Addendum, $452.00 per month until the
termination of the initial term of the Lease Agreement.
Read and Agreed:
Lessee: Lessor:
John Barnicoat, an individual Hunsaker Hunter Inc
dba., Orange Empire Brewing Company
By:__________________________ By:_________________________
Name Printed: John Barnicoat Name Printed: Brian Hunsaker
Date: Date: 6/15/95
<PAGE> 53
Davidson
Electrical Enterprises, Inc.
1744 W. Katella Avenue #6 714 639-7475
Orange, California 92667 Fax 714 633-9180
June 7, 1995
TO: Matt, Riverside Brewing Company, Via Fax (909) 682-5487
FROM: Ron Davidson
Replace existing service on 1229 Columbia. Weatherproof stand-up section meter
main combination.
Labor and materials: $11,000.00
Note: work would have to be done on weekends.
Does not include barrier posts relocation or any power company charges.
Addendum: C2 space electrical indoor distribution 400-amp panel with 200-amp
breaker and 175 breaker....
$ 1,975.00
Ronald E. Davidson, President
DAVIDSON ELECTRICAL ENTERPRISES INC.
RED/njp
<PAGE> 1
EXHIBIT 10.5
INDUSTRIAL/COMMERCIAL LEASE
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("Lease"), dated for reference purposes only,
December 6, 1995, is made by and between Hunsaker-Hunter, Inc. ("Lessor") and
John Barnicoat, an individual, dba Orange Empire Brewing Company ("Lessee")
(collectively the "PARTIES," or individually a "PARTY") who agree as follows:
1.2(a) PREMISES: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 1229 Columbia, Suite C-1 and 1215
Columbia, Suite C-4, located in the city of Riverside, County of Riverside,
State of California with zip code 92507 as outlined on Exhibit A attached hereto
("Premises") the "Building" is that certain building containing the Premises and
generally described as two multi-tenant units of approximately 8,676 square feet
per the following: Suite C-1: Approx. 4,608 sq. ft.; Suite C-4: Approx. 4,068
sq. ft. In addition to Lessee's rights to use and occupy the Premises as
hereinafter specified, Lessee shall have non-exclusive rights to the Common
Areas (as defined in Paragraph 2.6 below) as hereinafter specified, but shall
not have any rights tot the roof, exterior walls or utility raceways of the
Building or to any other buildings in the Industrial Center. The Premises, the
Building, the Common Areas, the land upon which they are located, along with all
other buildings and improvements thereon, are herein collectively referred to as
the "Industrial Center." (Also see Paragraph 2.)
1.2(b) PARKING: 16 unreserved vehicle parking spaces ("UNRESERVED
PARKING SPACES"): and 0 reserved vehicle parking spaces ("RESERVED PARKING
SPACES"). (Also see Paragraph 2.5.)
1.3 TERM: 2 years and 3 months ("Original Term") commencing January 1,
1996 ("Commencement Date") and ending March 31, 1998 ("Expiration Date") (Also
see Paragraph 3.)
1.4 EARLY POSSESSION: Upon mutual lease execution ("Early Possession
Date") (Also see Paragraphs 3.2 and 3.3.)
1.5 BASE RENT: $2,863.08 per month ("Base Rent"), payable on the 1st
day of each month commencing January 1, 1996. (Also see Paragraph 4.) [X] If
this box is checked, this Lease provides for the Base Rent to be adjusted per
Addendum ___ , attached hereto.
1.6(a) BASE RENT PAID UPON EXECUTION: $2,863.08 as Base Rent for the
period of January 1-31, 1996.
1.6(b) LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: Eighteen
percent (18%) applies only to taxes and insurance. Lessor shall be responsible
for all other common are operating expenses as defined in Paragraph 4.2.
("Lessee's Share") as determined by prorata square footage of the Premises as
compared to the total square footage of the building or other criteria as
described in Addendum.
1.7 SECURITY DEPOSIT: $2,900.00 ("Security Deposit"). (Also see
Paragraph 5.)
1.8 PERMITTED USE: General office, manufacturing and warehousing for a
brewery ("Permitted Use"). (Also see Paragraph 6.)
1.9 INSURING PARTY. Lessor is the "Insuring Party." (Also see Paragraph
8.)
1.10(a) REAL ESTATE BROKERS. The following real estate broker(s)
(collectively, the "Brokers") and brokerage relationships exist in this
transaction and are consented to by the Parties: Grubb & Ellis Company
represents both Lessor and Lessee ("Dual Agency"). (Also see Paragraph 15.)
1.10(b) PAYMENT TO BROKERS. Upon the execution of this Lease by both
Parties, Lessor shall pay to said Broker(s) jointly, or in such separate shares
as they may mutually designate in writing, a fee as set forth in a separate
written agreement between Lessor and said Broker(s) (or in the event there is no
separate written agreement between Lessor and said Broker(s), the sum of
$4,455.98) for brokerage services rendered by said Broker(s) in connection with
this transaction.
1
<PAGE> 2
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to
be guaranteed by Not Applicable ("Guarantor"). (Also see Paragraph 37.)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 49 through 55, and Exhibits A through C, all of which
constitute a part of this Lease.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental and/or Common Area Operating
Expenses, is an approximation which Lessor and Lessee agree is reasonable and
the rental and Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is
not subject to revision whether or not the actual square footage is more or
less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, air conditioning
and heating systems and loading doors, if any, in the Premises, other than those
constructed by Lessee, shall be in good operating condition on the Commencement
Date. If a non-compliance with said warranty exists as of the Commencement Date,
Lessor shall, except as otherwise provided in this Lease, promptly after receipt
of written notice from Lessee setting forth with specificity the nature and
extent of such non-compliance, rectify same at Lessor's expense. If Lessee does
not give Lessor written notice of a non-compliance with this warranty within
thirty (30) days after the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense. Lessor
makes no warranty that the construction of improvements on the Premises has been
undertaken in compliance with Applicable Laws as defined in Paragraph 2.3 below.
Lessor makes no warranty that the Permitted Use in Paragraph 1.8 is permitted
under Applicable Laws. Lessee shall comply with all Applicable Laws and shall
indemnify and hold harmless Lessor from any claim, loss, or damage arising out
of such non-compliance.
2.3 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
been advised by the Broker(s) to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, seismic and earthquake requirements,
and compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and regulations and any
covenants or restrictions of record (collectively, "Applicable Laws") and the
present and future suitability of the Premises for Lessee's intended use; (b)
that Lessee has made such investigation as it deems necessary with reference to
such matters, is satisfied with reference thereto, and assumes all
responsibility therefore as the same relate to Lessee's occupancy of the
Premises and /or the terms of the Lease; and (c) that neither Lessor, nor any of
Lessor's agents, has made any oral or written representations or warranties with
respect to said matters other than as set forth in this Lease.
2.4 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties and Applicable Laws.
2.5 VEHICLE PARKING. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick-up trucks, herein called "Permitted Size
Vehicles." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in paragraph 40) issued by Lessor. (Also see Paragraph 2.8.)
(a) Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
contractors and invitees to be loaded, unloaded, or parked in areas other than
those designated by Lessor for such activities.
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(b) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.5, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
2.6 COMMON AREAS-DEFINITION. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and interior utility raceways within the Premises that
are provided and designated by the Lessor from time to time for the general
nonexclusive use of Lessor, Lessee and other lessees of the Industrial Center
and their respective employees, suppliers, shippers, customers, contractors, and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas..
2.7 COMMON AREAS-LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the terms of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any Rules and Regulations
or restrictions governing the use of the Industrial Center. Under no
circumstances shall the right herein granted to use the Common Areas be deemed
to include the right to store any property, temporarily or permanently, in the
Common Areas. Any such storage shall be permitted only by the prior written
consent of Lessor or Lessor's designated agent, which consent may be revoked at
any time. In the event that any unauthorized storage shall occur then Lessor
shall have the right, without notice , in addition to such other rights and
remedies that it may have to remove and store the property and charge the cost
to Lessee, which cost shall be immediately payable upon demand by Lessor.
2.8 COMMON AREAS-RULES AND REGULATIONS. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable Rules and Regulations with respect thereto in
accordance with Paragraph 40. Lessee agrees to abide by and conform to all such
Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee, its employees, suppliers, shippers, customers,
contractors, and invitees for the non-compliance with said Rules and Regulations
by other lessees of the Industrial Center.
2.9 COMMON AREA-CHANGES. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access tot he Premises remains available;
(c) To designate other land outside the boundaries of the
Industrial Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common
Areas.
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other changes
in, to or with respect to the Common Areas and Industrial Center as Lessor may,
in the exercise of sound business judgment, deem to be appropriate.
2.10 RIGHT TO RELOCATE PREMISES. Lessor shall have the right to
relocate the Premises to another part of the Building in which the Premises are
located in accordance with the following:;
(a) The new Premises shall be substantially the same in size,
dimensions, configuration, and nature as the Premises described in this Lease,
and shall be placed in that condition by Lessor at its cost.
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(b) The physical relocation of the Premises shall be accomplished
by Lessor at its cost.
(c) Lessor shall give Lessee at least sixty (60) days' notice of
Lessor's intention to relocate the Premises.
(d) The physical relocation of the Premises shall take place on a
weekend and shall be completely accomplished before the Monday following the
weekend in which the relocation takes place. If the physical relocation has not
been completed in that time, rent shall abate in full from the time the physical
relocation commences to the time it is completed.
(e) All costs reasonably incurred by Lessee as a result of the
relocation, including, without limitation, costs incurred in changing addresses
on stationery, business cards, directories, advertising, and other such items,
shall be paid by Lessor, in a sum not to exceed $1,000.00.
(f) Lessor shall not have the right to relocate the Premises more
than two (2) times during the Original Term.
(g) If the relocated Premises are smaller than the Premises as they
existed before the relocation, rent shall be reduced to a sum computed by
multiplying the rent specified in Paragraph 1.5 by a fraction, the numerator of
which shall be the total number of square feet in the relocated Premises, and
the denominator of which shall be the total number of square feet in the
Premises before relocation.
(h) The parties shall immediately execute an amendment to this
Lease stating the relocation of the Premises and the reduction of rent, if any.
3. TERM.
3.1 TERM. The commencement Date, Expiration Date and Original Term of
the Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If an Early Possession Date is specified in
Paragraph 1.4 and if Lessee totally or partially occupies the Premises after the
Early Possession Date but prior to the Commencement Date, the obligation to pay
Base Rent shall be abated for the period of such early occupancy. All other
terms of this Lease, however, (including but not limited to the obligations to
pay Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee by the Early Possession Date, if one is
specified in Paragraph 1.4, or if no Early Possession Date is specified, the
Commencement Date, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. When the Original Term actually commences,
the period free of the obligation to pay Base Rent, if any, that Lessee would
otherwise have enjoyed shall run from the date of delivery of possession and
continue for a period equal to the period during which the Lessee would have
otherwise enjoyed under the terms hereof, but minus any days of delay caused by
the acts, changes or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall pay Base Rent and other rent or charges, as
the same may be adjusted from time to time, to Lessor in lawful money of the
United States, without offset or deduction, on or before the day on which it is
due under the terms of this Lease. Base Rent and all other rent and charges for
any period during the term hereofwhich is for less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shall be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.
4.2 COMMON AREA OPERATING EXPENSES. Lessee shall pay to Lessor during
the term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6(b)) of all Common Area Operating Expenses, as hereinafter defined,
during each calendar year o the term of this Lease, in accordance with the
following provisions:
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(a) "COMMON AREA OPERATING EXPENSES" are defined, for purposes
of this Lease, as all costs incurred by Lessor relating to the ownership and
operation of the Industrial Center, including, but not Limited to, the
following:
(i) The operation, repair and maintenance, in neat, clean, good
order and condition, of the following:
(aa) The Common Areas, including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area
lighting facilities, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas.
(iii) Trash disposal, property management and security services
and the costs of any environments inspections.
(iv) Reserves set aside for maintenance and repair of Common
Areas.
(v) Any increase above the Base Real Property Taxes (as defined
in Paragraph 10.2(b)) for the Building and the Common Areas.
(vi) Any "Insurance Cost Increase" (as defined in Paragraph
8.1).
(vii) The cost of insurance carried by Lessor with respect to
the Common Areas.
(viii) Any deductible portion of an insured loss concerning the
Building or the Common Areas.
(ix) Wages, payroll taxes and other benefits for employees of
Lessor utilized in connection with the operation, repair, and maintenance of the
Common Areas.
(x) Any other services to be provided by Lessor that are stated
elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property Taxes that
are specifically attributable to the Building or to any other building in the
Industrial Center or to the operation, repair and maintenance thereof, shall be
allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not specifically
attributable to the Building or to any other building or to the operation,
repair and maintenance thereof, shall be equitably allocated by Lessor to all
buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services set
forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon
Lessor to either have said improvements or facilities or to provide those
services unless the Industrial Center already has the same, Lessor already
provides the services, or Lessor has agreed elsewhere in this Lease to provide
the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be
payable by Lessee within ten (10) days after a reasonably detailed statement of
actual expenses is presented to Lessee by Lessor. At Lessor's option, however,
and amount may be estimated by Lessor from time to time of Lessee's Share of
annual Common Area Operating Expenses and the same shall be payable monthly or
quarterly, as Lessor shall designate, during each 12-month period of the Lease
term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Common Area
Operating Expenses incurred during the preceding year. If Lessee's payments
under this Paragraph 4.2(d) during said preceding year exceed Lessee's Share as
indicated on said statement, Lessee shall be credited the amount of such
over-payment against Lessee's Share of Common Area Operating Expenses next
becoming due. If Lessee's payments under this Paragraph 4.2(d) during said
preceding year were less than Lessee's Share as indicated on said statement,
Lessee shall pay to Lessor the amount of the deficiency within ten (10) days
after delivery by Lessor to Lessee of said statement.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon Lessee's
execution hereof the Security Deposit set forth in Paragraph 1.7 as security for
Lessee's faithful performance of Lessee's obligations under this Lease. If
Lessee fails to pay Base Rent or other rent or charges due hereunder, or
otherwise Defaults under this Lease (as defined in Paragraph 13.1), Lessor may
use, apply or retain all or any portion of said Security Deposit for the payment
of any amount due Lessor or to reimburse or compensate Lessor for any liability,
cost, expense, loss or damage (including attorneys' fees) which Lessor may
suffer or incur by reason thereof. If Lessor uses or applies all or any portion
of said Security Deposit, Lessee shall within ten (10) days after written
request therefore deposit
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monies with Lessor sufficient to restore said Security Deposit to the full
amount required by this Lease. Any time the Base Rent increases during the term
of this Lease, Lessee shall, upon written request from Lessor, deposit
additional monies with Lessor as an addition to the Security Deposit so that the
total amount of the Security Deposit shall at all times bear the same proportion
to the then current Base Rent as the initial Security Deposit bears to the
initial Base Rent set forth in Paragraph 1.5. Lessor shall not be required to
keep all or any part of the Security Deposit separate from its general accounts.
Lessor shall, at the expiration or earlier termination of the term hereof and
after Lessee has vacated the Premises, return to Lessee (or, at Lessor's option,
to the last assignee, if any, of Lessee's interest herein), that portion of the
Security Deposit not used or applied by Lessor. Unless otherwise expressly
agreed in writing by Lessor, no part of the Security Deposit shall be considered
to be held in trust, to bear interest or other increment for its use, or to be
prepayment for any monies to be paid by Lessee under this Lease. Upon any sale
or transfer of its interest in the building, Lessor may transfer the Security
Deposit to its successor in interest and, thereupon, Lessor shall be released
from any liability or obligation with respect thereto.
6. USE.
6.1 PERMITTED USE.
(a) Lessee shall use and occupy the Premises only for the Permitted
Use set forth in Paragraph 1.8, or any other legal use which is reasonably
comparable thereto, and for no other purpose. Lessee shall not use or permit the
use of the Premises in a manner that is unlawful, creates waste or a nuisance,
or that disturbs owners and/or occupants of, or causes damage to the Premises or
neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay its
consent to any written request by Lessee, Lessee's assignees or subtenants, and
by prospective assignees and subtenants of Lessee, its assignees and subtenants,
for a modification of said Permitted Use, so long as the same will not impair
the structural integrity of the improvements on the Premises or in the Building
or the mechanical or electrical systems therein, does not conflict with uses by
other lessees, is not significantly more burdensome to the Premises or the
Building and the improvements thereon, and is otherwise permissible pursuant to
this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall within
five (5) business days after such request give a written notification of same,
which notice shall include an explanation of Lessor's reasonable objections to
the change in use.
(c) Lessee shall comply with any law, statute, ordinance, and
governmental rule or regulation not in force or hereafter adopted relating to
any transportation management programs which apply to the Building.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE"
as used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises ,
is either: (i) potentially injurious to the public health, safety or welfare,
the environment, or the Premises; (ii) regulated or monitored by any
governmental authority; or (iii) a basis for potential liability of Lessor to
any governmental agency or third party under any applicable statute or common
law theory. Hazardous Substance shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, crude oil or any products or by-products
thereof. Lessee shall not engage in any activity in or about the Premises which
constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances
without the express prior written consent of Lessor (which consent Landlord may
withhold in its sole and complete discretion) and compliance in a timely manner
(at Lessee's sole cost and expense) with all Applicable Requirements (as defined
in Paragraph 6.3). "REPORTABLE USE" shall mean (i) the installation or use of
any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority, (iii)
the presence in, on or about the Premises of a Hazardous Substance with respect
to which any Applicable Laws require that a notice be given to persons entering
or occupying the Premises or neighboring properties, and (iv) the storage, use,
and/or disposal of hazardous, toxic, or radioactive matter, including those
materials mentions in Sections 66261.1 through 66261.126 of Title 22 of the
California Administrative Code, Division 4.5, Chapter 11, as amended from time
to time. Notwithstanding the foregoing, Lessee may, without Lessor's prior
consent, but upon notice to Lessor and in compliance with all Applicable
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Requirements, use any ordinary and customary materials reasonable required to be
used by Lessee in the normal course of the Permitted Use, so long as such use is
not a Reportable Use and does not expose the Premises or neighboring properties
to any meaningful risk of contamination or damage or expose Lessor to any
liability therefor. In addition, Lessor may (but without any obligation to do
so) condition its consent to any Reportable Use of any Hazardous Substance by
Lessee upon Lessee's giving Lessor such additional assurances as Lessor, in its
reasonable discretion, deems necessary to protect itself, the public, the
Premises and the environment against damage, contamination or injury and/or
liability therefor, including but not limited to the installation (and, at
Lessor's option, removal on or before Lease expiration or earlier termination)
of reasonably necessary protective modifications to the Premises (such as
concrete encasements) and/or the deposit of an additional Security Deposit under
Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance has come to be located in, on, under or
about the Premises or the Building, other than as previously consented to by
Lessor, Lessee shall immediately give Lessor written notice thereof, together
with a copy of any statement, report, notice, registration, application, permit,
business plan, license, claim, action, or proceeding given to, or received from,
any governmental authority or private party concerning the presence, spill,
release, discharge of , or exposure to, such Hazardous Substance including but
not limited to all such documents as may be involved in any Reportable Use
involving the Premises. Lessee shall not cause or permit any Hazardous Substance
to be spilled or released in, on, under or about the Premises (including,
without limitation, through the plumbing or sanitary sewer system).
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities, judgments,
costs, claims, liens, expenses, penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee or by anyone under Lessee's control and any
activity by Lessee or by anyone under Lessee's control which constitutes a
Reportable Use. Lessee's obligations under this Paragraph 6.2(c) shall include,
but not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultants' and attorneys' fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances, unless specifically so agreed by Lessor in
writing at the time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at Lessee's
sole cost and expense, fully, diligently and in a timely manner, comply with all
"APPLICABLE REQUIREMENTS," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including
but not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill or release of
any Hazardous Substance), now in effect or which my hereafter come into effect.
Lessee shall, within five (5) days after receipt of Lessor's written request,
provide Lessor with copies of all documents and information, including but not
limited to permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any threatened or actual
claim, notice, citation, warning, complaint or report pertaining to or involving
failure by Lessee or the Premises to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE WITH LAW. Lessor, Lessor's agents,
employees, contractors and designated representatives, and the holders of any
mortgages, deeds of trust or ground leases on the Premises ("LENDERS") shall
have the right to enter the Premises at any time in the case of an emergency,
and otherwise at reasonable times, for the purpose of inspecting the condition
of the Premises and of verifying compliance by
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Lessee with this Lease and all Applicable Requirements (as defined in Paragraph
6.3), and Lessor shall be entitled to employ experts and/or consultants in
connection therewith to advise Lessor with respect to Lessee's activities,
including but not limited to Lessee's installation, operation, use, monitoring,
maintenance, or removal of any Hazardous Substance on or from the Premises. The
costs and expenses of any such inspections shall be paid by the party requesting
same, unless a Default or Breach of this Lease by Lessee or a violation of
Applicable Requirements or a contamination, caused or materially contributed to
by Lessee, is found to exist or to be imminent, or unless the inspection is
requested or ordered by a governmental authority as the result of any such
existing or imminent violation or contamination. In such case, Lessee shall upon
request reimburse Lessor or Lessor's Lender, as the case my be, for the costs
and expenses of such inspections.
7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 7.2
(Lessor's Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee
shall, at Lessee's sole cost and expense and at all times, keep the Premises and
every part thereof in good order, condition and repair (whether or not such
portion of the Premises requiring repair, or the means of repairing the same,
are reasonably or readily accessible to Lessee, and whether or not the need for
such repairs occurs as a result of Lessee's use, any prior use, the elements or
the age of such portion of the Premises), including, without limiting the
generality of the foregoing, all equipment of facilities specifically serving
the Premises, such as plumbing, heating, air conditioning, ventilating,
electrical, lighting facilities, boilers, fired or unfired pressure vessels,
fire hose connections if within the Premises, fixtures, interior walls, interior
surfaces of exterior walls, ceilings, floors, windows, doors, plate glass, and
skylights, but excluding any items which are the responsibility of Lessor
pursuant to Paragraph 7.2 below. Lessee, in keeping the Premises in good order,
condition and repair shall exercise and perform good maintenance practices.
Lessee's obligations shall include restorations, replacements or renewals when
necessary to keep the Premises and all improvements thereon or a part thereof in
good order, condition and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract with copies to Lessor, in customary form and substance for
and with a contractor specializing and experienced in the inspection,
maintenance and service of the heating, air conditioning and ventilation system
for the Premises. However, Lessor reserves the right, upon notice to Lessee, to
procure and maintain the contract for the heating, air conditioning and
ventilating systems, and if Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof.
(c) If lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of an emergency, in which case no
notice shall be required) perform such obligations on Lessee's behalf and put
the Premise in good order, condition and repair, in accordance with Paragraph
13.2 below.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's
Obligations), 9 (Damage or Destruction) and 14 (Condemnation), Lessor, subject
to reimbursement pursuant to Paragraph 4.2, shall keep in good order, condition
and repair the foundations, exterior walls, structural condition of interior
bearing walls, exterior roof, fire sprinkler and/or standpipe and hose (if
located in the Common Areas) or other automatic fire extinguishing system
including fire alarm and/or smoke detection systems and equipment, fire
hydrants, parking lots, walkways, parkways, driveways, landscaping, fences,
signs and utility systems serving the Common Areas and all parts thereof, as
well as providing the services for which there is a Common Area Operating
Expense pursuant to Paragraph 4.2. Lessor shall not be obligated to paint the
exterior or interior surfaces of exterior walls nor shall Lessor be obligated to
maintain, repair or replace windows, doors or plate glass of the Premises.
Lessee expressly waives the benefit of any statute now or hereafter in effect
which would otherwise afford Lessee the right to make repairs at Lessor's
expense or to terminate this Lease because of Lessor's failure to keep the
Building, Industrial Center or Common Areas in good order, condition and repair.
7.3 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS"
is used in this Lease to refer to all air lines, power panels, electrical
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distribution, security, fire protection systems, communications systems,
lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "TRADE FIXTURES"
shall mean Lessee's machinery and equipment which can be removed without doing
material damage to the Premises. The term "ALTERATIONS" shall mean any
modification of the improvements on the Premises which are provided by Lessor
under the terms of this Lease, other than Utility Installations or Trade
Fixtures. "LESSEE-OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause to be
made any Alterations or Utility Installations in, on, under or about the
Premises without Lessor's prior written consent.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's Acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon; and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any alterations or utility installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, be in compliance with a Applicable
Requirements, and be performed by contractors holding current appropriate
licenses. Lessee shall promptly upon completion thereof furnish Lessor with
as-built plans and specifications therefor. Lessor may, (but without obligation
to do so) condition its consent to any requested Alteration or Utility
Installation that costs $2,500.00 or more upon Lessee's providing Lessor with a
lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation.
(c) LIEN PROTECTION. Lessee shall pay when due all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on, or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense, defend and protect itself,
Lessor and the Premises against the same and shall pay and satisfy any such
adverse judgment that may be rendered thereon before the enforcement thereof
against the Lessor or the Premises. If Lessor shall require, Lessee shall
furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to one
and one-half times the amount of such contested lien claim or demand,
indemnifying Lessor against liability for the same, as required by law for the
holding of the Premises free from the effect of such lien or claim. In addition,
Lessor may require Lessee to pay Lessor's attorneys' fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so.
7.4 OWNERSHIP, REMOVAL, SURRENDER, AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal
and to cause Lessee to become the owner thereof as hereinafter provided in this
Paragraph 7.4, all Alterations and Utility Installations made to the Premises by
Lessee shall be the property of and owned by Lessee, but considered a part of
the Premises. Lessor may, at any time and at its option, elect in writing to
Lessee to be the owner of all or any specified part of the Lessee-Owned
Alterations and Utility Installations. Unless otherwise instructed per
Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require
that nay or all Lessee-Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding that their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor. Lessor shall also
have the right to effect the removal if Lessee fails to do so after ten (10)
days' notice to Lessee, and Lessee shall pay the costs of such removal by Lessor
to it as additional rent.
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(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date, clean
and free of debris and in good operating order, condition and state of repair,
ordinary wear and tear excepted. Ordinary wear and tear shall not include any
damage or deterioration that would have been prevented by good maintenance
practice or by Lessee performing all of its obligations under this Lease. Except
as otherwise agreed or specified herein, the Premises, as surrendered, shall
include the Alterations and Utility Installations. The obligation of Lessee
shall include the repair of any damage occasioned by the installation,
maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and
Lessee-Owned Alterations and Utility Installations, as well as the removal of
any storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contamination by Lessee, all
as may then be required by Applicable Requirements and/or good practice.
Lessee's Trade Fixtures shall remain the property of Lessee and shall be removed
by Lessee subject to its obligation to repair and restore the Premises per this
Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUM INCREASES.
(a) As used herein, the term "Insurance Cost Increase" is defined
as any increase in the actual cost of the insurance applicable to the Building
and required to be carried by Lessor pursuant to Paragraphs 8.2(b), 8.3(a) and
8.3(b), ("Required Insurance"), over and above the Base Premium, as hereinafter
defined, calculated on an annual basis. "Insurance Cost Increase" shall include,
but not be limited to, requirements of the holder of a mortgage or deed of trust
covering the Premises, increased valuation of the Premises, and/or a general
premium rate increase. The term "Insurance Cost Increase" shall not, however,
include any premium increases resulting from the nature of the occupancy of any
other lessee of the Building. If the parties insert a dollar amount in Paragraph
1.9, such amount shall be considered the "BASE PREMIUM." If a dollar amount has
not been inserted in Paragraph 1.9 and if the Building has been previously
occupied during the twelve (12) month period. If the Building was not fully
occupied during such twelve (12) month period, the "Base Premium" shall be the
lowest annual premium reasonably obtainable for the Required Insurance as of the
Commencement Date, assuming the most nominal use possible of the Building. In no
event, however, shall Lessee be responsible for any portion of the premium cost
attributable to liability insurance coverage in excess of $1,000,000 procured
under Paragraph 8.2(b).
(b) Lessee shall pay any Insurance Cost Increase to Lessor pursuant
to Paragraph 4.2. Premiums for policy periods commencing prior to, or extending
beyond the term of this Lease shall be prorated to coincide with the
corresponding Commencement Date of Expiration Date.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability Policy of insurance
protecting Lessee, Lessor and any Lender(s) whose names have been provided to
Lessee in writing (as additional insureds) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
heat, smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "INSURED CONTRACT"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee not relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) CARRIED BY LESSOR. To the extent Lessor maintains liability
insurance, it shall be in addition to and not in lieu of, the insurance required
to be maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
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(a) BUILDING AND IMPROVEMENTS. Lessor shall obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and to any Lender(s), insuring against loss or
damage to the Premises. Such insurance shall be for full replacement cost, as
the same shall exist from time to time, or the amount required by any Lender(s),
but in no event more than the commercially reasonable and available insurable
value thereof if, by reason of the unique nature or age of the improvements
involved, such latter amount is less than full replacement cost. Lessee-Owned
Alterations and Utility Installations. Trade Fixtures and Lessee's personal
property shall be insured by Lessee pursuant to Paragraph 8.4. If the coverage
is available and commercially appropriate, Lessor's policy or policies shall
insure against all risks of direct physical loss or damage (except the perils of
flood and/or earthquake unless required by Lender or included in the Base
Premium), including coverage for any additional costs resulting from debris
removal and reasonable amounts of coverage for the enforcement of any ordinance
or law regulating the reconstruction or replacement of any undamaged sections of
the Building required to be demolished or removed by reason of the enforcement
of any building, zoning, safety or land use laws as the result of a covered
loss, but not including plate glass insurance. Said policy or policies shall
also contain an agreed valuation provision in lieu of any co-insurance clause,
waiver of subrogation, and inflation guard protection causing an increase in the
annual property insurance coverage amount by a factor of not less than the
adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers
for the city nearest to where the Premises are located.
(b) ADJACENT PREMISES. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Industrial Center if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
(c) LESSEE'S IMPROVEMENTS. Since Lessor is the Insuring Party,
Lessor shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of
paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures and Lessee-Owned
Alterations and Utility Installations in, on, or about the Premises similar in
coverage to that Carried by Lessor as the Insuring Party under Paragraph 8.3(a).
Such insurance shall be full replacement cost coverage with a deductible not to
exceed $1,000 per occurrence. The proceeds from any such insurance shall be used
by Lessee for the replacement of personal property and the restoration of Trade
Fixtures and Lessee-Owned Alterations and Utility Installations. Lessee shall
maintain adequate plate glass insurance for all glass in the Premises, including
exterior windows and glass doors; and Lessor and Lessee shall be named as
co-insureds under such plate glass insurance. Upon request from Lessor, Lessee
shall provide Lessor with written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance policies required hereunder shall be
issued by companies licensed to do business in the state share the Premises are
located maintaining a "General Policyholder Rating" of at least A and a
financial rating of at least Class X in accordance with the most recent Best's
Insurance Guide, or if Best's is no longer published, comparable ratings from a
service acceptable to Lessor. Such insurance, in addition to the multiple
additional named insured endorsements set forth above, shall be commercial
general liability insurance in the amounts set forth above, and shall contain
additional endorsements as follows: (i) Providing blanket contractual liability
coverage for the Lessee's indemnification obligations to Lessor and others
pursuant to the Lease, (ii) Providing that the insurance may not be canceled or
reduced until thirty (30) days after the Lessor has actually received written
notice of such cancellation or reduction, (iii) Providing "cross liability" or
"severability of interest" coverage for all insureds under the policy or
policies, and (iv) Providing that any other insurance maintained by Lessor or
any other named insured is excess insurance, and not contributing insurance with
the insurance required herein. Nothing contained in the insurance requirements
shall be construed as limiting the extent of Lessee's responsibility for payment
of greater damages resulting from its occupancy and use of the Premises,
Building, and Common Areas.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages (whether in contract or in tort) against
the other, for loss or damage to their property arising out of or incident to
the perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages
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shall not be limited by the amount of insurance carried or required, or by any
deductibles applicable thereto. Lessor and Lessee agree to have their respective
insurance companies issuing property damage insurance waive any right to
subrogation that such companies may have against Lessor or Lessee, as the case
may be, so long as the insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's sole and active negligence and/or
breach of express warranties, Lessee shall indemnify, protect, defend and hold
harmless the Premises, Lessor and its agents, Lessor's master or ground lessor,
partners and Lenders, from and against any and all claims, loss of rents and/or
damages, costs, liens, judgments, penalties, loss of permits, attorneys' and
consultants' fees, expenses and/or liabilities arising out of, involving, or in
connection with, the occupancy of the Premises by Lessee, the conduct of
Lessee's business, any act, omission or neglect of Lessee, its agents,
contractors, employees or invitees, and out of any Default or Breach by Lessee
in the performance in a timely manner of any obligation on lessee's part to be
performed under this Lease. The foregoing shall include, but not be limited to,
the defense or pursuit of any claim or any action or proceeding involved
therein, and whether or not (in the case of claims made against Lessor)
litigated and/or reduced to judgment. In case any action or proceeding be
brought against Lessor by reason of any of the foregoing matters, Lessee upon
notice from Lessor shall defend the same at Lessee's expense by counsel
reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee is such
defense. Lessor need not have first paid any such claim in order to be so
indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not. Lessor
shall not be liable for any damages arising from any act or neglect of any other
lessee of Lessor nor from the failure by Lessor to enforce the provisions of any
other lease in the Industrial Center. Notwithstanding Lessor's negligence or
breach of this Lease, Lessor shall under no circumstances be liable for injury
to Lessee's business or for any loss of income or profit therefrom, or any other
form of consequential damages.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is less than fifty percent (50%) of
the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction
to the Premises, other than Lessee-Owned Alterations and Utility Installations,
the repair cost of which damage or destruction is fifty percent (50%) or more of
the then Replacement Cost of the Premises (excluding Lessee-Owned Alterations
and Utility Installations and Trade Fixtures) immediately prior to such damage
or destruction. In addition, damage or destruction to the Building, other than
Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any
lessees of the Building, the cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures of any lessees of the
Building) of the Building shall, at the option of Lessor, be deemed to be
Premises Total Destruction.
(c) "INSURED LOSS" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations and
Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a) irrespective of any deductible amounts
or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
Premises including improvements other than Lessee-Owned Alterations and Utility
Installations owned by Lessor at the time of the occurrence to their condition
existing
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immediately prior thereto, including demolition, debris removal and upgrading
required by the operation of Applicable Laws, and without deduction for
depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PREMISES PARTIAL DAMAGE-INSURED LOSS. If Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
Provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, Lessor shall complete them as soon as
reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If Lessor does not receive such funds or assurance within such
ten (10) day period, and if Lessor does not so elect to restore and repair, then
this Lease shall terminate sixty (60) days following the occurrence of the
damage or destruction. Unless otherwise agreed. Lessee shall in no event have
any right to reimbursement from Lessor for any funds contributed by Lessee to
repair any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
party.
9.3 PARTIAL DAMAGE-UNINSURED LOSS. If Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect), Lessor may at Lessor's
option, either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within sixty (60) days after receipt by
Lessor of knowledge of the occurrence of such damage of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the repair of such damage totally at Lessee's expense and without
reimbursement from Lessor. Lessee shall provide Lessor with the required funds
or satisfactory assurance thereof within thirty (30) days following such
commitment from Lessee. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. If Lessee does not give such
notice and provide the funds or assurance thereof within the times specified
above, this Lease shall terminate as of the date specified in Lessor's notice of
termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), the Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an insured Loss or was caused by a negligent or willful act or
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this lease, or (ii)
the day prior to the date
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upon which such option expires. If Lessee duly exercises such option during such
period and provides Lessor with funds (or adequate assurance thereof) to cover
any shortage in insurance proceeds, Lessor shall, at Lessor's expense repair
such damage as soon as reasonably possible and this Lease shall continue in full
force and effect. If Lessee fails to exercise such option and provide such funds
or assurance during such period, then this Lease shall terminate as of the date
set forth in the first sentence of this Paragraph 9.5..
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event (i) Premises Partial Damage or (ii) Hazardous
Substance Condition for which Lessee is not legally responsible, the Base Rent,
Common Area Operating Expenses and other charges, if any, payable by Lessee
hereunder for the period during which such damage or condition, its repair,
remediation or restoration continues, shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired. Except for abatement
of Base Rent, Common Area Operating Expenses and other charges, if any, as
aforesaid, all other obligations of Lessee hereunder shall be performed by
Lessee, and Lessee shall have no claim against Lessor for any damage suffered by
reason of any such damage, destruction, repair, remediation or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue. Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after the receipt of such notice, this Lease
shall continue in full force and effect. "COMMENCE" as used in this Paragraph
9.6 shall mean either the unconditional authorization of the preparation of the
required plans, or the beginning of the actual work on the Premises, whichever
occurs first.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Conditions
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but subject
to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may at
Lessor's option either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $100,000 whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date so such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the excess costs of (a) investigation and remediation of such
Hazardous Substance Condition to the extent required by Applicable Requirements,
over (b) an amount equal to twelve (12) times the then monthly Base Rent or
$100,000, whichever is greater. Lessee shall provide Lessor with the funds
required of Lessee or satisfactory assurance thereof within thirty (30) days
following said commitment by Lessee. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.8 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, and after deducting any sums owing by Lessee to
Lessor under the terms of this Lease, Lessor shall return to Lessee any advance
payment made by Lessee to Lessor and so much of Lessee's Security Deposit as has
not been, or is not then permitted to be, used by Lessor under the terms of this
Lease.
9.9 WAIVER OF STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby waive
the provisions of any present or future statute to the extent it is inconsistent
herewith.
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10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2(a), applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any increases in such amounts over the
Base Real Property Taxes shall be included in the calculation of Common Area
Expenses in accordance with the provisions of Paragraph 4.2.
10.2 REAL PROPERTY TAX DEFINITIONS.
(a) As used herein, the term "REAL PROPERTY TAXES" shall
include any form of real estate tax or assessment, general, special, ordinary,
or extraordinary, and any license fee, commercial rental tax, improvement bond
or bonds, levy or tax (other than inheritance, personal income or estate taxes)
imposed upon the Industrial Center by any authority having the direct or
indirect power to tax, including any county, city, public corporation or
district, state or federal government, or improvement district thereof, levied
against any legal or equitable interest of Lessor in the Industrial Center or
any portion thereof. Lessor's right or rent or other income therefrom, and/or
Lessor's business of leasing the Premises. The term "REAL PROPERTY TAXES" shall
also include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in Applicable Law taking
effect, during the term of this Lease, including but not limited to a change in
the ownership of the Industrial Center or in the improvements thereon, the
execution of this Lease, or any modification, amendment or transfer thereof, and
whether or not contemplated by the Parties.
(b) As used herein, the term "BASE REAL PROPERTY TAXES" shall
be the amount or Real Property Taxes, which are assessed against the Premises,
Building or Common Area in the calendar year during which the Lease is executed.
In calculating Real Property Taxes for any calendar year, the Real Property
Taxes for any real estate tax year shall be included in the calculation of Real
Property taxes for Such calendar year based upon the number of days which such
calendar year and tax year have in common.
10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 JOINT ASSESSMENT. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay directly for all utilities and services supplied
to the Premises, including by not limited to electricity, telephone, security,
gas and cleaning of the Premises, together with any taxes thereon. If any such
utilities or services are not separately metered to the Premises or separately
billed to the Premises. Lessee shall pay to Lessor a reasonable proportion to be
determined by Lessor of all such charges jointly metered or billed with other
premises in the Building, in the manner and with the time periods set forth in
Paragraph 4.2(d).
12. ASSIGNMENT AND SUBLETTING.
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12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively, "assign") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occur, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of full
execution and delivery of this Lease or at the time of the most recent
assignment to which Lessor has consented, or as it exists immediately prior to
said transaction or transactions constituting such reduction, at whichever the
said Net Worth of Lessee was or is greater, shall be considered an assignment of
this Lease by Lessee to which Lessor may reasonably withhold its consent. "NET
WORTH OF LESSEE" for purposes of this Lease shall be the net worth Lessee
(excluding any Guarantors) established under generally accepted accounting
principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1, or a non-curable Breach without
the necessity of any notice and grace period. If Lessor elects to treat such
unconsented to assignment or subletting as a non-curable Breach, Lessor shall
have the right to either: (i) terminate this Lease, or (ii) upon thirty (30)
days' written notice ("LESSOR'S NOTICE"), increase the monthly Base Rent for the
Premises to the greater of the then fair market rental value of the Premises, as
reasonably determined by Lessor, or one hundred ten percent (110%) of the Base
Rent then in effect. Pending determination of the new fair market rental value.
if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's Notice,
with any overpayment credited against the next installment(s) of Base Rent
coming due, and any underpayment for the period retroactively to the effective
date of the adjustment being due and payable immediately upon the determination
thereof. Further, in the event of such reach and rental adjustment, (I) the
purchase price of any option to purchase the Premises held by Lessee shall be
subject to similar adjustment to the then fair market value as reasonably
determined by Lessor (without the Lease being considered an encumbrance or any
deduction for depreciation or obsolescence, and considering the Premises at its
highest and best use and in good condition) or one hundred ten percent (110%) of
the price previously in effect, (ii) any index-oriented rental or price
adjustment formulas contained in this Lease shall be adjusted to require that
the base index be determined with reference to the index applicable to the time
of such adjustment, and (iii) any fixed rental adjustments scheduled during the
remainder of the Lease term shall be increased in the same ratio as the new
rental bears to the Base Rent in effect immediately prior to the adjustment
specified in Lessor's Notice.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not (I) be effective without the express written assumption by such
assignee or sublessee of the obligations of Less under this lease, (ii) release
Lessee of any obligations hereunder, nor (iii) alter the primary liability of
Lessee for the payment of Base Rent and other sums due Lessor hereunder or for
the performance of any other obligations to be performed by Lessee under this
Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
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(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the assignee or
sublessee. However, Lessor may consent to subsequent sublettings and assignments
of the sublease or any amendments or modifications thereto without notifying
Lessee or anyone else liable under this Lease or the sublease and without
obtaining their consent, and such action shall not relieve such persons from
liability under this Lease or the sublease.
(d) In the event of any Default or Breach of Lessee's obligation
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
anyone else responsible for the performance of the Lessee's obligations under
this Lease, including any sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor.
(e) Each request for consent to an assignment or subletting shall
be in writing, accompanied by information relevant to Lessor's determination as
to the financial and operational responsibility (including a copy of the
sublease or assignment, financial statements, and business history), and
appropriateness of the proposed assignee or sublessee, including but not limited
to the intended use and/or required modification of the Premises, if any,
together with a non-refundable deposit of $1,000 or ten percent (10%) of the
monthly Base Rent applicable to the portion of the Premises which is the subject
of the proposed assignment or sublease, whichever is greater, as reasonable
consideration for Lessor's considering and processing the request for consent.
Lessee agrees to provide Lessor with such other or additional information and/or
documentation as may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed,
for the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.1(c)
shall give Lessor the right (but not the obligation) to required that the
Security Deposit be increased by an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
Security Deposit increase a condition to Lessor's consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment
or subletting, may require that the amount and adjustment schedule of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment schedule for property similar to the Premises as then constituted, as
determined by Lessor.
(i) If Lessor permits a sublease or assignment of all or any
portion of the Premises, Lessee shall pay to Lessor: (I) the amount by which any
rent or other consideration paid to Lessee by any sublessee or assignee exceeds
the prorata portion of the rent for such space that Lessee is then paying to
Lessor under the provisions of this Lease; and (ii) any other profit or gain
realized by Lessee from such subleasing or assignment. All sums payable
hereunder shall be paid to Lessor as additional rent immediately upon the
receipt thereof by Lessee.
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
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(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of the foregoing
provision or any other assignment of such sublease to Lessor, nor by reason of
the collection of the rents from a sublessee, be deemed liable to the sublessee
for any failure of Lessee to perform and comply with any of Lessee's obligations
to such sublessee under such Sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor stating
that a Breach exits in the performance of Lessee's obligations under the Lease,
to pay to Lessor the rents and other charges due and to become due under the
sublease. Sublessee shall rely upon any such statement and request from Lessor
and shall pay such rents and other charges to Lessor without any obligation or
right to inquire as to whether such Breach exists and notwithstanding any notice
from or claim from Lessee to the contrary. Lessee shall nave no right or claim
against such sublessee, or, until the Breach has been cured, against Lessor, for
any such rents and other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior defaults
or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall further
assign or sublet all or any part of the Premises without Lessor's prior written
consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach
by Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice.
13. Default; Breach; Remedies.
13.1 Defaults Breach. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "Default" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or Rules and Regulations applicable to Lessee under
this Lease. A "Breach" by Lessee is defined as the occurrence of any one or more
of the following Defaults, and, where a grace period for cure after notice is
specified herein, the failure by Lessee to cure such Default prior to the
expiration of the applicable grace period, and shall entitle Lessor to pursue
the remedies set forth in Paragraphs 13.2 and/or 13.3.
(a) The vacating of the Premises without the intention to reoccupy
same, or, the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of
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insurance or surety bond required under this Lease, or the failure of Lessee to
fulfill any obligation under this Lease which endangers or threatens life or
property, where such failure continues for a period of three (3) days following
written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (I) compliance with Applicable
Requirements per Paragraph 6.3.(ii) the inspection, maintenance and service
contracts required under Paragraph 7.1(b),(iii) the rescission of an
unauthorized assignment or subletting per Paragraph 12.1,(iv) a Tenancy
Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination of
this Lease per Paragraph 30,(vi) the guaranty of the performance of Lessee's
obligations under this Lease if required under Paragraphs 1.11 and 37, (vii) the
execution of any document requested under Paragraph 42 (easements), or (viii)
any other documentation or information which Lessor may reasonably require of
Lessee under the terms of this lease, where any such failure continues for a
period of ten (10) days following written notice by or on behalf of Lessor to
Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the Rules and Regulations adopted under
Paragraph 40 hereof that are to be observed, complied with or performed by
Lessee, other than those described in Subparagraphs 13.1(a),(b) or (c), above,
where such Default continues for a period of thirty (30) days after written
notice thereof by or on behalf of Lessor to Lessee; provided, however, that is
the nature of Lessee's Default is such that more than thirty (30) days are
reasonably required for its cure, then it shall not be deemed to be a Breach of
this Lease by Lessee if Lessee commences such cure within said thirty (30) day
period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (I) the making
by Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in the United States Bankruptcy
Code or any successor statute thereto (unless, in the case of a petition filed
against Lessee, the same is dismissed within sixty (60) days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in the Lease, where such
seizure is not discharged within thirty (30) days; provided however, in the
event that any provision of this Subparagraph 13.1(e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of Lessee
or of any Guarantor, given to Lessor by Lessee or any Guarantor, was materially
false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (I) the death of a Guarantor, (ii) the termination of a Guarantor's
Liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a
Guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurances of security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the Guarantors that existed at the time of execution of this Lease.
13.2 Remedies. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses,
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permits or approvals. The costs and expenses of any such performance by Lessor
shall be due and payable by Lessee to Lessor upon invoice therefor. If any check
given to Lessor by Lessee shall not be honored by the bank upon which it is
drawn, Lessor, at its own option, may require all future payments to be made
under the Lease by Lessee to be made only by cashier's check. In the event of a
Breach of this Lease by Lessee (as defined in Paragraph 13.1), with or without
further notice or demand, and without limiting Lessor in the exercise of any
right or remedy which Lessor may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (I) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount y which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that Lessee proves could have been
reasonably avoided; (iii) the worth at the time of award of the amount y which
the unpaid rent for the balance of the term after the time of award exceeds the
amount of such rental loss that Lessee proves could be reasonably avoided; and
(iv) any other amount necessary to compensate Lessor for all the detriment
proximately caused by Lessee's failure to perform its obligations under this
Lease or which in the ordinary course of things would be likely to result
therefrom, including but not limited to the cost of recovering possession of the
Premises, expenses of reletting, including necessary renovation and alteration
of the Premises, reasonable attorney's fees, and that portion of any leasing
commission paid by Lessor in connection with the Lease applicable to the
unexpired term of this Lease. The worth at the of award of the amount referred
to in provision (iii) of the immediately preceding sentence shall be computed by
discounting such amount at the discount rate of the Federal Reserve Bank of San
Francisco or the Federal Reserve Bank District in which the Premises are located
at the time of award plus one percent (1%). Efforts y Lessor to mitigate damages
caused by Lessee's Default or Breach of this Lease shall not waive Lessor's
right to recover damages under this Paragraph 13.2. If termination of this Lease
is obtained through the provisional remedy of unlawful detainer, Lessor shall
have the right to recover in such proceeding the unpaid rent and damages as are
recoverable therein, or Lessor may reserve the right to recover all or any part
thereof in a separate suit for such rent and/or damages. If a notice and grace
period required under Subparagraph 13.1(b), (c) or (d) was not previously given,
a notice to pay rent or quit, or to perform or quite, as the case may be, given
to Lessee under any statute authorizing the forfeiture of leases for unlawful
detainer shall also constitute the applicable notice for grace period purposes
required by Subparagraph 13.1(b), (c) or (d). In such case, the applicable grace
period under the unlawful detainer statute shall run concurrently after the one
such statutory notice, and the failure of Lessee to cure the Default within the
greater of the two (2) such grace periods shall constitute both an unlawful
detainer and a Breach of this Lease entitling Lessor to the remedies provided
for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect
(in California under California Civil Code Section 1951.4, or any successor
statute thereto, or the comparable statutes in other states where the Premises
may be located), after Lessee's Breach and recover the rent as it becomes due,
provided Lessee has the right to sublet or assign, subject only to reasonable
limitations. Lessor and Lessee agree that the limitations on assignment and
subletting in this Lease are reasonable. Acts of maintenance or preservation,
efforts to relet the Premises, or the appointment of a receiver to protect
Lessor's interest under this Lease, shall not constitute a termination of
Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity
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provisions of this Lease as to matters occurring or accruing during the term
hereof or by reason of Lessee's occupancy of the Premises.
13.3 Inducement Recapture in Event of Breach. Any agreement by Lessor
for free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any case of other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as"Inducement Provisions" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, convenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of
such acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and account charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or deed of trust covering the
Premises. Accordingly, if any installment of rent or other sum due from Lessee
shall not be received by Lessor or Lessor's designee within ten (10) days after
such amount shall be due, then, without any requirement for notice to Lessee,
Lessee shall pay to Lessor a late charge equal to six percent (6) of such
overdue amount, which late charge shall be due and payable within three (3) days
after written notice given by Lessor to Lessee. The parties hereby agree that
such late charge represents a fair and reasonable estimate of the costs Lessor
will incur by reason of late payment by Lessee. Acceptance of such late charge
by Lessor shall in no event constitute a waiver of Lessee's Default or Breach
with respect to such overdue amount, nor prevent Lessor from exercising any of
the other rights and remedies granted hereunder. In the event that a late charge
is payable hereunder, whether or not collected, for three (3) consecutive
installments of Base Rent, then notwithstanding Paragraph 4.1 or any other
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt by
Lessor, and by any Lender(s) whose name and address shall have been furnished to
Lessee in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than (3) days after such notice
are reasonably required for its performance, then Lessor shall not be in breach
of this Lease if performance is commenced within such thirty (30) day period and
thereafter diligently pursued to completion.
14. Condemnation. If the Premises or any portion thereof are taken under
the power of eminent domain or sold under the threat of the exercise of said
power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever first occurs. If more than ten percent (10%) of
the floor area of the Premises, or more than twenty-five percent (25%) of the
portion of the Common Ares designated for Lessee's parking, is taken by
condemnation, Lessee may, at Lessee's option, to be exercised in writing within
ten (10) days after Lessor shall have taken possession) terminate this Lease as
of the date the
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condemning authority shall have taken possession) terminate this Lease as of
the date the condemning authority takes such possession. If Lessee does not
terminate this Lease in accordance with the foregoing, this Lease shall remain
in full force and effect as to the portion of the Premises remaining, except
that the Base Rent shall be reduced in the same proportion as the rentable floor
area of the Premises taken bears to the total rentable floor area of the
Premises. No reduction of Base Rent shall occur if the condemnation does not
apply to any portion of the Premises. Any award for the taking of all or any
part of the Premises under the power of eminent domain or any payment made under
threat of the exercise of such power shall be the property of Lessor whether
such award shall be made as compensation for diminution of value of the
leasehold or for the taking of the fee, or as severance damages; provided,
however, that Lessee shall be entitled to any compensation separately awarded to
Lessee for Lessee's relocation expenses and/or loss of Lessee's Trade Fixtures.
Lessee shall not be entitled to any award, or portion of an award, attributable
to any excess of the market value of the Premises over the present value at the
taking of the monthly rent for the remainder of the Term (bonus value), and
Lessee assigns to Lessor the right to receive any bonus value, whether awarded
directly or as a part of Lessee's loss of goodwill. In the event that this Lease
is not terminated by reason of such condemnation matter, repair any damage to
the Premises caused by such condemnation authority, Lessee shall be responsible
for the payment of any amount in excess of such net severance damages required
to complete such repair. Lessee and lessor waive the provisions of Code of Civil
Procedure Section 1265.130 allowing either of them to petition the Superior
Court to terminate this Lease in the event of a partial taking of the Premises.
15. Brokers' Fees.
15.1 Procuring Cause. The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.
15.2 Representations and Warranties. Lessee and Lessor each represent
and warrant to the other that it has had no dealings with any person, firm,
broker, finder or other similar party by reason of any dealings or actions of
the Indemnifying Party, including any costs, expenses, and/or attorney's fees
reasonably incurred with respect thereto.
16. Tenancy and Financial Statements.
16.1 Tenancy Statement. Each Party (as "Responding Party") shall within
ten (10) days after written notice from the other Party (the "Requesting Party")
execute, acknowledge and deliver to the Requesting Party a statement in writing
in a form similar to the then most current "Tenancy Statement" form published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 Financial Statements. If Lessor desires to finance, refinance, or
sell the Premises or the Building, or any part thereof, Lessee and all
Guarantors shall deliver to any potential lender or purchaser designated by
Lessor such financial statements of Lessee and such Guarantors as may be
reasonably required by such lender or purchaser, including but not limited to
Lessee's financial statements for the past three (3) years. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises. In the
event of a transfer of Lessor's title or interest in the Premises or in this
Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit)
any unused Security Deposit held by Lessor at the time of such transfer or
assignment. Upon such transfer or assignment and delivery of the Security
Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with
respect to the obligations and/or covenants under this Lease thereafter to be
performed by
22
<PAGE> 23
the Lessor. Subject to the foregoing, the obligations and/or covenants in this
Lease to be performed by the Lessor shall be binding only upon the Lessor as
hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in not way affect the
validity of any other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor
hereunder, other than ate charges, not received by Lessor within ten (10) days
following the date on which it was due, shall bear interest from the date due at
the prime rate charged by the largest state chartered bank in the sate in which
the Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential ate charge provided
for in Paragraph 13.4.
20. Time of Essence: Days. Time is of the essence with respect to the
performance of all obligations to be performed or observed by the Parties
under this Lease. When the words "days" or "day" is used in this Lease, they
shall mean calendar days (and not business days).
21. Rent Defined. All monetary obligations of Lessee to Lessor under the
terms of this Lease are deemed to be rent.
22. No Prior or Other Agreements. The Lease contains all agreements
between the Parties with respect to any matter mentioned herein, and no other
prior or contemporaneous agreement or understanding shall be effective.
23. Notices.
23.1 Notice Requirements. All notices required or permitted by this
Lease shall be in writing and may e delivered in person (by hand or by messenger
or courier service) or may be sent by regular, certified or registered mail or
U.S. Postal Service Express Mail, with postage prepaid, or by facsimile
transmission during normal business hours, and shall be deemed sufficiently
given if served in a manner specified in this Paragraph 23. The addresses noted
adjacent to a Party's signature on this Lease shall be that Party's address for
delivery or mailing of notice purposes. Either Party may by written notice to
the other specify a different address for notice purposes, except that upon
Lessee's taking possession of the Premises, the Premises shall constitute
Lessee's address for the purpose of mailing or delivering notices to Lessee. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 Date of Notice. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail, the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the United States Postal Service or courier. If any
notice is transmitted by facsimile transmission or similar means, the same shall
be deemed served or delivered upon telephone or facsimile confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Saturday or a Sunday or a legal
holiday, it shall be deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any such act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or
23
<PAGE> 24
approval of, any subsequent or similar act by Lessee, or be construed as the
basis of an estoppel to enforce the provision or provisions of this Lease
requiring such consent. Regardless of Lessor's knowledge of a Default or Breach
at the time of accepting rent, the acceptance of rent by Lessor shall not be a
waiver of any Default of Breach by Lessee of any provision hereof. Any payment
given Lessor by Lessee may be accepted by Lessor on account of moneys or damages
due Lessor, notwithstanding any qualifying statements or conditions made by
Lessee in connection therewith, which such statements and/or conditions shall be
of no force or effect whatsoever unless specifically agreed to in writing by
Lessor at or before the time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto. If a short form
memorandum has been recorded, then at the expiration of the term of this Lease
or its earlier termination, Lessee shall provide to Lessor a quitclaim deed
executed by Lessee in recordable form relinquishing any and all interest in the
Premises.
26. No Right to Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of the Paragraph 26
then the Base Rent payable from and after the time of the expiration or earlier
termination of this Lease shall be increased to two hundred percent (200%) of
the Base Rent applicable during the month immediately preceding such expiration
or earlier termination. Nothing contained herein shall be construed as a consent
by Lessor to any holding over by Lessee.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulated with all other remedies
at law or in equity.
28. Covenants and Conditions. All provisions of this Lease to be
observed or performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lessee and any option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default
pursuant to Paragraph 13.5. If any Lender shall elect to have the Lease and/or
any Option granted hereby superior to the lien of its Security Device and shall
give written notice thereof to Lessee, this Lease and such Options shall be
deemed prior to such Security Device, notwithstanding the relative dates of
the documentation or recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, or
the issuance of a deed in lieu of foreclosure, and that in the event of such
foreclosure or receipt of such deed, such new owner shall not: (I) be liable for
any act or omission of any prior lessor or with respect to
24
<PAGE> 25
events occurring prior to acquisition of ownership, (ii) be subject to any
offsets or defenses which Lessee might have against any prior lessor, or (iii)
be bound by prepayment of more than one month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises
30.4 Self-Executing. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that upon written request from Lessor or a Lender in connection with a
sale, financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorney's Fees. If any Party brings an action or proceeding to enforce
the terms hereof or declare rights hereunder, the Prevailing Party (as hereafter
defined) in any such proceeding, action, or appeal thereon, shall be entitled to
reasonable attorneys' fees. Such fees may be awarded in the same suit or
recovered in a separate suit, whether or not such action or proceeding is
pursued to decision or judgment. The term "Prevailing Party" shall include,
without limitation, a Party who substantially obtains or defeats the relief
sought, as the case may be, whether by compromise, settlement, judgment, or the
abandonment by the other Party of its claim or defense. The attorneys' fee award
shall not be computed in accordance with any court fee schedule, but shall be
such as to fully reimburse all attorneys' fees reasonably incurred. Lessor shall
be entitled to attorneys' fees, costs and expenses incurred in preparation and
service of notices of Default and consultations in connection therewith, whether
or not a legal action is subsequently commenced in connection with such Default
or resulting Breach.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eight (180) days of the term hereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of Lessor
shall be without abatement of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the exterior of the
Premises or the Building, except that Lessee may, with Lessor's prior written
consent, install (but not on the roof) such signs as are reasonably required to
advertise Lessee's own business so long as such signs are in a location
designated by Lessor and comply with Applicable Laws and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign on
the Premises by or for Lessee shall be subject to the provisions of Paragraph 7,
Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to install advertising signs on the
Building, including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs.
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<PAGE> 26
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of an
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. Consents.
(a) Except for paragraph 6.2 hereof (Hazardous Substances), Paragraph
33 hereof (Auctions), or as otherwise provided herein, wherever in this Lease
the consent of a Party is required to an act by or for the other Party, such
consent shall not be unreasonably withheld or delayed. Lessor's actual
reasonable costs and expenses (including but not limited to architects',
attorneys', engineers' and other consultants' fees) incurred in the
consideration of, or response to, a request by Lessee for any Lessor consent
pertaining to this Lease or the Premises, including but not limited to consents
to an assignment, a subletting or the presence or use of a Hazardous Substance,
shall be paid by Lessee to Lessor upon receipt of an invoice and supporting
documentation therefor. In addition to the deposit described in Paragraph
12.2(e), Lessor may, as a condition to considering any such request by Lessee,
require that Lessee deposit with Lessor an amount of money (in addition to the
Security Deposit held under Paragraph 5) reasonably calculated by Lessor to
represent the cost Lessor will incur in considering and responding to Lessee's
request. Any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting of
the Premises by Lessee shall not constitute an acknowledgment that no Default or
Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver
of any then existing Default or Breach, except as may be otherwise specifically
stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the impositions by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. Guarantor.
37.1 Form of Guaranty. If there are to be any Guarantors of this Lease
per paragraph 1.11, the form of the guaranty to be executed by each such
Guarantor shall be in a form reasonably acceptable to Lessor, and each such
Guarantor shall have the same obligations as Lessee under this lease, including
but not limited to the obligation to provide the Tenancy Statement and
information required in Paragraph 16.
37.2 Additional Obligations of Guarantor. It shall constitute a Default
of the Lessee under this Lease if any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of the
guaranty called for by this Lease, including the authority of the Guarantor (and
of the party signing on Guarantor's behalf) to obligate such Guarantor on said
guaranty, and resolution of its board of directors authorizing the making of
such guaranty, together with a certificate of incumbency showing the signatures
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises
and the performance of all of the covenants, conditions and provisions on
Lessee's part to be observed and performed under this Lease, Lessee shall have
quiet possession of the
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<PAGE> 27
Premises for the entire term hereof or until its earlier termination, and
subject to all of the provisions of this Lease.
39. Options.
39.1 Definition. As used in this Lease, the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 Options Personal to Original Lessee. Each Option granted to lessee
in this Lease is personal to the original Lessee named in Paragraph 1.1 hereof,
and cannot be voluntarily or involuntarily assigned or exercised by any person
or entity other than said original Lessee while the original Lessee is in full
and actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, an no Option may be separated from this Lease in any manner, by
reservation or otherwise.
39.3 Multiple Option. In the event that Lessee has any multiple Options
to extend or renew this Lease, a later option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary; (I) during
the period commencing with the giving of any notice of Default under Paragraph
13.1 and continuing until the noticed Default is cured, or (ii) during the
period of time any monetary obligation due Lessor from Lessee is unpaid (without
regard to whether notice thereof is given Lessee), or (iii) during the time
Lessee is in Breach of this Lease, or (iv) in the even that Lessor has given to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during the twelve (12) month period immediately preceding the exercise of the
Option, whether or not the Defaults are cured.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All right of Lessee under the provision of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise o the Option, if, after such exercise and during the term of
this Lease, (I) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during any twelve (12) month period, whether or not the Defaults are cured, or
(iii) if Lessee commits a Breach of this Lease.
40. Rules and Regulations. Lessee agrees that it will abide by, and keep
and observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees. The
current Rules and Regulations are attached hereto as Exhibit "A".
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<PAGE> 28
41. Security Measures. Lessee hereby acknowledges that the rental payable
to Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its employees, suppliers, shippers, customers, contractors, and invitees and
their property from the acts of third parties.
42. Reservations. Lessor reserves the right, from time to time, to grant,
without the consent or jointer of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease; provided, however, that no interest shall be payable
by Lessor or Lessee.
44. Authority. If either Party hereto is a corporation, trust, or general
or limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is dully authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease
and the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. Offer. Preparation of this Lease by either Lessor or Lessee or
Lessor's agent or lessee's agent and submission of same to Lessee or Lessor
shall not be deemed an offer to lease. This Lease is not intended to be
binding until executed and delivered by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if
more than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT AT THE
TIME THIS LEASE IS EXECUTED THE TERMS OF THIS LEASE ARE COMMERCIALLY
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REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR ATTORNEY'S
REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE
CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF ASBESTOS, UNDERGROUND
STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS
MADE BY THE REAL ESTATE BROKERS OR THEIR CONTRACTORS, AGENTS OR EMPLOYEES AS TO
THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE
OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE
SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE
WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
<TABLE>
<S> <C>
Executed at: Executed at: Riverside, CA
On: On: December 12, 1995
By Lessor: Hunsaker-Hunter, Inc. By Lessee: John Barnicoat, an individual,
dba Orange Empire Brewing Company
By: By:
Name Printed: M. Malone Name Printed: John Barnicoat
Title: Title:
By: By:
Name Printed: Name Printed:
Title: Title:
Address: P.O. Box 2423 Address: 1229 Columbia Ave., Suite C-2
Santa Ana, CA 92707 Riverside, CA 92507
Telephone: (714) 983-1390 Telephone:
Facsimile: (714) 553-8390 Facsimile:
BROKER: Grubb & Ellis Company Broker: Grubb & Ellis Company
Executed at: Executed at:
on: on:
By: By:
Name Printed: Timothy N Hawke Name Printed: Nancy Barnicoat
Title: Senior Vice President Title:
Address: 3401 Centrelake Dr., Ste. 500 Address: 3401 Centrelake Dr., Ste. 500
Ontario, CA 91761 Ontario, CA 91761
Telephone: (909) 605-1100 Telephone: (909) 605-1100
Facsimile: (909) 390-8645 Facsimile: (909) 390-8645
</TABLE>
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<PAGE> 30
ADDENDUM
This is an Addendum attached to the Lease Agreement dated December 6, 1995 by
and between Hunsaker-Hunter, Inc. (Lessor), and John Barnicoat, an individual,
dba Orange Empire Brewing Company (Lessee) and constitutes a part of the Lease
Agreement.
49. Tenant Improvements: Lessor shall, at Lessor's sole cost and expense,
deliver the warehouse and office areas in
broom-clean condition. Any and all other tenant
improvements, other than those currently existing
in the building, shall be constructed at Lessee's
sole cost, and must be permitted and built in
accordance with the City of Riverside's building
codes, with the work performed by a licensed
contractor. Prior to construction, the work must
first be reviewed and approved by Lessor in
writing. In the event Lessee punctures the
roofing structure for any reason, Lessee shall,
at that point, be responsible for any leaking
that might occur thereafter. Furthermore, at
Lessor's election, any and all additional
improvements constructed by Lessee shall be
removed at Lessee's expense upon the termination
of the Lease.
50. Rules & Regulations: Attached and shall become a part of this Lease.
51. California Health and
Safety Code Notice: Attached and shall become a part of this Lease.
52. Rent Schedule:
<TABLE>
<CAPTION>
Term Monthly Rental Rate
---- -------------------
<S> <C>
Jan. 1, 1996 - Dec. 31, 1996 $2,863.08 plus $50.00 (trash/water charge) = $2,913.08
Jan. 1, 1997 - March 31, 1998 $2,949.84 plus $50.00 (trash/water charge) = $2,999.84
</TABLE>
53. Exhibits: Site Plan (Exhibit "A"), Hazardous Waste
Rider (Exhibit "B"), and Sale/Lease Hazardous
Material Disclosure and Americans with
Disabilities Form (Exhibit "C") are attached
hereto and made a part of the Lease Agreement.
54. Key Deposit: Waived.
55. Confidentiality Lessee agrees that under no circumstances shall
Agreement: it discuss any terms or conditions of this Lease
with any other current or future tenants within
Hunter Corporate Plaza.
56. Mail Key: As the Lessee, you are responsible for obtaining
the mail key for your unit. To receive the key to
the mailbox, you must go to the Post Office
located at 4150 Chicago Avenue and pay a $15.00
"key fee". For more information, call (909)
788-4600.
<PAGE> 31
RULES AND REGULATIONS
1. SIGNS.
No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside of
the Building or Industrial Center without the written consent of Lessor obtained
in advance. Lessor shall have the right to remove any such sign, placard,
picture, advertisement, name or notice without notice to and at the expense of
Lessee by a person approved by Lessor. Lessee shall not place anything or allow
anything to be placed near the glass of any window, door, partition or wall
which may appear unsightly from the outside of the Premises as determined by
Lessor. Lessee shall not without prior written consent of Lessor cause any
sunscreen to cover any window.
2. OBSTRUCTIONS.
The sidewalks, exits, entrances, fire lanes, common area, and loading docks
shall not be obstructed by any of Lessee, Lessee's employees, suppliers,
shippers, customers, contractors, or invitees, or used by them for any purpose
other than for ingress to and egress from the Premises.
3. PLUMBING.
The toilets and sinks or any other apparatus in the rest rooms of the Premises
shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be thrown
therein. The expense of any breakage, stoppage or damage resulting from the
violation of the Rules and Regulations shall be borne by Lessee, who, or whose
employees, suppliers, shippers, customers, contractors, or invitees shall have
caused it.
4. NUISANCE; WASTE; QUIET ENJOYMENT.
Lessee shall not use the Premises in any manner that will constitute waste or
nuisance. Lessee shall not in any way deface the Premises or any part thereof.
Lessee shall not disturb the quiet enjoyment of any other tenants in the
Industrial Center, nor shall Lessee allow gatherings or parties at the Premises
or in the Industrial Center. No loudspeakers, television, phonographs, radios or
other devices shall be used in a manner so as to be heard or seen outside of the
Premises without the prior written consent of Lessor.
5. PROHIBITED USES.
Lessee shall not create any odors, noise and/or vibration, nor use, keep, or
permit to be used or kept any foul or noxious gas, any gasoline, kerosene or
other flammable substance, or any substance listed in any federal or state
compilation of hazardous, toxic or radioactive materials until such substance
has been disclosed first to Lessor and its use and/or storage has received
Lessor's approval, which approval may be withheld in Lessor's sole discretion.
To the extent Lessor's approval is given, then Lessee shall fully comply with
all provisions of federal and California law regarding such substance,
including, without limiting the generality of the foregoing, those sections of
the California Health and Safety Code known as Division 20, Chapter 6.95,
"Hazardous Materials Release Response Plans and Inventory," which require the
covered party to submit business plans to certain government agencies. Lessee
shall copy Lessor on all submittals to government agencies, specifically
including those required under the authority of those sections.
6. ASBESTOS PROGRAMS.
At such time as Lessor chooses to adopt a compliance program with respect to
asbestos-containing construction materials ("ACM") or any hazardous or toxic
substances known or believed to be contained in the Building, Lessee shall be
fully bound by the provisions of that program and agrees to comply with all
modification and posting requirements as may be established by Lessor. At the
time such compliance program materials are delivered by Lessor to Lessee, any
breach of Lessee's obligations set forth thereunder shall be a breach of the
Lease.
<PAGE> 32
7. INTOXICATED PERSONS.
Lessor reserves the right to exclude or expel from the Premises, Common Areas,
and Industrial center any person who, in the judgment of Lessor, is intoxicated
or under the influence of liquor or drugs, or who shall in any manner do any act
in violation of any of these Rules and Regulations.
8. TRASH REMOVAL.
Lessee shall not permit any trash, oil, chemicals or any foreign materials to be
deposited or disposed of in the Common Areas of the Industrial Center, including
the parking and landscaped areas. Trash (not including oil, hazardous materials
and chemicals) shall be placed inside the trash bins at a level not higher than
the top of the bin and shall not be placed outside the bin or in the enclosure
area. Lessee shall cooperate with Lessor and all other tenants of the Industrial
Center so that the Common Areas may be kept in a clean and orderly condition and
free of obstructions. If Lessee's use of waste containers and/or trash disposal
services, where services are contracted for by Lessor, are deemed by Lessor to
be above normal use, Lessor may require Lessee to pay the additional costs
incurred for the expense in increasing the waste container and/or trash disposal
services.
9. FLOORS.
Lessee shall not lay linoleum, tile, carpet or other floor covering so that it
is affixed to the floor of the Premises without Lessor's advance written
approval. Lessee shall be responsible for protecting the floor areas of the
Premises from damage by chemical, paint, machinery, heavy equipment or hazardous
materials. If in Lessor's opinion it shall be necessary, Lessee, at its own
expense, shall provide protective floor coverings or sealing as required to
prevent damage. Lessee shall repair in a manner satisfactory to Lessor any
damage to floors upon vacating the Premises.
10. SOLICITATIONS.
Lessee shall not disturb, solicit, or canvas any occupants of the Building and
Industrial Center and shall cooperate to prevent the same.
11. EXTERIOR INSTALLATIONS.
No aerial or antenna (including, satellite dishes, vents, stacks, etc.) shall be
erected on the roof or exterior walls of the Building, or on the ground, without
in each instance, obtaining the prior written consent of Lessor. Any of these
items so installed without such written consent shall be subject to removal by
Lessor at any time without notice. Any repair to the Premises required as a
result of the installation or removal of these items will be paid in full by
Lessee.
12. PARKING
Unless otherwise provided in Paragraph 1.2(b) of the Lease, parking in the
Industrial Center is not assigned or reserved. No storage shall be permitted
outside the Premises, including, without limitation, the storage of motor
vehicles, trucks, boats, trailers, pallets, drums, or equipment of any kind or
nature without the advance permission in writing from Lessor. Parking spaces and
common areas are not to be used for vehicle repairs, manufacturing, fabrication,
painting or any type of overflow work from the Premises.
13. BURNING PROHIBITED.
Lessee shall not burn any trash or garbage of any kind in or about the Premises,
Building or Industrial Center.
14. WATER USE.
In some cases, Lessor provides normal use of water for rest-room purposes.
However, if Lessee uses water service for other than rest room purposes, a
monthly water charge may be assessed. This does
<PAGE> 33
not apply to units that are metered individually and are therefore Lessee's sole
responsibility, unless Lessee uses water that is metered to Lessor, such as
outside faucets.
15. RESIDENTIAL USE PROHIBITED.
No residential uses, including, without limiting the generality of the
foregoing, residing, sleeping or cooking, are permitted on the Premises, or
anywhere in the Industrial Center.
16. RENT PAYMENT.
Lessor does not send monthly statements for rent. Lessee must mail rent checks
on or before the due date to Lessor's office: P.O. Box 2423, Santa Ana, CA 92707
17. UTILITIES.
Lessee must order all utilities in its name immediately upon move-in so as to
avoid interruption of service.
18. ELECTRICAL AND OTHER WIRES.
Lessor shall direct electricians as to where and how telephone, computer, and
electrical lines or wires are to be introduced into or run in the Premises. No
boring or cutting for lines or wires shall be allowed without Lessor's advance
consent.
19. KEYS.
A $25.00 refundable key deposit shall be paid by Lessee upon execution of the
Lease. Upon termination of Lessee's tenancy, Lessee shall deliver to Lessor all
of the keys to the Premises, Building, and toilet rooms which have been
furnished to Lessee or Lessee shall have made. In the event or loss of keys so
furnished, Lessee shall pay Lessor therefor.
20. ALTERATION OF LOCKS PROHIBITED.
Lessee shall not alter any lock or install new or additional locks or any bolt
on any door to or within the Premises without the prior written consent of
Lessor. If Lessor shall give its consent, Lessee shall in each case furnish
Lessor with a key or each such lock.
21. DUTIES ON DAILY CLOSINGS.
Lessee shall assure that the windows and doors of the Premises are closed and
securely locked before leaving the Premises, and Lessee shall exercise great
care and caution so that all water faucets, water apparatus, electricity, gas,
and air conditioning are entirely shut off so as to prevent damage. For any
carelessness of Lessee in shutting off such utilities, Lessee shall be
responsible for all injuries sustained by other lessees or occupants of the
Building or by Lessor.
22. ASBESTOS CONTAINING MATERIALS.
Attached to these Rules and Regulations as Exhibit "1" is a notice regarding
asbestos-containing construction material to be given to employees as required
under California Health and Safety Code Section 25915. Lessee agrees that it
will provide this notice to its employees.
23. CHANGES IN RULES AND ENFORCEMENT.
Lessor reserves the right to make such other and further Rules and Regulations
as in its judgment may be necessary or appropriate for the safety, care, and
cleanliness of the Premises, Building, Common Areas, and Industrial Center;
provided, however, that Lessor shall give Lessee thirty (30) days' advance
notice of changes in the Rules and Regulations. Lessee agrees to abide by all.
such Rules and Regulations, hereinabove stated and those additional Rules and
Regulations which are adopted y Lessor. In the case of any conflict between the
Rules and Regulations and the Lease, the Lease shall be
<PAGE> 34
controlling. A violation of the Rules and Regulations and changes therein shall
constitute a Default by Lessee under the Lease.
24. NON-RESPONSIBILITY OF LESSOR
Lessor is not and shall not be responsible to Lessee for the non-observance or
violation of these Rules and Regulations by any other lessees or occupants of
the Industrial Center.
AGREED TO BE LESSEE:
Name: John Barnicoat, an Individual, Date:
dba Orange Empire Brewing Company
By:
<PAGE> 35
EXHIBIT "1" TO RULES AND REGULATIONS
CALIFORNIA HEALTH AND SAFETY CODE NOTICE
California Health and Safety Code, Sections 25915, etc. requires owners of any
buildings constructed prior to 1979 to provide notice to all employees and/or
tenants of any asbestos-containing construction materials (ACMs) in the
building. This letter is to provide the information required by the legislation
to assist you in making appropriate precautionary measures before disturbing any
ACMs and in making appropriate disclosures to your employees.
A survey to determine the present of ACMs has not been done in your building.
However, ACMs are commonly found in the following materials:
Ceiling tiles, sprayed-on ceiling materials, floor tiles and mastic,
structural fireproofing, roofing material and mastic, pipe insulation,
masonite board and heating and ventilation system mastic and
insulation.
This use of ACMs is consistent with construction practices at the time your
building was completed and does not indicate any unusual conditions in the
building.
The mere presence of ACMs does not necessarily present a health hazard. A hazard
may exists, however, when ACMs are damaged and fibers are released in the air.
Exposure to airborne asbestos fibers can cause lung disease, cancer and serious
illnesses. If you have any additional questions, contact your state public
health agencies for better understanding of the potential impact from asbestos
exposure.
To minimize and prevent disturbance and release of asbestos, no moving,
drilling, boring, handling or disturbing of any of the materials described above
that could contain asbestos, should be attempted by anyone. If you intent to
handle or otherwise disturb any of the above-described material that could
contain asbestos, these activities should be undertaken only by licensed
personnel, with proper training and equipment for handling ACMs.
If any of this material should deteriorate, if you have further questions or
require additional information, contact R. Brian Hunsaker at (714) 863-1390.
AGREED TO BY LESSEE:
Name: John Barnicoat, an Individual, dba Date:
Orange Empire Brewing Company
By:
<PAGE> 36
EXHIBIT A
PHOTO OF PARKING LOT
<PAGE> 37
EXHIBIT B
HAZARDOUS WASTE RIDER
This HAZARDOUS WASTE RIDER ("Rider") is attached to and made a part of that
certain lease dated December 6, 1995, by and between Hunsaker-Hunter, Inc., as
Lessor, and John Barnicoat, an individual, d.b.a. Orange Empire Brewing Company,
Lessee. Unless otherwise defined in this Exhibit, capitalized terms used in this
Exhibit shall have the same meaning as set forth in the lease.
Lessee, at its sole cost and expense, shall comply with all laws,
rules, regulations, orders and the like relating to the storage, use
and/or disposal of hazardous, toxic or radioactive matter, including
those materials identified in Sections 66680 through 66685 of Title 22
of the California Administrative Code, Division 4, Chapter 30 ("Title
22)" as amended from time to time (collectively "Toxic Materials").
Lessee shall not cause or permit any Toxic Materials to be brought
upon, kept, stored, used or disposed of in or about the Premises by
Lessee, its agents, employees, contractors or invitees, without the
prior written consent of Lessor, which consent Lessor may withhold in
its sole discretion. Lessee's reach of the covenants contained herein
shall constitute a material default under the lease. Lessee shall be
solely responsible for and shall defend, indemnify and hold Lessor,
Lessor's agents and the Premises harmless from and against all claims,
costs and liabilities, including attorney's fees and costs, arising out
of or in connection with the removal of Toxic Materials from the
Premises and/or any adjacent property, including without limitation,
any and all restoration work and material necessary to return the
Premises and any other property of whatever nature to their condition
existing prior to the appearance of the Toxic Materials on the
Premises. Lessee's obligations hereunder shall survive the termination
of the lease.
Lessee: John Barnicoat, an individual
dba Orange Empire Brewing Company
By: Date:
Name Printed: John Barnicoat
<PAGE> 38
Grubb & Ellis Company Grubb & Ellis
Commercial Real Estate Services
State of California
EXHIBIT C
SALE/LEASE AMERICANS WITH DISABILITIES ACT
AND HAZARDOUS MATERIALS DISCLOSURE
Property: 1229 Columbia, Ste. C-1 and 1215 Columbia, Ste. C-4
The United States Congress has enacted the Americans with Disabilities
Act. Among other things, this act is intended to make many business
establishments equally accessible to persons with a variety of
disabilities; modifications to real property may be required. State and
local laws also may mandate changes. The real estate brokers in this
transaction are not qualified to advise you as to what, if any, changes
may be required now or in the future. Owners and tenants should consult
with attorneys and qualified design professionals of their choice for
information regarding these matters. Real estate brokers cannot
determine which attorneys or design professionals have the appropriate
expertise in this area.
Various construction materials may contain items that have been or may
in the future be determined to be hazardous (toxic) or undesirable and
may need to be specially treated/handled or removed. For example, some
transformers and other electrical components contain PCBs and asbestos
has been used in components such as fire-proofing, heating and cooling
systems, air duct insulation, spray-on and tile acoustical materials,
linoleum, floor tiles, roofing, dry wall and plaster. Due to prior or
current uses of the Property or in the area, the Property may have
hazardous or undesirable metals, minerals, chemicals, hydrocarbons, or
biological or radioactive items (including electric and magnetic
fields) in soils, water, building components, above or below-ground
containers or elsewhere in areas that may or may not be accessible or
noticeable. Such items may leak or otherwise be released. Real estate
agents have no expertise in the detection or correction of hazardous or
undesirable items. Expert inspections are necessary. Current or future
laws may require clean up by past, present and/or future owners and/or
operators. It is the responsibility of the Seller/Lessor and
Buyer/Tenant to retain qualified experts to detect and correct such
matters and to consult with legal counsel of their choice to determine
what provisions, if any, they may wish to include in transaction
documents regarding the Property.
To the best of Seller's/Lessor's knowledge, Seller/Lessor has attached
to this Disclosure copies of all existing surveys and reports known to
Seller/Lessor regarding asbestos and other hazardous materials and
undesirable substances related to the Property. Seller/Lessors are
required under California Health and Safety Code Section 25915 et seq.
to disclose reports and surveys regarding asbestos to certain persons,
including their employees, contractors, co-owners, purchasers and
tenants. Buyers/Tenants have similar disclosure obligations.
Sellers/Lessors and Buyers/Tenants have additional hazardous materials
disclosure responsibilities to each other under California Health and
Safety Code Section 25359.7 and other California laws. Consult with
your attorney regarding this matter. Grubb & Ellis Company is not
qualified to assist you in this matter or provide you with other legal
or tax advice.
SELLER/LESSOR: BUYER/LESSEE:
By: By:
Title: Title:
Date: Date:
<PAGE> 1
EXHIBIT 10.6
LEASE
This Lease is made and entered into this 31st day of March, 1993, by
and between Kowashoji, USA, Inc. a California corporation ("Landlord") and
Orange Empire Brewing Company, A California Corporation ("Tenant").
WITNESSETH:
1. USE.
The Landlord hereby leases to Tenant and Tenant hereby hires from
Landlord those certain premises with appurtenances described as hereinafter set
forth in this lease, for the purpose of conducting thereon only the following
use: Restaurant/Brew Pub.
2. PREMISES.
The premises leased to Tenant, together with those appurtenances
constructed by Landlord as specifically set forth in this Lease, are situated in
the City of Riverside, State of California at 3397 Seventh Street, and are the
premises described as 1st floor, consisting of approximately 7,029 feet, more or
less, as cross-hatched on the plot plan attached hereto as Exhibit "A".
Tenant acknowledges that areas of the structure and site in their
existing condition may not be in compliance with the American Disabilities Act,
and the Tenant holds Landlord harmless for all actions brought by employees from
and against all claims, damages, losses and expenses, including reasonable
attorney fees.
3. TERM.
(A) The term of this lease shall be for a period of Ten (10) years plus
any partial month if this lease commences on a day other than the first day of a
month ("Initial Lease Term"). This lease shall commence on August 15, 1993 or
sooner as hereinafter specified.
(B) If Landlord, for any reason whatsoever, cannot deliver possession
of the Leased Premises to Tenant at the commencement of the term, this lease
shall not be void or voidable except as hereinafter set forth, nor shall
Landlord be liable to Tenant for any loss or damage resulting therefrom, so long
as Landlord exercises reasonable diligence to deliver possession, but in such
event there shall be a daily pro rata deduction for rent covering the period
between the designated commencement of the term and the actual time when
Landlord delivers possession, the duration of the term remaining unaffected.
(C) Commencement of Term. The term shall commence sooner than the date
set forth in Section 3(a) above upon issuance of the Certificate of Occupancy by
the city of Riverside or ninety (90) days from approval of Tenant improvement
plans by the City of Riverside, whichever occurs first. Tenant agrees to
diligently pursue necessary approvals by city. In the event possession is taken
prior to July 1,1993, rent shall be prorated for such fractional month. Tenant
shall be granted early possession to complete Tenant improvements. Landlord and
Tenant shall confirm in writing the Commencement Date of this lease. If Tenant
occupies the premises pursuant to this paragraph (c), such occupancy shall be
subject to all provisions of this lease and shall not change the termination
date.
(D) Option to Extend Term. Provided that Tenant is not in default under
any of the terms and conditions of this lease, Tenant shall have an exclusive
option to extend the term of this lease for two (2) additional periods of Five
(5) years each upon giving written notice to Landlord not later than sixty (60)
days prior to the expiration of the Existing term.
1
<PAGE> 2
Revised 3/10/93
Should Tenant fail to give written notice to Landlord of Tenant's
intent to exercise the aforesaid options by the dates specified, this option
clause shall be deemed null and void.
The amount of the base rent to be paid during each option period shall
be adjusted as of the beginning of the option period so as to reflect changes in
the cost of living index calculated in accordance with the provisions of Article
27. All other terms, shall remain in full force and effect during the extended
lease term.
4. RENTAL.
(A) Base Monthly Rental. Tenant shall pay to Landlord, during the term
of this lease from and after the Commencement Date, base rent for the Leased
Premises the sum of Six Thousand and No/100 Dollars ($6,000.00) per month, which
sum shall be paid in advance on the first day of each calendar month. In the
event the Commencement date does not occur on the first day of a calendar month,
the Tenant shall pay the rental for the fractional month on the Commencement
Date on a per diem basis (calculated on a thirty-day month). Provided Tenant is
not in default under the terms hereof, the following months shall be rent free:
1, 13, 25, 37, 49, 61, and 73. In the event Tenant defaults after receiving any
free rent hereunder, any amount waived shall be immediately due and payable. The
term default as referred to herein is defined in paragraph 21 of said lease.
(B) Operating Expense. Tenant shall pay to Landlord during the term
hereof, in addition to the base rent Tenant's Share, as hereinafter defined, of
the amount by which all Operating Expenses, as hereinafter defined, for each
Comparison Year exceeds the amount of all Operating Expenses for the Base Year,
such excess being hereinafter referred to as the "Operating Expense" in
accordance with the following provisions: (as referenced herein, Office Building
= The Project)
(a) Building and project expenses shall be subject to a 1993
"Base Year". Any variable expenses in the Base year shall be
adjusted based on a 100% occupied project . Variable expenses
in comparison years shall be adjusted to reflect the greater
of 100% or actual building occupancy. Lessee shall pay, as
additional rent, Lessee's pro rata share of all actual
expenses over and above the said "Base Year" expenses.
Excluded from operating expenses are capital improvements and
brokerage commissions.
(b) "Comparison Year" is defined as each calendar year during
the term of this Lease subsequent to the Base Year; provided, however,
Tenant shall have no obligation to pay a share of the Operating Expense
increase applicable to the first twelve (12) months of the Lease Term
(other than such as are mandated by a governmental authority, as to
which government mandated expenses Tenant shall pay Tenant's Share,
notwithstanding they occur during the first twelve (12) months.
Tenant's share of the Operating Expense Increase for the first and last
Comparison Years of the Lease Term shall be prorated according to that
portion of such Comparison Year as to which Tenant is responsible for a
share of such increase.
(c) "Operating Expense" is defined, for purposes of this
Lease, to include all costs, if any, incurred by Landlord in the
exercise of its reasonable discretion, for:
( i ) The operation, repair, maintenance, and
replacement, in neat, clean, safe, good order and
condition, of the Office Project, including but not
limited to, the following:
(aa) The Exterior Common Areas, including
parking areas, loading and unloading areas,
trash areas, roadways, sidewalks, walkways,
stairways, parkways, driveways,
2
<PAGE> 3
landscaped areas, striping, bumpers,
irrigation systems, Common Area lighting
facilities, building exteriors and roofs,
fences and gates;
(ii) Trash disposal and security services;
(iii) Any other service to be provided by Landlord
that is elsewhere in this Lease stated to be an
"Operating Expense";
(iv) The cost of the premiums for the liability and
property insurance policies to be maintained by
Landlord;
(v) The amount of the real property taxes to be paid
by Landlord;
(vi) Reasonable management fee not to exceed 6%.
(vii) Replacing and/or adding improvements mandated
by any governmental agency and any repairs or
removals necessitated thereby amortized over its
useful life according to Federal income tax
regulations or guidelines for depreciation thereof
(including interest on the unamortized balance as is
then reasonable in the judgment of Landlords
accountants), pertaining to Leased Premises only.
(ix) Replacements of equipment or improvements that
have a useful life for depreciation purposes
according to Federal income tax guidelines of five
(5) years or less, as amortized over such life.
(e) Operating Expenses shall not include the costs of
replacements of equipment or improvements that have a useful
life for Federal income tax purposes in excess of five (5)
years unless it is of the type described in Paragraph 4(C) (d)
(viii) in which case their costs shall be included as above
provided.
(f) Operating Expenses shall not include any expenses
paid by any Tenant directly to their parties, or as to which
Landlord is otherwise reimbursed by any third party, other
tenant, or by insurance proceeds.
(g) Notwithstanding the foregoing, Landlord to be
responsible for all base year taxes, insurance and common area
maintenance. Tenant responsible for all utilities and
janitorial service.
(h) Tenant's Share of Operating Expense Increase shall be
payable by Tenant within twenty (20) days after a reasonably
detailed statement of actual expenses is presented to Tenant
by Landlord. At Landlord's option, however, an amount may be
estimated by Landlord from time to time in advance of Tenant's
Share of the Operating Expense Increase for any Comparison
Year, and the same shall be payable monthly or quarterly, as
Landlord shall designate, during each Comparison Year, during
each Comparison Year of the Lease term, on the same day as the
Base Rent is due hereunder. In the event that Tenant pays
Landlord's estimate of Tenant's Share of Operating Expense
Increase as aforesaid, Landlord shall deliver to Tenant within
sixty (60) days after the expiration of each Comparison Year a
reasonably detailed statement showing Tenant's Share of the
actual Operating Expense Increase incurred during such year.
If Tenant's payments under this paragraph during said
Comparison Year exceed Tenant's Share as indicated on said
statement, Tenant shall be entitled to the credit the amount
of such overpayment against Tenant's Share of Operating
Expense Increase next falling due. If Tenant's payments under
this paragraph during said Comparison Year were less
3
<PAGE> 4
than Tenant's Share as indicated on said statement, Tenant
shall pay Landlord the amount of the delinquency within twenty
(20) days after delivery by Landlord of said statement. Even
though the term of this lease has expired and Tenant has
vacated the Leased Premises, when the final determination is
made of Tenant's Share of said expenses for the year in which
this lease terminates, Tenant shall immediately pay any
increase due over the estimated payments previously made by
Tenant and, conversely, any overpayments shall be immediately
paid by Landlord to Tenant. Alternatively, Landlord may elect
to bill Tenant its pro rata share after the expenses have been
incurred in which event Tenant's pro rata share shall be based
on actual expenses at such intervals as Landlord shall
determine.
(I) Neither Tenant's nor it's patrons shall park in others
reserved parking areas and if so, their vehicles are subject
to towing by Landlord. Landlord may charge Tenant, without
prior notice, Ten Dollars ($10.00) per day per vehicle parked
in other than a designated area. All amounts shall be paid
within ten (10) days after demand. Additionally, Landlord is
authorized to cause any such vehicle parked in other than a
designated area to be towed away. Tenant shall hold Landlord
harmless from any liability relating thereto and within ten
(10) days after demand for payment shall pay the cost of
towing and storage if not paid by the employee.
(j) In addition to other rules and regulations for the
property, or as part of such rules and regulations, Landlord
may adopt from time to time rules and regulations for the
orderly and proper operation of said parking and common areas.
Such rules and regulations may include, but shall not be
limited to, the following: (I) the restricting of employee
parking to a limited, designated area or areas or prohibiting
parking by employees as above provided; (ii) the establishment
of certain limited areas as exclusive parking areas for
certain tenants; and (iii) the restriction of loading,
unloading and deliveries to specified times and areas.
(C) All rental to be paid by Tenant to Landlord shall be in lawful
money of the United States of America and shall be paid without deduction or
offset, prior notice or demand at the address designated in Section R of Article
30.
5. REAL PROPERTY TAXES.
(A) Payment of Taxes. Landlord shall pay the real property tax, as
defined in paragraph 5(C), applicable to the Office Building Project subject to
reimbursement by Tenant of Tenant's Share of such taxes in accordance with the
provisions of paragraph 4(B) except as otherwise provided in paragraph 5(B).
(B) Additional Improvements. Tenant shall not be responsible for
paying any increase in real property tax specified in the tax assessor's records
and work sheets as being caused by additional improvements placed upon the
Office Building Project by other Tenants or by Landlord for the exclusive
enjoyment of any other Tenant. Tenant shall, however, pay to Landlord at the
time that Operating Expenses are payable under paragraph 4(B) the entirety of
any increase in real property tax if assessed solely by reason of additional
improvements placed upon the Premises by Tenant or at Tenant's request.
(C) Definition of "Real Property Tax". As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Office Building Project o any portion thereof by
any authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Landlord in the Office Building Project or in any
portion thereof, as against Landlord's right to rent or other income therefrom.
The term "real property tax"
4
<PAGE> 5
shall also include any tax, fee, levy, assessment or charge to the extent it is
(I) in substitution of, partially or totally, any tax, fee, levy, assessment or
charge hereinabove included within the definition of "real property tax", or
(ii) the nature of which was hereinbefore included within the definition of
"real property tax", or (iii) which is imposed for a service or right not
charged prior to June 1, 1978, or, if previously charged, has been increased
since June 1, 1978, or (iv) which is imposed as a result of a change in
ownership, as defined by applicable local statutes for property tax purposes, of
the Office Building Project or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such change of
ownership, or (v) which is imposed by reason of this transaction, any
modifications or changes hereto, or any transfers hereof.
(D) Joint Assessment. If the improvements or property, the taxes for
which are to be paid separately by Tenant under paragraph 5(B) or 6 are not
separately assessed, Tenant's portion of that tax shall be equitably determined
by Landlord from the respective valuation assigned in the assessor's work sheets
or such other information (which may include the cost of construction) as may be
reasonably available. Landlord's reasonable determination thereof, in good
faith, shall be conclusive.
6. PERSONAL PROPERTY TAXES.
(A) Tenant shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Tenant contained in the Premises or elsewhere.
(B) If any of Tenant's said personal property shall be assessed
with Landlord's real property, Tenant shall pay to Landlord the taxes
attributable to Tenant within ten (10) days after receipt of a written statement
setting forth the taxes applicable to Tenant's property.
7. PARKING AND COMMON AREAS.
(A) The terms "parking" and "common areas" as used herein shall mean
those portions of the premises that are from time to time established by
Landlord as automobile parking areas, roadways, walkways, landscaped areas,
malls, service areas, courtyard and the like. The common areas shall at all
times be subject to the exclusive control and management of Landlord. During the
term of this lease and any extension thereof, Landlord gives to Tenant for the
use and benefit of Tenant, its agents, employees, customers, licensees and
subtenants a non-exclusive license in common with Landlord and other present and
future owners and tenants and their agents, employees, customers, licensees and
subtenants, and others authorized y Landlord to use the parking and common areas
of the premises for ingress, egress and automobile parking, provided that the
condemnation or other taking by any public authority, or sale in lieu of
condemnation, of any or all of such parking and common areas shall not
constitute a violation of this covenant. Landlord reserves the right in its sole
and absolute discretion (without which right Landlord would not have entered
into this lease) to change the location of buildings and the entrances, exits,
traffic lanes, parking stalls, landscaped areas, the direction and flow of
traffic, and the size, boundaries, location, and configuration of the parking
and common areas, to create temporary and permanent kiosks, and to annex
additional property by Landlord. The license shall be automatically revoked to
the extent portions of the property are deleted by Landlord from the parking and
common areas and shall be deemed expanded to the extent areas are added. Nothing
herein contained shall be deemed to prevent Landlord from using or authorizing
others to use said parking and common areas for utility lines and appurtenances,
pickups and deliveries to and from buildings, construction, and other similar
purposes. Notwithstanding the foregoing, Tenant shall be entitled to twenty (20)
assigned parking spaces in addition to common parking. Notwithstanding the
foregoing, material parking and access modifications shall be subject to lessees
reasonable approval.
(B) During the entire term hereof, Landlord shall keep or cause to be
kept the parking and common areas as same are established by Landlord in a good,
neat, clean and
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orderly condition, and shall repair any damage to the facilities
thereof. Tenant hereby acknowledges that Landlord shall have no obligation
whatsoever to provide guard service or other security measures for the benefit
of the Premises o the Office Building Project. Tenant assumes all responsibility
for the protection of Tenant, its agents, and invitees and the property of
Tenant and of Tenant's agents and invitees from acts of third parties. Nothing
herein contained shall prevent Landlord, at Landlord's sole option, from
providing security protection for the Office Building Project or any part
thereof, in which event the cost thereof shall be included within the definition
of Operating Expenses, as set forth in paragraph 4(B).
8. USES PROHIBITED.
Tenant shall not use, or permit the Leased Premises, or any part thereof, to be
used for any purpose or purposes other than the express purpose or purposes for
which the Leased Premises are hereby leased pursuant to Article 1. No use shall
be made or permitted to be made of the Leased Premises, nor acts done, other
than normal usage permitted under Paragraph 1, which will increase the existing
rate of insurance upon the building or the parking and common areas (once said
rate is established), or cause a cancellation of any insurance policy covering
said building or any part thereof or the parking and common areas. Tenant shall
not sell or permit to be kept, used, displayed or sole in or about the Leased
Premises (I) pornographic or sexually explicit books, magazines, literature,
films or other printed material, sexual paraphernalia, o other material which
would be considered lewd, obscene or licentious, (ii) any article which may be
prohibited by standard forms of fire insurance policies. Tenant shall not use,
or permit to b used, the Leased Premises or any part thereof for the
installation or on- premises use of any vending machine, gaming machine or video
or arcade game except as incidental to Tenant's operation as a restaurant/brew
pub. No use shall be made or permitted which conflicts with any recorded
document. Tenant shall, at his sole cost, comply with any and all requirements,
pertaining to the use of the Leased Premises, of any insurance organization or
company necessary for the maintenance of reasonable fire and public liability
insurance, covering the building of which the Leased Premises are a part and
appurtenances. In the event Tenant's use of the Leased Premises results in a
rate increase of any kind, Tenant shall pay annually on the anniversary date of
this lease, as additional rent, a sum equal to that of the additional premium
occasioned by said rate increase.
Tenant shall not commit, or suffer to be committed, any waste upon the
Leased Premises, or any nuisance or other act or thing which may disturb the
quiet enjoyment of any other tenants or occupants. Tenant further agrees to keep
all windows of the Leased Premises clean at all times and washroom and toilet
facilities in a neat and sanitary condition. Tenant shall not conduct or permit
to be conducted any sale by auction in, upon or from the Leased Premises,
whether said auction be voluntary, involuntary, pursuant to any assignment for
the payment of creditors, or pursuant to any bankruptcy or other solvency
proceeding. Tenant shall not advertise, solicit business or give out literature
or materials within the parking and common areas without Landlord's prior
written consent. Tenant shall not use any advertising media, such as
loudspeakers, phonographs, broadcasting or other sound devices which can be
heard outside the Leased Premises. In addition, Tenant shall not use a
representation (photographic or otherwise) of the building or the building
project or their name(s) in connection with Tenant's business.
9. ALTERATIONS AND FIXTURES.
Tenant shall not make, or suffer to be made, any alterations of the
Leased Premises, or any part thereof, or change the appearance of the Leased
Premises without the prior written consent of Landlord, and any alterations to
the Leased Premises, except movable furniture and trade fixtures, shall become
at once a part of the realty and shall at the expiration or earlier termination
of this lease belong to Landlord. Any alterations to the Leased Premises shall
be made by a contractor currently licensed in the State of California. Other
than signage which shall be subject to city approval, and Landlord's reasonable
consent, Tenant shall not in any event make any changes to the exterior of the
Leased Premises. Any such alterations shall be in conformance with the
requirements of
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all municipal, state, federal, and other governmental authorities, including
requirements pertaining to the health, welfare or safety of employees of the
public and in conformance with reasonable rules and regulations of Landlord.
Landlord may require that any such alterations be removed prior to the
expiration of the term hereof. Any removal of alterations or furniture and trade
fixtures shall be at Tenant's expense and accomplished in a good and workmanlike
manner. Any damage occasioned by such removal shall be repaired at Tenant's
expense so that the Leased Premises can be surrendered in a good, clean and
sanitary condition as required by Article 10 hereof.
10. MAINTENANCE AND REPAIR.
(A) Landlord's Obligations. Landlord shall keep the office
Building Project, including the Premises, interior and exterior walls, roof, and
common areas, and the equipment whether used exclusively foe the Premises or in
common with other premises, in good condition and repair. Except as otherwise
provided herein, there shall be no abatement of rent or liability of Tenant on
account of any injury or interference with Lessee's business with respect to any
improvements alterations or repairs made by Landlord to the Office Building
Project or any part thereof.
(B) Tenant's Obligations. On the last day of the term hereof, or
on any sooner termination, Tenant shall surrender the Premises to Landlord in
the same condition as received, ordinary wear and tear excepted, clean and free
of debris. Any damage or deterioration of the Premises shall not be deemed
ordinary wear and tear if the same could have been prevented by good maintenance
practices by Tenant. Tenant shall repair any damage to the Premises occasioned
by the installation or removal of Tenant's trade fixtures, alterations,
furnishings and equipment. Except as otherwise stated in this Lease, Tenant
shall leave the air lines, power panels, electrical distribution systems,
lighting fixtures, air conditioning, ceilings and plumbing on the Premises and
in good operating condition.
11. COMPLIANCE WITH LAWS.
Tenant shall, at his sole cost and expense, comply with all of the
requirements of all municipal, state and federal authorities now in force or
which may hereafter be in force pertaining to the use of the Leased Premises,
and shall faithfully observe in said use all municipal ordinances, sate and
federal statutes, or other governmental regulations now in force or which shall
hereinafter be in force and all covenants, conditions and restrictions presently
or hereafter of record. Tenant's violation of law not cured within 10 days of
written notice shall constitute an incurable default under this lease. The
judgment of any court of competent jurisdiction, or the admission of Tenant in
any action or proceeding against Tenant, whether Landlord be a party thereto or
not, that Tenant has violated any such order or statue in said use, shall be
conclusive of that fact as between the Landlord and Tenant.
12. INSURANCE.
(A) Liability Insurance-Tenant. Tenant shall, at Tenant's expense,
obtain and keep in force during the term of this Lease a policy of Comprehensive
General Liability insurance utilizing an Insurance Services or equivalent, in an
amount of not less than $1,000,000 per occurrence of bodily injury and property
damage combined or in a greater amount as reasonably determined by Landlord and
shall insure Tenant with Landlord as an additional insured against liability
arising out of the use, occupancy or maintenance of the Premises. Compliance
with the above requirement shall not, however, limit the liability of Tenant
hereunder.
(B) Liability Insurance-Landlord. Landlord shall obtain and keep in
force during the term of this Lease a policy of Combined Single Limit Bodily
Injury and Broad Form Property Damage Insurance, plus coverage against such
other risks Landlord deems advisable from time to time, insuring Landlord, but
not Tenant, against liability arising out of the ownership, use, occupancy or
maintenance of the Office Building Project in an amount not less than
$5,000,000.00 per occurrence.
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(C) Property Insurance-Tenant. Tenant shall, at Tenant's expense obtain
and keep in force during the term of this Lease for the benefit of Tenant,
replacement cost fire and extended coverage insurance, with vandalism, malicious
mischief, plate glass, sprinkler leakage and earthquake sprinkler leakage
endorsements, in an amount sufficient to cover the reasonable replacement cost,
as the same may exist from time to time, of all of Tenant's personal property,
fixtures, equipment or Tenant improvements.
(D) Property Insurance-Landlord. Landlord shall obtain and keep in
force during the term of this Lease a policy or policies of insurance covering
loss or damage to the Office Building Project improvements, but not the amount
of the reasonable replacement cost thereo, as the same may exist from time to
time, utilizing Insurance Services Office standard form, or equivalent providing
protection against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, plate glass, and such other
perils as Landlord deems advisable or may be required by a lender having a lien
on the Office Building Project. In addition, Landlord shall obtain and keep in
force, during the term of this Lease, a policy of rental value insurance
covering a period of one year, with loss payable to Landlord, which insurance
shall also cover all Operating Expenses for said period. Tenant will not be
named in any such policies carried by Landlord and shall have no right to any
proceeds therefrom. The policies required by these paragraphs 12(B) and 12(D)
shall contain such deductibles as Landlord or the aforesaid lender may
determine. In the event that the Premises shall suffer an insured loss covered
under said policy, the deductible amounts under the applicable insurance
policies shall be deemed an Operating Expense. Tenant shall not do or permit to
be done anything which shall invalidate the insurance policies carried by
Landlord. Tenant shall pay the entirety of any increase in the property
insurance premium for the Office Building Project over what it was immediately
prior to the commencement of the term of this Lease if the increase is specified
y Landlord's insurance carrier as being caused by the nature of Tenant's
occupancy (except normal use of premises pursuant to Paragraph 1) or any act or
omission of Tenant.
(E) Insurance Policies. Tenant shall deliver to Landlord copies of
liability insurance policies required under paragraph 12(A) or certificates
evidencing the existence and amounts of such insurance within seven (7) days
prior to the Commencement Date of this Lease. Landlord to be named as additional
insured on Tenant's policy. No such policy shall be cancelable or subject to
reduction of coverage or other modification except after thirty (30) days prior
written notice to Landlord. Tenant shall, at least thirty (30) days prior to the
expiration of such policies, furnish Landlord with renewals thereof.
(F) No Representation of Adequate Coverage. Landlord makes no
representation that the limits or forms of coverage of insurance specified in
this paragraph 12 are adequate to cover Tenant's property or obligations under
this Lease.
(G) Food Preparation. Tenant, if involved in food preparation and sales
as a cafe, restaurant, or similar use, and/or food takeout service, shall
install at Tenant's expense any fire protective systems in grill, deep fry, and
cooking areas which are required by city, county and state fire ordinances, and
such system when installed shall qualify for full fire protective credits
allowed by the fire insurance rating and regulatory body in whose jurisdiction
the Demised Premises are located.
13. INDEMNIFICATION OF LANDLORD.
Tenant, as a material pat of the consideration to be rendered to
Landlord under this lease, hereby waives all claims against Landlord for damage
to equipment or other personal property, trade fixtures, or leasehold
improvements, in, upon or about the Leased Premises and for injuries to persons
in or about the Leased Premises, from any cause arising at any time (including
but not limited to the police or security system for the Building); and Tenant
will indemnify and hold harmless Landlord and its agents, partners and lenders,
if any, from and against any and all claims for damage to the person or property
of anyone or any entity arising from Tenant's use of the Office Building or from
the conduct of Tenant's business or from any activity, work or things done,
permitted or
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suffered by Tenant in or about the Premises or elsewhere and shall further
indemnify and hold harmless Landlord from and against any and all claims, costs
and expenses arising from any reach or default in the performance of any
obligation on Tenant's part to e performed under the terms of this Lease, or
arising from any act or omission of Tenant, or any of Tenant's agents,
contractors, employees, or invitees and from and against all costs, attorney's
fees, expenses and liabilities incurred by Landlord as the result of any such
use, conduct, activity, work, things done, permitted or suffered, breach,
default or negligence and in dealing reasonable therewith, including but not
limited to the defense or pursuit of any claim or any action or proceeding
involved therein; and in case any action or proceeding be brought against
Landlord by reason of any such matter.
Exemption of Landlord from Liability. Tenant hereby agrees that
Landlord shall not be liable for injury to Tenant's business or any loss of
income therefrom or for loss of or damage to the property of Tenant, Tenant's
employees, invitees, customers or any other person in or about the Premises or
the Office Building, nor shall Landlord be liable for injury to the person of
Tenant, Tenant's employees, agents or contractors, whether such damage or injury
is caused by or results from theft, fire, steam, electricity, gas, water or
rain, or from the breakage, leakage, obstruction or other defects of pipes,
sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures
or from any other cause whether said damage or injury results from conditions
arising upon the Premises or upon other portions of the Office Building Project
or from other sources or places or from new construction or the repair,
alteration or improvement of any part of the Office Building Project or of the
equipment, fixtures or appurtenances applicable thereto, and regardless of
whether the cause of such damage or injury or the means of repairing the same is
inaccessible, Landlord shall not be liable for any damages arising from any act
or neglect of any other Tenant, occupant or user of the Office Building Project,
nor from the failure of Landlord to enforce the provisions of any other lease of
any other Tenant of the Office Building Project.
14. FREE FROM LIENS.
Tenant shall do all things reasonably necessary to prevent the filing
of any mechanic's, tax, or other liens of any kind or nature whatsoever against
the Leased Premises, or any part thereof, by reason of work, labor, services or
materials supplied or claimed to have been supplied to Tenant, or anyone holding
the Leased Premises or any part thereof through or under Tenant, or by reason of
unpaid taxes, or otherwise. If any such lien shall at any time be filed against
the Leased Premises, Tenant shall either cause the same to be discharged of
record within twenty (20) days after the date of filing of the same, or if
Tenant , in Tenant's discretion and in good faith, determines that such lien
should be contested, Tenant shall furnish such security as may be necessary or
required to prevent any foreclosure proceedings against the Leased Premises
during the pendency of such contest. If Tenant shall fail to discharge such lien
within such period or fail to furnish such security, then, in addition to any
other right or remedy of Landlord resulting from Tenant's said default, Landlord
may but shall not be obligated to, discharge the same either by paying the
amount claimed to be due or by procuring the discharge of such lien by giving
security or in such other manner as is or may be prescribed by law. Tenant shall
repay to Landlord, as additional rental, on demand, all sums disbursed or
deposited by Landlord pursuant to this paragraph,
including Landlord's costs, expenses and reasonable attorneys' fees incurred by
Landlord in connection therewith.
15. ABANDONMENT.
Tenant shall not vacate or abandon the Leased Premises at any time
during the term of this lease; and if Tenant shall abandon, vacate or surrender
the Leased Premises or be dispossessed by process of law, or otherwise, any
personal property belonging to Tenant and left on the Leased Premises shall be
deemed to be abandoned, at the option of Landlord, except such property as may
be mortgaged to Landlord.
16. SIGNS.
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Tenant shall not place or permit to be placed any sign upon the exterior in the
windows of the Leased Premises without compliance with established sign criteria
y the City of Riverside. Landlord to approve size and location of said sign,
Landlord's approval shall not be unreasonably withheld. Landlord may at its
option, install a directory(ies) listing the names of the individual Tenants,
the cost of which shall be shared equally by all tenants. Landlord agrees to
refrain from placing any broker leasing or for sale signs in the area identified
on the attached Exhibit B.
17. UTILITIES.
(A) Tenant shall pay for all HVAC, water, gas, heat, light, power,
telephone, janitorial and other utilities and services specially or exclusively
supplied and/or metered exclusively to the Premises to Tenant, together with any
taxes thereon. If any such services are not separately metered to the Premises,
Tenant shall pay at Landlord's option, either Tenant's Share or a reasonable
proportion to be determined by Landlord of all charges jointly metered with
other premises in the Building.
18. ENTRY AND INSPECTION.
Tenant shall permit Landlord and his agents to enter into and upon the
Leased Premises at all reasonable times for the purpose of inspecting the same
or for the purpose of maintaining the building in which the Leased Premises are
situated, or for the purpose of making repairs, alterations or additions to any
other portion of said building, including the erection and maintenance of such
scaffolding, canopy, fences and props as may be required, or for the purpose of
posting notices of nonliability for alterations, additions or repairs, Landlord
shall be permitted to do any of the above without any rebate of rent and without
any liability to Tenant for any loss of occupation or quiet enjoyment of the
Leased Premises thereby occasioned. Tenant shall permit Landlord, at any time
within two (2) months prior to the expiration of this lease, to place upon the
Leased Premises any usual or ordinary "For Lease" signs, and during such two (2)
month period Landlord or his agents may, during normal business hours, enter
upon said Leased Premises and exhibit same to prospective tenants. Landlord
shall attempt to minimize effect on Tenant's business while making repairs or
showing Premises.
19. DAMAGE AND DESTRUCTION OF PREMISES.
In the event of (a) partial or total destruction of the Leased Premises
or the building containing same during the term of this lease which requires
repairs to either the Leased Premises or said building, or (b) the Leased
Premises or said building being declared unsafe or unfit for occupancy by any
authorized public authority for any reason other than Tenant's act, use or
occupation, which declaration requires repairs to either the Leased Premises or
said building, Landlord shall forthwith make said repairs provided Tenant gives
to Landlord thirty (30) days written notice as to declarations requiring repair
and the necessity therefore. No such partial destruction (including any
destruction necessary in order to make repairs required by any declaration made
by any public authority) shall in any way annul or void this lease except that
Tenant shall be entitled to a proportionate reduction of base rent while such
repairs are being made, such proportionate reduction to be based upon the extent
to which the making of such repairs shall interfere with the business carried on
by Tenant in the Leased Premises. However, if during the last twelve (12) months
of the term of this lease the Leased Premises and/or said building are damaged
as a result of fire or any other insured casualty to an extent in excess of
fifty percent (50%) of the then replacement cost, (excluding foundations),
Landlord may within thirty (30) following the date such damage occurs terminate
this lease by written notice to Tenant. If Landlord, however, elects to make
said repairs, and provided Landlord uses due diligence in making said repairs,
this lease shall continue in full force and effect, and base rent shall be
proportionately reduced while such repairs are being made as hereinabove
provided. Not withstanding the foregoing, Tenant shall be entitled to terminate
said Lease with the occurrence of both of the following conditions: 1. A
diminution of use by more than 50% and; 2. Continuation of said diminution of
use for more than 6 months.
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The foregoing to the contrary notwithstanding, if the Leased Premises
or said building is damaged or destroyed at any time during the term hereof to
an extent of more than twenty-five percent (25%) of the then replacement cost
Landlord may within thirty (30) days following the date of such destruction
terminate this lease upon written notice to Tenant. If Landlord does not elect
to terminate because of said uninsured casualty, Landlord shall promptly rebuild
and repair the Leased Premises and/or the building and the base rent shall be
proportionately reduced while such repairs are being made as hereinabove
provided.
If Landlord elects to terminate this lease, all rentals shall be
prorated between Landlord and Tenant as of the date of such destruction.
For purposes of this Article 19, the following definitions shall apply:
Partial Destruction - shall mean if the Building of which the premises
are a part is damaged or destroyed to the extent that the cost to repair is less
than fifty percent (50%) of the then replacement cost of the building (excluding
foundations).
Total Destruction - shall mean if the Building of which the premises
are a part is damaged or destroyed to the extent that the cost to repair is
fifty percent (50%) or more of the then replacement cost of the building
(excluding foundations).
Replacement Cost - shall mean the amount of money necessary to be spent
in order to repair or rebuild the damaged area to the condition that existed
immediately prior to the damage occurring, excluding all improvements made by
tenants, other than those installed by Landlord at Tenant's expense.
20. ASSIGNMENT AND SUBLETTING.
Tenant shall not sublet the Leased Premises or any part thereof, or any
right or privilege appurtenant thereto, without first obtaining the prior
written consent of Landlord, which Landlord may withhold in its sole and
absolute discretion. Tenant shall not assign this lease, or any interest
therein, without the prior written consent of Landlord, which consent shall not
be unreasonably withheld. Landlord may withhold its consent to any assignment to
a proposed assignee, and Tenant agrees that Landlord shall not be unreasonable
for doing so, unless all the following criteria are met: (a) The proposed
assignee's general financial condition is equal to or greater than of Tenant;
and (b) the proposed assignee is morally and financially responsible. Any such
assignment shall be subject to all of the terms and conditions of this lease,
and the proposed assignee shall assume the obligations of Tenant under this
lease in writing in form satisfactory to Landlord. Landlord may accept rent from
any person/entity other than Tenant pending approval or disapproval of such
assignment or subletting. Consent by Landlord to one assignment, subletting,
occupation or use by another person shall not be deemed to be a consent to any
subsequent assignment, subletting, occupation or use by another person. Consent
to an assignment shall not release the original named tenant from liability for
the continued performance of the terms, covenants and provisions on the part of
Tenant to be kept and performed, and the assignment and assumption documents
shall so provide. Thereafter, Landlord and the assignee may modify, amend,
change or supplement this lease without notice to or consent of the original
names tenant and without releasing the original named tenant from its
liabilities and obligations under this lease, to the extent of the obligations
of this Lease existing at the time of assignment which liabilities and
obligations shall remain in full force and effect and the original named tenant
shall thereafter be liable to perform such obligations. In the event of default
under this lease, Landlord may proceed directly against Tenant, any Guarantors,
Assignees or Sublessees without first exhausting Landlord's remedies against any
other person or entity responsible therefore to Landlord, or any security held
by Landlord or Tenant. Any assignment or subletting without the prior written
consent of Landlord shall be void, shall constitute a material breach of this
lease, and shall, at the option of Landlord, terminate this lease. The discovery
of the fact that any financial statement relied upon by Landlord in giving its
consent to an assignment or subletting was materially false shall, at
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Landlord's election, render The assignment null and void. Neither this lease nor
any interest therein shall be assignable as to the interest of Tenant by
operation of law.
Landlord shall be under no obligation to consider a request for
Landlord's consent to an assignment until Tenant shall have submitted in writing
to Landlord a request for Landlord's consent to such assignment together with
financial/credit information of the proposed assignee, and such other
information as required by Landlord to verity that the criteria for assignment
as se forth herein are met. Landlord shall, within twenty (20) days after
receiving such written request together with the other necessary information,
makes its decision concerning said assignment or subletting and shall notify
Tenant in writing of its decision.
By affixing their initials below, the parties acknowledge that the
provisions of this Article 20 have been freely negotiated, bargained for and
agreed to by Landlord and Tenant. Landlord and Tenant acknowledge that the
terms, limitations and restrictions on assignment and subletting are a material
consideration for Landlord and Tenant entering into this lease and that, but for
such terms, limitations and restrictions, they would not have entered into this
lease.
--------------------- ---------------------
"Landlord" "Tenant"
21. DEFAULT AND REMEDIES.
In addition to the defaults described elsewhere in this lease, the
occurrence of any one or more of the following events shall constitute a default
and breach of this lease by Tenant: (a) the failure to pay any rental or other
payment required hereunder to or on behalf of Landlord at the time or within the
times herein specified for such payment where such default shall continue for a
period of ten (10) days after written notice thereof from Landlord which notice
shall be deemed to be the statutory notice so long as such notice complies with
the statutory requirements; (b) the failure to perform any of Tenant's
agreements or obligations hereunder (exclusive of a default in the payment of
money) where such default shall continue for a period of fifteen (15) days after
written notice thereof from Landlord to Tenant which notice shall be deemed to
be the statutory notice so long as such notice complies with statutory
requirements; (c) the vacation or abandonment of the Leased Premises by Tenant;
(d) the making by Tenant of a general assignment for the benefit of creditors;
(e) the filing by Tenant of a voluntary petition in bankruptcy or the
adjudication of Tenant as a bankrupt; (f) the appointment of a receiver to take
possession of all or substantially all the assets of Tenant located at the
Leased Premises or of Tenant's leasehold interest in the Leased Premises; (g)
the filing by any creditor of Tenant of an involuntary petition in bankruptcy
which is not dismissed within sixty (60) days after filing; or (h) the
attachment, execution or other judicial seizure of all. or substantially all of
the assets of Tenant or Tenant's leasehold where such an attachment, execution
or seizure is not discharged within sixty (60) days. With respect to (a) above,
upon Tenants breach of this covenant on two occasions, Landlord may at its
option request that all future rents be paid in the form of cash or certified
funds. In addition, if any installment of rent remains past due 10 days from its
due date the Landlord shall have the right to charge a late fee equal to 6% on
said past due installment. The parties hereby agree that such late fee
represents a fair and reasonable estimate o the costs Landlord will incur by
reason of late payment by Tenant and shall be paid as additional rent hereunder.
Acceptance of such late fee by Landlord shall in no event constitute a waiver of
any other default by Tenant, nor prevent Landlord from exercising any of the
other rights and remedies granted hereunder. Tenant shall not be entitled to
more than 2 cure periods pursuant to Section A above in any calendar year.
In the event of any such default or breach by Tenant, Landlord may at
any time thereafter, without further notice or demand, rectify or cure such
default, and any sums expended by Landlord for such purposes shall be paid by
Tenant to Landlord upon demand and as additional rental hereunder. In the event
of any such default or breach by Tenant, Landlord shall have the right to
continue the lease in full force and effect and enforce all of its rights and
remedies under this lease, including the right to recover the
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<PAGE> 13
rental as it becomes due under this lease or Landlord shall have the right at
any time thereafter to elect to terminate said lease and Tenant's right to
possession thereunder. Upon such termination, Landlord shall have the right to
recover from Tenant:
(a) The worth at the time of award of the unpaid rental which had been
earned at the time of termination;
(b) The worth at the time of award of the amount by which the unpaid
rental which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Tenant proves
could have been reasonably avoided;
(c) The worth at the time of award of the amount by which the unpaid
rental for the balance of the term after the time of award exceeds the
amount of such rental loss that the Tenant proves could be reasonably
avoided; and
(d) Any other amount necessary to compensate the Landlord for all the
detriment proximately caused by Tenant's failure to perform its
obligations under the lease or which in the ordinary course of things
would be likely to result therefrom.
The "worth at the time of award" of the amounts referred to in
subparagraphs A and B above shall be computed by allowing interest at
the rate of Ten Percent (10%) per annum but in no event greater than
the maximum rate permitted by law. The worth at the time of award of
the amount referred to in subparagraph C shall be computed by
discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus one percent (1%), but
in no event greater than ten percent (10%).
As used herein "rental" shall include the base rental, other sums
payable hereunder which are designated "rental" or "additional rental" and any
other sums payable hereunder as agreed between the parties or paid on a regular
basis such as reimbursement for real estate taxes and assessments and expenses
for maintaining and operating the parking and common areas (such other sums to
be reasonably determined by Landlord).
Such efforts as Landlord may make to mitigate the damages caused by
Tenant's breach of this lease shall not constitute a waiver of Landlord's right
to recover damages against Tenant hereunder, nor shall anything herein contained
affect Landlord's right to indemnification against Tenant for any liability
arising prior to the termination of this lease for personal injuries or property
damage, and Tenant hereby agrees to indemnify and hold Landlord harmless from
any such injuries and damages, including all attorney's fees and costs incurred
by Landlord in defending any action brought against Landlord for any recovery
thereof, and in enforcing the terms and provisions of this indemnification
against Tenant.
Notwithstanding any of the foregoing, the breach of this lease by
Tenant, or an abandonment of the Leased Premises by Tenant, shall not constitute
a termination of this lease, or of Tenant's right of possession hereunder,
unless and until Landlord elects to do so, and until such time Landlord shall
have the right to enforce all of its right and remedies under this lease,
including the right to recover rent, and all other payments to be made by Tenant
hereunder, as they become due. Upon Tenant's breach or abandonment, Landlord
shall have the right to retake possession of the premises without terminating
the lease or being guilty of trespass and failure of Landlord to terminate this
lease shall not prevent Landlord from later terminating this lease or constitute
a waiver of Landlord's right to do so.
Upon any such breach or default, Landlord shall have the right at any
time thereafter, without notice except as provided for above, either in person,
by agent or by a receiver to be appointed by a court, enter and take possession
of the Leased Premises without being guilty of trespass and to collect such
rents, issues and profits, including those past due and unpaid, and apply the
same, less costs and expenses of operation and
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<PAGE> 14
collection, including reasonable attorney's fees, upon any indebtedness secured
hereby, and in such order as Landlord may determine.
The parties hereto agree that acts of maintenance or preservation or
efforts to relet the Leased Premises, or the appointment of a receiver upon the
initiative of the
Landlord to protect its interests under this lease shall not constitute a
termination of Tenant's right of possession for the purposes of this Article
unless accompanied by a written notice from Landlord to Tenant of Landlord's
election o so terminate.
Acceptance of rental hereunder shall not be deemed a waiver of any
other default or a waiver of any of Landlord's remedies.
22. SURRENDER OF LEASE.
The voluntary or other surrender of this lease by Tenant, or a mutual
cancellation thereof, shall not work a merger, and shall, at the option of
Landlord, terminate all or any existing subleases or subtenancies, or may, at
the option of Landlord, operate as an assignment to it of any or all of such
subleases or subtenancies.
23. LANDLORD LIABILITY.
Anything in this lease to the contrary notwithstanding, Tenant agrees
that it shall look solely to the estate and property of Landlord in the land and
buildings comprising the office complex of which the Leased Premises are a part,
and, subject to prior rights of any mortgagee of the Leased Premises, for the
collection, satisfaction or enforcement of any judgment (or other judicial or
administrative process) requiring the payment of money, or the performance or
non-performance of certain acts by Landlord, in the event of any default or
breach by Landlord with respect to any of the terms, covenants and conditions of
this lease to be observed and/or performed by Landlord, and no other assets of
the Landlord will be subject to levy, execution or other procedures for the
satisfaction of any remedy, judgment or order of Tenant. In the event of any
sale of the Leased Premises by Landlord, Landlord shall be and is hereby
entirely freed and relieved of all liability under any and all of its covenants
and obligations contained in or derived from this lease arising out of any act,
occurrence or omission occurring after the consummation of such sale; and the
purchaser, at such sale or any subsequent sale of the Leased Premises, shall be
deemed without further agreement between the parties or their successors in
interest or between the parties and any such purchaser, to have assumed and
agreed to carry out any and all of the covenants and obligations of the Landlord
under this lease arising after the date of such sale.
24. TENANT'S PERFORMANCE. -- Intentionally Omitted
25. FORCE MAJEURE.
If either party hereto shall be delayed or prevented from the
performance of any act required hereunder by reason of Acts of God, strikes,
lockouts, labor troubles, inability to procure materials, restrictive
governmental laws or regulations or other cause without fault and beyond the
control of the party obligated (financial inability excepted), performance of
such act shall be excused for the period of the delay and the period for the
performance of any such act shall be extended for a period equivalent to the
period of such delay; provided, however, nothing in this Article 25 contained
shall excuse Tenant from the prompt payment of any rental or other charge
required of Tenant hereunder except as may be expressly provided elsewhere in
this lease.
26. ESTOPPEL CERTIFICATE.
If, as a result of a proposed sale, assignment, or hypothecation of the
Leased Premises or the land thereunder by Landlord, or at any other time, an
estoppel certificate and/or a current financial statement shall be requested of
Tenant, Tenant agrees, within twenty (20) days after receipt of such request, to
deliver such current financial statement certified by Tenant (or office of
Tenant if Tenant is a corporation), that the financial
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<PAGE> 15
statement has been prepared in accordance with good accounting practices,
consistently applied and accurately reflects the financial condition of Tenant
as of the date of such financial statement, and to deliver such estoppel
certificate (in recordable form if requested) addressed to any existing or
proposed mortgagee or proposed purchaser, and to the Landlord, certifying the
requested information, including among other things the dates of commencement
and termination of this lease, the amounts of security deposits, the rental
currently payable hereunder and the date to which rental has been paid, and that
this lease is in full force and effect (if such be the case) and that there are
no differences, offsets or defaults of Landlord, or noting such differences,
offsets or defaults as actually exist. Tenant shall be liable for any loss or
liability resulting from any incorrect information certified, and such mortgagee
and purchaser shall have the right to rely on such estoppel certificate and
financial statement. Tenant shall in the same manner acknowledge the execute any
assignment of rights to receive rents as required by any mortgagee of Landlord.
27. COST OF LIVING ADJUSTMENT.
Upon each anniversary date of the Commencement Date, or if the
Commencement Date is not on the first day of a month, then on the first day of
the next calendar month, the base rent shall be adjusted in proportion to
changes in the Consumer Price Index. Such adjustment shall be made by
multiplying the original base rent by a fraction, the numerator of which is the
value of the Consumer Price Index for the calendar month three (3) months
preceding the calendar month for which such adjustment is to be made and the
denominator of which is the value of the Consumer Price Index for the same
calendar month immediately prior to Commencement Date. For example, if the
adjustment is to occur effective June 1, 1990, the index to be used for the
numerator is the index for the month of March 1990 and the index to be used for
the denominator is the index for the month of March preceding the Commencement
Date. However, in no event shall the rent be reduced below the base rent in
effect immediately preceding such adjustment. The "Consumer Price Index" to be
used in such calculation is the Consumer Price Index, Los Angeles - Anaheim -
Riverside, all Urban Consumers - All Items, published monthly by the United
States Department of Labor, in which 1989 equals 100. If both an official index
and one or more unofficial indexes are published, the official index shall be
used. If said Consumer Price Index is no longer published at the adjustment
date, it shall be constructed by conversion tables included in such new index.
If neither such Consumer Price Index nor conversion tables are published any
longer, then the most widely published all encompassing index of buying power in
the United States shall be used. If no such index is published, then the most
widely published, all encompassing commodity index for the United States shall
be used. In the event any moratorium is imposed on such increases in rent, such
that no regularly scheduled adjustment can be made or only a partial
adjustment may be made, an adjustment shall immediately take effect on the
lifting of such moratorium and regular adjustments thereafter shall be made
shall not be entitled to claim against Landlord for any portion of Landlord's
award and Tenant hereby expressly waives any right or claim to any part thereof.
Tenant shall, however, have the right to claim and recover, directly from the
condemning authority. If this lease is not terminated as above provided,
Landlord shall use a portion of condemnation award to restore the Leased
Premises.
29. BROKER'S FEE.
The brokers involved in this transaction are Grubb & Ellis as "listing
broker" and as "cooperating broker", licensed real estate broker(s). A
"cooperating broker" is defined as any broker other than the listing broker
entitled to a share of any commission arising under this Lease. Upon execution
of this Lease by both parties, Lessor shall pay to said brokers jointly, or in
such separate shares as they may mutually designate in writing, a fee as set
forth in a separate agreement between Lessor and said broker(s), or in the event
there is no separate agreement between Lessor and said broker(s), the sum of
$________, for brokerage services rendered by said broker(s) to Landlord in this
transaction.
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30. MISCELLANEOUS.
(A) Jurisdiction and Venue. The parties hereto agree that the State of
California is the proper jurisdiction for litigation of any matters relating to
this lease. The parties further agree that Riverside County, California is the
proper place for venue as to any such litigation.
(B) Partial Invalidity. If any term, covenant, condition or provision
of this lease is held by a court of competent jurisdiction to be invalid, void,
or unenforceable, the remainder of the provisions hereof shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.
(C) Consents, Approvals, and Agreements of Landlord. All consents and
approvals hereunder, unless specifically stated herein to the contrary, shall be
in the respective parties reasonable discretion. The agreements and obligations
of Landlord are specifically stated in this lease, and no further agreements,
covenants, promises, or obligations are to be implied, and Tenant expressly
waives any such implied agreements, covenants, promises or obligations.
(D) Interest. Any sum to be paid pursuant to the terms of this lease
not paid when due shall bear interest from and after five (5) days after the due
date (unless otherwise stated) until paid at a rate equal to Ten Percent (10%)
per annum, but not in excess of the maximum rate permitted by law in which case
interest shall be at the maximum rate allowed by law at the time the sum became
due. Any interest due hereunder shall be deemed additional rent.
(E) Holding Over. Any holding over after the expiration of the term of
this lease, with the consent of Landlord, express or implied, shall be construed
to be a tenancy from month to month, cancelable upon thirty (30) days written
notice, and at a rental equal to one hundred fifty percent (150%) of the last
applicable base rent and upon terms and conditions as existed during the last
year of the term hereof.
(F) Successors in Interest. The covenants herein contained shall,
subject to the provisions as to assignment, apply to and bind the heirs,
successors, executors, administrators and assigns of all the parties hereto; and
all of the parties hereto shall be jointly and severally liable hereunder.
(G) No Oral Agreements. This lease covers in full each and every
agreement of every kind or nature whatsoever between the parties hereto
concerning this lease, and all preliminary negotiations and agreements of
whatsoever kind or nature are merged herein, and there are no oral agreements.
Tenant acknowledges that no representations or warranties of any kind or nature
not specifically set forth herein have been made by Landlord or its agents or
representatives.
(H) Authority. In the event that Tenant is a corporation or a
partnership, each individual executing this lease on behalf of said corporation
or said partnership, as the case may be, represents and warrants that he or she
is duly authorized to execute and deliver this lease on behalf of said
corporation or partnership, in accordance with a duly adopted resolution of the
Board of Directors, if a corporation, or in accordance with the Partnership
Agreement, if a partnership, and that this lease is binding upon said
corporation or partnership in accordance with its terms, Tenant agrees to
deliver forthwith to Landlord a certified copy of such resolution of the
Corporation, if Tenant be a corporation, or a copy of the Partnership Agreement
and a copy of the Certificate of Limited Partnership or Statement of
Partnership, if the Tenant be a partnership.
(I) Time. Time is of the essence of this lease.
(J) Parking Surcharge. In the event that a parking surcharge or
regulatory fee, however designated, is imposed upon or levied or assessed
against the Landlord on account of the parking spaces thereon by any
governmental agency or authority pursuant
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<PAGE> 17
to the "Clean Air Act" or any plan implemented pursuant to such Act, or any
enactment amendatory or in substitution thereof, Tenant agrees that Landlord
may, at Landlord's option and Landlord shall not be obligated so to do,
institute a system of pay parking charging the occupants of the Buildings or
such other system required by the governmental agency or authority and, in such
event, the proceeds of such system will be used to pay any such surcharge or fee
and the cost of implementing and administering such system. Tenant shall comply
with any rules and regulations established by Landlord relating thereto.
(K) Landlord's Default. Landlord shall not be in default unless
Landlord fails to perform obligations required of Landlord within a reasonable
time, but in no event later than thirty (30) days after written notice by Tenant
to Landlord and to the holder of any first mortgage or deed of trust covering
the Leased Premises whose name and address shall have theretofore been furnished
to Tenant in writing, specifying wherein Landlord has failed to perform such
obligation; provided, however, that if the nature of Landlord's obligation is
such that more than thirty (30) days are required for performance then Landlord
shall not be deemed in default if Landlord commences performance within a (30)
day period and thereafter diligently prosecutes the same to completion.
(L) Hazardous Materials. Tenant shall not cause or permit any Hazardous
Materials (as herein defined) to be brought upon, kept or used in or
about t the Premises by Tenant, its agents, employees, contractors or
invitees, except in such quantities as legally permitted. Tenant
further agrees to comply with all federal, state and local laws,
ordinances and regulations relating to hygiene and all environmental
conditions of the Premises, including but not limited to, soil and
ground water condition. Tenant shall promptly notify Landlord and
appropriate governmental or quasi-governmental agencies of any
discharge by Tenant of any Hazardous Materials on the Premises and in
such event, shall take all remedial steps recommended or ordered by any
governmental or quasi-governmental agency having jurisdiction over the
Premises, at the sole cost and expense of Tenant. Landlord shall have
the option, but not the responsibility, to conduct or cause to be
conducted periodic inspections of the Premises and Tenant's operations
to ensure that Tenant is complying with requirements of this section.
Landlord's election to conduct such inspections shall not be construed
as approval of Tenant's use of the Premises or any activities conducted
thereon, and shall in no way constitute an assumption by Landlord of
any responsibility whatsoever of Tenant's use of the Premises. For
purposes of this Section , "Hazardous Materials" shall include but not
be limited to substances defined as "hazardous substances", "hazardous
materials", or "toxic substances" in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C.
Section 6901 et seq.; and those substances defined as "hazardous
wastes" in Section 25117 of the California Health and Safety Code or as
"hazardous substances" in Section 25316 of the California Health and
Safety Code; and in the regulations adopted and publications
promulgated pursuant to said laws.
(N) Rules and Regulations. Tenant shall faithfully observe and comply
with the rules and regulations that Landlord shall from time to time promulgate
and/or modify. The rules and regulations shall be binding upon the Tenant upon
delivery of a copy of them to Tenant. Landlord shall not be responsible to
Tenant for the nonperformance of any said rules and regulations by any other
tenants or occupants. Such rules and regulations shall apply and be enforced as
to all tenants on a uniform basis.
(O) Easements. Landlord reserves to itself the right, from time to
time, to grant such easements, rights and dedications that Landlord deems
necessary or desirable, and to cause the recordation of Parcel Maps and
restrictions, so long as such easements, rights, dedications, Maps and
restrictions do not unreasonably interfere with the use of the Premises by
Tenant. Tenant shall sign any of the aforementioned documents upon request of
Landlord and failure to do so shall constitute a material default of this Lease.
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The obstruction of Tenant's view, air, or light by any structure
erected in the vicinity of the Building, whether by Landlord or third parties,
shall in no way affect this Lease or impose any liability upon Landlord.
(P) Attorney's Fees. In the case of a breach or default by Landlord or
Tenant of any of the terms hereof, the nonprevailing party in any action or
claim resulting from said default or breach shall pay the prevailing party all
expenses incurred by reason thereof, including but not limited to reasonable
attorney's fees. Such amounts shall be payable upon demand and shall bear
interest at the rate of ten percent (10%) per annum from the date of such demand
until fully paid.
(Q) Waiver. No waiver of any default of Tenant hereunder by Landlord
shall be implied from any omission of Landlord to take any action on account of
such default, if such default persists or is repeated, and no express waiver
shall affect any default other than the default specified in the express waiver,
and that only for the time and to the extent therein stated. The acceptance by
Landlord of rent with knowledge of the breach of any of the covenants of this
lease by Tenant shall not be deemed a waiver of any such breach, other than the
failure of Tenant to pay the particular rent so accepted. The consent or
approval by Landlord to or of any act by Tenant requiring Landlord's consent or
approval shall not be deemed to waive or render unnecessary Landlord's consent
or approval to or of any subsequent similar acts of Tenant.
( R ) Notices. Any notices or demands which are required to be given
hereunder or which either party hereto may desire to give to the other shall be
given in writing, and, in lieu of personal service, may be served by mailing the
same by registered, certified United States mail, or overnight express courier
postage prepaid, return receipt requested, addressed to the other party at the
address shown below, or in the case of notices or demands to Tenant after the
term of this lease shall have commenced, o the address below and the address of
the Leased Premises. Either Party may, from time to time, designate by notice as
herein provided such other mailing address as such party desires. Such notices
and demands shall be deemed served forty-eight (48) hours following the day of
mailing, addressed as follows:;
TO: LANDLORD TO: TENANT
Kowashoji USA, Inc. Orange Empire Brewing Company
17451 Bastanchury Rd 2025 Chicago St., Suite A-4
Suite 202 Riverside, CA 92507
Yorba Linda, CA 92686 ATTN: John Barnicoat
(714) 528-4790 (909) 682-5465
Either party may change such address by written notice by certified mail to the
other.
(S) Security Deposit. Tenant contemporaneously with the execution of
this lease, has deposited with Landlord the sum of Six Thousand and NO/100
DOLLARS ($6,000.00), receipt of which is hereby acknowledged by Landlord, said
deposit being given to secure the faithful performance by the Tenant of all
terms, covenants, and conditions of this lease by the Tenant to be kept and
performed during the term hereof. Tenant agrees that if the Tenant shall fail to
pay the rent herein reserved or any other sum required hereby promptly when due,
said deposit may, at the option of the Landlord (but Landlord shall not be
required to) be applied to any rent or other sum due and unpaid, and if the
Tenant violates any of the other terms, covenants, and conditions of this lease,
said deposit may, at Landlord's option, be applied to any damages suffered y
Landlord as a result of Tenant's default to the extent of the amount of the
damages suffered.
Nothing contained in this Section (S) shall in any way
diminish or be construed as waiving any of the Landlord's other remedies as
provided in Article 21 hereof, or by law or in equity. Should the entire
security deposit, or any portion thereof, be appropriated and applied by
Landlord for the payment of overdue rent or other sums due and payable to
Landlord by Tenant hereunder, the Tenant shall, on the written demand of
Landlord, forthwith remit to Landlord a sufficient amount in cash to said
security deposit to its original amount, and Tenant's failure to do so within
ten (10) days
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after receipt of such demand shall constitute a breach of this lease. Should
Tenant comply with all of the terms, covenants, and conditions of this lease and
promptly pay all of the rental herein provided for as it falls due, and all
other sums payable by Tenant to Landlord hereunder, said security deposit shall
be returned in full to Tenant at the end of the term of this lease, or upon the
earlier termination of this lease pursuant to the provisions of Article 19
hereof, except in the event the Leased Premises are sold as a result of the
exercise of any power of sale under any mortgage or deed of trust, in which
event this lease shall be automatically amended to delete any reference to this
Section (S), and Tenant shall be entitled to immediate reimbursement of its
security deposit from the part then holding said deposit. In the event landlord
sells the property described herein, said security deposit to be refunded to
Tenant.
(T) Representation. Each of the parties hereto warrants and represents
to the other (I) that each of the provisions hereof has been negotiated between
the parties, (ii) that each provision hereof is consideration for every other
provision, (iii) that is has read the entire lease and (iv) that it agrees to
each and every provision hereof.
(U) Quiet Enjoyment. Landlord covenants, warrants, and represents that,
to the best of its knowledge, it has full right and power to execute this lease
and to grant the estate demised herein and that Tenant, upon payment of the
rents herein reserved, and performance of all of the terms, conditions and
covenants herein contained, shall peacefully and quietly have, hold, and enjoy
the Leased Premises during the full term of this lease. To the best of
Landlord's knowledge, no mortgage or deed of trust is filed against the leased
premises at the time of execution of this lease and Landlord agrees to hold
Tenant harmless for any liens existing at the time of execution of said lease.
(V) Sale of Premises. In the event of any sale or exchange of the
Premises by Landlord and the assignment of this lease to the purchaser thereof,
Landlord shall be and is hereby relieved of all. liability (except for that
liability that may have already accrued (whether known or unknown) prior to said
sale or exchange, under any and all of its covenants and obligations contained
or derived from this Lease arising out of any act, occurrence or omission
occurring after the consummation of such sale or exchange and assignment; and
the purchaser and assignee at such sale or exchange or any subsequent sale or
exchange of the Premises, shall be deemed, without further agreement between the
parties in any such purchase, to have assumed and agreed to carry out any and
all of the covenants and obligations of Landlord under this Lease.
(W) Impartial Construction. Both parties certify to their full
familiarity with the provisions hereof, and acknowledge that this Lease was
extensively negotiated by both parties each of which was afforded the
opportunity to consult with counsel should they elect to do so.
(X) Memorandum. Memorandum of Lease to be prepared, executed and
recorded by the parties hereto.
(Y) Addendum. The attached addendum is incorporated herein by reference
and made a part of this agreement.
IN WITNESS WHEREOF, the parties have duly executed this lease together
with the herein referred to Exhibits which are attached hereto, on the day and
year first above written in California.
KOWASHOJI U.S.A., INC. a California Corporation
By:
Its:
"Landlord"
ORANGE EMPIRE BREWING COMPANY, a California Corporation
By:
Its:
"Tenant"
19
<PAGE> 20
CONFIRMATION OF COMMENCEMENT
OF
LEASE TERM
It Is Hereby Agreed That:
The lease dated March 31, 1993, by and between Kowashoji USA, Inc.,
Landlord, and Orange Empire Brewing Company, Tenant, for the space known as 3397
Seventh Street, Riverside, California has a commencement date of August 15,
1993.
This confirmation is made pursuant to Paragraph 3 (C) of the
above-referenced lease.
LANDLORD TENANT
Kowashoji USA, Inc. Orange Empire Brewing Company
BY: BY:
<PAGE> 21
ADDENDUM
To that certain lease dated March 1, 1993, by and between KOWASHOJI
USA, INC., as Landlord, and Orange Empire Brewing Company, as Tenant, for the
property located at 3397 Seventh Street, Riverside California.
Said additional terms are as follows:
1. Tenant shall, at Tenant's sole cost and expense, provide all Tenant
Improvements, subject to Paragraph 9 of said Lease. Tenant at its cost,
shall have the right to make non-structural alterations to the interior
of the building constituting a part of the Premises that Tenant
requires in order to conduct its business on the Premises. In making
any alterations, Tenant shall comply with the following:
(a) Tenant shall submit reasonably detailed final
plans and specifications and working drawings of the
proposed alterations and the name of its contractor
at least fifteen (15) days before the date it intends
to commence the alterations for Landlord's approval
which approval shall not be unreasonably withheld or
delayed; provided, however, that Landlord may, in its
sole discretion, withhold its consent to any
alterations which will increase the exterior height
elevations of the building or other improvements.
Concurrently with the submission of the plans and
specifications, Tenant shall deliver a written
statement as to the expected cost of said
alterations. Landlord's failure to approve within 15
days shall be deemed approval.
(b) The alterations shall not be commenced until
seven (7) business days after Landlord has received
written notice from Tenant stating the date the
alterations are to commence so that Landlord can post
and record an appropriate Notice of Non-
Responsibility.
(c) The alterations shall be approved by all
appropriate governmental agencies, and all applicable
permits and authorizations shall be obtained before
commencement of the alterations and copies thereof
shall be delivered to Landlord prior to commencement
of any alterations.
(d) All alterations shall be completed with due
diligence in substantial compliance with the approved
plans and specifications and working drawings and all
applicable laws.
(e) Tenant's contractor shall be a bondable,
currently licensed contractor within the state of
California.
(f) Before commencing the alterations and at all
times during construction, Tenant's contractor shall
maintain insurance as provided herein naming Landlord
as an additional insured, a copy of the construction
contract and the certificate of insurance shall be
provided to Landlord prior to commencing the
alterations.
(g) Notwithstanding anything to the contrary
contained herein, the alterations shall not result in
the diminution of the value of the Premises.
22
Revised 3/10/93
<PAGE> 22
2. Landlord to deliver the premises and the existing mechanical system
in good working order.
3. Any restaurant equipment existing on the leased premises is
taken "As- is" without warranty of any kind.
4. Tenant to be responsible for obtaining all necessary approvals
by all required agencies, including City Planning and County Health Department
at Tenant's sole cost and expense.
5. Tenant to pay to Landlord upon delivery of possession the sum
of $7,500 to be applied to Landlord's buyout of lease with existing Tenant.
6. This Lease may be terminated by Tenant without damages in the
event Landlord fails to provide both on the following dates specified:
A. Written evidence of agreement with existing tenant to
terminate their lease (said agreement to be provided by
Landlord no later than April 1, 1993).
B. Delivery of possession to Orange Empire Brewing Company for
purposes of commencing tenant improvement work no later than
May 1, 1993.
7. Landscaping, painting and sidewalks of the Leased Premises to be in
good general repair, including lawn mowing, general weeding and trimming, touch
up paint, as needed, and filling of sidewalk cracks, if any.
8. Orange Empire Brewing Company agrees to refrain from negotiating
directly with Landlord's existing Tenant and further agrees not to contact
Landlord's Tenant without prior authorization of Landlord.
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EXHIBIT A
PHOTO OF PARKING LOT
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EXHIBIT 10.7
HERITAGE BREWING COMPANY, INC.
571-CRANE STREET
LAKE ELSINORE, CA 92530
909 245-1752
August 16 ,1995
Marilyn Zimel
Rancon
27720 Jefferson Ave.
Temecula, Ca 92590
Ms. Zimel:
This letter serves as notification of Heritage Brewing Company, Inc. exercising
it's option to extend contained in the leased darted November 3, 1993 by and
between Central Business Park Investors-89 and Heritage Brewing Company, inc.
for the premises known as 571-C Crane St., Lake Elsinore.
Should you have any questions, please do not hesitate to call.
Cheers,
John Stoner
Heritage Brewing Company, Inc.
ks
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AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. Parties. This Lease, dated, for reference purposes only, November 3, 1993, is
made by and between Central Business Park Investors-89 (herein called, "Lessor")
and Heritage Brewing Company (herein called, "Lessee").
2. Premises. Lessor hereby leases to Lessee and Lessee leases from Lessor for
the term at the rental, and upon all of the conditions set forth commonly known
as 571-C crane St., Lake Elsinore as described as Building #11, Central Business
Park and consisting of approximately 5,429 square feet. Said real property
including the land and all improvements therein, is herein called "the
Premises".
3. Term.
3.1 Term. The term of this Lease shall be for twenty-seven (27) months
commencing on November 15, 1993 and ending on March 14, 1996 unless sooner
terminated pursuant to any provision thereof.
3.2 Delay in Possession. Notwithstanding said commencement date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease or the obligations of Lessee hereunder
or extend the term hereof, but in such case, Lessee shall not be obligated to
pay rent until possession of the Premises is tendered to Lessee; provided,
however, that if Lessor shall not have delivered possession of the Premises
within sixty (60) days from said commencement date, Lessee may, at Lessee's
option, by notice in writing to Lessor within ten (10) days thereafter cancel
this Lease, in which event the parties shall be discharged from all obligations
hereunder; provided further, however, that if such written notice of Lessee is
not received by Lessor within said ten (10) day period, Lessee's right to cancel
this Lease hereunder shall terminate and be of no further force or effect.
3.3 Early Possession. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions hereof,
such occupancy shall not advance the termination date, and Lessee shall pay rent
for such period at the initial monthly rates set forth below.
4. Rent. Lessee shall pay to Lessor as rent for the Premises, monthly payments
of $2,000.00, in advance, on the 15th day of each month of the term hereof.
Lessee shall pay Lessor upon the execution hereof $2,000.00 as rent for the one
month of February 15, 1994-March 14, 1994. Rent for any period during the term
hereof which is for less than one month shall be a pro rata portion of the
monthly installment. Rent shall be payable in lawful money of the United States
to Lessor at the address stated herein or to such other persons or at such other
places as Lessor may designate in writing.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof
$2,000.00 as security of Lessee's faithful performance of Lessee's obligations
hereunder. If Lessee fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this Lease, Lessor may use,
apply or retain all or any portion of said deposit for the payment of any rent
or other charge in default or for the payment of any other sum to which Lessor
may become obligated by reason of Lessee's default or to compensate Lessor for
any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies
all or any portion of said deposit, Lessee shall within ten (10) days after
written demand therefor deposit cash with Lessor in an amount sufficient to
restore said deposit to the full amount hereinabove stated and Lessee's failure
to do so shall be a material breach of this Lease. If the monthly rent
shall from time to time, increase during the term of this lease, Lessee shall
thereupon deposit with Lessor additional security deposit so that the amount of
security deposit held by Lessor shall at all times bear the same proportion to
current rent as the original security deposit bears to the original monthly rent
set forth in paragraph 4, hereof, Lessor shall not be required to keep said
deposit separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not theretofore
been applied by Lessor, shall be returned, without payment of interest or other
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increment for its use, to Lessee (or, at Lessor's option, to the last assignee,
if any of Lessee's interest hereunder) at the expirations of the term hereof,
and after Lessee has vacated the Premises. No trust relationship is created
herein between Lessor and Lessee with respect to said Security Deposit.
6. Use.
6.1 Use. The Premises shall be used and occupied only for Production of
beverages including but not limited to, malt beverages and the sale of beer and
wine making supplies or any other use which is reasonably comparable and for no
other purpose.
6.2 Compliance with Law.
(a) Lessor warrants to Lessee that the Premises, in its state
existing on the date that the Lease term commences, but without regard to the
use for which Lessee will use the Premises, does not violate any covenants or
restrictions of record, or any applicable building code, regulation or ordinance
in effect on such Lease term commencement date. In the event it is determined
that this warranty has been violated, then it shall be the obligation of the
Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost and
expense, rectify any such violation. In the event Lessee does not give to Lessor
written notice of the violations of this warranty within six months from the
date that the Lease term commences, the correction of same shall be the
obligation of the Lessee at Lessee's sole cost. The warranty contained in this
paragraph 6.2 (a) shall be of no force or effect if, prior to the date of this
Lease, Lessee was the owner or occupant of the Premises, and, in such event,
Lessee shall correct any such violations at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a), Lessee shall, at
Lessee's expense comply promptly with all applicable statutes, ordinances,
rules, regulations, orders, covenants and restrictions, of record, and
requirements in effect during the term or any part of the term hereof,
regulating the use by Lessee of the Premises. Lessee shall not use nor permit
the use of the Premises in any manner that will tend to create waste or a
nuisance or, if there shall be more than one tenant in the building containing
the Premises, shall tend to disturb such other tenants.
6.3 Condition of Premises.
(a) Lessor shall deliver the Premises to Lessee clean and free
of debris on Lease commencement date (unless Lessee is already in possession)
and Lessor further warrants to Lessee that the plumbing , electrical, lighting,
air conditioning, heating and loading doors in the Premises shall be in good
operating condition on the Lease commencement date. In the event that it is
determined that this warranty has been violated, the it shall be the obligation
of Lessor, after receipt of written notice from Lessee setting forth with
specificity the nature of the violation, to promptly, at Lessor's sole cost,
rectify such violation. Lessee's failure to give such written notice to Lessor
within thirty (30) days after the Lease commencement date shall cause the
conclusive presumption that Lessor has compiled with all of Lessor's obligations
hereunder. The warranty contained in this paragraph 6.3 a) shall be of no force
or effect if prior to the date of this Lease, Lessee was the owner or occupant
of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby
accepts the Premises in their condition existing as of the Lease commencement
date or the date that Lessee takes possession of the premises, whichever is
earlier, subject to all applicable zoning, municipal county and state laws,
ordinances and regulations governing and regulating the use of the Premises, and
any covenant or restrictions of record and accepts this Lease subject thereto
and to all matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
7. Maintenance, Repairs and Alterations.
7.1 Lessor's Obligations. Subject to the provisions of Paragraphs
6,7.2, and 9 and except for damage caused by an negligent or intentional act or
omission of Lessee, Lessee's agents, employees or invitees in which event Lessee
shall repair the damage, Lessor, at Lessor's expense, shall keep in good order,
condition and repair the foundations, exterior walls and the exterior roof of
the Premises. Lessor shall not however, be obligated to paint such exterior, nor
shall Lessor be required to maintain the interior surface of exterior walls,
windows, doors or plate glass. Lessor shall have no obligation to make repairs
under this Paragraph 7.1 until a reasonable time after receipt of written notice
of the need for such repairs. Lessee expressly waives the
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benefits of any statute now or hereafter in effect which would otherwise afford
Lessee the right to make repairs at Lessor's expense or to terminate this Lease
because of Lessor's failure to keep the Premises in good order, condition and
repair.
7.2 Lessee's Obligations.
(a) Subject to the provisions o Paragraphs 6, 7.1 and 9,
Lessee, at Lessee's expense, shall keep in good order, condition and repair the
Premises and every part thereof (whether or not the damaged portion of the
Premises or the means of repairing the same are reasonable or readily accessible
to Lessee) including, without limiting the generality of the foregoing, all
plumbing, heating, air conditioning, (Lessee shall procure and maintain at
Lessee's expense, an air conditioning system maintenance contract) ventilating,
electrical and lighting facilities and equipment within the Premises, fixtures,
interior walls and interior surface of exterior walls ceilings, windows, doors,
plate glass and skylights, located within the Premises and all landscaping
driveways parking lots, fences and signs located in the Premises.
(b) If lessee fails to perform Lessee's obligations under this
Paragraph 7.2 or under any other paragraph of this Lease, Lessor may at Lessor's
option enter upon the Premises after 10 days' prior written notice to Lessee
(except in the case of emergency, in which case no notice shall be required),
perform such obligations on Lessee's behalf and put the Premises in good order,
condition and repair and the cost thereof together with interest thereon at the
maximum rate then allowable by law shall be due and payable as additional rent
to Lessor together with Lessee's next rental installment.
(c) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as received ordinary wear and tear excepted, clean and free of debris. Lessee
shall repair any damage to the Premises occasioned by the installation or
removal of its trade fixtures, furnishings and equipment. Notwithstanding
anything to the contrary otherwise stated in this Lease, Lessee shall leave the
air lines, power panels, electrical distribution systems, lighting fixtures,
space heaters, air conditioning, plumbing and fencing on the premises in good
operating condition.
7.3 Alterations and Additions.
(a) Lessee shall not, without Lessor's prior written consent
make any alterations, improvements, additions or Utility Installations in, on or
about the Premises, except for nonstructural alterations not exceeding $2,500 in
cumulative costs during the term of this Lease. In any event whether or not in
excess of $2,500 in cumulative cost, Lessee shall make not change or alteration
to the exterior of the Premises nor the exterior of the building(s) on the
Premises without Lessor's prior written consent. As used in this Paragraph 7.3
the term "Utility Installation" shall mean the carpeting window coverings, air
lines, power panels, electrical distribution systems, lighting fixtures, space
heaters, air conditioning, plumbing, and fencing. Lessor may require that Lessee
remove any or all of said alterations, improvements, additions or Utility
Installations at the expiration of the term and restore the Premises to their
prior condition. Lessor may require Lessee to provide Lessor, at Lessee's sole
cost and expense , a lien and completion bond in an amount equal to one and
one-half times the estimated cost of such improvements, to insure Lessor against
any liability for mechanic's and materialmen's liens and to insure completion of
the work. Should Lessee make any alterations, improvements, additions or Utility
Installations without the prior approval of Lessor, Lessor may require that
Lessee remove any or all of the same.
(b) Any alterations, improvements, additions or Utility
Installations in, or about the Premises that Lessee shall desire to make and
which requires the consent of the Lessor shall be presented to Lessor in written
form, with proposed detailed plans. If Lessor shall give its consent the consent
shall be deemed conditioned upon Lessee acquiring a permit to do so from
appropriate governmental agencies, the furnishing of a copy thereof to Lessor
prior to the commencement of the work and the compliance by Lessee of all
conditions of said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use in the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in the Premises, and Lessor shall have the right to post notices of
non-responsibility in or on the Premises as provided by law. If lessee shall, in
good faith, contest the validity of any such lien, claim or demand, then Lessee
shall, at its sole expense defend itself and Lessor against the same and shall
pay and satisfy any such adverse judgment that may be rendered thereon before
the enforcement thereof against the Lessor or the Premises, upon the condition
that if
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Lessor shall require Lessee shall furnish to Lessor a surety bond satisfactory
to Lessor in an amount equal to such contested lien claim or demand indemnifying
Lessor against liability for the same and holding the Premises free from the
effect of such lien or claim. In addition, Lessor may require Lessee to pay
Lessor's attorneys fees and costs in participating in such action if Lessor
shall decide it is to its best interest to do so.
(d) Unless Lessor requires their removal, as set forth in Paragraph
7.3(a), all alterations, improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of Lessee),
which may be made on the Premises, shall become the property of Lessor and
remain upon and be surrendered with the Premises at the expirations of the term.
Notwithstanding the provisions of this Paragraph 7.3(d). Lessee's machinery and
equipment, other than that which is affixed to the Premises so that it cannot be
removed without material damage to the Premises, shall remain the property of
Lessee and may be removed by Lessee subject to the provisions of Paragraph
7.2(c).
8. Insurance; Indemnity.
8.1 Liability Insurance - Lessee. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease a policy of Combined
Single Limit Bodily Injury and Property Damage Insurance insuring Lessee and
Lessor against any liability arising out of the use occupancy or maintenance of
the Premises and all other areas appurtenant thereto. Such insurance shall be in
an amount not less than $500,000 per occurrence. The policy shall insurance
performance by Lessee of the indemnity provisions of this Paragraph 8. The
limits of said insurance shall not, however, limit the liability of Lessee
hereunder.
8.2 Liability Insurance-Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Property Damage Insurance, insuring Lessor, but not Lessee, against any
liability arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto in an amount not less than $500,000
per occurrence.
8.3 Property Insurance. Lessor shall obtain and keep in force during
the term of this Lease a policy or policies of insurance covering loss or damage
to the Premises, but not Lessee's fixtures, equipment or tenant improvements in
an amount not to exceed the full replacement value thereof, as the same may
exist from time to time, providing protection against all perils included within
the classification of fire, extended coverage, vandalism, malicious mischief,
flood ( in the event same is required by a lender having a lien on the Premises)
special extended perils ("all risk", as such term is used in the insurance
industry) but not plate glass insurance. In addition, the Lessor shall obtain
and keep in force during the term of this Lease, a policy of rental value
insurance covering a period of one year, with loss payable to Lessor, which
insurance shall also cover all real estate taxes and insurance costs for said
period.
8.4 Payment of Premium Increase.
(a) Lessee shall pay to Lessor, during the term hereof, in
addition to the rent, the amount of any increase in premiums for the insurance
required under Paragraphs 8.2 and 8.3 over and above such premiums paid during
the Base Period, as hereinafter defined, whether such premium trust covering the
Premises, increased valuation of the Premises, or general rate increases. In the
event that the Premises have been occupied previously, the words "Base Period"
shall mean the last twelve months of the prior occupancy. In the event that the
Premises have never been previously occupied, the premiums during the "Base
Period" shall be deemed to be the lowest premiums reasonably obtainable for said
insurance assuming the most nominal use of the Premises. Provided, however, in
lieu of the Base Period, the parities may insert a dollar amount at the end of
this sentence which figure shall be considered as the insurance premium for the
Base Period: $____________. In no event, however, shall Lessee be responsible
for any portion of the premium cost attributable to liability insurance coverage
in excess of $1,000,000 procured under paragraph 8.2.
(b) Lessee shall pay any such premium increases to Lessor
within 30 days after receipt by Lessee of a copy of the premium statement or
other satisfactory evidence of the amount due. If the insurance policies
maintained hereunder cover other improvements in addition to the Premises,
Lessor shall also deliver to Lessee a statement of the amount of such increase
attributable to the Premises and showing a reasonable detail , the manner in
which such amount was computed. If the term of this Lease shall not expire
concurrently with the expirations of the period detail, the manner in which such
amount was computed. If the term of this Lease shall not expire
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concurrently with the expirations of the period covered by such insurance.
Lessee's liability for premium increases shall be prorated on an annual basis.
(c) If the Premises are part of a larger building, then Lessee
shall not be responsible for paying any increase in the property insurance
premium caused by the acts or omissions of any other tenant of the building of
which the Premises are a part.
8.5 Insurance Policies. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at least B plus, or such
other rating as may be required by a lender having a lien on the Premises, as
set forth in the most current issue of "Best's Insurance Guide". Lessee shall
deliver to Lessor copies of policies of liability insurance required under
Paragraph 8.1 or certificates evidencing the existence and amounts of such
insurance. No such policy shall be cancelable or subject to reduction of
coverage or other modifications except after thirty (30) days' prior written
notice to Lessor, Lessee shall, at least thirty 930) days prior to the
expiration of such policies, furnish Lessor with renewals or "binders" thereof
or Lessor may order such insurance and charge the cost thereof to Lessee, which
amount shall be payable by Lessee upon demand Lessee shall not do or permit to
be done anything which shall invalidate the insurance policies referred to in
Paragraph 8.3.
8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right to recovery against the other
for loss or damage arising out of or incident to the perils insured against
under paragraph 8.3 which perils occur in, on or about the Premises, whether due
to the negligence of Lessor or Lessee or their agents, employees, contractors
and/or invitees. Lessee and Lessor shall, upon obtaining the policies of
insurance required hereunder, give notice to the insurance carrier or carriers
that the foregoing mutual waiver of subrogation's is contained in this Lease.
8.7 Indemnity. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Premises, or from
the conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnify and hold harmless Lessor from and against any and all claims
arising from any breach of default in the performance of any obligation on
Lessee's part to be performed under the terms of this Lease or arising from any
negligence of the Lessee or in the performance of any obligation on Lessee's
part to be performed under the terms of this Lease, or arising from any
negligence of the Lessee, or any of Lessee's agents contractors or employees,
and from and against all costs, attorney's fees, expenses and liabilities
incurred in the defense of any such claim or any action or proceeding brought
thereon and in case any action or proceeding be brought against Lessor by reason
of any such claim, Lessee upon notice from Lessor shall defend the same at
lessee's expense by counsel satisfactory to Lessor. Lessee, as a material part
of the consideration to the Lessor, hereby assumes all risk of damage to
property or injury to persons, in, upon or about the Premises arising from any
cause and Lessee hereby waives all claims in respect thereof against Lessor.
8.8 Exemption of Lessor from Liability Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee. Lessee's employees, invitees, customers, or any other person in or about
the Premises, nor shall Lessor be liable for injury to the person of Lessee,
Lessee's employees, agents or contractors, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said damage or injury results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places and regardless of whether the cause of
such damage or injury or the means of repairing the same is inaccessible to
Lessee. Lessor shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the building in which the Premises are
located.
9. Damage or Destruction
9.1 Definitions
(a) "Premises Partial Damage" shall herein mean damage or
destruction to the Premises to the extent that the cost of repair is less than
50% of the fair market value of the Premises immediately prior to such damage or
destruction. "Premises Building Partial Damage" shall herein mean damage or
destruction to the building of which the Premises are a part of the extent that
the cost of repair is less than 50% of the
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fair market value of such building as a whole immediately prior to such damage
or destruction.
(b) "Premises Total Destruction" shall herein mean damage or
destruction to the Premises to the extent that the cost of repair is 50% or more
of the fair market value of the Premises immediately prior to such damage or
destruction. "Premises Building total Destruction" shall herein mean damage or
destruction to the building of which the Premises are a part to the extent that
the cost of repair is 50% or more of the fair market value of such building as a
whole immediately prior to such damage or destruction.
(c) "Insured Loss" shall herein mean damage or destruction
which was caused by an event required to be covered by the insurance described
in paragraph 8.
9.2 Partial Damage - Insured Loss Subject to the provisions of
paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this ease there
is damage which is an Insured Loss and which falls into the classifications of
Premises Partial Damage or Premises Building Partial Damage, then Lessor shall,
at Lessor's sole cost, repair such damage, but not Lessee's fixtures, equipment
or tenant improvements, as soon as reasonably possible and this Lease shall
continue in full force and effect.
9.3 Partial Damage Uninsured Loss Subject to the provisions of
Paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease there
is damage which is not an Insured Loss and which falls within the
classifications of Premises Partial Damage or Premises Building Partial Damage,
unless caused by a negligent or willful act of Lessee (in which event Lessee
shall make the repairs at Lessee's expense). Lessor may at Lessor's option
either (I) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after the date of the
occurrence of such damage of Lessor's intention to cancel and terminate this
Lease, as of the date of the occurrence of such damage. In the event Lessor
elects to give such notice of Lessor's intention to cancel and terminate this
Lease, as of the date of the occurrence of such damage. In the event Lessor
elects to give such notice of Lessor's intention to cancel and terminate this
Lease, Lessee shall have the right within ten (10) days after the receipt of
such notice to give written notice to Lessor of Lessee's intentions to repair
such damage at Lessee's expense, without reimbursement from Lessor, in which
event this Lease shall continue in full force and effect, and Lessee shall
proceed to make such repairs as soon as reasonably possible. If Lessee does not
give such notice within such 10-day period this Lease shall be canceled sand
terminated as of the date of the occurrence of such damage.
9.4 Total Destruction. If at any time during the term of this Lease
there is damage, whether or not an insured Loss, (including destruction required
by an authorized public authority), which falls into the classification of
Premises Total Destruction or Premises Building Total Destruction, this Lease
shall automatically terminate as of the date of such total destruction.
9.5 Damage Near End of Term
(a) If at any time during the last six months of the term of
this Lease there is damage, whether or not an Insured Loss, which falls within
the classification of Premises Partial Damage, Lessor may at Lessor's option
cancel and terminate this Lease as of the date of occurrence of such damage by
giving written notice to Lessee of Lessor's elections to do so within 30 days
after the date of occurrence of such damage.
(b) Notwithstanding paragraph 9.5 (a) In the event that Lessee
has an option to extend or renew this Lease, and the time within which said
option may be exercised has not yet expired, Lessee shall exercise such option,
if it is to be exercised at all, no later than 20 days after the occurrence of
an Insured Loss falling within the classification of Premises Partial Damage
during the last six months of the term of this Lease. If Lessee duly exercises
such option during said 20 period, Lessor shall, at Lessor's expense, repair
such damage as soon as reasonably possible and this Lease shall continue in full
force and effect. If Lessee fails to exercise such option during said 20 day
period, then Lessor may at Lessor's option terminate and cancel this Lease as of
the expiration of said 20 day period by giving written notice to Lessee of
Lessor's elections to do so within 10 days after the expiration of said 20 day
period, notwithstanding any term or provision in the grant of option to the
contrary.
9.6 Abatement of Rent; Lessee's Remedies.
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(a) In the event of damage described in paragraphs 9.2 or 9.3
and Lessor or Lessee repairs or restores the Premises pursuant to the provisions
of this Paragraph 9, the rent payable hereunder for the period during which such
damage, repair or restoration continues shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired. Except for abatement
of rent, if any, Lessee shall have no claim against Lessor for any damage
suffered by reason of any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence such
repair or restoration within 90 days after such obligations shall accrue, Lessee
may at Lessee's option cancel and terminate this Lease by giving Lessor written
notice of Lessee's elections to do so at any time prior to the commencement of
such repair or restoration. In such event this Lease shall terminate as of the
date of such notice.
9.7 Termination - Advance Payments. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor, Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.8 Waiver. Lessor and Lessee waive the provisions of any statutes
which relate to termination of leases when leased property is destroyed and
agree that such event shall be governed by the terms of this Lease.
10. Real Property Taxes
10.1 Payment of Tax Increase. Lessor shall pay the real property tax as
defined in paragraph 10.3, applicable to the Premises; provided, however, that
Lessee shall pay, in addition to rent the amount, if any, by which real property
taxes applicable to the Premises Increase over the fiscal real estate tax year
19__19__. Such payment shall be made by Lessee within thirty (30) days after
receipt of Lessor's written statement setting forth the amount of such increase
and the computation thereof. If the term of this Lease shall not expire
concurrently with the expiration of the tax fiscal year, Lessee's liability for
increase taxed for the last partial lease year shall be prorated on an annual
basis.
10.2 Additional Improvements. Notwithstanding paragraph 10.1 hereof,
Lessee shall pay to Lessor upon demand therefor the entirety of any increase in
real property tax if assessed solely by reason of additional improvements placed
upon the Premises by Lessee or at Lessee's request.
10.3 Definition of "Real Property Tax" As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Premise by any authority having the direct or
indirect power to tax, including any city, state or federal government or any
school, agricultural, sanitary, fire, street, drainage, or other improvement
district thereof, as against any legal or equitable interest of Lessor in the
Premises or in the real property of which the Premises are a part, as against
Lessor's right to rent or other income therefrom, and as against Lessor's
business of leasing the Premises. The term "real property tax" shall also
include any tax, fee, levy, assessment or charge (I) in substitution of,
partially totally, any tax, fee, levy, assessment or charge hereinabove included
within the definition of "real property tax," or (ii) the nature of which was
hereinbefore included within the definition of "real property tax," or (iii)
which is imposed for a service or right not charged prior to June 1, 1978, or,
if previously charged, has been increased since June 1, 1978, or (iv) which is
imposed as a result of a transfer, either partial or total, of Lessor's interest
in the Premises or which is added to a tax or charge hereinbefore included
within the definition of real property tax by reason of such transfer, or (v)
which is imposed by reason of this transaction, any modifications or changes
hereto, or any transfers hereof.
10.4 Joint Assessment. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the real property taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work
<PAGE> 9
sheets or such other information as may be reasonable available. Lessor's
reasonable determination thereof, in good faith, shall be conclusive.
10.5 Personal Property Taxes.
(a) Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere. When
possible, Lessee shall cause said trade fixtures, furnishings, equipment and all
other personal property to be assessed and billed separately from the real
property of Lessor.
(b) If any of Lessee's said personal property shall be
assessed with Lessor's real property, Lessee shall pay Lessor the taxes
attributable to Lessee within 10 days after receipt of a written statement
setting forth the taxes applicable to Lessee's property.
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to
Lessee, Lessee shall pay a reasonable proportion to be determined by Lessor of
all charges jointly metered with other premises.
12. Assignment and Subletting.
12.1 Lessor's Consent Required. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in this Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void and shall constitute a breach of
this Lease.
12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, proved that said assignee assumes, in full, the
obligations of Lessee under this Lease. any such assignment shall not, in any
way, affect or limit the liability of Lessee under the terms of this Lease even
if after such assignment or subletting the terms of this Lease are materially
changed or altered without the consent of Lessee, the consent of whom shall not
be necessary.
12.3 No Release of Lessee. Regardless of Lessor's consent, no
subletting or assignment shall release Lessee of Lessee's obligation or alter
the primary liability of Lessee to pay the rent and to perform all other
obligations to be performed by Lessee hereunder. The acceptance of rent by
Lessor from any other person shall not be deemed to be a waiver by Lessor of any
provision hereof. Consent to one assignment or subletting shall not be deemed
consent to any subsequent assignment or subletting. In the event of default by
any assignee of Lessee or any successor of Lessee, in the performance of any of
the terms hereof, Lessor may proceed directly against Lessee without the
necessity of exhausting remedies against said assignee. Lessor may consent to
subsequent assignments or subletting of this Lease or amendments or
modifications to this Lease with assignees of Lessee, without notifying Lessee
or any successor of Lessee, and without obtaining its or their consent thereto
and such action shall not relieve Lessee of liability under this Lease.
12.4 Attorney's Fees., In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorney fees incurred in connection
therewith, such attorneys fees not to exceed $350,000 for each such request.
13. Defaults; Remedies.
13.1 Defaults. The occurrence of any one or more of the following
events shall constitute a material default and breach of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
<PAGE> 10
(b) The failure by Lessee to make any payment of rent or any
other payment required to be made by Lessee hereunder, as when due, where such
failure shall continue for a period of three days after written notice thereof
from Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to
Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice
to Pay Rent or Quit shall also constitute the notice required by this
subparagraph.
(c) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed by
Lessee, other than described in paragraph (b) above, where such failure shall
continue for a period of 30 days after written notice thereof from Lessor to
Lessee; provided, however, that if the nature of Lessee's default is such that
more than 30 days are reasonably required for its cure, then Lessee shall not be
deemed to be in default if Lessee commenced such cure within said 30-day period
and thereafter diligently prosecutes such cure to completion.
(d) (I) The making by Lessee of any general arrangement or
assignment for the benefit of creditors: (ii) Lessee becomes a "debtor" as
defined in 11 U.S.C. 101 or any successor statute thereto (unless, in the case
of a petition filed against Lessee, the same is dismissed within 60 days); (iii)
the appointment of a trustee or receiver to take possession of substantially all
of Lessee's assets located at the Premises or of Lessee's interest in this
Lease, where possession is not restored to Lessee within 30 days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within 30 days, substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within 30 days. Provided, however, in the event that
any provision of this paragraph 13.1 (d) is contrary to any applicable law, such
provision shall be of no force or effect.
(e) the discovery by Lessor that any financial statement given
to Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any
successor in interest of Lessee or any guarantor of Lessee's obligation
hereunder, and any of them was materially false.
13.2 Remedies. In the event of any such material default or breach by
Lessee, Lessor may at any time thereafter, with or without notice or demand and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such default or breach:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession of the Premises to Lessor. In such event Lessor
shall be entitled to recover from Lessee all damages incurred by Lessor by
reason of Lessee's default including, but not limited to, the cost of recovering
possession of the Premises: expenses of reletting, including necessary
renovations a alterations of the Premises, reasonable attorney's fees, and any
real estate commission actually paid; the worth at the time of award by the
court having jurisdiction, thereof of the amount by which the unpaid rent for
the balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to Paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this
Lease shall continue in effect whether or not Lessee shall have abandoned the
Premises, in such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the state wherein the Premises
are located. Unpaid installments of rent and other unpaid monetary obligations
of Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
13.3 Default by Lessor. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but in
no event later than thirty (30) days after written notice by Lessee to Lessor
and to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have theretofore been furnished to Lessee in
writing, specifying wherein Lessor has failed to perform such obligations;
provided, however, that if the nature of Lessor's obligation is such that more
than thirty (30) days are required for performance then
<PAGE> 11
Lessor shall not be in default if Lessor commences performance within such 30
day period and thereafter diligently prosecutes the same to completion.
13.4 Late Charges. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Lessor by the terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to 6% of such overdue amount. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Lessor will incur by reason of late payment by Lessee.
Acceptance of such late charge by Lessor shall in no event constitute a waiver
of Lessee's default with respect to such overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies granted hereunder. In the event
that a late charge is payable hereunder, whether or not collected, for three (3)
consecutive installments of rent, then rent shall automatically become due and
payable quarterly in advance, rather than monthly, notwithstanding paragraph 4
or any other provision of this Lease to the contrary.
13.5 Impounds. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) installments of rent or any other
monetary obligation of Lessee under the terms of this Lease. Lessee shall pay to
Lessor, if Lessor shall so request in addition to any other payments required
under this Lease, a monthly advance installment, payable at the same time as the
monthly rent, as estimated by Lessor, for real property tax and insurance
expenses on the Premises which are payable by Lessee under the terms of this
Lease. Such fund shall be established to insure payment when due, before
delinquency, of any or all such real property taxes and insurance premiums. If
the amounts paid to Lessor by Lessee under the provisions of this paragraph are
insufficient to discharge the obligations of Lessee to pay such real property
taxes and insurance premiums as the same become due. Lessee shall pay to Lessor,
upon Lessor's demand, such additional sums necessary to pay such obligations.
all moneys paid to Lessor under this paragraph may be intermingled with other
moneys of Lessor and shall not bear interest. In the event of a default in the
obligations of Lessee to perform under this Lease, then any balance remaining
from funds paid to Lessor under the provisions of this paragraph may, at the
option of Lessor, be applied to the payment of any monetary default of Lessee in
lieu of being applied to the payment of real property tax and insurance
premiums.
14. Condemnation. If the Premises or any portion thereof are taken
under the power of eminent domain, or sold under the threat of the exercise of
said power (all of which are herein called "condemnation"). This Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever first occurs. If more than 10% of the floor area
of the building on the Premises or more than 25% of the land area of the
Premises which is not occupied by any building is taken by condemnation, Lessee
may at Lessee's option to be exercised in writing only within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority take such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to their portion of the Premises remaining, except that the rent shall be
reduced in the proportion that the floor area of the building taken bears to the
total floor area of the building situated on the Premises. No reduction of rent
shall occur if the only area taken is that which does no have a building located
thereon. Any award for the taking of all or any part of the Premises under their
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made and
compensation for diminution in value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any award for loss of or damage to Lessee's trade fixtures and removable
personal property. In the event that this Lease is not terminated by reason of
such condemnation, Lessor shall to the extent of severance damages received by
Lessor in connection with such condemnation repair any damage to the Premises
caused by such condemnation
<PAGE> 12
except to the extent that Lessee has been reimbursed therefor by the condemning
authority. Lessee shall pay any amount in excess of such severance damages
required to complete such repair.
15. Broker's Fee.
(a) Upon execution of this Lease by both parties, Lessor shall
pay to Legacy Commercial 50% and CDM Group Inc. 50%, licensed real estate
broker(s), a fee as set forth in a separate agreement between Lessor and said
broker(s), or in the event there is not separate agreement between Lessor and
said broker(s) the sum of $2,952.00 for brokerage services rendered by said
broker(s) to Lessor in this transaction.
(b) Lessor further agrees that if Lessee exercises any Option
as defined in paragraph 39.1 of this Lease, which is granted to Lessee under
this Lease, or any subsequently granted option which is substantially similar to
an Option granted to Lessee under this Lease, or if Lessee acquires any rights
to the Premises or other premises described in this Lease which are
substantially similar to what Lessee would have acquired had an Option herein
granted to Lessee been exercised, or if Lessee remains in possession of the
Premises after the expirations of the term of this Lease after having failed to
exercise an Option, or if said broker(s) are the procuring cause of any other
lease or sale entered into between the parties pertaining to the Premises and/or
any adjacent property in which Lessor has an interest, then as to any of said
transactions, Lessor shall pay said broker(s) a fee in accordance with the
schedule of said broker(s) in effect at the time execution of this lease.
(c) Lessor agrees to pay said fee not only on behalf of Lessor
but also on behalf of any person, corporation association, or other entity
having an ownership interest in said real property or any part thereof, when
such fee is due hereunder. Any transferee of Lessor's interest in this Lease,
whether such transfer is by agreement or by operations of law, shall be deemed
to have assumed Lessor's obligation under this Paragraph 15. Said broker shall
be a third party beneficiary of the provisions of this Paragraph 15.
16. Estoppel Certificate.
(a) Lessee shall at any time upon not less than ten (10) days'
prior written notice from Lessor executor, acknowledge and deliver to Lessor a
statement in writing (I) certifying that this Lease is unmodified and in full
force and effect (or, if modified stating the nature of such modifications and
certifying that this Lease, as so modified is in full force and effect) and the
date to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to Lessee's knowledge, any uncured defaults on
the part of Lessor hereunder, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrance of the Premises.
(b) At Lessor's option. Lessee's failure to deliver such
statement within such time shall be a material breach of this Lease or shall be
conclusive upon Lessee (I) that this Lease is in full force and effect, without
modification except as may be represented by Lessor, (ii) that there are no
uncured defaults in Lessor's performance, and (iii) that not more than one
month's rent has been paid in advance or such failure may be considered by
Lessor as a default by Lessee under this Lease.
(c) If Lessor desire to finance, refinance, or sell the
Premises, or any part thereof, Lessee hereby agrees to deliver to any lender or
purchaser designated by Lessor such financial statements of Lessee as may be
reasonably required by such lender or purchaser. such statements shall include
the past three years' financial statements of Lessee. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean
only the owner or owners at the time in question of the fee title or a lessee's
interest in a ground lease of the Premises, and except as expressly provided in
Paragraph 15. In the event of any transfer of such title or interest, Lessor
herein named (and in case of any subsequent transfers then the grantor) shall be
relieved from and after the date of such transfer of all liability as respects
Lessor's obligations thereafter to be performed, provided that any funds in the
hands of Lessor or the then grantor at the time of such transfer, in which
Lessee has an interest, shall be delivered to the grantee. The obligations
contained in this Lease to be performed by Lessor shall, subject as
<PAGE> 13
aforesaid, be binding on Lessor's successors and assigns, only during their
respective periods of ownership.
18. Severability. The invalidity of any provision of this Lease as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. Interest on Past-due Obligations. Except as expressly herein
provided, any amount due to Lessor not paid when due shall bear interest at the
maximum rate then allowable by law from the date due. Payment of such interest
shall not excuse or cure any default by Lessee under this Lease, provided,
however, that interest shall not be payable on late charges incurred by Lessee
nor on any amounts upon which late charges are paid by Lessee.
20. Time of Essence. Time of the essence.
21. Additional Rent. Any monetary obligations of Lessee to Lessor under
the terms of this Lease shall be deemed to be rent.
22. Incorporation of Prior Agreements; Amendments. This Lease contains
all agreements of the parties with respect to any matter mentioned herein. No
prior agreement or understanding pertaining to any such matter shall be
effective. This Lease may be modified in writing only, signed by the parties in
interest at the time of the modification. Except as otherwise stated in this
Lease, Lessee hereby acknowledges that neither the real estate broker listed in
Paragraph 15 hereof nor any cooperating broker on this transaction nor the
Lessor or any employees or agents of any of said persons has made any oral or
written warranties or representations to Lessee relative to the condition or use
by Lessee of said Premises and Lessee acknowledges that Lessee assumes all
responsibility regarding the Occupational Safety Health Act, the legal use and
adaptability of the Premises and the compliance thereof with all applicable laws
and regulations in effect during the term of the Lease except as otherwise
specifically stated in this Lease.
23. Notices. Any notice required or permitted to be given hereunder
shall be in writing and may be given by personal delivery or by certified mail,
and if given personally or by mail, shall be deemed sufficiently given if
addressed to Lessee or to Lessor at the address noted below the signature of the
respective parties, as the case may be. Either party may by notice to the other
specify a different address for notice purposes except that upon Lessee's taking
possession of the Premises, the Premises shall constitute Lessee's address for
notice purposes. A copy of all notices required or permitted to be given to
Lessor hereunder shall be concurrently transmitted to such party or parties as
such addresses as Lessor may from time to time hereafter designate by notice to
Lessee.
24. Waivers. No waiver by Lessor or any provision hereof shall be
deemed a waiver of any other provision hereof or of any subsequent breach by
Lessee of the same or any other provision. Lessor's consent to, or approval of
any act, shall not be deemed to render unnecessary the obtaining of Lessor's
consent to or approval of any subsequent act by Lessee. The acceptance of rent
hereunder by Lessor shall not be a waiver or any preceding breach by Lessee of
any provision hereof, other than the failure of Lessee to pay the particular
rent so accepted, regardless of Lessor's knowledge of such preceding breach at
the time of acceptance of such rent.
25. Recording. Either Lessor or Lessee shall, upon request of the
other, execute, acknowledge and deliver to the other a "short form" memorandum
of this Lease for recording purposes.
26. Holding Over. If Lessee, with Lessor's consent, remains in
possession of the Premises or any part thereof after the expiration of the term
hereof, such occupancy shall be a tenancy from month to month upon all the
provisions of this Lease pertaining to the obligations of Lessee, but all
options and rights of first refusal, if any, granted under the terms of this
Lease shall be deemed terminated and be of not further effect during said month
to month tenancy.
<PAGE> 14
27. Cumulative Remedies. No remedy or election hereunder shall be
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
28. Covenants and Conditions. Each provision of this Lease performable
by Lessee shall be deemed both a covenant and a condition.
29. Binding Effect; Choice of Law. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions of
Paragraph 17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
wherein the Premises are located.
30. Subordination.
(a) This Lease, at Lessor's option, shall be subordinate to
any ground lease, mortgage, deed of trust, or any other hypothecation or
security now or hereafter placed upon the real property o which the Premises are
a part and to any and all advances made on the security thereof and to all
renewals, modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this Lease prior to the
lien of its mortgage, deed of trust or ground lease, and shall give written
notice thereof to Lessee, this Lease shall be deemed prior to such mortgage,
deed of trust, or ground lease, whether this Lease is dated prior or subsequent
to the date of said mortgage, deed or trust or ground lease or the date of
recording thereof.
(b) Lessee agrees to execute any documents require to
effectuate an attornment, a subordination or to make this Lease prior to the
lien of any mortgage, deed of trust or ground lease, as the case may be.
Lessee's failure to execute such documents within 10 days after written demand
shall constitute a material default by Lessee hereunder, or, at Lessor's option
Lessor shall execute such documents on behalf of Lessee as Lessee's
attorney-in-fact. Lessee does hereby make, constitute and irrevocably appoint
Lessor as Lessee's attorney-in-fact and in Lessee's name, place and stead, to
execute such documents in accordance with this paragraph 30(b).
31. Attorney's Fees. If either party or the broker named herein brings
an action to enforce the terms hereof or declare rights hereunder, the
prevailing party in any such action, on trial or appeal, shall be entitled to
his reasonable attorney's fees to be paid by the losing party as fixed by the
court. The provisions of this paragraph shall inure to the benefit of the broker
named herein who seeks to enforce a right hereunder.
32. Lessor's Access. Lessor and Lessor's agents shall have the right to
enter the Premises at reasonable times for the purpose of inspecting the same,
showing the same to prospective purchasers, lenders, or lessee's, and making
such alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part as Lessor may deem necessary or desirable.
Lessor may at any time place on or about the Premises any ordinary "For Sale"
signs and Lessor may at any time during the last 120 days of the term hereof
place on or about the Premises any ordinary "For Lease" signs, all without
rebate of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted,
either voluntarily or involuntarily, any auction upon the Premises without first
having obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grand such consent.
34. Signs. Lessee shall not place any sign upon the Premises without
Lessor's prior written consent except that Lessee shall have the right, without
the prior permission of Lessor to place ordinary and usual for rent or sublet
signs thereon.
35. Merger. The voluntary or other surrender of this Lease by Lessee,
or a mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
<PAGE> 15
36. Consents. Except for paragraph 33 hereof, wherever in this Lease
the consent of one party is required to an act of the other party, such consent
shall not be unreasonably withheld.
37. Guarantor. In the event that there is a guarantor of this Lease,
said guarantor shall have the same obligations as Lessee under this Lease.
38. Quiet Possession. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized a legally
capable of executing this Lease on behalf of Lessor and that such execution is
binding upon all parties holding an ownership interest in the Premises.
39. Options.
39.1 Definition. As used in this paragraph the work "Options" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other property of Lessor or the right of first offer to lease
other property of Lessor; (3) the right or option to purchase the Premises, or
the right of first refusal to purchase the Premises, or the right of first offer
to purchase the Premises or the right or option to purchase other property of
Lessor, or the right of first refusal to purchase other property of Lessor or
the right of first offer to purchase other property of Lessor.
39.2 Options Personal. Each Option granted to Lessee in this Lease are
personal to Lessee and may not be exercised or be assigned, voluntarily or
involuntarily, by or to any person or entity other than Lessee, provided,
however, the Option may be exercised by or assigned to any Lessee Affiliate as
defined in paragraph 12.2 of this Lease. The Options herein granted to Lessee
are not assignable separate and apart from this Lease.
39.3 Multiple Options. In the event that Lessee has any multiple
options to extend or renew this Lease a later option cannot be exercised unless
the prior option to extend or renew this Lease has been so exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, (I) during
the time commencing from the date Lessor gives to Lessee a notice of default
pursuant to paragraph 13.1(b) or 13.1(c) and continuing until the default
alleged in said notice of default is cured, or (ii) during the period o time
commencing on the day after a monetary obligation to Lessor is due from Lessee
and unpaid (without any necessity for notice thereof to Lessee) continuing until
the obligation is paid, or (iii) at any time after an event of default described
in paragraphs 13.1(a, 13.1(d), or 13.1(e) (without any necessity of Lessor to
give notice of such default to Lessee), or (iv) in the event that Lessor has
given to Lessee three or more notices of default under paragraph 13.1(b), where
a late charge becomes payable under paragraph 13.4 for each of such defaults, or
paragraph 13.1(c), whether or not the defaults are cured, during the 12 month
period prior to the time that Lessee intends to exercise the subject Option.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option
shall terminate and be o no further force or effect, notwithstanding Lessee's
due and timely exercise of the Option, if, after such exercise and during the
term of this Lease, (I) Lessee fails to pay to Lessor a monetary obligation of
Lessee for a period of 30 days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to
commence to cure a default specified in paragraph 13.1(c) within 30 days after
the date that Lessor gives notice to Lessee of such default
<PAGE> 16
and/or Lessee fails thereafter to diligently prosecute said cure to completion,
or (iii) Lessee commits a default described in paragraph 13.1(a), 13.1(d) or
13.1)e) (without any necessity of Lessor to give notice of such default to
Lessee), or (iv) Lessor gives to Less three or more notices of default under
paragraph 13.1b, where a late charge becomes payable under paragraph 13.4 for
each such default, or paragraph 13.1(c), whether or not the defaults are cured.
40. Multiple Tenant Building. In the event that the Premises are part
of a larger building or group of buildings then Lessee agrees that it will abide
by, keep and observe all reasonable rules and regulations which Lessor may make
from time to time for the management, safety, care, and cleanliness of the
building and grounds, the parking of vehicles and the preservations of good
order therein as well as for the convenience of other occupants and tenants of
the building. The violations of any such rules and regulations shall be deemed a
material breach of this Lease by Lessee.
41. Security Measures. Lessee hereby acknowledges that the rental
payable to Lessor hereunder does not include the cost of guard service or other
security measures, and that Lessor shall have no obligation whatsoever to
provide same. Lessee assumes all responsibility for the protection of Lessee,
its agents and invitees from acts of third parties.
42. Easements. Lessor reserves the to itself the right, from time to
time, to grant such easements, rights and dedications that Lessor deems
necessary or desirable, and to cause the recordation of Parcel Maps and
restrictions, so long as such easements, rights, dedications, Maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee shall sign any of the aforementioned documents upon request of
Lessor and failure to do so shall constitute a material breach of this Lease.
43. Performance Under Protest. If at any time a dispute shall arise as
to any amount or sum of money to be paid by one party to the other under the
provisions hereof, the party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment, and there shall survive the right
on the part of said partly to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said party
to pay such sum or any part thereof, said party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
44. Authority. If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represent and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
45. Conflict. Any conflict between the printed provisions of this Lease
and the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. Addendum. Attached hereto is an addendum to addenda containing
paragraphs 47 through 54 which constitutes a part of this Lease.
47. Rent Escalations: year 2, beginning 2/15/95. The monthly rent for
each month shall be $2,100.00.
48. Lessor to provide Lessee $7,000.00 tenant improvement allowance.
Lessor to approve building improvements. Within 15 days after final inspection
from the city of Lake Elsinore, lessor shall reimburse tenant for improvements.
49. Lessor will provide Lessee with three (3) months free rent. Rental
to begin on 2/15/94.
50. Lessor grants Lessee approval to place two (2) grain silos adjacent
to building.
<PAGE> 17
51. Lessor to allow a fenced yard using chain link with slats. To be
approved by landlord.
52. Lessee shall, at Lessee's expense, obtain and keep in force during
the term of this lease a policy of Commercial General Liability Insurance with a
combined single limit of not less than One Million ($1,000,000.00) Dollars per
occurrence and in the aggregate with Landlord and, if requested by Landlord,
Landlord's lender designated as Additional Insureds. Such policy shall include,
without limitation, the following specific coverages: (I) products/completed
operations; (ii) contractual liability; and (iii) hot (and business related)
liquor liability.
Lessor and Lessee have carefully read and reviewed this lease and each term and
provision contained herein and by execution of this lease show their informed
and voluntary consent thereto the parties hereby agree that a6 the time this
lease is executed, the terms of this lease are commercially reasonable and
effectuate the intent and purpose of Lessor and Lessee with respect to the
premises.
If this lease has been filled in it has been prepared for submission to your
attorney for his approval. No representation or recommendations is made by the
American Industrial Real Estate Association or by the Real Estate Broker or its
Agents or Employees as to the legal sufficiency, legal effect, or tax
consequences of this lease or the transaction relating thereto; The parties
shall relay solely upon the advice of their own legal counsel as to the legal
and tax consequences of this Lease.
The parties hereto have executed this Lease at the place on the date specified
immediately adjacent to their respective signatures.
----------------------------
By
----------------------------
By
----------------------------
"Lessor" (Corporate Seal)
----------------------------
By
----------------------------
By
----------------------------
"Lessee" (Corporate Seal)
<PAGE> 18
ADDENDUM TO STANDARD LEASE
Dated: November 3, 1993
By and Between: Central Business Park Investors 89 and Heritage Brewing Company
53 Option to Extend
A. Lessor hereby grants to Lessee the option to extend the term of this Lease
for a two year period commencing when the prior term expires upon each and all
of the following terms and conditions:
(I) Lessee give to Lessor, and Lessor actually receives, on a date
which is prior to the date that the option period would commence (if exercised)
by at least six (6) and not more than nine (9) months, a written notice of the
exercise of the option to extend this lease for said additional term, time being
of the essence. If said notification of the exercise of said option is not so
given and received, this option shall automatically expire;
(ii) the provisions of paragraph 39, including the provisions relating
to default of Lessee set forth in paragraph 39.4 of this Lease are conditions of
this Option;
(iii) All of the terms and conditions of this Lease except where
specifically modified by this option shall apply.
(iv) The monthly rent for each month of the option period shall be as
follows: Year 3, beginning 2/15/96: $2,205.00; Year 4, beginning 2/15/97:
$2,315.25.
<PAGE> 1
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into on _________________ 1996
("Employment Agreement"), by and among BEVERAGE WORKS, INC., a California
corporation ("Employer"), and FREDERIK G.M. RODENHUIS ("Employee").
WHEREAS, Employer wishes to employ Employee as President and Chief
Executive Officer, with such other duties and responsibilities as Employer may
reasonably assign to Employee consistent with the nature and character of such
employment (the "Position"), and Employee wishes to accept such employment
subject to the terms and conditions of this Employment Agreement; and
WHEREAS, Employer is in the business of producing beer and other
beverages, and performs services related thereto, and markets such products and
services in the United States and in various foreign countries and has
accumulated valuable and confidential information including trade secrets and
know-how relating to technology, manufacturing procedures, formulas, machines,
marketing plans, sources of supply, business strategies, and other business
records; and
WHEREAS, the giving of the covenants contained herein is a condition
precedent to the employment of Employee in the Position and Employee
acknowledges that the execution of this Employment Agreement and the entering
into of these covenants is an express condition of his employment in the
Position and that said covenants are given in consideration for such employment
and the other benefits conferred upon him by this Employment Agreement.
NOW, THEREFORE, in consideration of such employment and other valuable
consideration, receipt of which is hereby acknowledged Employer and Employee
agree as follows:
1. DUTIES OF EMPLOYEE. Employer hereby employs Employee as its
President and Chief Executive Officer and agrees to cause Employee from time to
time to be elected or appointed to such corporate offices or positions. Employee
shall serve in such capacity at Employer's office, or at such other place as
Employer may direct provided that Employer shall not direct or cause Employee to
perform his services from an office outside of Orange County, California without
Employee's prior written consent. Employee's principal duties and
responsibilities shall consist of Employee's corporate offices and positions
which are set forth in the by-laws of Employer from time to time, over-all
responsibility for the development and implementation of Employer's business
strategy and such other duties and responsibilities consistent with Employee's
corporate offices and positions which the Board of Directors of Employer, from
time to time may assign to Employee. Employee shall perform such other services
and duties as may from time to time be assigned to Employee by Employer's Board
of Directors provided that such other services and duties are not inconsistent
with any other term of this Employment Agreement. Except during vacation periods
or in accordance with Employer's personnel policies covering executive leaves
and reasonable periods of illness or other incapacitation, Employee shall devote
full-time his services to Employer's business and
<PAGE> 2
interests in a manner consistent with Employee's title and office and Employer's
needs for his services. Employee shall perform the duties of Employee's office
and those assigned to Employee by Employer's Board of Directors with fidelity,
to the best of Employee's ability, and in the best interests of Employer.
2. TERM OF EMPLOYMENT. Employer hereby employs Employee, and Employee
hereby accepts employment with Employer, for four (4) years commencing on the
date of this Employment Agreement ("Employment Period"). Notwithstanding
anything in this Section 2 to the contrary, this Employment Agreement may be
terminated at any time in accordance with Section 6.
3. COMPENSATION OF EMPLOYEE.
3.1 Base Compensation. As compensation for Employee's services
hereunder, Employee shall receive a base salary (the "Base Salary") at an annual
amount of not less than One Hundred Twenty Thousand Dollars ($120,000) payable
in bi-monthly installments of Five Thousand Dollars ($5,000) each, or a ratable
portion thereof for periods of less than one-half month. The Board or the
Compensation Committee of the Board shall review the Base Salary at least
annually as of the payroll date nearest the anniversary of this Employment
Agreement; and Employer agrees to make such increases in the Base Salary as the
Board may approve from time to time. Once established at a specific increased
annual rate, the Base Salary may not be reduced by Employer without Employee's
written consent.
3.2 Car Allowance. In addition, Employee shall be entitled to a
monthly car allowance of Five Hundred Dollars ($500), which shall be paid to
Employee concurrently with the second (2nd) installment of Employee's monthly
base compensation. The monthly car allowance shall be increased by Fifty Dollars
($50) each calendar year commencing January 1, 1997.
3.3 Non-accountable T&E Allowance. In addition, Employee shall be
entitled to a monthly non-accountable travel & entertainment allowance of Six
Hundred Dollars ($600), which shall be paid to Employee concurrently with the
second (2nd) installment of Employee's monthly base compensation.
4. EXPENSE REIMBURSEMENTS. Employee shall promptly be reimbursed for
reasonable and actual out-of-pocket expenses incurred by Employee in performance
of Employee's duties and responsibilities hereunder in accordance with
Employer's established personnel policy covering executive officer expense
reimbursements, as such policy may be amended, revised or otherwise changed from
time to time. Employee shall furnish proper vouchers and expense reports and
shall be reimbursed only for those expenses which shall be reimbursable.
5. VACATION, SICK LEAVE AND OTHER FRINGE BENEFITS. Employee shall be
entitled to four (4) weeks vacation per every twelve (12) month period of
employment
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<PAGE> 3
hereunder and no more than two (2) weeks vacation at a time. Employee shall also
be entitled to leaves for illness or other incapacitation as is consistent with
Employee's title and Employer's needs for Employee's services, except as
otherwise provided for in Section 6.2. Commencing with calendar year 1997,
Employee shall receive Two Thousand Five Hundred Dollars ($2,500) for 1997 Five
Thousand Dollars ($5,000) annually thereafter for life insurance, which Employee
shall have sole authority to appoint beneficiaries, and shall receive Two
Thousand Five Hundred Dollars ($2,500) for 1997 and Five Thousand Dollars
($5,000) annually thereafter for personal legal and accounting services.
Employee shall be entitled to full health and dental insurance coverage,
including covering any deductible, for Employee, Employee's spouse and minor
children. Employee shall be entitled during Employee's employment hereunder to
share or participate in such other "fringe" benefit plans or programs as shall
be made available to employees employed by Employer generally, in accordance
with Employer's established personnel policies, if any, or as established,
amended, revised or otherwise changed from time to time, covering employee
benefits.
6. TERMINATION.
6.1 Termination by Employer for Cause. Employer may terminate this
Employment Agreement and Employee's employment hereunder for Cause (as defined
herein) any time effective upon written notice to Employee. As used herein, the
term "Cause" shall mean:
6.1.1 Habitual neglect in the performance of Employee's
material duties as set forth in Section 1 which continues uncorrected for a
period of thirty (30) days after written notice thereof by Employer to Employee;
6.1.2 Employee's confession or conviction of theft, fraud,
embezzlement, or any other crime involving dishonesty with respect to Employer
or any parent, subsidiary or affiliate of Employer;
6.1.3 Gross negligence involving misfeasance or nonfeasance by
Employee in the performance of Employee's material duties as set forth in
Section 1 which continues uncorrected for a period of thirty (30) days after
written notice thereof by Employer to Employee;
6.1.4 Material violation by Employee of the provisions of
Section 8; or
6.1.5 The representations in Section 7 were materially false as
of the date of this Employment Agreement.
In no event shall the results of Employer's operations or any business agreement
made in good faith by Employee constitute an independent basis for termination
for cause of Employee's employment under this Employment Agreement. Any
termination of Employee's employment for cause must be authorized by a majority
vote of the Board taken not later than twelve (12) months after a majority of
the members of the Board (other than Employee) have actual
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<PAGE> 4
knowledge of the occurrence of the event or conduct constituting the cause for
such termination. If Employee's employment under this Employment Agreement is
terminated by Employer for cause, then Employee shall be entitled to receive his
Base Salary through the effective date of such termination.
6.2 Termination Upon Death or Disability. This Employment Agreement
and Employee's employment hereunder shall terminate upon Employee's death or
Disability (as defined herein). For this purpose "Disability" means incapacity,
whether by reason of physical or mental illness or disability, which prevents
Employee from substantially performing Employee's material duties as set forth
in Section 1 for six (6) months, or for shorter periods aggregating six (6)
months in any twelve (12) successive calendar months. Upon termination for
death, and unless Employer shall have in force a disability insurance policy
providing for benefits in an amount at least equal thereto, upon termination for
Disability, Employer shall continue to pay the compensation payments pursuant to
Section 3 to the surviving spouse of Employee (or if there is none to Employee's
estate) in the case of death and to Employee or Employee's court appointed
conservator in the case of Disability until the date three (3) months
thereafter. Termination for death shall become effective upon the occurrence of
such event and termination for Disability shall become effective upon written
notice to Employee.
6.3 Events Upon Termination. The termination of this Employment
Agreement pursuant to Section 6.1 and 6.2 shall also result in the termination
of all rights and benefits of Employee under this Employment Agreement except
for any rights to compensation accrued under Section 3 prior to the date of
termination or rights to expense reimbursement under Section 4.
6.4 Payments As Liquidated Damages. In the event Employer elects to
terminate this Employment Agreement prior to the scheduled termination date for
any reason other than Cause, Employer shall continue to make the compensation
payments specified in Section 3 hereof for the entire term, through and
including the scheduled termination date, and such payments shall be deemed to
be liquidated damages for the damage done to Employee's reputation and for
having foregone the opportunity to pursue other employment opportunities while
performing services pursuant to this Employment Agreement. Employer hereby
agrees that such amount shall constitute a realistic and reasonable valuation of
the damages with respect to Employee's claims, and Employee shall not be
required to mitigate his damages by seeking other business, as the damages
resulting to him as a result of the loss of the unique business arrangement set
forth herein could not be mitigated by seeking business elsewhere, nor shall any
monies earned by Employee in any capacity after such termination, attempted
termination or breach act to reduce such damages.
7. EMPLOYEE'S REPRESENTATIONS. Employee represents and warrants that
Employee is free to enter into this Employment Agreement and to perform each of
the provisions contained herein. Employee represents and warrants that Employee
is not restricted or prohibited, contractually or otherwise, from entering into
and performing this Employment Agreement, and that Employee's execution and
performance of this Employment Agreement is
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<PAGE> 5
not a violation or breach of any agreement between Employee and any other person
or entity.
8. NONDISCLOSURE OF CONFIDENTIAL INFORMATION;
OWNERSHIP OF INTELLECTUAL PROPERTY RIGHTS;
NON COMPETITION; COVENANT NOT TO COMPETE.
8.1 Nondisclosure of Confidential Information. During the term of this
Employment Agreement and at all times thereafter, Employee will keep
confidential and will not directly or indirectly divulge to anyone nor use or
otherwise appropriate for Employee's own benefit, or on behalf of any other
person, firm, partnership or corporation by whom Employee might subsequently be
employed or otherwise associated or affiliated with, any Confidential
Information (as defined herein). For this purpose, "Confidential Information"
means any and all customer lists, product formulations, arrangements with
distributors and parties for whom Employer does contract brewing, marketing
information or strategies, trade secrets or other confidential information of
any kind, nature or description concerning any matters affecting or relating to
the business of Employer or any affiliate which derives economic value, actual
or potential, from not being generally known to the public or to other persons
who can obtain economic value from its disclosure or use and which is subject to
efforts by Employer that are reasonable under the circumstances to maintain its
secrecy.
8.2 Employer Intellectual Property Rights. All intellectual property
rights, whether or not patentable or copyrightable, which (i) are made or
developed with the equipment, supplies, facilities, product formulations, trade
secrets, time or other assets of Employer; (ii) relate to the business,
including anticipated research or development, of Employer, or (iii) result from
work performed by Employee for Employer, are and shall remain the sole property
of Employer, and upon request made by Employer, Employee shall assign any and
all rights, including patents and patent rights, trade mark and trade dress
rights, Employee may have therein to Employer. This Section 8.2 does not apply
to any intellectual property rights which are the subject of Section 2870 of the
California Labor Code.
8.3 Employer Materials. All reports and analysis, designs, drawings,
contracts, contractual arrangements, specifications, computer software, computer
hardware and other equipment, computer printouts, computer disks, documents,
memoranda, notebooks, correspondence, files, lists and other records, and the
like, and all photocopies or other reproductions thereof, affecting or relating
to the business of Employer which Employee shall prepare, use, construct,
observe, possess or control ("Employee Materials"), shall be and remain the sole
property of Employer. Upon termination of this Employment Agreement, Employee
shall deliver promptly to Employer all such Employer Materials.
8.4 Certain Restrictions on Business Activities. During the term of
this Employment Agreement, Employee agrees that:
8.4.1 Business Activities. He will not, directly or indirectly, own
an interest in, operate, join, control or participate in, or be connected as an
officer, employee,
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<PAGE> 6
agent, independent contractor, partner, shareholder or principal of any
corporation, partnership, proprietorship, firm, association, person or other
entity providing services and/or products or a combination thereof which
directly or indirectly compete with Employer's business, and he will not
undertake planning for or organization of any business activity competitive with
Employer's business or combine or conspire with other employees or
representatives of Employer's business for the purpose of organizing any such
competitive business activity, except the purchase of less than ten percent
(10%) of the stock of a publicly traded company which is not affiliated with
Employer.
8.4.2 Solicitation of Customers, Etc. He will not, directly or
indirectly, either for himself or for any other person, firm or corporation,
divert or take away or attempt to divert or take away (and after the term of
this Employment Agreement, call on or solicit or attempt to call on or solicit)
any of Employer's customers or distributors, including but not limited to, those
upon whom Employee called or whom Employee solicited or serviced or with whom
Employee became acquainted while engaged as an employee in Employer's business.
8.4.3 Solicitation of Employees, Etc. He will not, directly or
indirectly or by action in concert with others, induce or influence (or seek to
induce or influence) any person who is engaged (as an employee, agent,
independent contractor or otherwise) by Employer to terminate his or her
employment or engagement.
8.5 Covenant Not to Compete.
8.5.1 Obligations of Employee. Employee acknowledges that, as a key
management employee, Employee will be involved, on a high level, in the
development, implementation and management of the business strategies and plans
of Employer, which shall also consist of such other business, units, divisions,
subsidiaries or other entities of Employer as Employer shall determine in its
sole discretion from time to time (the "Business"). By virtue of Employee's
unique and sensitive position and special background, employment of Employee by
a competitor of Employer represents a serious competitive danger to Employer and
the Business, and the use of Employee's talent and knowledge and information
about Employer or the Business can and would constitute a valuable competitive
advantage over Employer and the Business. In view of the foregoing, Employee
covenants and agrees that, if Employee's employment with Employer is terminated
by Employee or for cause at any time, for a period of one year after the date of
such termination, but not longer than the term of this Employment Agreement
under Section 2 had employment not been terminated, Employee will not engage or
be engaged, in any capacity, directly or indirectly, including but not limited
as employee, agent, consultant, manager, executive, owner or stockholder (except
as a passive investor holding less than a 1% equity interest in any enterprise
the securities of which are publicly traded) in any business entity doing
business in the United States engaged in competition with any business conducted
by Employer on the date of termination. This Covenant Not to Compete shall
survive the termination or expiration of the other provisions of this Employment
Agreement. If any court determines that this Covenant Not to Compete, or any
part thereof, is unenforceable because of the duration or geographic scope of
such provision, such court shall have the power
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<PAGE> 7
to reduce the duration or scope of such provision, as the case may be, and, in
its reduced form, such provision shall then be enforceable.
8.5.2 Continuing Obligations. Employee agrees that, for one year
following his termination of employment with Employer, Employee shall keep
Employer informed of the identification of Employee's employer and the nature of
such employment or of Employee's self-employment. Employer agrees that, within
fifteen (15) days after receiving notice pursuant to this section of the
identification of the prospective employer, the nature of the employment or
self-employment or any change therein, Employer will advise Employee as to
whether such employment constitutes a violation of Section 8.5.1 hereof.
8.5.3 Injunctive Relief. Employee acknowledges that the
violation of the covenants contained in this Section 8.5 would be detrimental
and cause irreparable injury to Employer and its affiliates which could not be
compensated by money damages. Employee agrees that an injunction from a court of
competent jurisdiction is the appropriate remedy for these provisions, and
consents to the entry of an appropriate judgment enjoining Employee from
violating these provisions in the event there is a find of their breach.
8.6 Severability. Employee agrees, in the event that any provision
of this Section 8 or any word, phrase, clause, sentence or other portion thereof
shall be held to be unenforceable or invalid for any reason, such provision or
portion thereof shall be modified or deleted in such a manner so as to make this
Section 8 as modified legal and enforceable to the fullest extent permitted
under applicable laws. The validity and enforceability of the remaining
provisions or portions thereof shall not be affected thereby and shall remain
valid and enforceable to the fullest extent permitted under applicable laws. A
waiver of any breach of the provisions of this Section 8 shall not be construed
as a waiver of any subsequent breach of the same or any other provision.
9. MERGER, ETC., OF EMPLOYER. In the event of a future disposition of
(or including) the properties and business of Employer, substantially or in its
entirety, by merger, consolidation, sale of assets, or otherwise, then Employer
may assign this Employment Agreement and all of the rights and obligations of
Employer under this Employment Agreement to the acquiring or surviving
corporation; provided, that such acquiring or surviving corporation shall assume
in writing all of the obligations of the companies under this Employment
Agreement; and provided further, that the companies (in the event and so long as
they or either of them remains in business as an independent going enterprise)
shall remain jointly and severally liable for the performance of their
obligations under this Employment Agreement in the event of an unjustified
failure of the acquiring corporation to perform its obligations under this
Employment Agreement.
10. GENERAL PROVISIONS.
10.1 Severable Provisions. The provisions of this Employment
Agreement are severable, and if any one or more provisions may be determined to
be judicially unenforceable,
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<PAGE> 8
in whole or in part, the remaining provisions shall nevertheless be binding and
enforceable.
10.2 Assignment. Neither this Employment Agreement nor any of the
rights or obligations of Employee or Employer hereunder shall be assignable.
10.3 Arbitration. Any dispute arising under or in connection with
this Employment Agreement shall be subject to arbitration before the American
Arbitration Association ("AAA") at the facility nearest Employer's principal
place of business.
10.4 Attorneys' Fees. If any legal action arises under this
Employment Agreement or by reason of any asserted breach of it, the prevailing
party shall be entitled to recover all costs and expenses, including reasonable
attorneys' fees, incurred in enforcing or attempting to enforce any of the
terms, covenants or conditions, including costs incurred prior to commencement
of legal action, and all costs and expenses, including reasonable attorneys'
fees, incurred in any appeal from an action brought to enforce any of the terms,
covenants or conditions.
10.5 Notices. Any notice to be given to Employer under the terms of
this Employment Agreement shall be addressed to Employer at the address of
Employer's principal place of business, with a copy to, Hecht & Steckman, P.C.,
60 East 42nd Street, Suite 5101, New York, New York 10165-5101, Attn: James G.
Smith, Esq., and any notice to be given to Employee shall be addressed to
Employee at his home address last shown on the records of Employer, or at such
other address as either party may hereafter designate in writing to the other.
Any notice required or permitted under this Employment Agreement shall be in
writing and shall be deemed effective: (i) upon receipt in the event of delivery
by hand, including delivery made by private delivery or overnight mail service
where either the recipient or delivery agent executes a written receipt or
confirmation of delivery; or (ii) 48 hours after deposited in the United States
mail, registered or certified mail, return receipt requested, postage prepaid.
10.6 Waiver. Either party's failure to enforce any provision or
provisions of this Employment Agreement shall not in any way be construed as a
waiver of any such provision or provisions, or prevent that party thereafter
from enforcing each and every other provision of this Employment Agreement.
10.7 Entire Agreement; Amendments. This Employment Agreement
supersedes any and all other agreements, either oral or in writing, between the
parties hereto with respect to the employment of Employee by Employer and
contains all of the covenants and agreements between the parties with respect to
the employment of Employee by Employer. Each party to this Employment Agreement
acknowledges that no representations, inducements, promises or agreements,
orally or otherwise, have been made by any party, or anyone acting on behalf of
any party, which are not embodied herein, and that no other agreement, statement
or promise not contained in this Employment Agreement will be effective only if
it is in writing signed by the party to be charged.
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<PAGE> 9
10.8 Titles and Headings. Titles and headings to sections of this
Employment Agreement are for the purpose of reference only and shall in no way
limit, define or otherwise affect the interpretation or construction of such
provisions.
10.9 Counterparts. This document may be executed in one or more
counterparts each of which shall be deemed to be an original and all of which
together shall constitute a single agreement.
10.10 Governing Law. This Employment Agreement shall be governed by
and construed in accordance with the laws of the State of California.
IN WITNESS WHEREOF, the parties have executed this Employment Agreement
as of the day and year first above written.
EMPLOYEE:
--------------------------------------
FREDERIK G.M. RODENHUIS
EMPLOYER:
BEVERAGE WORKS, INC.
a California corporation
--------------------------------------
By:
----------------------------------
Title:
-------------------------------
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<PAGE> 1
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into on _________________ 1996
("Employment Agreement"), by and among BEVERAGE WORKS, INC., a California
corporation ("Employer"), and LYLE R. MAUL ("Employee").
WHEREAS, Employer wishes to employ Employee as Chief Financial Officer
and Chief Operating Officer, with such other duties and responsibilities as
Employer may reasonably assign to Employee consistent with the nature and
character of such employment (the "Position"), and Employee wishes to accept
such employment subject to the terms and conditions of this Employment
Agreement; and
WHEREAS, Employer is in the business of producing beer and other
beverages, and performs services related thereto, and markets such products and
services in the United States and in various foreign countries and has
accumulated valuable and confidential information including trade secrets and
know-how relating to technology, manufacturing procedures, formulas, machines,
marketing plans, sources of supply, business strategies, and other business
records; and
WHEREAS, the giving of the covenants contained herein is a condition
precedent to the employment of Employee in the Position and Employee
acknowledges that the execution of this Employment Agreement and the entering
into of these covenants is an express condition of his employment in the
Position and that said covenants are given in consideration for such employment
and the other benefits conferred upon him by this Employment Agreement.
NOW, THEREFORE, in consideration of such employment and other valuable
consideration, receipt of which is hereby acknowledged Employer and Employee
agree as follows:
1. DUTIES OF EMPLOYEE. Employer hereby employs Employee as its
Chief Financial Officer and Chief Operating Officer and agrees to cause Employee
from time to time to be elected or appointed to such corporate offices or
positions. Employee shall serve in such capacity at Employer's office, or at
such other place as Employer may direct provided that Employer shall not direct
or cause Employee to perform his services from an office outside of Los Angeles
County, California without Employee's prior written consent. Employee's
principal duties and responsibilities shall consist of Employee's corporate
offices and positions which are set forth in the by-laws of Employer from time
to time, over-all responsibility for the development and implementation of
Employer's corporate finance, acquisition strategy, budgeting and accounting,
and such other duties and responsibilities consistent with Employee's corporate
offices and positions which the Board of Directors or Chief Executive Officer of
Employer, from time to time may assign to Employee. Employee shall perform such
other services and duties as may from time to time be assigned to Employee by
Employer's Board of Directors provided that such other services and duties are
not inconsistent with any other term of this Employment Agreement. Except during
vacation periods or in accordance with Employer's personnel policies covering
executive leaves and reasonable periods of illness or
<PAGE> 2
other incapacitation, Employee shall devote full-time his services to Employer's
business and interests in a manner consistent with Employee's title and office
and Employer's needs for his services. Employee shall perform the duties of
Employee's office and those assigned to Employee by Employer's Board of
Directors with fidelity, to the best of Employee's ability, and in the best
interests of Employer.
2. TERM OF EMPLOYMENT. Employer hereby employs Employee, and
Employee hereby accepts employment with Employer, for four (4) years commencing
on the date of this Employment Agreement ("Employment Period"). Notwithstanding
anything in this Section 2 to the contrary, this Employment Agreement may be
terminated at any time in accordance with Section 6.
3. COMPENSATION OF EMPLOYEE.
3.1 Base Compensation. As compensation for Employee's
services hereunder, Employee shall receive a base salary (the "Base Salary") at
an annual amount of not less than One Hundred Eight Thousand Dollars ($108,000)
payable in bi-monthly installments of Four Thousand Dollars Five Hundred
($4,500) each, or a ratable portion thereof for periods of less than one-half
month. The Board or the Compensation Committee of the Board shall review the
Base Salary at least annually as of the payroll date nearest the anniversary of
this Employment Agreement; and Employer agrees to make such increases in the
Base Salary as the Board may approve from time to time. Once established at a
specific increased annual rate, the Base Salary may not be reduced by Employer
without Employee's written consent.
3.2 Car Allowance. In addition, Employee shall be
entitled to a monthly car allowance of Five Hundred Dollars ($500), which shall
be paid to Employee concurrently with the second (2nd) installment of Employee's
monthly base compensation. The monthly car allowance shall be increased by Fifty
Dollars ($50) each calendar year commencing January 1, 1997.
3.3 Non-accountable T&E Allowance. In addition, Employee
shall be entitled to a monthly non-accountable travel & entertainment allowance
of Five Hundred Dollars ($500), which shall be paid to Employee concurrently
with the second (2nd) installment of Employee's monthly base compensation.
4. EXPENSE REIMBURSEMENTS. Employee shall promptly be reimbursed
for reasonable and actual out-of-pocket expenses incurred by Employee in
performance of Employee's duties and responsibilities hereunder in accordance
with Employer's established personnel policy covering executive officer expense
reimbursements, as such policy may be amended, revised or otherwise changed from
time to time. Employee shall furnish proper vouchers and expense reports and
shall be reimbursed only for those expenses which shall be reimbursable.
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5. VACATION, SICK LEAVE AND OTHER FRINGE BENEFITS. Employee shall
be entitled to four (4) weeks vacation per every twelve (12) month period of
employment hereunder and no more than two (2) weeks vacation at a time. Employee
shall also be entitled to leaves for illness or other incapacitation as is
consistent with Employee's title and Employer's needs for Employee's services,
except as otherwise provided for in Section 6.2. Commencing with calendar year
1997, Employee shall receive Two Thousand Five Hundred Dollars ($2,500) for 1997
and Five Thousand Dollars ($5,000) annually thereafter for life insurance, which
Employee shall have sole authority to appoint beneficiaries, and shall receive
Two Thousand Five Hundred Dollars ($2,500) for 1997 and Five Thousand Dollars
($5,000) annually thereafter for personal legal and accounting services.
Employee shall be entitled to full health and dental insurance coverage,
including covering any deductible, for Employee, Employee's spouse and minor
children. Employee shall be entitled during Employee's employment hereunder to
share or participate in such medical insurance programs or other "fringe"
benefit plans or programs as shall be made available to employees employed by
Employer generally, in accordance with Employer's established personnel
policies, if any, or as established, amended, revised or otherwise changed from
time to time, covering employee benefits.
6. TERMINATION.
6.1 Termination by Employer for Cause. Employer may
terminate this Employment Agreement and Employee's employment hereunder for
Cause (as defined herein) any time effective upon written notice to Employee. As
used herein, the term "Cause" shall mean:
6.1.1 Habitual neglect in the performance of
Employee's material duties as set forth in Section 1 which continues
uncorrected for a period of thirty (30) days after written notice thereof by
Employer to Employee;
6.1.2 Employee's confession or conviction of
theft, fraud, embezzlement, or any other crime involving dishonesty with respect
to Employer or any parent, subsidiary or affiliate of Employer;
6.1.3 Gross negligence involving misfeasance or
nonfeasance by Employee in the performance of Employee's material duties as set
forth in Section 1 which continues uncorrected for a period of thirty (30) days
after written notice thereof by Employer to Employee;
6.1.4 Material violation by Employee of the
provisions of Section 8; or
6.1.5 The representations in Section 7 were
materially false as of the date of this Employment Agreement.
In no event shall the results of Employer's operations or any business agreement
made in good faith by Employee constitute an independent basis for termination
for cause of Employee's employment under this Employment Agreement. Any
termination of Employee's employment
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<PAGE> 4
for cause must be authorized by a majority vote of the Board taken not later
than twelve (12) months after a majority of the members of the Board (other than
Employee) have actual knowledge of the occurrence of the event or conduct
constituting the cause for such termination. If Employee's employment under this
Employment Agreement is terminated by Employer for cause, then Employee shall be
entitled to receive his Base Salary through the effective date of such
termination.
6.2 Termination Upon Death or Disability. This Employment
Agreement and Employee's employment hereunder shall terminate upon Employee's
death or Disability (as defined herein). For this purpose "Disability" means
incapacity, whether by reason of physical or mental illness or disability, which
prevents Employee from substantially performing Employee's material duties as
set forth in Section 1 for six (6) months, or for shorter periods aggregating
six (6) months in any twelve (12) successive calendar months. Upon termination
for death, and unless Employer shall have in force a disability insurance policy
providing for benefits in an amount at least equal thereto, upon termination for
Disability, Employer shall continue to pay the compensation payments pursuant to
Section 3 to the surviving spouse of Employee (or if there is none to Employee's
estate) in the case of death and to Employee or Employee's court appointed
conservator in the case of Disability until the date three (3) months
thereafter. Termination for death shall become effective upon the occurrence of
such event and termination for Disability shall become effective upon written
notice to Employee.
6.3 Events Upon Termination. The termination of this
Employment Agreement pursuant to Section 6.1 and 6.2 shall also result in the
termination of all rights and benefits of Employee under this Employment
Agreement except for any rights to compensation accrued under Section 3 prior to
the date of termination or rights to expense reimbursement under Section 4.
6.4 Payments As Liquidated Damages. In the event Employer
elects to terminate this Employment Agreement prior to the scheduled termination
date for any reason other than Cause, Employer shall continue to make the
compensation payments specified in Section 3 hereof for the entire term, through
and including the scheduled termination date, and such payments shall be deemed
to be liquidated damages for the damage done to Employee's reputation and for
having foregone the opportunity to pursue other employment opportunities while
performing services pursuant to this Employment Agreement. Employer hereby
agrees that such amount shall constitute a realistic and reasonable valuation of
the damages with respect to Employee's claims, and Employee shall not be
required to mitigate his damages by seeking other business, as the damages
resulting to him as a result of the loss of the unique business arrangement set
forth herein could not be mitigated by seeking business elsewhere, nor shall any
monies earned by Employee in any capacity after such termination, attempted
termination or breach act to reduce such damages.
7. EMPLOYEE'S REPRESENTATIONS. Employee represents and warrants
that Employee is free to enter into this Employment Agreement and to perform
each of the provisions contained herein. Employee represents and warrants that
Employee is not restricted or
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prohibited, contractually or otherwise, from entering into and performing this
Employment Agreement, and that Employee's execution and performance of this
Employment Agreement is not a violation or breach of any agreement between
Employee and any other person or entity.
8. NONDISCLOSURE OF CONFIDENTIAL INFORMATION;
OWNERSHIP OF INTELLECTUAL PROPERTY RIGHTS;
NON COMPETITION; COVENANT NOT TO COMPETE .
8.1 Nondisclosure of Confidential Information. During the
term of this Employment Agreement and at all times thereafter, Employee will
keep confidential and will not directly or indirectly divulge to anyone nor use
or otherwise appropriate for Employee's own benefit, or on behalf of any other
person, firm, partnership or corporation by whom Employee might subsequently be
employed or otherwise associated or affiliated with, any Confidential
Information (as defined herein). For this purpose, "Confidential Information"
means any and all customer lists, product formulations, arrangements with
distributors and parties for whom Employer does contract brewing, marketing
information or strategies, trade secrets or other confidential information of
any kind, nature or description concerning any matters affecting or relating to
the business of Employer or any affiliate which derives economic value, actual
or potential, from not being generally known to the public or to other persons
who can obtain economic value from its disclosure or use and which is subject to
efforts by Employer that are reasonable under the circumstances to maintain its
secrecy.
8.2 Employer Intellectual Property Rights. All
intellectual property rights, whether or not patentable or copyrightable, which
(i) are made or developed with the equipment, supplies, facilities, product
formulations, trade secrets, time or other assets of Employer; (ii) relate to
the business, including anticipated research or development, of Employer, or
(iii) result from work performed by Employee for Employer, are and shall remain
the sole property of Employer, and upon request made by Employer, Employee shall
assign any and all rights, including patents and patent rights, trade mark and
trade dress rights, Employee may have therein to Employer. This Section 8.2 does
not apply to any intellectual property rights which are specifically enumerated
in Schedule 8.2 or are the subject of Section 2870 of the California Labor Code.
8.3 Employer Materials. All reports and analysis,
designs, drawings, contracts, contractual arrangements, specifications, computer
software, computer hardware and other equipment, computer printouts, computer
disks, documents, memoranda, notebooks, correspondence, files, lists and other
records, and the like, and all photocopies or other reproductions thereof,
affecting or relating to the business of Employer which Employee shall prepare,
use, construct, observe, possess or control ("Employee Materials"), shall be and
remain the sole property of Employer. Upon termination of this Employment
Agreement, Employee shall deliver promptly to Employer all such Employer
Materials.
8.4 Certain Restrictions on Business Activities. During
the term of this Employment Agreement, Employee agrees that:
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8.4.1 Business Activities. He will not, directly
or indirectly, own an interest in, operate, join, control or participate in, or
be connected as an officer, employee, agent, independent contractor, partner,
shareholder or principal of any corporation, partnership, proprietorship, firm,
association, person or other entity providing services and/or products or a
combination thereof which directly or indirectly compete with Employer's
business, and he will not undertake planning for or organization of any business
activity competitive with Employer's business or combine or conspire with other
employees or representatives of Employer's business for the purpose of
organizing any such competitive business activity, except the purchase of less
than ten percent (10%) of the stock of a publicly traded company which is not
affiliated with Employer.
8.4.2 Solicitation of Customers, Etc. He will not,
directly or indirectly, either for himself or for any other person, firm or
corporation, divert or take away or attempt to divert or take away (and after
the term of this Employment Agreement, call on or solicit or attempt to call on
or solicit) any of Employer's customers or distributors, including but not
limited to, those upon whom Employee called or whom Employee solicited or
serviced or with whom Employee became acquainted while engaged as an employee in
Employer's business.
8.4.3 Solicitation of Employees, Etc. He will not,
directly or indirectly or by action in concert with others, induce or influence
(or seek to induce or influence) any person who is engaged (as an employee,
agent, independent contractor or otherwise) by Employer to terminate his or her
employment or engagement.
8.5 Covenant Not to Compete.
8.5.1 Obligations of Employee. Employee
acknowledges that, as a key management employee, Employee will be involved, on a
high level, in the development, implementation and management of the business
strategies and plans of Employer, which shall also consist of such other
business, units, divisions, subsidiaries or other entities of Employer as
Employer shall determine in its sole discretion from time to time (the
"Business"). By virtue of Employee's unique and sensitive position and special
background, employment of Employee by a competitor of Employer represents a
serious competitive danger to Employer and the Business, and the use of
Employee's talent and knowledge and information about Employer or the Business
can and would constitute a valuable competitive advantage over Employer and the
Business. In view of the foregoing, Employee covenants and agrees that, if
Employee's employment with Employer is terminated by Employee or for cause at
any time, for a period of one year after the date of such termination, but not
longer than the term of this Employment Agreement under Section 2 had employment
not been terminated, Employee will not engage or be engaged, in any capacity,
directly or indirectly, including but not limited as employee, agent,
consultant, manager, executive, owner or stockholder (except as a passive
investor holding less than a 1% equity interest in any enterprise the securities
of which are publicly traded) in any business entity doing business in the
United States engaged in competition with any business conducted by Employer on
the date of termination. This Covenant Not to Compete shall survive the
termination or expiration of the other provisions of this Employment Agreement.
If any
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court determines that this Covenant Not to Compete, or any part thereof, is
unenforceable because of the duration or geographic scope of such provision,
such court shall have the power to reduce the duration or scope of such
provision, as the case may be, and, in its reduced form, such provision shall
then be enforceable.
8.5.2 Continuing Obligations. Employee agrees
that, for one year following his termination of employment with Employer,
Employee shall keep Employer informed of the identification of Employee's
employer and the nature of such employment or of Employee's self-employment.
Employer agrees that, within fifteen (15) days after receiving notice pursuant
to this section of the identification of the prospective employer, the nature of
the employment or self-employment or any change therein, Employer will advise
Employee as to whether such employment constitutes a violation of Section 8.5.1
hereof.
8.5.3 Injunctive Relief. Employee acknowledges
that the violation of the covenants contained in this Section 8.5 would be
detrimental and cause irreparable injury to Employer and its affiliates which
could not be compensated by money damages. Employee agrees that an injunction
from a court of competent jurisdiction is the appropriate remedy for these
provisions, and consents to the entry of an appropriate judgment enjoining
Employee from violating these provisions in the event there is a find of their
breach.
8.6 Severability. Employee agrees, in the event that any
provision of this Section 8 or any word, phrase, clause, sentence or other
portion thereof shall be held to be unenforceable or invalid for any reason,
such provision or portion thereof shall be modified or deleted in such a manner
so as to make this Section 8 as modified legal and enforceable to the fullest
extent permitted under applicable laws. The validity and enforceability of the
remaining provisions or portions thereof shall not be affected thereby and shall
remain valid and enforceable to the fullest extent permitted under applicable
laws. A waiver of any breach of the provisions of this Section 8 shall not be
construed as a waiver of any subsequent breach of the same or any other
provision.
9. MERGER, ETC., OF EMPLOYER. In the event of a future
disposition of (or including) the properties and business of Employer,
substantially or in its entirety, by merger, consolidation, sale of assets, or
otherwise, then Employer may assign this Employment Agreement and all of the
rights and obligations of Employer under this Employment Agreement to the
acquiring or surviving corporation; provided, that such acquiring or surviving
corporation shall assume in writing all of the obligations of the companies
under this Employment Agreement; and provided further, that the companies (in
the event and so long as they or either of them remains in business as an
independent going enterprise) shall remain jointly and severally liable for the
performance of their obligations under this Employment Agreement in the event of
an unjustified failure of the acquiring corporation to perform its obligations
under this Employment Agreement.
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10. GENERAL PROVISIONS.
10.1 Severable Provisions. The provisions of this
Employment Agreement are severable, and if any one or more provisions may be
determined to be judicially unenforceable, in whole or in part, the remaining
provisions shall nevertheless be binding and enforceable.
10.2 Assignment. Neither this Employment Agreement nor any
of the rights or obligations of Employee or Employer hereunder shall be
assignable.
10.3 Arbitration. Any dispute arising under or in
connection with this Employment Agreement shall be subject to arbitration before
the American Arbitration Association ("AAA") at the facility nearest Employer's
principal place of business.
10.4 Attorneys' Fees. If any legal action arises under
this Employment Agreement or by reason of any asserted breach of it, the
prevailing party shall be entitled to recover all costs and expenses, including
reasonable attorneys' fees, incurred in enforcing or attempting to enforce any
of the terms, covenants or conditions, including costs incurred prior to
commencement of legal action, and all costs and expenses, including reasonable
attorneys' fees, incurred in any appeal from an action brought to enforce any of
the terms, covenants or conditions.
10.5 Notices. Any notice to be given to Employer under the
terms of this Employment Agreement shall be addressed to Employer at the address
of Employer's principal place of business, with a copy to Hecht & Steckman,
P.C., 60 East 42nd Street, Suite 5101, New York, New York 10165-5101, Attn:
James G. Smith, Esq., and any notice to be given to Employee shall be addressed
to Employee at his home address last shown on the records of Employer, or at
such other address as either party may hereafter designate in writing to the
other. Any notice required or permitted under this Employment Agreement shall be
in writing and shall be deemed effective: (i) upon receipt in the event of
delivery by hand, including delivery made by private delivery or overnight mail
service where either the recipient or delivery agent executes a written receipt
or confirmation of delivery; or (ii) 48 hours after deposited in the United
States mail, registered or certified mail, return receipt requested, postage
prepaid.
10.6 Waiver. Either party's failure to enforce any
provision or provisions of this Employment Agreement shall not in any way be
construed as a waiver of any such provision or provisions, or prevent that party
thereafter from enforcing each and every other provision of this Employment
Agreement.
10.7 Entire Agreement; Amendments. This Employment
Agreement supersedes any and all other agreements, either oral or in writing,
between the parties hereto with respect to the employment of Employee by
Employer and contains all of the covenants and agreements between the parties
with respect to the employment of Employee by Employer. Each party to this
Employment Agreement acknowledges that no representations, inducements, promises
or agreements, orally or otherwise, have been made by any party, or anyone
acting on behalf of
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any party, which are not embodied herein, and that no other agreement, statement
or promise not contained in this Employment Agreement will be effective only if
it is in writing signed by the party to be charged.
10.8 Titles and Headings. Titles and headings to sections
of this Employment Agreement are for the purpose of reference only and shall in
no way limit, define or otherwise affect the interpretation or construction of
such provisions.
10.9 Counterparts. This document may be executed in one or
more counterparts each of which shall be deemed to be an original and all of
which together shall constitute a single agreement.
10.10 Governing Law. This Employment Agreement shall be
governed by and construed in accordance with the laws of the State of
California.
IN WITNESS WHEREOF, the parties have executed this Employment Agreement
as of the day and year first above written.
EMPLOYEE:
-------------------------------------
LYLE R. MAUL
EMPLOYER:
BEVERAGE WORKS, INC.
a California corporation
-------------------------------------
By:
----------------------------------
Title:
-------------------------------
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Exhibit 10.10
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into on _________________ 1996
("Employment Agreement"), by and among BEVERAGE WORKS, INC., a California
corporation ("Employer"), and JOHN STONER ("Employee"). This Agreement shall
be effective as of the close of the Employer's initial public offering.
WHEREAS, Employer wishes to employ Employee as Vice President of New
Breweries, with such other duties and responsibilities as Employer may
reasonably assign to Employee consistent with the nature and character of such
employment (the "Position"), and Employee wishes to accept such employment
subject to the terms and conditions of this Employment Agreement; and
WHEREAS, Employer is in the business of producing beer and other
beverages, and performs services related thereto, and markets such products and
services in the United States and in various foreign countries and has
accumulated valuable and confidential information including trade secrets and
know-how relating to technology, manufacturing procedures, formulas, machines,
marketing plans, sources of supply, business strategies, and other business
records; and
WHEREAS, the giving of the covenants contained herein is a condition
precedent to the employment of Employee in the Position and Employee
acknowledges that the execution of this Employment Agreement and the entering
into of these covenants is an express condition of his employment in the
Position and that said covenants are given in consideration for such employment
and the other benefits conferred upon him by this Employment Agreement.
NOW, THEREFORE, in consideration of such employment and other valuable
consideration, receipt of which is hereby acknowledged Employer and Employee
agree as follows:
1. DUTIES OF EMPLOYEE. Employer hereby employs Employee as its
Vice President of New Breweries and agrees to cause Employee from time to time
to be elected or appointed to such corporate offices or positions. Employee
shall serve in such capacity at Employer's office, or at such other place as
Employer may direct. Employee's principal duties and responsibilities shall
consist of establishing and implementing a policy of brewery and production
integration, and establishing and implementing a policy for new brewery
acquisition and construction, and such other duties and responsibilities which
the Chief Executive Officer, or such other person as designated by the Chief
Executive Officer, from time to time may assign to Employee. Employee shall
perform such other services and duties as may from time to time be assigned to
Employee by Employer's Chief Executive Officer, or such other person as
designated by the Chief Executive Officer, provided that such other services
and duties are not inconsistent with any other term of this Employment
Agreement. Except during vacation periods or in accordance with Employer's
personnel policies covering executive leaves and reasonable periods of illness
or other incapacitation, Employee shall devote full-time his services to
Employer's business and interests in a manner consistent with Employee's title
and office and
<PAGE> 2
Employer's needs for his services. Employee shall perform his duties with
fidelity, to the best of Employee's ability, and in the best interests of
Employer.
2. TERM OF EMPLOYMENT. Employer hereby employs Employee, and
Employee hereby accepts employment with Employer, for three years, commencing
on the effective date ("Employment Period"). Notwithstanding anything in this
Section 2 to the contrary, this Employment Agreement may be terminated at any
time in accordance with Section 6.
3. COMPENSATION OF EMPLOYEE.
3.1 Base Compensation. As compensation for Employee's
services hereunder, Employee shall receive a base salary (the "Base Salary") at
an annual amount of not less than Seventy Five Thousand Dollars ($75,000)
payable in bi-monthly installments of Three Thousand One Hundred Twenty-Five
Dollars ($3,125) each, or a ratable portion thereof for periods of less than
one-half month. The Board or the Compensation Committee of the Board shall
review the Base Salary at least annually as of the payroll date nearest the
anniversary of this Employment Agreement; and Employer agrees to make such
increases in the Base Salary as the Board may approve from time to time. Once
established at a specific increased annual rate, the Base Salary may not be
reduced by Employer without Employee's written consent.
3.2 Car Allowance. In addition, Employee shall be
entitled to a monthly car allowance of Five Hundred Dollars ($500), which shall
be paid to Employee concurrently with the second (2nd) installment of
Employee's monthly base compensation.
4. EXPENSE REIMBURSEMENTS. Employee shall promptly be reimbursed
for reasonable and actual out-of-pocket expenses incurred by Employee in
performance of Employee's duties and responsibilities hereunder in accordance
with Employer's established personnel policy covering executive officer expense
reimbursements, as such policy may be amended, revised or otherwise changed
from time to time. Employee shall furnish proper vouchers and expense reports
and shall be reimbursed only for those expenses which shall be reimbursable.
5. VACATION, SICK LEAVE AND OTHER FRINGE BENEFITS. Employee
shall be entitled to three (3) weeks vacation per every twelve (12) month
period of employment hereunder and no more than two (2) weeks vacation at a
time. Employee shall also be entitled to leaves for illness or other
incapacitation as is consistent with Employee's title and Employer's needs for
Employee's services, except as otherwise provided for in Section 6.2. Employee
shall be entitled during Employee's employment hereunder to share or
participate in such medical insurance programs or other "fringe" benefit plans
or programs as shall be made available to employees employed by Employer
generally, in accordance with Employer's established personnel policies, if
any, or as established, amended, revised or otherwise changed from time to
time, covering employee benefits.
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6. TERMINATION.
6.1 Termination by Employer for Cause. Employer may
terminate this Employment Agreement and Employee's employment hereunder for
Cause (as defined herein) any time effective upon written notice to Employee.
As used herein, the term "Cause" shall mean:
6.1.1 Habitual neglect in the performance of
Employee's material duties as set forth in Section 1 which continues
uncorrected for a period of thirty (30) days after written notice thereof by
Employer to Employee;
6.1.2 Employee's confession or conviction of theft,
fraud, embezzlement, or any other crime involving dishonesty with respect to
Employer or any parent, subsidiary or affiliate of Employer;
6.1.3 Gross negligence involving misfeasance or
nonfeasance by Employee in the performance of Employee's material duties as set
forth in Section 1 which continues uncorrected for a period of thirty (30) days
after written notice thereof by Employer to Employee;
6.1.4 Material violation by Employee of the
provisions of Section 8; or
6.1.5 The representations in Section 7 were
materially false as of the date of this Employment Agreement.
In no event shall the results of Employer's operations or any business
agreement made in good faith by Employee constitute an independent basis for
termination for cause of Employee's employment under this Employment Agreement.
Any termination of Employee's employment for cause must be authorized by a
majority vote of the Board taken not later than twelve (12) months after a
majority of the members of the Board (other than Employee) have actual
knowledge of the occurrence of the event or conduct constituting the cause for
such termination. If Employee's employment under this Employment Agreement is
terminated by Employer for cause, then Employee shall be entitled to receive
his Base Salary through the effective date of such termination.
6.2 Termination Upon Death or Disability. This
Employment Agreement and Employee's employment hereunder shall terminate upon
Employee's death or Disability (as defined herein). For this purpose
"Disability" means incapacity, whether by reason of physical or mental illness
or disability, which prevents Employee from substantially performing Employee's
material duties as set forth in Section 1 for six (6) months, or for shorter
periods aggregating six (6) months in any twelve (12) successive calendar
months. Upon termination for death, and unless Employer shall have in force a
disability insurance policy providing for benefits in an amount at least equal
thereto, upon termination for Disability, Employer shall continue to pay the
compensation payments pursuant to Section 3 to the surviving spouse of Employee
(or if there is none to Employee's estate) in the case of death and to Employee
or
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Employee's court appointed conservator in the case of Disability until the date
three (3) months thereafter. Termination for death shall become effective upon
the occurrence of such event and termination for Disability shall become
effective upon written notice to Employee.
6.3 Events Upon Termination. The termination of this
Employment Agreement pursuant to Section 6.1 and 6.2 shall also result in the
termination of all rights and benefits of Employee under this Employment
Agreement except for any rights to compensation accrued under Section 3 prior
to the date of termination or rights to expense reimbursement under Section 4.
6.4 Payments As Liquidated Damages. In the event
Employer elects to terminate this Employment Agreement prior to the scheduled
termination date for any reason other than Cause, Employer shall continue to
make the compensation payments specified in Section 3 hereof for the entire
term, through and including the scheduled termination date, and such payments
shall be deemed to be liquidated damages for the damage done to Employee's
reputation and for having foregone the opportunity to pursue other employment
opportunities while performing services pursuant to this Employment Agreement.
Employer hereby agrees that such amount shall constitute a realistic and
reasonable valuation of the damages with respect to Employee's claims, and
Employee shall not be required to mitigate his damages by seeking other
business, as the damages resulting to him as a result of the loss of the unique
business arrangement set forth herein could not be mitigated by seeking
business elsewhere, nor shall any monies earned by Employee in any capacity
after such termination, attempted termination or breach act to reduce such
damages.
7. EMPLOYEE'S REPRESENTATIONS. Employee represents and warrants
that Employee is free to enter into this Employment Agreement and to perform
each of the provisions contained herein. Employee represents and warrants that
Employee is not restricted or prohibited, contractually or otherwise, from
entering into and performing this Employment Agreement, and that Employee's
execution and performance of this Employment Agreement is not a violation or
breach of any agreement between Employee and any other person or entity.
8. NONDISCLOSURE OF CONFIDENTIAL INFORMATION;
OWNERSHIP OF INTELLECTUAL PROPERTY RIGHTS;
NON COMPETITION; COVENANT NOT TO COMPETE.
8.1 Nondisclosure of Confidential Information. During the
term of this Employment Agreement and at all times thereafter, Employee will
keep confidential and will not directly or indirectly divulge to anyone nor use
or otherwise appropriate for Employee's own benefit, or on behalf of any other
person, firm, partnership or corporation by whom Employee might subsequently be
employed or otherwise associated or affiliated with, any Confidential
Information (as defined herein). For this purpose, "Confidential Information"
means any and all customer lists, product formulations, arrangements with
distributors and parties for whom Employer does contract brewing, marketing
information or strategies, trade secrets or other confidential information of
any kind, nature or description concerning any matters affecting or
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<PAGE> 5
relating to the business of Employer or any affiliate which derives economic
value, actual or potential, from not being generally known to the public or to
other persons who can obtain economic value from its disclosure or use and
which is subject to efforts by Employer that are reasonable under the
circumstances to maintain its secrecy.
8.2 Employer Intellectual Property Rights. All
intellectual property rights, whether or not patentable or copyrightable, which
(i) are made or developed with the equipment, supplies, facilities, product
formulations, trade secrets, time or other assets of Employer; (ii) relate to
the business, including anticipated research or development, of Employer, or
(iii) result from work performed by Employee for Employer, are and shall remain
the sole property of Employer, and upon request made by Employer, Employee
shall assign any and all rights, including patents and patent rights, trade
mark and trade dress rights, Employee may have therein to Employer. This
Section 8.2 does not apply to any intellectual property rights which are
specifically enumerated in Schedule 8.2 or are the subject of Section 2870 of
the California Labor Code.
8.3 Employer Materials. All reports and analysis,
designs, drawings, contracts, contractual arrangements, specifications,
computer software, computer hardware and other equipment, computer printouts,
computer disks, documents, memoranda, notebooks, correspondence, files, lists
and other records, and the like, and all photocopies or other reproductions
thereof, affecting or relating to the business of Employer which Employee shall
prepare, use, construct, observe, possess or control ("Employee Materials"),
shall be and remain the sole property of Employer. Upon termination of this
Employment Agreement, Employee shall deliver promptly to Employer all such
Employer Materials.
8.4 Certain Restrictions on Business Activities. During
the term of this Employment Agreement, Employee agrees that:
8.4.1 Business Activities. He will not, directly
or indirectly, own an interest in, operate, join, control or participate in, or
be connected as an officer, employee, agent, independent contractor, partner,
shareholder or principal of any corporation, partnership, proprietorship, firm,
association, person or other entity providing services and/or products or a
combination thereof which directly or indirectly compete with Employer's
business, and he will not undertake planning for or organization of any
business activity competitive with Employer's business or combine or conspire
with other employees or representatives of Employer's business for the purpose
of organizing any such competitive business activity, except the purchase of
less than ten percent (10%) of the stock of a publicly traded company which is
not affiliated with Employer.
8.4.2 Solicitation of Customers, Etc. He will not,
directly or indirectly, either for himself or for any other person, firm or
corporation, divert or take away or attempt to divert or take away (and after
the term of this Employment Agreement, call on or solicit or attempt to call on
or solicit) any of Employer's customers or distributors, including but not
limited to, those upon whom Employee called or whom Employee solicited or
serviced or with
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whom Employee became acquainted while engaged as an employee in Employer's
business.
8.4.3 Solicitation of Employees, Etc. He will not,
directly or indirectly or by action in concert with others, induce or influence
(or seek to induce or influence) any person who is engaged (as an employee,
agent, independent contractor or otherwise) by Employer to terminate his or her
employment or engagement.
8.5 Covenant Not to Compete.
8.5.1 Obligations of Employee. Employee
acknowledges that, as a key management employee, Employee will be involved, on
a high level, in the development, implementation and management of the business
strategies and plans of Employer, which shall also consist of such other
business, units, divisions, subsidiaries or other entities of Employer as
Employer shall determine in its sole discretion from time to time (the
"Business"). By virtue of Employee's unique and sensitive position and special
background, employment of Employee by a competitor of Employer represents a
serious competitive danger to Employer and the Business, and the use of
Employee's talent and knowledge and information about Employer or the Business
can and would constitute a valuable competitive advantage over Employer and the
Business. In view of the foregoing, Employee covenants and agrees that, if
Employee's employment with Employer is terminated by Employee or for cause at
any time, for a period of one year after the date of such termination, but not
longer than the term of this Employment Agreement under Section 2 had
employment not been terminated, Employee will not engage or be engaged, in any
capacity, directly or indirectly, including but not limited as employee, agent,
consultant, manager, executive, owner or stockholder (except as a passive
investor holding less than a 1% equity interest in any enterprise the
securities of which are publicly traded) in any business entity doing business
in the United States engaged in competition with any business conducted by
Employer on the date of termination. This Covenant Not to Compete shall
survive the termination or expiration of the other provisions of this
Employment Agreement. If any court determines that this Covenant Not to
Compete, or any part thereof, is unenforceable because of the duration or
geographic scope of such provision, such court shall have the power to reduce
the duration or scope of such provision, as the case may be, and, in its
reduced form, such provision shall then be enforceable.
8.5.2 Continuing Obligations. Employee agrees
that, for one year following his termination of employment with Employer,
Employee shall keep Employer informed of the identification of Employee's
employer and the nature of such employment or of Employee's self-employment.
Employer agrees that, within fifteen (15) days after receiving notice pursuant
to this section of the identification of the prospective employer, the nature
of the employment or self-employment or any change therein, Employer will
advise Employee as to whether such employment constitutes a violation of
Section 8.5.1 hereof.
8.5.3 Injunctive Relief. Employee acknowledges
that the violation of the covenants contained in this Section 8.5 would be
detrimental and cause irreparable injury to Employer and its affiliates which
could not be compensated by money damages. Employee
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agrees that an injunction from a court of competent jurisdiction is the
appropriate remedy for these provisions, and consents to the entry of an
appropriate judgment enjoining Employee from violating these provisions in the
event there is a find of their breach.
8.6 Severability. Employee agrees, in the event that any
provision of this Section 8 or any word, phrase, clause, sentence or other
portion thereof shall be held to be unenforceable or invalid for any reason,
such provision or portion thereof shall be modified or deleted in such a manner
so as to make this Section 8 as modified legal and enforceable to the fullest
extent permitted under applicable laws. The validity and enforceability of the
remaining provisions or portions thereof shall not be affected thereby and
shall remain valid and enforceable to the fullest extent permitted under
applicable laws. A waiver of any breach of the provisions of this Section 8
shall not be construed as a waiver of any subsequent breach of the same or any
other provision.
9. MERGER, ETC., OF EMPLOYER. In the event of a future
disposition of (or including) the properties and business of Employer,
substantially or in its entirety, by merger, consolidation, sale of assets, or
otherwise, then Employer may assign this Employment Agreement and all of the
rights and obligations of Employer under this Employment Agreement to the
acquiring or surviving corporation; provided, that such acquiring or surviving
corporation shall assume in writing all of the obligations of the companies
under this Employment Agreement; and provided further, that the companies (in
the event and so long as they or either of them remains in business as an
independent going enterprise) shall remain jointly and severally liable for the
performance of their obligations under this Employment Agreement in the event
of an unjustified failure of the acquiring corporation to perform its
obligations under this Employment Agreement.
10. GENERAL PROVISIONS.
10.1 Severable Provisions. The provisions of this
Employment Agreement are severable, and if any one or more provisions may be
determined to be judicially unenforceable, in whole or in part, the remaining
provisions shall nevertheless be binding and enforceable.
10.2 Assignment. Neither this Employment Agreement nor
any of the rights or obligations of Employee or Employer hereunder shall be
assignable.
10.3 Arbitration. Any dispute arising under or in
connection with this Employment Agreement shall be subject to arbitration
before the American Arbitration Association ("AAA") at the facility nearest
Employer's principal place of business.
10.4 Attorneys' Fees. If any legal action arises under
this Employment Agreement or by reason of any asserted breach of it, the
prevailing party shall be entitled to recover all costs and expenses, including
reasonable attorneys' fees, incurred in enforcing or attempting to enforce any
of the terms, covenants or conditions, including costs incurred prior to
commencement of legal action, and all costs and expenses, including reasonable
attorneys'
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fees, incurred in any appeal from an action brought to enforce any of the
terms, covenants or conditions.
10.5 Notices. Any notice to be given to Employer under
the terms of this Employment Agreement shall be addressed to Employer at the
address of Employer's principal place of business, with a copy to Hecht &
Steckman, P.C., 60 East 42nd Street, Suite 5101, New York, New York 10165-5101,
Attn: James G. Smith, Esq., and any notice to be given to Employee shall be
addressed to Employee at his home address last shown on the records of
Employer, or at such other address as either party may hereafter designate in
writing to the other. Any notice required or permitted under this Employment
Agreement shall be in writing and shall be deemed effective: (i) upon receipt
in the event of delivery by hand, including delivery made by private delivery
or overnight mail service where either the recipient or delivery agent executes
a written receipt or confirmation of delivery; or (ii) 48 hours after deposited
in the United States mail, registered or certified mail, return receipt
requested, postage prepaid.
10.6 Waiver. Either party's failure to enforce any
provision or provisions of this Employment Agreement shall not in any way be
construed as a waiver of any such provision or provisions, or prevent that
party thereafter from enforcing each and every other provision of this
Employment Agreement.
10.7 Entire Agreement; Amendments. This Employment
Agreement supersedes any and all other agreements, either oral or in writing,
between the parties hereto with respect to the employment of Employee by
Employer and contains all of the covenants and agreements between the parties
with respect to the employment of Employee by Employer. Each party to this
Employment Agreement acknowledges that no representations, inducements,
promises or agreements, orally or otherwise, have been made by any party, or
anyone acting on behalf of any party, which are not embodied herein, and that
no other agreement, statement or promise not contained in this Employment
Agreement will be effective only if it is in writing signed by the party to be
charged.
10.8 Titles and Headings. Titles and headings to sections
of this Employment Agreement are for the purpose of reference only and shall in
no way limit, define or otherwise affect the interpretation or construction of
such provisions.
10.9 Counterparts. This document may be executed in one
or more counterparts each of which shall be deemed to be an original and all of
which together shall constitute a single agreement.
10.10 Governing Law. This Employment Agreement shall be
governed by and construed in accordance with the laws of the State of
California.
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IN WITNESS WHEREOF, the parties have executed this Employment
Agreement as of the day and year first above written.
EMPLOYEE:
___________________________________
JOHN STONER
EMPLOYER:
BEVERAGE WORKS, INC.
a California corporation
___________________________________
By:________________________________
Title:_____________________________
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<PAGE> 1
Exhibit 10.11
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into on _________________ 1996
("Employment Agreement"), by and among BEVERAGE WORKS, INC., a California
corporation ("Employer"), and KATHY BURKE ("Employee"). This Agreement shall
be effective as of the close of the Employer's initial public offering.
WHEREAS, Employer wishes to employ Employee as Vice President of
Sales, with such other duties and responsibilities as Employer may reasonably
assign to Employee consistent with the nature and character of such employment
(the "Position"), and Employee wishes to accept such employment subject to the
terms and conditions of this Employment Agreement; and
WHEREAS, Employer is in the business of producing beer and other
beverages, and performs services related thereto, and markets such products and
services in the United States and in various foreign countries and has
accumulated valuable and confidential information including trade secrets and
know-how relating to technology, manufacturing procedures, formulas, machines,
marketing plans, sources of supply, business strategies, and other business
records; and
WHEREAS, the giving of the covenants contained herein is a condition
precedent to the employment of Employee in the Position and Employee
acknowledges that the execution of this Employment Agreement and the entering
into of these covenants is an express condition of her employment in the
Position and that said covenants are given in consideration for such employment
and the other benefits conferred upon her by this Employment Agreement.
NOW, THEREFORE, in consideration of such employment and other valuable
consideration, receipt of which is hereby acknowledged Employer and Employee
agree as follows:
1. DUTIES OF EMPLOYEE. Employer hereby employs Employee as its
Vice President of Sales and agrees to cause Employee from time to time to be
elected or appointed to such corporate offices or positions. Employee shall
serve in such capacity at Employer's office, or at such other place as Employer
may direct. Employee's principal duties and responsibilities shall consist of
personal and supervisory responsibility for all sales and marketing matters,
including, but not limited to, distributor relationships, key account sales,
scheduling of promotional programs, and recruiting and training key sales
personnel and such other duties and responsibilities consistent with Employee's
corporate offices and positions which the Chief Executive Officer, or such
other person as designated by the Chief Executive Officer, from time to time
may assign to Employee. Employee shall perform such other services and duties
as may from time to time be assigned to Employee by Employer's Chief Executive
Officer, or such other person as designated by the Chief Executive Officer,
provided that such other services and duties are not inconsistent with any
other term of this Employment Agreement. Except during vacation periods or in
accordance with Employer's personnel policies covering executive leaves and
reasonable periods of illness or other incapacitation, Employee shall devote
full-time her services to Employer's business and interests in a manner
consistent with Employee's title and
<PAGE> 2
office and Employer's needs for her services. Employee shall perform the
duties of Employee's office and those assigned to Employee by Employer with
fidelity, to the best of Employee's ability, and in the best interests of
Employer.
2. TERM OF EMPLOYMENT. Employer hereby employs Employee, and
Employee hereby accepts employment with Employer, for three (3) years
commencing on the effective date ("Employment Period"). Notwithstanding
anything in this Section 2 to the contrary, this Employment Agreement may be
terminated at any time in accordance with Section 6.
3. COMPENSATION OF EMPLOYEE.
3.1 Base Compensation. As compensation for Employee's
services hereunder, Employee shall receive a base salary (the "Base Salary") at
an annual amount of not less than Seventy-Five Thousand Dollars ($75,000)
payable in bi-monthly installments of Three Thousand One Hundred Twenty-Five
Dollars ($3,125), or a ratable portion thereof for periods of less than
one-half month. The Board or the Compensation Committee of the Board shall
review the Base Salary at least annually as of the payroll date nearest the
anniversary of this Employment Agreement; and Employer agrees to make such
increases in the Base Salary as the Board may approve from time to time. Once
established at a specific increased annual rate, the Base Salary may not be
reduced by Employer without Employee's written consent.
3.2 Car Allowance. In addition, Employee shall be
entitled to a monthly car allowance of Five Hundred Dollars ($500), which shall
be paid to Employee concurrently with the second (2nd) installment of
Employee's monthly base compensation.
3.3 Sales Bonus. In addition to any other compensation
pursuant to this Section 3, Employee shall also be entitled to an annual bonus
based equal to one percent (1%) of the annual increase in Net Sales (defined
herein) attributable to Employer's products assigned to Employee by the Chief
Executive Officer or such other officer as the Chief Executive Officer shall
appoint. Net Sales shall mean gross sales less excise taxes and returns on a
consolidated basis. Net Sales shall be adjusted to account for the prior
year's Net Sales of any company that Employer acquires. Employee's maximum
annual sales bonus shall be 100% of her Base Salary. The calculation period
shall commence September 1 and shall end on August 31. The first calculation
period shall commence September 1, 1996 and shall end on August 31, 1997.
Payment shall be made within sixty days of the end of the calculation period.
4. EXPENSE REIMBURSEMENTS. Employee shall promptly be reimbursed
for reasonable and actual out-of-pocket expenses incurred by Employee in
performance of Employee's duties and responsibilities hereunder in accordance
with Employer's established personnel policy covering executive officer expense
reimbursements, as such policy may be amended, revised or otherwise changed
from time to time. Employee shall furnish proper vouchers and expense reports
and shall be reimbursed only for those expenses which shall be reimbursable.
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5. VACATION, SICK LEAVE AND OTHER FRINGE BENEFITS. Employee
shall be entitled to three (3) weeks vacation per every twelve (12) month
period of employment hereunder and no more than two (2) weeks vacation at a
time. Employee shall also be entitled to leaves for illness or other
incapacitation as is consistent with Employee's title and Employer's needs for
Employee's services, except as otherwise provided for in Section 6.2. Employee
shall be entitled during Employee's employment hereunder to share or
participate in such medical insurance programs or other "fringe" benefit plans
or programs as shall be made available to employees employed by Employer
generally, in accordance with Employer's established personnel policies, if
any, or as established, amended, revised or otherwise changed from time to
time, covering employee benefits.
6. TERMINATION.
6.1 Termination by Employer for Cause. Employer may
terminate this Employment Agreement and Employee's employment hereunder for
Cause (as defined herein) any time effective upon written notice to Employee.
As used herein, the term "Cause" shall mean:
6.1.1 Habitual neglect in the performance of
Employee's material duties as set forth in Section 1 which continues
uncorrected for a period of thirty (30) days after written notice thereof by
Employer to Employee;
6.1.2 Employee's confession or conviction of theft,
fraud, embezzlement, or any other crime involving dishonesty with respect to
Employer or any parent, subsidiary or affiliate of Employer;
6.1.3 Gross negligence involving misfeasance or
nonfeasance by Employee in the performance of Employee's material duties as set
forth in Section 1 which continues uncorrected for a period of thirty (30) days
after written notice thereof by Employer to Employee;
6.1.4 Material violation by Employee of the
provisions of Section 8; or
6.1.5 The representations in Section 7 were
materially false as of the date of this Employment Agreement.
In no event shall the results of Employer's operations or any business
agreement made in good faith by Employee constitute an independent basis for
termination for cause of Employee's employment under this Employment Agreement.
Any termination of Employee's employment for cause must be authorized by a
majority vote of the Board taken not later than twelve (12) months after a
majority of the members of the Board (other than Employee) have actual
knowledge of the occurrence of the event or conduct constituting the cause for
such termination. If Employee's employment under this Employment Agreement is
terminated by Employer for cause, then Employee shall be entitled to receive
her Base Salary through the effective date of such termination.
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<PAGE> 4
6.2 Termination Upon Death or Disability. This
Employment Agreement and Employee's employment hereunder shall terminate upon
Employee's death or Disability (as defined herein). For this purpose
"Disability" means incapacity, whether by reason of physical or mental illness
or disability, which prevents Employee from substantially performing Employee's
material duties as set forth in Section 1 for six (6) months, or for shorter
periods aggregating six (6) months in any twelve (12) successive calendar
months. Upon termination for death, and unless Employer shall have in force a
disability insurance policy providing for benefits in an amount at least equal
thereto, upon termination for Disability, Employer shall continue to pay the
compensation payments pursuant to Section 3 to the surviving spouse of Employee
(or if there is none to Employee's estate) in the case of death and to Employee
or Employee's court appointed conservator in the case of Disability until the
date three (3) months thereafter. Termination for death shall become effective
upon the occurrence of such event and termination for Disability shall become
effective upon written notice to Employee.
6.3 Events Upon Termination. The termination of this
Employment Agreement pursuant to Section 6.1 and 6.2 shall also result in the
termination of all rights and benefits of Employee under this Employment
Agreement except for any rights to compensation accrued under Section 3 prior
to the date of termination or rights to expense reimbursement under Section 4.
6.4 Payments As Liquidated Damages. In the event
Employer elects to terminate this Employment Agreement prior to the scheduled
termination date for any reason other than Cause, Employer shall continue to
make the compensation payments specified in Section 3 hereof for the entire
term, through and including the scheduled termination date, and such payments
shall be deemed to be liquidated damages for the damage done to Employee's
reputation and for having foregone the opportunity to pursue other employment
opportunities while performing services pursuant to this Employment Agreement.
Employer hereby agrees that such amount shall constitute a realistic and
reasonable valuation of the damages with respect to Employee's claims, and
Employee shall not be required to mitigate her damages by seeking other
business, as the damages resulting to him as a result of the loss of the unique
business arrangement set forth herein could not be mitigated by seeking
business elsewhere, nor shall any monies earned by Employee in any capacity
after such termination, attempted termination or breach act to reduce such
damages.
7. EMPLOYEE'S REPRESENTATIONS. Employee represents and warrants
that Employee is free to enter into this Employment Agreement and to perform
each of the provisions contained herein. Employee represents and warrants that
Employee is not restricted or prohibited, contractually or otherwise, from
entering into and performing this Employment Agreement, and that Employee's
execution and performance of this Employment Agreement is not a violation or
breach of any agreement between Employee and any other person or entity.
8. NONDISCLOSURE OF CONFIDENTIAL INFORMATION;
OWNERSHIP OF INTELLECTUAL PROPERTY RIGHTS;
NON COMPETITION; COVENANT NOT TO COMPETE.
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8.1 Nondisclosure of Confidential Information. During the
term of this Employment Agreement and at all times thereafter, Employee will
keep confidential and will not directly or indirectly divulge to anyone nor use
or otherwise appropriate for Employee's own benefit, or on behalf of any other
person, firm, partnership or corporation by whom Employee might subsequently be
employed or otherwise associated or affiliated with, any Confidential
Information (as defined herein). For this purpose, "Confidential Information"
means any and all customer lists, product formulations, arrangements with
distributors and parties for whom Employer does contract brewing, marketing
information or strategies, trade secrets or other confidential information of
any kind, nature or description concerning any matters affecting or relating to
the business of Employer or any affiliate which derives economic value, actual
or potential, from not being generally known to the public or to other persons
who can obtain economic value from its disclosure or use and which is subject
to efforts by Employer that are reasonable under the circumstances to maintain
its secrecy.
8.2 Employer Intellectual Property Rights. All
intellectual property rights, whether or not patentable or copyrightable, which
(i) are made or developed with the equipment, supplies, facilities, product
formulations, trade secrets, time or other assets of Employer; (ii) relate to
the business, including anticipated research or development, of Employer, or
(iii) result from work performed by Employee for Employer, are and shall remain
the sole property of Employer, and upon request made by Employer, Employee
shall assign any and all rights, including patents and patent rights, trade
mark and trade dress rights, Employee may have therein to Employer. This
Section 8.2 does not apply to any intellectual property rights which are
specifically enumerated in Schedule 8.2 or are the subject of Section 2870 of
the California Labor Code.
8.3 Employer Materials. All reports and analysis,
designs, drawings, contracts, contractual arrangements, specifications,
computer software, computer hardware and other equipment, computer printouts,
computer disks, documents, memoranda, notebooks, correspondence, files, lists
and other records, and the like, and all photocopies or other reproductions
thereof, affecting or relating to the business of Employer which Employee shall
prepare, use, construct, observe, possess or control ("Employee Materials"),
shall be and remain the sole property of Employer. Upon termination of this
Employment Agreement, Employee shall deliver promptly to Employer all such
Employer Materials.
8.4 Certain Restrictions on Business Activities. During
the term of this Employment Agreement, Employee agrees that:
8.4.1 Business Activities. She will not, directly
or indirectly, own an interest in, operate, join, control or participate in, or
be connected as an officer, employee, agent, independent contractor, partner,
shareholder or principal of any corporation, partnership, proprietorship, firm,
association, person or other entity providing services and/or products or a
combination thereof which directly or indirectly compete with Employer's
business, and she will not undertake planning for or organization of any
business activity competitive with
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<PAGE> 6
Employer's business or combine or conspire with other employees or
representatives of Employer's business for the purpose of organizing any such
competitive business activity, except the purchase of less than ten percent
(10%) of the stock of a publicly traded company which is not affiliated with
Employer.
8.4.2 Solicitation of Customers, Etc. She will
not, directly or indirectly, either for himself or for any other person, firm
or corporation, divert or take away or attempt to divert or take away (and
after the term of this Employment Agreement, call on or solicit or attempt to
call on or solicit) any of Employer's customers or distributors, including but
not limited to, those upon whom Employee called or whom Employee solicited or
serviced or with whom Employee became acquainted while engaged as an employee
in Employer's business.
8.4.3 Solicitation of Employees, Etc. She will
not, directly or indirectly or by action in concert with others, induce or
influence (or seek to induce or influence) any person who is engaged (as an
employee, agent, independent contractor or otherwise) by Employer to terminate
his or her employment or engagement.
8.5 Covenant Not to Compete.
8.5.1 Obligations of Employee. Employee
acknowledges that, as a key management employee, Employee will be involved, on
a high level, in the development, implementation and management of the business
strategies and plans of Employer, which shall also consist of such other
business, units, divisions, subsidiaries or other entities of Employer as
Employer shall determine in its sole discretion from time to time (the
"Business"). By virtue of Employee's unique and sensitive position and special
background, employment of Employee by a competitor of Employer represents a
serious competitive danger to Employer and the Business, and the use of
Employee's talent and knowledge and information about Employer or the Business
can and would constitute a valuable competitive advantage over Employer and the
Business. In view of the foregoing, Employee covenants and agrees that, if
Employee's employment with Employer is terminated by Employee or for cause at
any time, for a period of one year after the date of such termination, but not
longer than the term of this Employment Agreement under Section 2 had
employment not been terminated, Employee will not engage or be engaged, in any
capacity, directly or indirectly, including but not limited as employee, agent,
consultant, manager, executive, owner or stockholder (except as a passive
investor holding less than a 1% equity interest in any enterprise the
securities of which are publicly traded) in any business entity doing business
in the United States engaged in competition with any business conducted by
Employer on the date of termination. This Covenant Not to Compete shall
survive the termination or expiration of the other provisions of this
Employment Agreement. If any court determines that this Covenant Not to
Compete, or any part thereof, is unenforceable because of the duration or
geographic scope of such provision, such court shall have the power to reduce
the duration or scope of such provision, as the case may be, and, in its
reduced form, such provision shall then be enforceable.
8.5.2 Continuing Obligations. Employee agrees
that, for one year
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following her termination of employment with Employer, Employee shall keep
Employer informed of the identification of Employee's employer and the nature
of such employment or of Employee's self-employment. Employer agrees that,
within fifteen (15) days after receiving notice pursuant to this section of the
identification of the prospective employer, the nature of the employment or
self-employment or any change therein, Employer will advise Employee as to
whether such employment constitutes a violation of Section 8.5.1 hereof.
8.5.3 Injunctive Relief. Employee acknowledges
that the violation of the covenants contained in this Section 8.5 would be
detrimental and cause irreparable injury to Employer and its affiliates which
could not be compensated by money damages. Employee agrees that an injunction
from a court of competent jurisdiction is the appropriate remedy for these
provisions, and consents to the entry of an appropriate judgment enjoining
Employee from violating these provisions in the event there is a find of their
breach.
8.6 Severability. Employee agrees, in the event that any
provision of this Section 8 or any word, phrase, clause, sentence or other
portion thereof shall be held to be unenforceable or invalid for any reason,
such provision or portion thereof shall be modified or deleted in such a manner
so as to make this Section 8 as modified legal and enforceable to the fullest
extent permitted under applicable laws. The validity and enforceability of the
remaining provisions or portions thereof shall not be affected thereby and
shall remain valid and enforceable to the fullest extent permitted under
applicable laws. A waiver of any breach of the provisions of this Section 8
shall not be construed as a waiver of any subsequent breach of the same or any
other provision.
9. MERGER, ETC., OF EMPLOYER. In the event of a future
disposition of (or including) the properties and business of Employer,
substantially or in its entirety, by merger, consolidation, sale of assets, or
otherwise, then Employer may assign this Employment Agreement and all of the
rights and obligations of Employer under this Employment Agreement to the
acquiring or surviving corporation; provided, that such acquiring or surviving
corporation shall assume in writing all of the obligations of the companies
under this Employment Agreement; and provided further, that the companies (in
the event and so long as they or either of them remains in business as an
independent going enterprise) shall remain jointly and severally liable for the
performance of their obligations under this Employment Agreement in the event
of an unjustified failure of the acquiring corporation to perform its
obligations under this Employment Agreement.
10. GENERAL PROVISIONS.
10.1 Severable Provisions. The provisions of this
Employment Agreement are severable, and if any one or more provisions may be
determined to be judicially unenforceable, in whole or in part, the remaining
provisions shall nevertheless be binding and enforceable.
10.2 Assignment. Neither this Employment Agreement nor
any of the rights or obligations of Employee or Employer hereunder shall be
assignable.
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10.3 Arbitration. Any dispute arising under or in
connection with this Employment Agreement shall be subject to arbitration
before the American Arbitration Association ("AAA") at the facility nearest
Employer's principal place of business.
10.4 Attorneys' Fees. If any legal action arises under
this Employment Agreement or by reason of any asserted breach of it, the
prevailing party shall be entitled to recover all costs and expenses, including
reasonable attorneys' fees, incurred in enforcing or attempting to enforce any
of the terms, covenants or conditions, including costs incurred prior to
commencement of legal action, and all costs and expenses, including reasonable
attorneys' fees, incurred in any appeal from an action brought to enforce any
of the terms, covenants or conditions.
10.5 Notices. Any notice to be given to Employer under
the terms of this Employment Agreement shall be addressed to Employer at the
address of Employer's principal place of business, with a copy to Hecht &
Steckman, P.C., 60 East 42nd Street, Suite 5101, New York, New York 10165-5101,
Attn: James G. Smith, Esq., and any notice to be given to Employee shall be
addressed to Employee at her home address last shown on the records of
Employer, or at such other address as either party may hereafter designate in
writing to the other. Any notice required or permitted under this Employment
Agreement shall be in writing and shall be deemed effective: (i) upon receipt
in the event of delivery by hand, including delivery made by private delivery
or overnight mail service where either the recipient or delivery agent executes
a written receipt or confirmation of delivery; or (ii) 48 hours after deposited
in the United States mail, registered or certified mail, return receipt
requested, postage prepaid.
10.6 Waiver. Either party's failure to enforce any
provision or provisions of this Employment Agreement shall not in any way be
construed as a waiver of any such provision or provisions, or prevent that
party thereafter from enforcing each and every other provision of this
Employment Agreement.
10.7 Entire Agreement; Amendments. This Employment
Agreement supersedes any and all other agreements, either oral or in writing,
between the parties hereto with respect to the employment of Employee by
Employer and contains all of the covenants and agreements between the parties
with respect to the employment of Employee by Employer. Each party to this
Employment Agreement acknowledges that no representations, inducements,
promises or agreements, orally or otherwise, have been made by any party, or
anyone acting on behalf of any party, which are not embodied herein, and that
no other agreement, statement or promise not contained in this Employment
Agreement will be effective only if it is in writing signed by the party to be
charged.
10.8 Titles and Headings. Titles and headings to sections
of this Employment Agreement are for the purpose of reference only and shall in
no way limit, define or otherwise affect the interpretation or construction of
such provisions.
10.9 Counterparts. This document may be executed in one
or more counterparts
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each of which shall be deemed to be an original and all of which together shall
constitute a single agreement.
10.10 Governing Law. This Employment Agreement shall be
governed by and construed in accordance with the laws of the State of
California.
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement as of the day and year first above written.
EMPLOYEE:
_____________________________________
KATHY BURKE
EMPLOYER:
BEVERAGE WORKS, INC.
a California corporation
_____________________________________
By:__________________________________
Title:_______________________________
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Exhibit 10.12
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into on _________________ 1996
("Employment Agreement"), by and among BEVERAGE WORKS, INC., a California
corporation ("Employer"), and GARITH HELM ("Employee"). This Agreement shall
be effective as of the effective date of the BWI-Prost Partners Agreement of
Partnership.
WHEREAS, Employer wishes to employ Employee as Vice President of
Brewing Operations, with such other duties and responsibilities as Employer may
reasonably assign to Employee consistent with the nature and character of such
employment (the "Position"), and Employee wishes to accept such employment
subject to the terms and conditions of this Employment Agreement; and
WHEREAS, Employer is in the business of producing beer and other
beverages, and performs services related thereto, and markets such products and
services in the United States and in various foreign countries and has
accumulated valuable and confidential information including trade secrets and
know-how relating to technology, manufacturing procedures, formulas, machines,
marketing plans, sources of supply, business strategies, and other business
records; and
WHEREAS, the giving of the covenants contained herein is a condition
precedent to the employment of Employee in the Position and Employee
acknowledges that the execution of this Employment Agreement and the entering
into of these covenants is an express condition of his employment in the
Position and that said covenants are given in consideration for such employment
and the other benefits conferred upon him by this Employment Agreement.
NOW, THEREFORE, in consideration of such employment and other valuable
consideration, receipt of which is hereby acknowledged Employer and Employee
agree as follows:
1. DUTIES OF EMPLOYEE. Employer hereby employs Employee as its
Vice President of Brewing Operations and agrees to cause Employee from time to
time to be elected or appointed to such corporate offices or positions.
Employee shall serve in such capacity at Employer's office, or at such other
place as Employer may direct. Employee's principal duties shall consist of
supervision of all brewery operations, including, but not limited to,
purchasing and installing brewery equipment, establishing and maintaining
quality control procedures, and training brewery personnel, and such other
duties and responsibilities consistent with Employee's corporate offices and
positions which the Chief Executive Officer, or such other person designated by
the Chief Executive Officer, from time to time may assign to Employee.
Employee shall perform such other services and duties as may from time to time
be assigned to Employee by Employer's Chief Executive Officer or such other
person as designated by the Chief Executive Officer, provided that such other
services and duties are not inconsistent with any other term of this Employment
Agreement. Except during vacation periods or in accordance with Employer's
personnel policies covering executive leaves and reasonable periods of illness
or other incapacitation, Employee shall devote his full-time services to
Employer's business and
<PAGE> 2
interests in a manner consistent with Employee's title and office and
Employer's needs for his services. Employee shall perform the duties of
Employee's office and those assigned to Employee by Employer with fidelity, to
the best of Employee's ability, and in the best interests of Employer.
2. TERM OF EMPLOYMENT. Employer hereby employs Employee, and
Employee hereby accepts employment with Employer, for three (3) years
commencing on the effective date ("Employment Period"). Notwithstanding
anything in this Section 2 to the contrary, this Employment Agreement may be
terminated at any time in accordance with Section 6.
3. COMPENSATION OF EMPLOYEE.
3.1 Base Compensation. As compensation for Employee's
services hereunder, Employee shall receive a base salary (the "Base Salary") at
an annual amount of not less than Seventy-Five Thousand Dollars ($75,000)
payable in bi-monthly installments of Three Thousand One Hundred Twenty-Five
($3,125) each, or a ratable portion thereof for periods of less than one-half
month. The Board or the Compensation Committee of the Board shall review the
Base Salary at least annually as of the payroll date nearest the anniversary of
this Employment Agreement; and Employer agrees to make such increases in the
Base Salary as the Board may approve from time to time. Once established at a
specific increased annual rate, the Base Salary may not be reduced by Employer
without Employee's written consent.
3.2 Car Allowance. In addition, Employee shall be
entitled to a monthly car allowance of Five Hundred Dollars ($500), which shall
be paid to Employee concurrently with the second (2nd) installment of
Employee's monthly base compensation.
4. EXPENSE REIMBURSEMENTS. Employee shall promptly be reimbursed
for reasonable and actual out-of-pocket expenses incurred by Employee in
performance of Employee's duties and responsibilities hereunder in accordance
with Employer's established personnel policy covering executive officer expense
reimbursements, as such policy may be amended, revised or otherwise changed
from time to time. Employee shall furnish proper vouchers and expense reports
and shall be reimbursed only for those expenses which shall be reimbursable.
5. VACATION, SICK LEAVE AND OTHER FRINGE BENEFITS. Employee
shall be entitled to three (3) weeks vacation per every twelve (12) month
period of employment hereunder and no more than two (2) weeks vacation at a
time. Employee shall also be entitled to leaves for illness or other
incapacitation as is consistent with Employee's title and Employer's needs for
Employee's services, except as otherwise provided for in Section 6.2. Employee
shall be entitled during Employee's employment hereunder to share or
participate in such medical insurance programs or other "fringe" benefit plans
or programs as shall be made available to employees employed by Employer
generally, in accordance with Employer's established personnel policies, if
any, or as established, amended, revised or otherwise changed from time
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to time, covering employee benefits.
6. TERMINATION.
6.1 Termination by Employer for Cause. Employer may
terminate this Employment Agreement and Employee's employment hereunder for
Cause (as defined herein) any time effective upon written notice to Employee.
As used herein, the term "Cause" shall mean:
6.1.1 Habitual neglect in the performance of
Employee's material duties as set forth in Section 1 which continues
uncorrected for a period of thirty (30) days after written notice thereof by
Employer to Employee;
6.1.2 Employee's confession or conviction of theft,
fraud, embezzlement, or any other crime involving dishonesty with respect to
Employer or any parent, subsidiary or affiliate of Employer;
6.1.3 Poor performance of Employee's material
duties as set forth in Section 1 which continues uncorrected for a period of
thirty (30) days after written notice thereof by Employer to Employee;
6.1.4 Material violation by Employee of the
provisions of Section 8; or
6.1.5 The representations in Section 7 were
materially false as of the date of this Employment Agreement.
Any termination of Employee's employment for cause must be authorized by a
majority vote of the Board or by the Chief Executive Officer. If Employee's
employment under this Employment Agreement is terminated by Employer for cause,
then Employee shall be entitled to receive his Base Salary through the
effective date of such termination.
6.2 Termination Upon Death, Disability or Resignation.
This Employment Agreement and Employee's employment hereunder shall terminate
upon Employee's death or Disability (as defined herein) or resignation. For
this purpose "Disability" means incapacity, whether by reason of physical or
mental illness or disability, which prevents Employee from substantially
performing Employee's material duties as set forth in Section 1 for six (6)
months, or for shorter periods aggregating six (6) months in any twelve (12)
successive calendar months. Upon termination for death, and unless Employer
shall have in force a disability insurance policy providing for benefits in an
amount at least equal thereto, upon termination for Disability, Employer shall
continue to pay the compensation payments pursuant to Section 3 to the
surviving spouse of Employee (or if there is none to Employee's estate) in the
case of death and to Employee or Employee's court appointed conservator in the
case of Disability until the date three (3) months thereafter. Termination for
death shall become effective upon the occurrence of such event and termination
for Disability shall become effective upon written notice to Employee. Upon
Employee's resignation, Employee shall be entitled to receive his Base Salary
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through the date of resignation.
6.3 Events Upon Termination. The termination of this
Employment Agreement pursuant to Section 6.1 and 6.2 shall also result in the
termination of all rights and benefits of Employee under this Employment
Agreement except for any rights to compensation accrued under Section 3 prior
to the date of termination or rights to expense reimbursement under Section 4.
6.4 Payments As Liquidated Damages. In the event
Employer elects to terminate this Employment Agreement prior to the scheduled
termination date for any reason other than Cause, Employer shall continue to
make the compensation payments specified in Section 3 hereof for one year, and
such payments shall be deemed to be liquidated damages for the damage done to
Employee's reputation and for having foregone the opportunity to pursue other
employment opportunities while performing services pursuant to this Employment
Agreement. Employer hereby agrees that such amount shall constitute a
realistic and reasonable valuation of the damages with respect to Employee's
claims, and Employee shall not be required to mitigate his damages by seeking
other business, as the damages resulting to him as a result of the loss of the
unique business arrangement set forth herein could not be mitigated by seeking
business elsewhere, nor shall any monies earned by Employee in any capacity
after such termination, attempted termination or breach act to reduce such
damages.
7. EMPLOYEE'S REPRESENTATIONS. Employee represents and warrants
that Employee is free to enter into this Employment Agreement and to perform
each of the provisions contained herein. Employee represents and warrants that
Employee is not restricted or prohibited, contractually or otherwise, from
entering into and performing this Employment Agreement, and that Employee's
execution and performance of this Employment Agreement is not a violation or
breach of any agreement between Employee and any other person or entity.
8. NONDISCLOSURE OF CONFIDENTIAL INFORMATION;
OWNERSHIP OF INTELLECTUAL PROPERTY RIGHTS;
NON COMPETITION; COVENANT NOT TO COMPETE .
8.1 Nondisclosure of Confidential Information. During the
term of this Employment Agreement and at all times thereafter, Employee will
keep confidential and will not directly or indirectly divulge to anyone nor use
or otherwise appropriate for Employee's own benefit, or on behalf of any other
person, firm, partnership or corporation by whom Employee might subsequently be
employed or otherwise associated or affiliated with, any Confidential
Information (as defined herein). For this purpose, "Confidential Information"
means any and all customer lists, product formulations, arrangements with
distributors and parties for whom Employer does contract brewing, marketing
information or strategies, trade secrets or other confidential information of
any kind, nature or description concerning any matters affecting or relating to
the business of Employer or any affiliate which derives economic value, actual
or potential, from not being generally known to the public or to other persons
who can obtain economic value from its disclosure or use and which is subject
to efforts by Employer that are
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reasonable under the circumstances to maintain its secrecy.
8.2 Employer Intellectual Property Rights. All
intellectual property rights, whether or not patentable or copyrightable, which
(i) are made or developed with the equipment, supplies, facilities, product
formulations, trade secrets, time or other assets of Employer; (ii) relate to
the business, including anticipated research or development, of Employer, or
(iii) result from work performed by Employee for Employer, are and shall remain
the sole property of Employer, and upon request made by Employer, Employee
shall assign any and all rights, including patents and patent rights, trade
mark and trade dress rights, Employee may have therein to Employer. This
Section 8.2 does not apply to any intellectual property rights which are
specifically enumerated in Schedule 8.2 or are the subject of Section 2870 of
the California Labor Code.
8.3 Employer Materials. All reports and analysis,
designs, drawings, contracts, contractual arrangements, specifications,
computer software, computer hardware and other equipment, computer printouts,
computer disks, documents, memoranda, notebooks, correspondence, files, lists
and other records, and the like, and all photocopies or other reproductions
thereof, affecting or relating to the business of Employer which Employee shall
prepare, use, construct, observe, possess or control ("Employee Materials"),
shall be and remain the sole property of Employer. Upon termination of this
Employment Agreement, Employee shall deliver promptly to Employer all such
Employer Materials.
8.4 Certain Restrictions on Business Activities. During
the term of this Employment Agreement, Employee agrees that:
8.4.1 Business Activities. He will not, directly
or indirectly, own an interest in, operate, join, control or participate in, or
be connected as an officer, employee, agent, independent contractor, partner,
shareholder or principal of any corporation, partnership, proprietorship, firm,
association, person or other entity providing services and/or products or a
combination thereof which directly or indirectly compete with Employer's
business, and he will not undertake planning for or organization of any
business activity competitive with Employer's business or combine or conspire
with other employees or representatives of Employer's business for the purpose
of organizing any such competitive business activity, except the purchase of
less than ten percent (10%) of the stock of a publicly traded company which is
not affiliated with Employer.
8.4.2 Solicitation of Customers, Etc. He will not,
directly or indirectly, either for himself or for any other person, firm or
corporation, divert or take away or attempt to divert or take away (and after
the term of this Employment Agreement, call on or solicit or attempt to call on
or solicit) any of Employer's customers or distributors, including but not
limited to, those upon whom Employee called or whom Employee solicited or
serviced or with whom Employee became acquainted while engaged as an employee
in Employer's business.
8.4.3 Solicitation of Employees, Etc. He will not,
directly or indirectly
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or by action in concert with others, induce or influence (or seek to induce or
influence) any person who is engaged (as an employee, agent, independent
contractor or otherwise) by Employer to terminate his or her employment or
engagement.
8.5 Covenant Not to Compete.
8.5.1 Obligations of Employee. Employee
acknowledges that, as a key management employee, Employee will be involved, on
a high level, in the development, implementation and management of the business
strategies and plans of Employer, which shall also consist of such other
business, units, divisions, subsidiaries or other entities of Employer as
Employer shall determine in its sole discretion from time to time (the
"Business"). By virtue of Employee's unique and sensitive position and special
background, employment of Employee by a competitor of Employer represents a
serious competitive danger to Employer and the Business, and the use of
Employee's talent and knowledge and information about Employer or the Business
can and would constitute a valuable competitive advantage over Employer and the
Business. In view of the foregoing, Employee covenants and agrees that, if
Employee's employment with Employer is terminated by Employee or for cause at
any time, for a period of one year after the date of such termination, but not
longer than the term of this Employment Agreement under Section 2 had
employment not been terminated, Employee will not engage or be engaged, in any
capacity, directly or indirectly, including but not limited as employee, agent,
consultant, manager, executive, owner or stockholder (except as a passive
investor holding less than a 1% equity interest in any enterprise the
securities of which are publicly traded) in any business entity doing business
in the United States engaged in competition with any business conducted by
Employer on the date of termination. This Covenant Not to Compete shall
survive the termination or expiration of the other provisions of this
Employment Agreement. If any court determines that this Covenant Not to
Compete, or any part thereof, is unenforceable because of the duration or
geographic scope of such provision, such court shall have the power to reduce
the duration or scope of such provision, as the case may be, and, in its
reduced form, such provision shall then be enforceable.
8.5.2 Continuing Obligations. Employee agrees
that, for one year following his termination of employment with Employer,
Employee shall keep Employer informed of the identification of Employee's
employer and the nature of such employment or of Employee's self-employment.
Employer agrees that, within fifteen (15) days after receiving notice pursuant
to this section of the identification of the prospective employer, the nature
of the employment or self-employment or any change therein, Employer will
advise Employee as to whether such employment constitutes a violation of
Section 8.5.1 hereof.
8.5.3 Injunctive Relief. Employee acknowledges
that the violation of the covenants contained in this Section 8.5 would be
detrimental and cause irreparable injury to Employer and its affiliates which
could not be compensated by money damages. Employee agrees that an injunction
from a court of competent jurisdiction is the appropriate remedy for these
provisions, and consents to the entry of an appropriate judgment enjoining
Employee from violating these provisions in the event there is a find of their
breach.
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8.6 Severability. Employee agrees, in the event that any
provision of this Section 8 or any word, phrase, clause, sentence or other
portion thereof shall be held to be unenforceable or invalid for any reason,
such provision or portion thereof shall be modified or deleted in such a manner
so as to make this Section 8 as modified legal and enforceable to the fullest
extent permitted under applicable laws. The validity and enforceability of the
remaining provisions or portions thereof shall not be affected thereby and
shall remain valid and enforceable to the fullest extent permitted under
applicable laws. A waiver of any breach of the provisions of this Section 8
shall not be construed as a waiver of any subsequent breach of the same or any
other provision.
9. MERGER, ETC., OF EMPLOYER. In the event of a future
disposition of (or including) the properties and business of Employer,
substantially or in its entirety, by merger, consolidation, sale of assets, or
otherwise, then Employer may assign this Employment Agreement and all of the
rights and obligations of Employer under this Employment Agreement to the
acquiring or surviving corporation; provided, that such acquiring or surviving
corporation shall assume in writing all of the obligations of the companies
under this Employment Agreement; and provided further, that the companies (in
the event and so long as they or either of them remains in business as an
independent going enterprise) shall remain jointly and severally liable for the
performance of their obligations under this Employment Agreement in the event
of an unjustified failure of the acquiring corporation to perform its
obligations under this Employment Agreement.
10. GENERAL PROVISIONS.
10.1 Severable Provisions. The provisions of this
Employment Agreement are severable, and if any one or more provisions may be
determined to be judicially unenforceable, in whole or in part, the remaining
provisions shall nevertheless be binding and enforceable.
10.2 Assignment. Neither this Employment Agreement nor
any of the rights or obligations of Employee or Employer hereunder shall be
assignable.
10.3 Arbitration. Any dispute arising under or in
connection with this Employment Agreement shall be subject to arbitration
before the American Arbitration Association ("AAA") at the facility nearest
Employer's principal place of business.
10.4 Attorneys' Fees. If any legal action arises under
this Employment Agreement or by reason of any asserted breach of it, the
prevailing party shall be entitled to recover all costs and expenses, including
reasonable attorneys' fees, incurred in enforcing or attempting to enforce any
of the terms, covenants or conditions, including costs incurred prior to
commencement of legal action, and all costs and expenses, including reasonable
attorneys' fees, incurred in any appeal from an action brought to enforce any
of the terms, covenants or conditions.
10.5 Notices. Any notice to be given to Employer under
the terms of this
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Employment Agreement shall be addressed to Employer at the address of
Employer's principal place of business, with a copy to Hecht & Steckman, P.C.,
60 East 42nd Street, Suite 5101, New York, New York 10165-5101, attn: James G.
Smith, Esq., and any notice to be given to Employee shall be addressed to
Employee at his home address last shown on the records of Employer, or at such
other address as either party may hereafter designate in writing to the other.
Any notice required or permitted under this Employment Agreement shall be in
writing and shall be deemed effective: (i) upon receipt in the event of
delivery by hand, including delivery made by private delivery or overnight mail
service where either the recipient or delivery agent executes a written receipt
or confirmation of delivery; or (ii) 48 hours after deposited in the United
States mail, registered or certified mail, return receipt requested, postage
prepaid.
10.6 Waiver. Either party's failure to enforce any
provision or provisions of this Employment Agreement shall not in any way be
construed as a waiver of any such provision or provisions, or prevent that
party thereafter from enforcing each and every other provision of this
Employment Agreement.
10.7 Entire Agreement; Amendments. This Employment
Agreement supersedes any and all other agreements, either oral or in writing,
between the parties hereto with respect to the employment of Employee by
Employer and contains all of the covenants and agreements between the parties
with respect to the employment of Employee by Employer. Each party to this
Employment Agreement acknowledges that no representations, inducements,
promises or agreements, orally or otherwise, have been made by any party, or
anyone acting on behalf of any party, which are not embodied herein, and that
no other agreement, statement or promise not contained in this Employment
Agreement will be effective only if it is in writing signed by the party to be
charged.
10.8 Titles and Headings. Titles and headings to sections
of this Employment Agreement are for the purpose of reference only and shall in
no way limit, define or otherwise affect the interpretation or construction of
such provisions.
10.9 Counterparts. This document may be executed in one
or more counterparts each of which shall be deemed to be an original and all of
which together shall constitute a single agreement.
10.10 Governing Law. This Employment Agreement shall be
governed by and construed in accordance with the laws of the State of
California.
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IN WITNESS WHEREOF, the parties have executed this Employment
Agreement as of the day and year first above written.
EMPLOYEE:
_____________________________________
GARITH HELM
EMPLOYER:
BEVERAGE WORKS, INC.
a California corporation
_____________________________________
By:__________________________________
Title:_______________________________
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Exhibit 10.13
DISTRIBUTION AGREEMENT
This Distribution Agreement is made this 30th day of July, 1996,
between Beverage Works, Inc., a California corporation (hereinafter "SUPPLIER")
having its principal office at 9800 S. Sepulveda Blvd, # 720, Los Angeles, CA
90045, and Southern Wine & Spirits of America, Inc., d/b/a Southern Wine &
Spirits of California, (hereinafter "DISTRIBUTOR"), having its office at 17101
Valley View Av., Cerritos CA 90703.
RECITALS
A. SUPPLIER, through its wholly owned subsidiaries and other
affiliated companies, owns, operates and manages craft breweries that produce
the products described in Exhibit "A" to this Agreement (hereinafter
"PRODUCTS").
B. DISTRIBUTOR is in the business of marketing, selling and
distributing various beverage products, including beer.
C. SUPPLIER and DISTRIBUTOR desire to enter into an agreement
whereby DISTRIBUTOR will be the distributor of PRODUCTS within the geographical
area described in Exhibit "B" to this Agreement (hereinafter "TERRITORY").
Wherefore, pursuant to the terms and conditions set forth below and
the provisions of the Alcoholic Beverage Control Act of the State of
California, the parties agree as follows:
1. APPOINTMENT.
SUPPLIER hereby appoints DISTRIBUTOR as distributor of
PRODUCTS and grants to DISTRIBUTOR the exclusive right to market, sell and
distribute PRODUCTS within the TERRITORY.
2. PRODUCTS AND TERRITORY LIMITATIONS.
(a) The parties may, at any time during the term of this
Agreement, amend Exhibit "A" to add to the list of PRODUCTS to which this
Agreement applies. Any such amendment shall be in a writing signed by the
parties which identifies the product or products to be added and the date the
amendment shall take effect.
(b) SUPPLIER may, in its sole discretion, discontinue
production of any product described in Exhibit "A" or any amendment thereto
upon giving 30 days written notice to DISTRIBUTOR specifying the PRODUCT that
is to be discontinued. No product that will remain in production may be
deleted from Exhibit "A" or any amendment thereof during the term of this
Agreement unless DISTRIBUTOR agrees to the deletion in writing.
(c) DISTRIBUTOR shall not intentionally market, sell or
distribute PRODUCTS to any retail location outside the TERRITORY nor to any
wholesaler or other person or entity who DISTRIBUTOR knows or has reason to
believe will sell or distribute all or any part of such PRODUCTS outside of the
TERRITORY unless prior written
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authorization is obtained from SUPPLIER.
3. TERM OF AGREEMENT.
The term of this Agreement shall commence on the date set
forth above and shall continue until terminated in accordance with the
provisions of this Agreement.
4. RESPONSIBILITIES OF DISTRIBUTOR.
(a) DISTRIBUTOR shall use its best efforts to market,
promote and sell the PRODUCTS within the TERRITORY.
(b) DISTRIBUTOR shall maintain adequate and properly
trained personnel to handle all marketing, sales and distribution tasks
necessary to meet its obligations under this Agreement.
(c) DISTRIBUTOR shall develop a marketing and sales
program that is based on the size and type of accounts and potential accounts
within the TERRITORY and shall establish a schedule for periodic calls on
accounts at a regular frequency appropriate for the characteristics of each
account.
(d) DISTRIBUTOR shall maintain an adequate inventory of
PRODUCTS to supply the reasonably anticipated volume of orders from the
accounts within the territory. The inventory shall be rotated to ensure that
the oldest PRODUCTS are delivered first.
(e) DISTRIBUTOR shall use its best efforts to maintain a
cool, steady temperature in all facilities and vehicles used for the storage,
shipment and delivery of products. All kegs shall be properly serviced and
maintained in accordance with instructions thereon.
(f) DISTRIBUTOR shall not sell or distribute any PRODUCTS
that are out of date or otherwise known to be unfit. PRODUCTS marked with a
date code shall be sold only within a period of 4 months after the date code.
PRODUCTS marked with a "sell by" date shall not be sold after the "sell by"
date.
5. RESPONSIBILITIES OF SUPPLIER.
(a) All PRODUCTS shall be produced in accordance with
generally accepted brewing practices and quality standards.
(b) SUPPLIER, through its subsidiaries and affiliates,
shall sell to DISTRIBUTOR reasonable quantities of the PRODUCTS to serve the
TERRITORY, subject to the right of SUPPLIER to place DISTRIBUTOR on allocation
if the supply of PRODUCTS is for any reason insufficient to meet the demands of
all distributors. SUPPLIER shall not be liable to DISTRIBUTOR for the failure
to make PRODUCTS available or for the delay in delivery of PRODUCTS if such
failure or delay is caused by lack of sufficient supply or by any other
circumstances beyond the reasonable control of SUPPLIER.
(c) All point of sale and promotional materials produced
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by SUPPLIER shall be made available to DISTRIBUTOR at no cost to DISTRIBUTOR in
such amounts and at such times as SUPPLIER determines in its sole discretion.
SUPPLIER agrees to advertise and promote the PRODUCTS and to provide to
DISTRIBUTOR sales coordination and assistance to the extent SUPPLIER deems
appropriate.
(d) The PRODUCTS to be sold to Southern under this
Agreement shall be merchantable and fit for human consumption. The PRODUCTS
shall be manufactured, packaged and labeled in conformity with applicable U.S.
federal, state and local laws, rules and regulations, and the rules and
regulations of the United States Bureau of Alcohol, Tobacco, and Firearms and
the Food and Drug Administration. This includes, but is not limited to,
complete approval from the Bureau of Alcohol, Tobacco, and Firearms regarding
bottle labels for the PRODUCTS.
(e) The PRODUCTS to be sold to Southern shall be free and
clear of all liens. Neither the execution and delivery of this Agreement, nor
compliance with its terms and provisions, will result in the creation or
imposition of any lien, charge, encumbrance, or restriction of any nature upon
the PRODUCT to be sold to Southern.
(f) SUPPLIER shall utilize its best efforts to prevent
the sale of unauthorized shipments of the PRODUCTS in the Territory by entities
or persons other than Southern. In this regard, SUPPLIER shall not sell or
otherwise transfer the PRODUCTS to any wholesaler or distributor located
outside the Territory whom SUPPLIER knows, or has reason to believe, will,
either directly or indirectly, sell or otherwise transfer the PRODUCTS into the
Territory, including, but not limited to, any state agency.
6. PERFORMANCE STANDARDS.
There shall be established by mutual agreement of the parties
a performance standard applicable to each 12 month period during which this
Agreement is in effect and DISTRIBUTOR shall use its best efforts to achieve
these standards. The performance standard shall specify the minimum volume of
sales of PRODUCTS to be made within the TERRITORY each year. The performance
standard shall be agreed upon within 90 days of the commencement of this
Agreement and again each year thereafter within 90 days of the anniversary of
the commencement of this Agreement.
7. PRICING.
SUPPLIER shall sell the products to DISTRIBUTOR at the prices
specified from time to time in price lists published and posted by SUPPLIER.
The published prices shall clearly indicate any taxes, fees and transportation
costs that are included. Changes in the price lists may be made at any time by
SUPPLIER and shall be effective 60 days after such new price list is published
and posted. The price list in effect as of the commencement of this Agreement
is set forth in Exhibit "C" to this Agreement.
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<PAGE> 4
8. DEPOSITS.
(a) DISTRIBUTOR shall pay a deposit of $12.00 for each
keg picked up from the producing facility. The sum of $12.00 shall be refunded
to DISTRIBUTOR for each keg returned by DISTRIBUTOR to the producing facility.
The sums to be paid by DISTRIBUTOR for deposits on kegs shall appear on the
invoices issued by the producing facility for the PRODUCTS ordered by
DISTRIBUTOR. The sums to be paid as refunds on kegs returned by DISTRIBUTOR
shall be set forth in invoices issued by DISTRIBUTOR to the producing facility.
DISTRIBUTOR shall pay to SUPPLIER an initial keg deposit of $0.00 upon
execution of this Agreement. Upon termination of this Agreement, SUPPLIER
shall refund to DISTRIBUTOR the initial keg deposit, less the sum of $50.00 for
each keg that is not returned by DISTRIBUTOR to SUPPLIER or the producing
facility.
(b) At the time PRODUCTS packaged in bottles are picked
up, DISTRIBUTOR shall exchange a standard 42 x 48 four way hard wood pallet for
each pallet picked up. DISTRIBUTOR shall pay to the producing facility the sum
of $7.00 for each pallet picked up for which an empty pallet is not left in
exchange. The charges for pallets shall appear on the invoices issued by the
producing facility.
9. ORDERING OF PRODUCT.
(a) DISTRIBUTOR shall place orders at such location as
shall be designated for the taking of orders in written notice given by
SUPPLIER to DISTRIBUTOR from time to time during the term of this Agreement.
Each order is subject to acceptance by SUPPLIER. The subsidiary or affiliate
that will produce the PRODUCTS ordered shall be designated by SUPPLIER at the
time the order is accepted. DISTRIBUTOR shall issue and deliver to the
location designated by SUPPLIER a written purchase order to confirm each order
placed. Each purchase order shall state whether DISTRIBUTOR will arrange for
the PRODUCTS to be picked up or whether SUPPLIER is to arrange for the delivery
of the PRODUCT to DISTRIBUTOR. Unless the listed price includes transportation
charges, DISTRIBUTOR shall be responsible for any and all transportation costs.
(b) An invoice shall be issued by the producing facility
to cover each order placed by DISTRIBUTOR. The invoice shall include all
taxes, fees and transportation costs to be paid by DISTRIBUTOR. On the date
issued, the invoice shall be mailed to DISTRIBUTOR and a copy shall be sent by
telefacsimile to DISTRIBUTOR.
10. PAYMENTS.
(a) DISTRIBUTOR shall pay all invoices within 30 days of
the invoice date.
(b) Each producing facility shall prepare and issue
statements on or about the 10th day of each month as to PRODUCTS for which
invoices were issued during the preceding month. Each
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<PAGE> 5
statement shall clearly state the invoice number and the date of each order to
which it applies, the quantities of PRODUCTS ordered, the price per keg or
case, the amounts due for taxes, fees and transportation costs, the amounts due
for keg deposits and pallet charges, the total amount due under the current
statement and any previous balance.
(c) SUPPLIER shall pay all invoices to DISTRIBUTOR within
30 days of the invoice date.
(d) Both SUPPLIER and DISTRIBUTOR agree to discuss,
resolve and pay any disputed invoices within 15 days of the original invoice
due date.
11. LICENSES.
DISTRIBUTOR, at its own expense, shall obtain and maintain
current any and all licenses and permits required by any governmental or
regulatory agency or under any statute, ordinance or regulation for the right
to sell, distribute or transport alcoholic beverages. SUPPLIER shall cooperate
and provide any information and documentation needed by DISTRIBUTOR to obtain
or renew any licenses or permits to the extent such information is not
otherwise in the possession of or equally available to DISTRIBUTOR. Upon
reasonable request by SUPPLIER, DISTRIBUTOR shall provide copies of or other
satisfactory evidence of any such license or permit required in any
jurisdiction within which DISTRIBUTOR sells, distributes or transports
alcoholic beverages.
12. RISK OF LOSS.
Title and all risk of loss shall pass to DISTRIBUTOR upon
taking possession of the PRODUCTS, whether directly or through its designated
agent. If DISTRIBUTOR arranges for the PRODUCTS to be picked up, DISTRIBUTOR
shall be deemed to have taken possession at the time the bill of lading is
signed by or on behalf of DISTRIBUTOR or the agent of DISTRIBUTOR designated to
pick up the PRODUCTS. If DISTRIBUTOR orders PRODUCTS to be delivered, SUPPLIER
shall have the right to select the carrier for delivery. DISTRIBUTOR shall be
deemed to have taken possession of the PRODUCTS at the point of delivery at the
time the bill of lading is signed by or on behalf of DISTRIBUTOR or the agent
of DISTRIBUTOR designated to accept delivery. Where SUPPLIER selects the
carrier, it shall be SUPPLIER'S responsibility to select a carrier that has the
correct amount of insurance coverage (with a reputable insurance company) to
cover any loss while order is in transit.
13. BOOKS AND RECORDS.
DISTRIBUTOR shall provide to SUPPLIER monthly reports of sales
activity detailing the sales of PRODUCTS to each account within the TERRITORY.
Such reports shall be delivered to SUPPLIER on or before the 15th day of the
month following the month to which the report relates.
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<PAGE> 6
14. LIMITED USE OF TRADENAME.
(a) SUPPLIER hereby grants to DISTRIBUTOR a non-exclusive
right and license to use the tradenames, trademarks, logos, designs and artwork
associated with the PRODUCTS (hereinafter "TRADENAMES") for the limited purpose
of marketing, selling and distributing the PRODUCTS within the TERRITORY.
DISTRIBUTOR shall acquire no rights, title or interest in the TRADENAMES other
than the specific rights granted hereunder.
(b) DISTRIBUTOR may include the TRADENAMES on its
stationary, advertising and other marketing materials provided that any such
written materials clearly reflect that DISTRIBUTOR is an authorized distributor
of the PRODUCTS to which the TRADENAMES being used relate. All use of the
TRADENAMES shall be in accordance with such policies as may be established by
SUPPLIER or the owner of the TRADENAMES. DISTRIBUTOR may not use any
TRADENAMES as part of its corporate or business name without the prior
authorization of SUPPLIER.
(c) DISTRIBUTOR shall not adopt, use or attempt to
register any word, symbol, logo or combination thereof which is identical with
or confusingly similar to any TRADENAMES. Upon termination of this Agreement,
SUPPLIER may apply to cancel any government or administrative acknowledgment of
the right of DISTRIBUTOR to use any TRADENAMES. DISTRIBUTOR shall not oppose
any such applications and shall consent in writing and join in such application
if so requested by SUPPLIER.
(d) DISTRIBUTOR shall not remove, alter, cover or
otherwise obliterate the TRADENAMES or any portion thereof which appear on the
PRODUCTS or the packaging associated with the PRODUCTS at the time of delivery
to DISTRIBUTOR without the prior written authorization of SUPPLIER.
(e) In the event DISTRIBUTOR becomes aware of or has
reason to believe or suspect that any third party is using or infringing any of
the TRADENAMES, DISTRIBUTOR shall immediately notify SUPPLIER.
15. TERMINATION.
(a) This Agreement may be terminated at any time by
mutual agreement of the parties. Such agreement shall be set forth in a
writing signed by the parties stating the effective date of termination.
(b) DISTRIBUTOR may terminate this Agreement at any time
upon giving SUPPLIER 30 days written notice.
(c) In the event DISTRIBUTOR fails to fulfill any
material obligation under this Agreement, it shall be deemed to be in default.
SUPPLIER may give DISTRIBUTOR written notice of the default by certified mail.
The notice shall state specifically the intention of SUPPLIER to terminate this
Agreement in the event of continued default. If, after 30 days from the date
of such notice,
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<PAGE> 7
DISTRIBUTOR has failed or refused to remedy a default capable of being
remedied, this Agreement may be terminated immediately by written notice given
to DISTRIBUTOR by certified mail not later than 60 days after the date of the
original notice of default. Such termination shall be without prejudice to any
other rights or claims SUPPLIER may have against DISTRIBUTOR and DISTRIBUTOR
may have against SUPPLIER. "Material obligation" as used herein shall include,
but not be limited to, the following:
(i) The failure of DISTRIBUTOR to use its best
efforts to meet the performance standards established in accordance with the
provisions of paragraph 6 of this Agreement.
(ii) The failure of DISTRIBUTOR to pay any invoice
within 10 days of written notice that the invoice is past due.
(iii) The intentional sale or distribution by
DISTRIBUTOR of any out-of-date PRODUCT without the written authorization of
SUPPLIER.
(iv) The failure of DISTRIBUTOR to obtain and
maintain licenses and permits required for the sale, distribution or
transportation of alcoholic beverages.
(d) Either party shall have the right, at its option, to
terminate this Distribution Agreement by giving notice to the other party at
least five business days before the termination is to be effective, if:
i. The other party shall be adjudicated or
become a bankrupt or an insolvent as that term is defined in 11 USC Section
101(32);
ii. The other party shall file a voluntary
petition under any bankruptcy, reorganization or insolvency law;
iii. The other party shall apply for or consent to
appointment of a trustee or receiver to take possession of all or substantially
all its assets;
iv. The other party shall consent to, or shall
file an answer admitting the jurisdiction of the court and the material
allegations of, an involuntary petition filed under any bankruptcy,
reorganization, or insolvency law;
v. Any proceedings of bankruptcy,
reorganization, or insolvency shall be commenced against the other party and
not be dismissed within 30 calendar days after commencement;
vi. The other party shall make any assignment for
the benefit of creditors, other arrangement or composition under any laws for
the benefit of insolvents;
vii. Any order shall be entered under any
bankruptcy, reorganization, or insolvency law of any jurisdiction, and shall
not be dismissed or stayed within 30 calendar days after
7
<PAGE> 8
its entry (a) approving an involuntary petition seeking an arrangement with the
creditors of the other party, (b) approving an involuntary petition seeking
reorganization, or (c) appointing any receiver of trustee of all or a
substantial part of the property of the other party;
viii. A trustee or receiver shall be appointed to
take possession of all or substantially all assets of the other party and shall
not be dismissed within 30 calendar days after appointment; or
ix. Any writ of attachment, garnishment, or
execution shall be levied against all or substantially all assets of the other
party, or all or substantially all assets of the other party shall be subject
to any attachment, garnishment, execution, or other judicial seizure, and shall
not be removed, released, or bonded within 30 calendar days] after the date of
the attachment, garnishment, execution or other judicial seizure.
16. RIGHTS FOLLOWING TERMINATION.
In the event this Agreement is terminated for any reason, all
future and continuing rights and obligations under it shall terminate, except
such rights and obligations hereinafter set forth:
(a) DISTRIBUTOR shall remain obligated to pay all sums
due at the time of termination of this Agreement for PRODUCTS sold and
delivered by DISTRIBUTOR to its accounts. As to PRODUCTS that are in the
inventory of DISTRIBUTOR at the time of termination, SUPPLIER may, at its
option, repurchase such inventory. DISTRIBUTOR shall remain obligated to pay
all sums due at the time of termination for PRODUCTS in inventory that SUPPLIER
does not require DISTRIBUTOR to return. SUPPLIER shall be responsible for the
transportation costs for any inventory repurchased or returned.
(b) DISTRIBUTOR shall immediately cease representing
itself or holding itself out as a distributor of the PRODUCTS unless SUPPLIER
elects not to repurchase the return of inventory of PRODUCTS maintained by
DISTRIBUTOR as of the date of termination. DISTRIBUTOR may, from the effective
date of termination of the Agreement, continue to market, sell and distribute
PRODUCTS in its inventory that SUPPLIER does not repurchase DISTRIBUTOR to
return.
(c) DISTRIBUTOR shall immediately cease using the
TRADENAMES except to the extent that DISTRIBUTOR is permitted under (b) above
to continue marketing, selling and distributing PRODUCTS in inventory.
(d) DISTRIBUTOR shall surrender and deliver to SUPPLIER,
or as directed by SUPPLIER, all signs, advertising displays, point of sale
materials, and other promotional materials provided to DISTRIBUTOR by SUPPLIER
relating to the PRODUCTS or bearing the TRADENAMES only if SUPPLIER elects to
repurchase all of
8
<PAGE> 9
DISTRIBUTOR'S inventory.
(e) DISTRIBUTOR shall take all necessary and reasonable
steps to eliminate references in any printed materials, advertisements,
telephone directory listings and signs which identify it as a distributor of
the PRODUCTS.
17. COMPETITIVE PRODUCTS.
Not applicable
18. RELATIONSHIP OF THE PARTIES.
DISTRIBUTOR and SUPPLIER are independent contractors under
this Purchase Agreement and no agency, joint venture or partnership is created
between the parties. Neither party has the right to incur any liabilities on
behalf of or binding upon the other party.
19. INDEMNIFICATION.
a. DISTRIBUTOR shall indemnify, defend and hold harmless
SUPPLIER, and its officers, directors, shareholders, employees, agents,
representatives, subsidiaries and affiliates, against all liability, demands,
claims, costs, losses, damages, recoveries, settlements, and expenses,
(including interest, penalties, attorney fees, accounting fees, expert witness
fees, costs, and other related expenses) directly or indirectly arising from or
related to the acts or omissions of DISTRIBUTOR, its agents, employees,
subcontractors or other persons or entities acting under the direction or
control of DISTRIBUTOR, its agents, employees, or subcontractors.
b. SUPPLIER shall indemnify, defend and hold harmless
DISTRIBUTOR and its officers, directors, shareholders, employees, agents and
representatives, against all liability, demands, claims, costs, losses,
damages, recoveries, settlements, and expenses, (including interest, penalties,
attorney fees, accounting fees, expert witness fees, costs, and other related
expenses) directly or indirectly arising from or related to the acts or
omissions of SUPPLIER, its agents, employees, subcontractors or other persons
or entities acting under the direction or control of SUPPLIER, its agents,
employees, or subcontractors.
20. INSURANCE.
a. DISTRIBUTOR shall obtain and maintain at all times
during the term of this Agreement a comprehensive general liability insurance
policy and an automobile liability policy providing for coverage of at least
$1,000,000 for each occurrence. DISTRIBUTOR shall furnish to SUPPLIER a
certificate evidencing the fact that the insurance described in this paragraph
has been obtained and is in full force and effect, that the premiums thereon
have been paid and that such insurance cannot be canceled without prior written
notice to DISTRIBUTOR.
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<PAGE> 10
b. SUPPLIER shall obtain and maintain at all times
during the term of this Agreement a product liability insurance policy
providing for coverage of at least $1,000,000 for each occurrence. DISTRIBUTOR
shall be included as an additional insured under such policy of insurance.
SUPPLIER shall furnish to DISTRIBUTOR a certificate evidencing the fact that
the insurance described in this paragraph has been obtained and is in full
force and effect, that DISTRIBUTOR has been named as an additional insured,
that the premiums thereon have been paid and that such insurance cannot be
canceled without prior written notice to DISTRIBUTOR.
21. FORCE MAJEURE.
If SUPPLIER fails to perform its obligations because of
strikes, lockouts, labor disputes, embargoes, acts of God, inability to obtain
labor or materials or reasonable substitutes for labor or materials,
governmental restrictions, governmental regulations, governmental action,
judicial orders, enemy or hostile governmental action, civil commotion, fire or
other casualty, or other causes, except financial, beyond the reasonable
control of SUPPLIER, then SUPPLIER's performance shall be excused for a period
equal to the period of such cause for failure to perform as long as SUPPLIER
gives DISTRIBUTOR notice, in writing by certified mail, within three (3)
business days after the event causing the failure.
22. ARBITRATION.
Any controversy, claim or dispute arising out of this
Agreement or the breach of any provision herein shall be settled in arbitration
in accordance with the rules of the American Arbitration Association.
Notwithstanding the foregoing, the parties hereby agree that in the event of
arbitration, each party may conduct discovery and the provisions of Code of
Civil Procedure, Section 1283.05 shall apply. The prevailing party to such
arbitration shall be entitled, in addition to such other relief as may be
granted, to reasonable attorney's fees. The award rendered by the arbitrator
shall be final and binding. The arbitration proceedings shall be conducted in
the County of Orange, State of California.
23. NOTICES.
All notices and other communications under this Agreement
shall be in writing and shall be delivered personally, telegraphed, telexed,
sent by facsimile transmission or sent by certified, registered or express
mail, postage prepaid. Any such notice or other communication shall be deemed
given: (a) upon actual delivery if presented personally or sent by prepaid
telegram or telex or by facsimile transmission and (b) three (3) business days
following deposit it in the United States mail, if sent by certified,
registered or express mail, postage prepaid, in each case to the following
address:
If to SUPPLIER: 9800 S. Sepulveda Blvd, # 720
Los Angeles, CA 90045
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<PAGE> 11
If to DISTRIBUTOR: 17101 Valley View Av.
Cerritos CA 90703.
Attn: Wayne Chaplin
1600 NW 163rd Street
Miami, FL 33169
Notice of any change in any such address shall also be given in the manner set
forth above. Whenever the giving of notice is required, the giving of such
notice may be waived by the party entitled to receive such notice.
24. AMENDMENTS AND WAIVERS.
Except as specifically provided for herein, this Agreement may
be amended, superseded, canceled, renewed or extended, and the terms hereof may
be waived, only by a written instrument signed by the parties hereto or, in the
case of a waiver, by the party waiving compliance. No delay on the part of any
party hereto in exercising any right, power or privilege hereunder shall
operate as a waiver thereof. Nor shall any waiver on the part of any party
hereto of any such right, power or privilege, nor any single or partial
exercise of any such right, power of privilege, preclude any further exercise
thereof or the exercise of any other such right, power or privilege.
25. SEVERABILITY; HEADINGS; GOVERNING LAW; COMPLIANCE
In the event one or more of the provisions contained herein
are found to be illegal or unenforceable in any respect, the legality and
enforceability of the remaining provisions of this Agreement, shall not be
affected. The headings of this Agreement are provided for reference only.
This Agreement shall be governed by and construed in accordance with the laws
of the State of California. Both parties mutually agree to do all things
reasonably necessary in order to comply with all laws and regulations.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
signed by their duly authorized and empowered offices or representatives as of
the date first above written.
BEVERAGE WORKS, INC.
("SUPPLIER")
By: Frederik G.M. Rodenhuis DATE: July 30, 1996
Title: President & CEO
SOUTHERN WINE & SPIRITS OF AMERICA, INC.
("DISTRIBUTOR")
By: ___________________________ DATE: _________________________
Title: ___________________________
11
<PAGE> 12
12
<PAGE> 13
EXHIBIT "A"
PRODUCTS AND TERRITORY
1. SUPPLIER PRODUCTS.
HUSSONG'S Cerveza Extra
HUSSONG'S Cerveza Negra
2. TERRITORY DEFINITION.
All of California
13
<PAGE> 1
Exhibit 10.15
AGREEMENT
This Purchase Agreement, made this _____ day of _______________, 1996,
between HERITAGE BREWING COMPANY, INC., a California corporation (hereinafter
"HERITAGE"), having its principle office at 571-C Crane Street, Lake Elsinore,
California 92530, and CABO DISTRIBUTING COMPANY, INC. (hereinafter "CABO"),
having its principle office at 9627 East Rush Street, South El Monte,
California 91733:
RECITALS
A. HERITAGE is in the business of brewing and packaging beer
products and has previously produced beer under the label of "Red Pig Ale"
using a formula developed by HERITAGE (hereinafter "FORMULA").
B. CABO is in the business of distributing beer products and owns
the rights to the "Red Pig Ale" tradename, logos and artwork; and
C. HERITAGE and CABO desire to enter into an agreement whereby
HERITAGE produces beer and CABO distributes beer under the "Red Pig Ale" label.
1. TERM OF AGREEMENT.
Unless otherwise terminated earlier as provided hereinafter,
the term of this Purchase Agreement shall be one year from the date set forth
above.
2. OWNERSHIP RIGHTS.
a. CABO warrants that it is the owner of all rights,
title and interest in the trade name of "Red Pig Ale" and all trademarks, logos
and artwork associated with "Red Pig Ale" (hereinafter "TRADENAME"). CABO
hereby grants HERITAGE the exclusive right to use the TRADENAME in connection
with the production and packaging of PRODUCT, as that term is defined in
paragraph 3(b), solely and exclusively for sale to CABO for distribution within
the United States.
b. The parties acknowledge that the FORMULA has been
developed by HERITAGE. All proprietary interests in the FORMULA are the
property of HERITAGE and shall remain with HERITAGE at all times during the
term of this Purchase Agreement and upon termination of this Purchase
Agreement.
3. ORDERING AND PRODUCTION OF PRODUCT.
a. HERITAGE shall use the FORMULA to produce a malt
beverage under the label of "Red Pig Ale" (hereinafter "PRODUCT") for
distribution by CABO. All PRODUCT shall conform to the formula and shall be
pasteurized.
b. CABO shall place orders through HERITAGE at 571-C
Crane Street, Lake Elsinore, California 92530 or at such other location as
shall be designated in written notice given by HERITAGE to CABO from time to
time during the term of this Purchase Agreement. CABO shall issue and deliver
to HERITAGE a written purchase order to confirm each order placed.
d. Each purchase order shall provide at least 6 weeks of
lead time for the completion of the order by HERITAGE. Within 5 working days
of receipt of each purchase order, HERITAGE shall provide written notification
to CABO of the projected date upon which the PRODUCT will be ready for pickup.
Verification of the actual date on which PRODUCT will be ready for pickup will
be provided by HERITAGE to CABO one week prior to such date.
e. Upon completion of PRODUCT ordered by CABO, HERITAGE
shall notify CABO that the product is completed and ready for pickup. HERITAGE
shall issue an invoice to cover the order. On the date issued, the invoice
shall be mailed to CABO and a copy shall be sent by telefacsimile to CABO. In
addition, HERITAGE shall provide notification
<PAGE> 2
PURCHASE AGREEMENT
Page 2
of completion to CABO by telephone.
f. Completed PRODUCT shall be picked up by CABO within 5
days of the date of notification that the product is ready for pickup. The
date on which the invoice is sent by HERITAGE to CABO by telefacsimile shall be
deemed the date of notification.
g. At the time the order is placed, CABO shall designate
in the purchase order the HERITAGE facility at which the PRODUCT will be picked
up by CABO. However, HERITAGE shall have the option to produce PRODUCT at any
of its brewing facilities or under contract with a third party. HERITAGE shall
incur any and all costs of shipping PRODUCT to the facility designated by CABO
for pickup if such PRODUCT is produced at a facility different than the one
designated by CABO as the location for pickup.
h. CABO shall be deemed the owner of the PRODUCT upon
taking possession, whether directly or through its designated agent, at the
time the PRODUCT is picked up from the HERITAGE facility designated by CABO in
its purchase order. CABO shall thereafter be liable for and bear the risk of
loss or damage to PRODUCT in transit or after transit.
i. At the time PRODUCT is picked up, CABO shall exchange
a standard wood pallet for each pallet picked up. CABO shall pay to HERITAGE
the sum of $7.00 for each pallet picked up for which an empty pallet is not
left in exchange. The charges for pallets shall appear on the next invoice
issued by HERITAGE.
4. PACKAGING AND LABELS
a. HERITAGE shall package the PRODUCT as follows:
i. The PRODUCT shall be packaged in 12 oz. and
22 oz. long-neck bottles in quantities specified in the purchase orders placed
by CABO.
ii. Labels shall be affixed to each bottle. The
label that has been previously approved by the Bureau of Alcohol, Tobacco &
Firearms for "Red Pig Ale" shall be used unless a different label is designated
by CABO or required by law.
iii. The 12 oz. bottles shall be packaged in
6-pack cartons. The 6-pack cartons of 12 oz. bottles shall be packaged in
printed mother cartons holding 4 of the 6-pack cartons. The mother cartons
shall be placed on pallets ready for pickup by CABO. A case of 12 oz. bottles
shall be deemed to consist of 24 bottles.
iv. The 22 oz. bottles shall be packed with
dividers in plain brown cases holding 12 bottles per case. The cases shall be
placed on pallets ready for pickup by CABO. A case of 22 oz. bottles shall be
deemed to consist of 12 bottles.
b. Except as otherwise provided herein, HERITAGE shall
supply all materials necessary to the production and packaging of the PRODUCT.
HERITAGE shall use only labels and packaging materials bearing logos and
artwork previously used for "Red Pig Ale" or hereafter approved in writing by
CABO.
c. Except as otherwise provided herein, CABO shall be
responsible for ensuring that the design and wording of labels conform to the
requirements of any applicable Federal, State and local statutes, ordinances
and regulations. To the extent that any governmental or regulatory agency
requires the participation of the brewery in obtaining approval of labels,
HERITAGE will cooperate with CABO and provide all
<PAGE> 3
PURCHASE AGREEMENT
Page 3
necessary information and documentation. HERITAGE shall be responsible for
label design changes that are necessitated by HERITAGE electing to produce
PRODUCT outside of California. All expenses incurred in connection with label
designs and obtaining approval of label designs shall be borne by CABO except
such expenses incurred as a result of HERITAGE electing to produce PRODUCT
outside of California.
5. PRICING.
a. The prices set forth below shall be effective for the
term of this Purchase Agreement, subject to adjustment as set forth in
paragraphs 5(b) and 5(c). All prices are FOB brewery, packaging and Federal
excise taxes included. As used herein, "packaging" includes bottles, labels,
crowns, cartons, dividers and cases, but excludes pallets. Pricing is based
on the quantity of PRODUCT ordered by CABO each month as follows:
<TABLE>
<CAPTION>
Total quantity of 12 oz. and 22
oz. PRODUCT ordered (stated in Price per case of 12 Price per case of 22
cases) oz. PRODUCT oz. PRODUCT
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
0 - 50,000 $11.00 $10.00
- -----------------------------------------------------------------------------------------------------------
4,001-8,000 $10.50 $9.50
- -----------------------------------------------------------------------------------------------------------
8,001-12,500 $10.00 $9.00
- -----------------------------------------------------------------------------------------------------------
over 12,500 $9.50 $8.50
- -----------------------------------------------------------------------------------------------------------
</TABLE>
c. The prices set forth in paragraph 5(a) are based on
the current applicable Federal and State tax rates. In the event of increases
in the applicable tax rates, the prices may be increased in amounts equal to
the increase in taxes payable by HERITAGE.
6. PAYMENTS.
b. CABO shall pay all invoices within 30 days of the
invoice date. Any balance which remains unpaid after 30 days shall bear
interest at the rate of 1% per month until such balance is paid in full. All
payments shall be applied first to interest and thereafter to principle.
c. HERITAGE shall prepare and issue statements on or
about the 10th day of each month for PRODUCT which HERITAGE notified CABO was
ready for pickup during the preceding month. Each statement shall clearly
state the invoice number, the date of each order to which it applies, the
quantities of PRODUCT ordered, the price per case for both 12 oz. and 22 oz.
bottles, the total amounts of the current invoice, any unpaid balance and any
interest on amounts overdue.
7. TAXES AND LICENSES.
<PAGE> 4
PURCHASE AGREEMENT
Page 4
a. CABO, at its own expense, shall obtain and maintain
current any and all licenses and permits required by any governmental or
regulatory agency or under any statute, ordinance or regulation for the right
to sell, distribute, or transport alcoholic beverages. HERITAGE shall
cooperate and provide any information and documentation needed by CABO to
obtain or renew any licenses or permits to the extent such information is not
otherwise in the possession of or equally available to CABO. CABO shall, upon
reasonable request by HERITAGE, provide copies of or other satisfactory
evidence of any such license or permit required in any jurisdiction within
which CABO sells, distributes or transports alcoholic beverages. Cabo will
provide proof of insurance.
b. HERITAGE shall process and pay all applicable
manufacturer's Federal excise taxes and all manufacturer's California
processing fees.
8. TERMINATION OF AGREEMENT.
a. Upon the failure of either party to this Purchase
Agreement to fulfill any material obligations hereunder, the party aggrieved by
the default may give to the other party written notice, by certified mail, of
the default. Notice shall state specifically the aggrieved party's intention
to terminate this Purchase Agreement in the event of continued default. If,
after 30 days from the date of such notice, the defaulting party has failed or
refuses to remedy a default capable of being remedied, or has failed or refuses
to pay reasonable compensation for a default not capable of being remedied,
this Purchase Agreement may be terminated immediately by written notice given
to the defaulting party by certified mail, not later than 60 days after the
date of the original notice of default. Such termination shall be without
prejudice to any other rights or claims the aggrieved party may have against
the defaulting party.
b. Either party shall have the right, at its option, to
terminate this Purchase Agreement by giving notice to the other party at lease
[e.g. five business days] before the termination is to be effective, if:
i. The other party shall be adjudicated or
become a bankrupt or an insolvent (as that term is defined in 11 USC Section
101(32));
ii. The other party shall file a voluntary
petition under any bankruptcy, reorganization or insolvency law;
iii. The other party shall apply for or consent to
appointment of a trustee or receiver to take possession of all or substantially
all its assets;
iv. The other party shall consent to, or shall
file an answer admitting the jurisdiction of the court and the material
allegations of, an involuntary petition filed under any bankruptcy,
reorganization, or insolvency law;
v. Any proceedings of bankruptcy,
reorganization, or insolvency shall be commenced against the other party and
not be dismissed within [e.g. 30 calendar days] after commencement;
vi. The other party shall make any assignment for
the benefit of creditors, other arrangement or composition under any laws for
the benefit of insolvents;
vii. Any order shall be entered under any
bankruptcy, reorganization, or insolvency law of any jurisdiction, and shall
not be dismissed or stayed within [e.g. 30 calendar days] after its entry (a)
<PAGE> 5
PURCHASE AGREEMENT
Page 5
approving an involuntary petition seeking an arrangement with the creditors of
the other party, (b) approving an involuntary petition seeking reorganization,
or (c) appointing any receiver of trustee of all or a substantial part of the
property of the other party;
viii. A trustee or receiver shall be appointed to
take possession of all or substantially all assets of the other party and shall
not be dismissed within [e.g. 30 calendar days] after appointment; or
ix. Any writ of attachment, garnishment, or
execution shall be levied against all or substantially all assets of the other
party, or all or substantially all assets of the other party shall be subject
to any attachment, garnishment, execution, or other judicial seizure, and shall
not be removed, released, or bonded within [e.g. 30 calendar days] after the
date of the attachment, garnishment, execution or other judicial seizure.
c. In the event of termination of this Purchase
Agreement for any reason whatsoever, all future and continuing rights and
obligations under it shall terminate, except:
i. CABO shall remain obligated to pay all sums
due at the time of termination of the Purchase Agreement;
ii. CABO shall pay for all PRODUCT ordered prior
to the date of termination of the Purchase Agreement; and
iii. CABO shall pay the cost incurred by HERITAGE
for all packaging, including that which HERITAGE has in its inventory or has
ordered prior to the date notification of termination is given, that bears the
TRADENAME or for any other reason cannot be utilized by HERITAGE to package
other products.
9. RELATIONSHIP OF THE PARTIES.
CABO and HERITAGE are independent contractors under this
Purchase Agreement and no agency, joint venture or partnership is created
between the parties. Neither party has the right to incur any liabilities on
behalf of or binding upon the other party.
10. INDEMNIFICATION.
a. CABO shall indemnify, defend and hold harmless
HERITAGE, and its officers, directors, shareholders, employees, agents and
representatives, against all liability, demands, claims, costs, losses,
damages, recoveries, settlements, and expenses, (including interest, penalties,
attorney fees, accounting fees, expert witness fees, costs, and other related
expenses) directly or indirectly arising from or related to the acts or
omissions of CABO, its agents, employees, subcontractors or other persons or
entities acting under the direction or control of CABO, its agents, employees,
or subcontractors.
b. HERITAGE shall indemnify, defend and hold harmless
CABO and its officers, directors, shareholders, employees, agents and
representatives, against all liability, demands, claims, costs, losses,
damages, recoveries, settlements, and expenses, (including interest, penalties,
attorney fees, accounting fees, expert witness fees, costs, and other related
expenses) directly or indirectly arising from or related to the acts or
omissions of HERITAGE, its agents, employees, subcontractors or other persons
or entities acting under the direction or control of HERITAGE, its agents,
employees, or subcontractors.
11. INSURANCE.
<PAGE> 6
PURCHASE AGREEMENT
Page 6
a. CABO shall obtain and maintain at all times during
the term of this Purchase Agreement a comprehensive general liability insurance
policy providing for coverage of at least $1,000,000 for each occurrence. CABO
shall furnish to HERITAGE a certificate evidencing the fact that the insurance
described in this paragraph has been obtained and is in full force and effect,
that the premiums thereon have been paid and that such insurance cannot be
cancelled without prior written notice to CABO.
b. HERITAGE shall obtain and maintain at all times
during the term of this Purchase Agreement a product liability insurance policy
providing for coverage of at least $1,000,000 for each occurrence. CABO shall
be included as an an additional insured under such policy of insurance.
HERITAGE shall furnish to CABO a certificate evidencing the fact that the
insurance described in this paragraph has been obtained and is in full force
and effect, that CABO has been named as an an additional insured, that the
premiums thereon have been paid and that such insurance cannot be cancelled
without prior written notice to CABO.
12. FORCE MAJEURE.
If HERITAGE fails to perform its obligations because of
strikes, lockouts, labor disputes, embargos, acts of God, inability to obtain
labor or materials or reasonable substitutes for labor or materials,
governmental restrictions, governmental regulations, governmental action,
judicial orders, enemy or hostile governmental action, civil commotion, fire or
other casualty, or other causes, except financial, beyond the reasonable
control of HERITAGE, then HERITAGE'S performance shall be excused for a period
equal to the period of such cause for failure to perform as long as HERITAGE
gives CABO notice, in writing by certified mail, within three (3) business days
after the event causing the failure.
13. ARBITRATION.
Any controversy, claim or dispute arising out of this Purchase
Agreement or the breach of any provision herein shall be settled in arbitration
in accordance with the rules of the American Arbitration Association.
Notwithstanding the foregoing, the parties hereby agree that in the event of
arbitration, each party may conduct discovery and the provisions of Code of
Civil Procedure, Section 1283.05 shall apply. The prevailing party to such
arbitration shall be entitled, in addition to such other relief as may be
granted, to reasonable attorney's fees. The award rendered by the arbitrator
shall be final and binding. The arbitration proceedings shall be conducted in
the County of Orange, State of California.
14. NOTICES.
All notices and other communications under this Agreement
shall be in writing and shall be delivered personally, telegraphed, telexed,
sent by facsimile transmission or sent by certified, registered or express
mail, postage prepaid. Any such notice or other communication shall be deemed
given: (a) upon actual delivery if presented personally or sent by prepaid
telegram or telex or by facsimile transmission and (b) three (3) business days
following deposit it in the United States mail, if sent by certified,
registered or express mail, postage prepaid, in each case to the following
address:
If to HERITAGE:
HERITAGE BREWING COMPANY, INC.
571-C Crane Street
Lake Elsinore, California 92530
<PAGE> 7
PURCHASE AGREEMENT
Page 7
If to CABO:
CABO DISTRIBUTING COMPANY, INC.
9627 East Rush Street
South El Monte, California 91733
Notice of any change in any such address shall also be given in the manner set
forth above. Whenever the giving of notice is required, the giving of such
notice may be waived by the party entitled to receive such notice.
15. AMENDMENTS AND WAIVERS.
Except as specifically provided for herein, this Purchase
Agreement may be amended, superseded, cancelled, renewed or extended, and the
terms hereof may be waived, only by a written instrument signed by the parties
hereto or, in the case of a waiver, by the party waiving compliance. No delay
on the part of any party hereto in exercising any right, power or privilege
hereunder shall operate as a waiver thereof. Nor shall any waiver on the part
of any party hereto of any such right, power or privilege, nor any single or
partial exercise of any such right, power of privilege, preclude any further
exercise thereof or the exercise of any other such right, power or privilege.
16. SEVERABILITY; HEADINGS; GOVERNING LAW; COMPLIANCE
In the event one or more of the provisions contained herein
are found to be illegal or unenforceable in any respect, the legality and
enforceability of the remaining provisions of this Purchase Agreement, shall
not be affected. The headings of this Purchase Agreement are provided for
reference only. This Purchase Agreement shall be governed by and construed in
accordance with the laws of the State of California. Both parties mutually
agree to do all things reasonably necessary in order to comply with all laws
and regulations.
In witness whereof, the parties have caused this Purchase Agreement to
be signed by their duly authorized and empowered officers or representatives as
of the date first above written.
CABO DISTRIBUTING COMPANY, INC.
_____________________________________ ___________________________
Date
_____________________________________
Title of Signator
HERITAGE BREWING COMPANY, INC.,
a California corporation
_____________________________________ ___________________________
Date
_____________________________________
Title of Signator
<PAGE> 1
EXHIBIT 10.16
1996 NONQUALIFIED STOCK OPTION PLAN OF BEVERAGE WORKS, INC.
1. PURPOSES OF THE PLAN. This nonqualified stock option plan (the
"Plan") is designed to provide an incentive to key employees of Beverage Works,
Inc., a California corporation (the "Company"), and its present and future
subsidiary corporations, as defined in Paragraph 16 ("Subsidiaries"), and to
offer an additional inducement in obtaining the services of such individuals.
The Plan does not provide for the grant of "incentive stock options," within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
2. STOCK SUBJECT TO THE PLAN. Options may be granted under the
Plan to purchase in the aggregate not more than Nine Hundred Thirty-Three
Thousand Five Hundred (933,500) shares of Common Stock, no par value, of the
Company ("Common Stock"), which shares may, in the discretion of the Board of
Directors, consist either in whole or in part of authorized but unissued shares
of Common Stock or shares of Common Stock held in the treasury of the Company.
The Company shall at all times during the term of the Plan reserve and keep
available such number of shares of Common Stock as will be sufficient to satisfy
the requirements of the Plan. Subject to the provision of Paragraph 12, any
shares subject to an option which for any reason expires, is cancelled or is
terminated unexercised as to such shares shall again become available for option
under the Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by
a Committee (the "Committee") consisting of not less than three members of the
Board of Directors. A majority of the members shall constitute a quorum, and the
acts of a majority of the members present at any meeting at which a quorum is
present, and any acts approved in writing by all members without a meeting,
shall be the acts of the Committee. Each member of the Committee shall be a
Non-Employee Director as defined in Rule 16b-3(b)(3) or its successors under the
Securities Exchange Act of 1934 ("1934 Act"). Subject to the express provisions
of the Plan, the Committee shall have the authority, in its sole discretion, to
determine the individuals who shall receive options; the times when they shall
receive them; the number of shares to be subject to each option; the term of
each option; the date each option shall become exercisable; whether an option
shall be exercisable in whole, in part or in installments, and if in
installments, the number of shares to be subject to each installment; the date
each installment shall become exercisable and the term of each installment; to
accelerate the date of exercise of any installment; whether shares may be issued
on exercise of an option as partly paid, and, if so, the dates when future
installments of the exercise price shall become due and the amounts of each
installments; the exercise price; the form of payment upon exercise; to require
that the individual remain employed in some capacity with the Company or its
Subsidiaries for a period of time from and after the date the option is granted
to him; the amount necessary to satisfy the Company's withholding obligation; to
restrict the sale or other disposition of the shares of Common Stock acquired
upon the exercise of an option and to waive any such restriction; to construe
the respective option agreements and the Plan; to prescribe, amend and rescind
rules and regulations relating to the Plan; to make all other determinations
necessary or advisable for administering the Plan; and, with the consent of the
optionee, to cancel or modify an option, provided such option as modified does
not violate the terms of the Plan. The determinations of the Committee on the
matters referred to in this Paragraph 3 shall be conclusive. No member of the
Committee shall be liable for anything whatsoever in
<PAGE> 2
connection with the administration of the Plan except such member's own willful
misconduct. Under no circumstances shall any member of the Committee be liable
for any act or omission of any other member of the Committee. In the performance
of its functions with respect to the Plan, the Committee shall be entitled to
rely upon information and advice furnished by the Company's officers, the
Company's accountants, the Company's counsel and any other party the Committee
deems necessary and no member of the Committee shall be liable for any action
taken or not taken in reliance upon any such advice.
4. ELIGIBILITY. The Committee may, consistent with the purposes
of the Plan, grant options from time to time, within 10 years from the date of
adoption of the Plan by the Board of Directors, to key employees of the Company
or any of its Subsidiaries, including officers, and covering such number of
shares of Common Stock as it may determine.
5. EXERCISE PRICE. The exercise price of the shares of Common
Stock under each option shall be determined by the Committee.
6. TERM OF OPTION. The term of each option granted pursuant to
the Plan shall be such term as is established by the Committee, in its sole
discretion, at the time such option is granted.
7. EXERCISE OF OPTION. An option (or any part or installment
thereof) shall be exercised by giving written notice to the Company at its
principal office specifying the number of shares as to which such option is
being exercised and accompanied by payment in full of the aggregate exercise
price therefor (or the amount due on exercise if the Stock Option Contract
permits installment payments). The Company shall have the right to deduct and
withhold from any cash otherwise payable to an optionee, or require that an
optionee make arrangements satisfactory to the Company for payment of, such
amounts as the Company shall determine for the purpose of satisfying its
liability to withhold Federal, state or local income or FICA taxes incurred by
reason of the grant or exercise of an option. Certificates representing the
shares purchased shall be issued as promptly as practicable, provided that the
Company may postpone issuing certificates for such shares for such time as the
Company, in its sole discretion, may deem necessary or desirable in order to
enable it to comply with any requirements of the Securities Act of 1933, as
amended ("Securities Act"), the 1934 Act, any Rules or Regulations of the
Securities and Exchange Commission promulgated under either of the foregoing
acts, the listing requirements of any securities exchange on which the Company's
Common Stock may now or hereafter be listed, or any applicable laws of any
jurisdiction relating to the authorization, issuance or sale of securities. The
holder of an option shall not have the rights of a stockholder with respect to
the shares covered by his option until the date of issuance of a stock
certificate to him for such shares; provided, however, that until such stock
certificate is issued, any option holder using previously acquired shares in
payment of an option exercise price shall have the rights of a shareholder with
respect to such previously acquired shares. In no case may a fraction of a share
be purchased or issued under the Plan.
2
<PAGE> 3
8. TERMINATION OF EMPLOYMENT. Any optionee whose employment with
the Company (and its Subsidiaries) has terminated for any reason other than
termination for cause (as defined in the Stock Option Contract), death or
permanent and total disability (as defined in Section 22(e)(3) of the Code) may
exercise his option, to the extent exercisable on the date of such termination,
at any time as specified within the Stock Option Contract but not longer than
twelve months after the date of termination, but in no event after the
expiration of the term of the option. Options granted to any employee under the
Plan shall not be affected by any changes in the status of an optionee so long
as he continues to be employed in some capacity with the Company, or any of the
Subsidiaries, or a Constituent Corporation. Nothing in the Plan or in any option
granted under the Plan shall confer on any individual any right to continue in
the employ of the Company or any of its Subsidiaries, or interfere in any way
with the right of the Company or any of its Subsidiaries to terminate the
employee's employment at any time for any reason whatsoever without liability to
the Company or any of its Subsidiaries.
9. DEATH OR DISABILITY OF AN OPTIONEE. If an optionee dies while
he is employed by the Company or any of its Subsidiaries, or within three months
after the termination of his employment, or if the optionee's employment has
terminated by reason of a permanent and total disability (as defined in Section
22(e)(3) of the Code), options granted under this Plan shall become immediately
exercisable by his executor, administrator or other person at the time entitled
by law to his rights under the option.
10. STOCK OPTION CONTRACTS. Each option shall be evidenced by an
appropriate Stock Option Contract, and may contain such terms and conditions not
inconsistent herewith as may be determined by the Committee, and which may
provide, among other things, that in the event of the exercise of such option,
unless the shares of Common Stock received upon such exercise shall have been
registered under an effective registration statement under the Securities Act,
such shares will be acquired for investment and not with a view to distribution
thereof, and that such shares may not be sold except in compliance with the
applicable provisions of the Securities Act. The Stock Option Contract may
provide for the issuance of Shares which are registered under the Securities
Act. The Plan shall not obligate the Company to issue Shares which are
registered under the Securities Act. The Stock Option Contract may provide that
if the Shares are issued upon the exercise of an option, and such Shares are not
registered under the Securities Act, that the Company may grant to the Optionee
certain rights to cause such Shares to be so registered and to require the
Optionee to deliver to the Company sufficient representations and investment
letters as may be reasonably required by the Company in order to assure that the
Company's issuance of Shares to such Optionee is either exempt from registration
under the Securities Act or does not constitute a violation of the Securities
Act which determination shall be made by counsel selected by the Company.
11. ADJUSTMENTS. The number of shares reserved for issuance
hereunder shall be subject to adjustment as follows:
(a) In case the Company shall (i) pay a dividend in
shares of Common Stock or make a distribution in shares of Common Stock, (ii)
subdivide its outstanding shares of
3
<PAGE> 4
Common Stock, (iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock or (iv) issue by reclassification of
its shares of Common Stock other securities of the Company, the number of shares
purchasable upon exercise of the options authorized under the Plan immediately
prior thereto shall be adjusted so that the kind and number of shares or other
securities of the Company authorized under this Plan that a grantee would have
owned or have been entitled to receive after the happening of any of such event
or any record date with respect thereto. An adjustment shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event.
(b) The Committee is authorized to provide in any
particular Stock Option Contract for adjustments to the number or kind of
securities that a grantee may receive or the exercise price of such option based
on (i) the Company's reorganization, consolidation or merger with another
corporation, (ii) dissolution or liquidation of the Company, or (iii) a change
in ownership of the outstanding voting shares of the Company. The determination
of the Committee as to what adjustments shall be made, and the extent thereof,
shall be final. Unless otherwise determined by the Committee, such adjustments
shall be subject to the same vesting schedule and restrictions to which the
underlying option is subject. No fractional shares of Company Stock shall be
reserved or authorized or made subject to any outstanding option by any such
adjustment.
12. AMENDMENTS AND TERMINATION OF THE PLAN. No options may be
granted under the Plan after the tenth anniversary of the Effective Date. The
Board of Directors, without approval of the Company's stockholders, may at any
time suspend or terminate the Plan, in whole or in part, or amend it from time
to time in such respects as it may deem advisable; provided, however, the Plan
shall not be amended more than once every six months other than to comport with
any changes under the Code thereafter enacted and conform to any change in
applicable law or to regulations or rulings of administrative agencies. No
termination, suspension or amendment of the Plan shall, without the consent of
the holder of an existing option affected thereby, adversely affect his rights
under such option.
13. NON-TRANSFERABILITY OF OPTIONS. No option granted under the
Plan shall be transferable otherwise than by will or the laws of descent and
distribution or a qualified domestic relations order as defined in the Code, and
options may be exercised, during the lifetime of the holder thereof, only by
him. Except to the extent provided in Paragraph 9, options may not be assigned,
transferred, pledged, hypothecated or disposed of in any way (whether by
operation of law or otherwise) and shall not be subject to execution, attachment
or similar process.
14. DESIGNATION OF BENEFICIARY. The optionee may designate in
writing on forms prescribed by and filed with the Committee prior to the
optionee's death a beneficiary or beneficiaries to receive all or part of the
options to be delivered to the optionee under this Plan in the event of the
death of the optionee at any time on forms prescribed by and filed with the
Committee. In the event of the optionee's death, the options to be delivered to
the optionee under this Plan with respect to which a designation of a
beneficiary has been made (to the extent
4
<PAGE> 5
such designation is valid and enforceable under applicable law) shall be
delivered, in accordance with the Plan, to the designated beneficiary or
beneficiaries. Any options to be delivered as to which a designation has not
been made shall be delivered to the optionee's estate. If there is any question
as to the legal right of any beneficiary to receive delivery of the options
pursuant to the Plan, the options (and shares issuable upon the exercise
thereof) may be delivered in the sole discretion of the Committee to the estate
of the optionee, in which event neither the Company nor any Subsidiary shall
have any further liability to anyone with respect to such options.
15. SUBSTITUTIONS AND ASSUMPTIONS OF OPTIONS OF CERTAIN
CONSTITUENT CORPORATIONS. Anything in this Plan to the contrary notwithstanding,
the Board of Directors may, without further approval by the stockholders,
substitute new options for prior options of a Constituent Corporation (as
defined in Paragraph 16) or assume the prior options of such Constituent
Corporation.
16. DEFINITIONS.
(a) Subsidiary. The term "Subsidiary" shall have the same
definition as "subsidiary corporation" in Section
425(f) of the Code.
(b) Parent. The term "Parent" shall have the same
definition as "parent corporation" in Section 425(e)
of the Code.
(c) Constituent Corporation. The term "Constituent
Corporation" shall mean any corporation which engages
with the Company or any Subsidiary in a transaction
to which Section 425(a) of the Code applies (or would
apply if the option assumed or substituted were an
incentive stock option), or any Parent or any
Subsidiary of such corporation.
17. EFFECTIVE DATE OF PLAN. This Plan shall be effective upon the
adoption by the Board of Directors ("Effective Date").
18. GOVERNING LAW. The Plan and all rights hereunder shall be
construed in accordance with an governed by the internal laws of the State of
California.
BEVERAGE WORKS, INC. BEVERAGE WORKS, INC.
- ---------------------------------- ----------------------------------
By: Frederik G.M. Rodenhuis, By: Lyle R. Maul,
Chief Executive Officer Secretary
5
<PAGE> 1
EXHIBIT 10.17
1996 INCENTIVE STOCK OPTION PLAN OF BEVERAGE WORKS, INC.
1. PURPOSES OF THE PLAN. This stock option plan (the "Plan") is
designed to provide an incentive to key employees of Beverage Works, Inc., a
California corporation (the "Company"), and its present and future subsidiary
corporations, as defined in Paragraph 16 ("Subsidiaries"), and to offer an
additional inducement in obtaining the services of such individuals. The Plan
provides for the grant of "incentive stock options," within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
2. STOCK SUBJECT TO THE PLAN. Options may be granted under the Plan to
purchase in the aggregate not more than One Million Five Hundred Thousand
(1,500,000) shares of Common Stock, no par value, of the Company ("Common
Stock"), which shares may, in the discretion of the Board of Directors, consist
either in whole or in part of authorized but unissued shares of Common Stock or
shares of Common Stock held in the treasury of the Company. The Company shall at
all times during the term of the Plan reserve and keep available such number of
shares of Common Stock as will be sufficient to satisfy the requirements of the
Plan. Subject to the provision of Paragraph 12, any shares subject to an option
which for any reason expires, is cancelled or is terminated unexercised as to
such shares shall again become available for option under the Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by a
Committee (the "Committee") consisting of not less than three members of the
Board of Directors. A majority of the members shall constitute a quorum, and the
acts of a majority of the members present at any meeting at which a quorum is
present, and any acts approved in writing by all members without a meeting,
shall be the acts of the Committee. Each member of the Committee shall be a
Non-Employee Director, as defined in Rule 16b-3(b)(3) or its successors under
the Securities Exchange Act of 1934 ("1934 Act"). Subject to the express
provisions of the Plan, the Committee shall have the authority, in its sole
discretion, to determine the individuals who shall receive options; the times
when they shall receive them; the number of shares to be subject to each option;
the term of each option; the date each option shall become exercisable; whether
an option shall be exercisable in whole, in part or in installments, and if in
installments, the number of shares to be subject to each installment; the date
each installment shall become exercisable and the term of each installment; to
accelerate the date of exercise of any installment; whether shares may be issued
on exercise of an option as partly paid, and, if so, the dates when future
installments of the exercise price shall become due and the amounts of each
installments; the exercise price; the form of payment upon exercise; to require
that the individual remain employed in some capacity with the Company or its
Subsidiaries for a period of time from and after the date the option is granted
to him; the amount necessary to satisfy the Company's withholding obligation; to
restrict the sale or other disposition of the shares of Common Stock acquired
upon the exercise of an option and to waive any such restriction; to construe
the respective option agreements and the Plan; to prescribe, amend and rescind
rules and regulations relating to the Plan; to make all other determinations
necessary or advisable for administering the Plan; and, with the consent of the
optionee, to cancel or modify an option, provided such option as modified does
not violate the terms of the Plan. The determinations of the Committee on the
matters referred to in this Paragraph 3 shall be conclusive. No member of the
Committee shall be liable for anything whatsoever in
<PAGE> 2
connection with the administration of the Plan except such member's own willful
misconduct. Under no circumstances shall any member of the Committee be liable
for any act or omission of any other member of the Committee. In the performance
of its functions with respect to the Plan, the Committee shall be entitled to
rely upon information and advice furnished by the Company's officers, the
Company's accountants, the Company's counsel and any other party the Committee
deems necessary and no member of the Committee shall be liable for any action
taken or not taken in reliance upon any such advice.
4. ELIGIBILITY. The Committee may, consistent with the purposes of the
Plan, grant options from time to time, within 10 years from the date of adoption
of the Plan by the Board of Directors, to key employees of the Company or any of
its Subsidiaries, including officers, and covering such number of shares of
Common Stock as it may determine; provided, however, that the aggregate market
value (determined at the time the stock option is exercisable) of the shares for
which any eligible person may be granted incentive stock options under the Plan
or any other plan of the Company, or of a Subsidiary of the Company which are
exercisable for the first time by such optionee during any calendar year shall
not exceed $100,000. Any option (or the portion thereof) granted in excess of
such amount shall be treated as a non-qualified stock option.
5. EXERCISE PRICE. The exercise price of the shares of Common Stock
under each option shall be determined by the Committee, but in no event shall
such purchase price be less than 100% of the fair market value of the Common
Stock on the date of grant; provided, however, that if, at the time an option is
granted, the optionee owns (or is deemed to own) stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company or of
any of its Subsidiaries, the exercise price shall not be less than 110% of the
fair market value of the Common Stock subject to the option at the time of the
granting of such option. The fair market value of the Common Stock on any day
shall be (a) if the principal market for the Common Stock is a national
securities exchange, the closing sale price of the Common Stock on such day as
reported by such exchange or on a consolidated tape reflecting transactions on
such exchange, (b) if the principal market for the Common Stock is not a
national securities exchange and the Common Stock is quoted on the Nasdaq, and
(i) if the Common Stock is quoted on the Nasdaq National Market System, the
closing sale price of the Common Stock on such day, or (ii) if the Common Stock
is not quoted on the Nasdaq National Market System, the average between the
highest bid and the lowest asked prices for the Common Stock on such day on
Nasdaq, or (c) if the principal market for the Common Stock is not a national
securities exchange and the Common Stock is not quoted on Nasdaq, the average
between the highest bid and lowest asked prices for the Common Stock on such day
as reported by National Quotation Bureau, Incorporated; provided that if clauses
(a), (b) and (c) of this Paragraph are all inapplicable, or if no trades have
been made or no quotes are available for such day, the fair market value of the
Common Stock shall be determined by the Committee by any method consistent with
applicable regulations adopted by the Treasury Department relating to incentive
stock options. The determination of the Committee shall be conclusive in
determining the fair market value of the stock.
2
<PAGE> 3
6. TERM OF OPTION. The term of each option granted pursuant to the Plan
shall be such term as is established by the Committee, in its sole discretion,
at the time such option is granted; provided, however, that the term of each
incentive stock option granted pursuant to the Plan shall be for a period not
exceeding 10 years from the date of granting thereof, and further, provided,
that if, at the time an option is granted, the optionee owns (or is deemed to
own) stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company, or of any of its Subsidiaries, the term of the
incentive stock option shall be for a period not exceeding five years. Options
shall be subject to earlier termination as hereinafter provided.
7. EXERCISE OF OPTION. An option (or any part or installment thereof)
shall be exercised by giving written notice to the Company at its principal
office specifying the number of shares as to which such option is being
exercised and accompanied by payment in full of the aggregate exercise price
therefor (or the amount due on exercise if the Stock Option Contract permits
installment payments). The Company shall have the right to deduct and withhold
from any cash otherwise payable to an optionee, or require that an optionee make
arrangements satisfactory to the Company for payment of, such amounts as the
Company shall determine for the purpose of satisfying its liability to withhold
Federal, state or local income or FICA taxes incurred by reason of the grant or
exercise of an option. Certificates representing the shares purchased shall be
issued as promptly as practicable, provided that the Company may postpone
issuing certificates for such shares for such time as the Company, in its sole
discretion, may deem necessary or desirable in order to enable it to comply with
any requirements of the Securities Act of 1933, as amended ("Securities Act"),
the 1934 Act, any Rules or Regulations of the Securities and Exchange Commission
promulgated under either of the foregoing acts, the listing requirements of any
securities exchange on which the Company's Common Stock may now or hereafter be
listed, or any applicable laws of any jurisdiction relating to the
authorization, issuance or sale of securities. The holder of an option shall not
have the rights of a stockholder with respect to the shares covered by his
option until the date of issuance of a stock certificate to him for such shares;
provided, however, that until such stock certificate is issued, any option
holder using previously acquired shares in payment of an option exercise price
shall have the rights of a shareholder with respect to such previously acquired
shares. In no case may a fraction of a share be purchased or issued under the
Plan.
8. TERMINATION OF EMPLOYMENT. Any optionee whose employment with the
Company (and its Subsidiaries) has terminated for any reason other than
termination for cause (as defined in the Stock Option Contract), death or
permanent and total disability (as defined in Section 22(e)(3) of the Code) may
exercise his option, to the extent exercisable on the date of such termination,
at any time within four months after the date of termination, but in no event
after the expiration of the term of the option. Options granted to any employee
under the Plan shall not be affected by any changes in the status of an optionee
so long as he continues to be employed in some capacity with the Company, or any
of the Subsidiaries, or a Constituent Corporation. Nothing in the Plan or in any
option granted under the Plan shall confer on any individual any right to
continue in the employ of the Company or any of its Subsidiaries, or interfere
in any way with the right of the Company or any of its Subsidiaries
3
<PAGE> 4
to terminate the employee's employment at any time for any reason whatsoever
without liability to the Company or any of its Subsidiaries.
9. DEATH OR DISABILITY OF AN OPTIONEE. If an optionee dies while he is
employed by the Company or any of its Subsidiaries, or within three months after
the termination of his employment, or if the optionee's employment has
terminated by reason of a permanent and total disability (as defined in Section
22(e)(3) of the Code), options granted under this Plan shall become immediately
exercisable by his executor, administrator or other person at the time entitled
by law to his rights under the option.
10. STOCK OPTION CONTRACTS. Each option shall be evidenced by an
appropriate Stock Option Contract, and may contain such terms and conditions not
inconsistent herewith as may be determined by the Committee, and which may
provide, among other things, (a) that in the event of the exercise of such
option, unless the shares of Common Stock received upon such exercise shall have
been registered under an effective registration statement under the Securities
Act, such shares will be acquired for investment and not with a view to
distribution thereof, and that such shares may not be sold except in compliance
with the applicable provisions of the Securities Act, and (b) that in the event
of any disposition of the shares of Common Stock acquired upon the exercise of
an incentive stock option within two years from the date of grant of the option
or one year from the date of issuance of such shares to him (a "Disqualifying
Disposition") the optionee will notify the Company thereof in writing within 30
days after such disposition, pay the Company, on demand, in cash an amount
necessary to satisfy its obligation, if any, to withhold any Federal, state or
local income taxes or other taxes by reason of such Disqualifying Disposition
and provide the Company, on demand, with such information as the Company shall
reasonably request to determine such obligation. The Stock Option Contract may
provide for the issuance of Shares which are registered under the Securities
Act. The Plan shall not obligate the Company to issue Shares which are
registered under the Securities Act. The Stock Option Contract may provide that
if the Shares are issued upon the exercise of an Option, and such Shares are not
registered under the Securities Act, that the Company may grant to the Optionee
certain rights to cause such Shares to be so registered and to require the
Optionee to deliver to the Company sufficient representations and investment
letters as may be reasonably required by the Company in order to assure that the
Company's issuance of Shares to such Optionee is either exempt from registration
under the Securities Act or does not constitute a violation of the Securities
Act which determination shall be made by counsel selected by the Company.
11. ADJUSTMENTS. The number of shares reserved for issuance hereunder
shall be subject to adjustment as follows:
(a) In case the Company shall (i) pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock, (ii) subdivide
its outstanding shares of Common Stock, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock or (iv) issue by
reclassification of its shares of Common Stock other securities of the Company,
the number of shares purchasable upon exercise of the options
4
<PAGE> 5
authorized under the Plan immediately prior thereto shall be adjusted so that
the kind and number of shares or other securities of the Company authorized
under the Plan that a grantee would have owned or have been entitled to receive
after the happening of any of such event or any record date with respect
thereto. An adjustment made pursuant to this paragraph (a) shall become
effective immediately after the effective date of such event retroactive to the
record date, if any, for such event.
(b) The Committee is authorized to provide in any particular
Stock Option Contract for adjustments to the number or kind of securities that a
grantee may receive or the exercise price of such option based on (i) the
Company's reorganization, consolidation or merger with another corporation, (ii)
dissolution or liquidation of the Company, or (iii) a change in ownership of the
outstanding voting shares of the Company. The determination of the Committee as
to what adjustments shall be made, and the extent thereof, shall be final.
Unless otherwise determined by the Committee, such adjustments shall be subject
to the same vesting schedule and restrictions to which the underlying option is
subject. No fractional shares of Company Stock shall be reserved or authorized
or made subject to any outstanding option by any such adjustment.
12. AMENDMENTS AND TERMINATION OF THE PLAN. No options may be granted
under the Plan after the tenth anniversary of the Effective Date. The Board of
Directors, without further approval of the Company's stockholders, may at any
time suspend or terminate the Plan, in whole or in part, or amend it from time
to time in such respects as it may deem advisable; provided, however, the Plan
shall not be amended more than once every six months other than to comport with
any changes under the Code thereafter enacted and conform to any change in
applicable law or to regulations or rulings of administrative agencies. No
termination, suspension or amendment of the Plan shall, without the consent of
the holder of an existing option affected thereby, adversely affect his rights
under such option.
13. NON-TRANSFERABILITY OF OPTIONS. No option granted under the Plan
shall be transferable otherwise than by will or the laws of descent and
distribution or a qualified domestic relations order as defined in the Code, and
options may be exercised, during the lifetime of the holder thereof, only by
him. Except to the extent provided in Paragraph 9, options may not be assigned,
transferred, pledged, hypothecated or disposed of in any way (whether by
operation of law or otherwise) and shall not be subject to execution, attachment
or similar process.
14. DESIGNATION OF BENEFICIARY. The optionee may designate in writing
on forms prescribed by and filed with the Committee prior to the optionee's
death a beneficiary or beneficiaries to receive all or part of the options to be
delivered to the optionee under this Plan in the event of the death of the
optionee at any time on forms prescribed by and filed with the Committee. In the
event of the optionee's death, the options to be delivered to the optionee under
this Plan with respect to which a designation of a beneficiary has been made (to
the extent such designation is valid and enforceable under applicable law) shall
be delivered, in accordance with the Plan, to the designated beneficiary or
beneficiaries. Any options to be delivered as to
5
<PAGE> 6
which a designation has not been made shall be delivered to the optionee's
estate. If there is any question as to the legal right of any beneficiary to
receive delivery of the Options pursuant to the Plan, the options (and shares
issuable upon the exercise thereof) may be delivered in the sole discretion of
the Committee to the estate of the optionee, in which event neither the Company
nor any Subsidiary shall have any further liability to anyone with respect to
such options.
15. SUBSTITUTIONS AND ASSUMPTIONS OF OPTIONS OF CERTAIN CONSTITUENT
CORPORATIONS. Anything in this Plan to the contrary notwithstanding, the Board
of Directors may, without further approval by the stockholders, substitute new
options for prior options of a Constituent Corporation (as defined in Paragraph
16) or assume the prior options of such Constituent Corporation.
16. DEFINITIONS.
(a) Subsidiary. The term "Subsidiary" shall have the same
definition as "subsidiary corporation" in Section 425(f) of the Code.
(b) Parent. The term "Parent" shall have the same definition
as "parent corporation" in Section 425(e) of the Code.
(c) Constituent Corporation. The term "Constituent
Corporation" shall mean any corporation which engages with the Company or any
Subsidiary in a transaction to which Section 425(a) of the Code applies (or
would apply if the option assumed or substituted were an incentive stock
option), or any Parent or any Subsidiary of such corporation.
17. EFFECTIVE DATE OF PLAN. This Plan shall be effective upon its
adoption by the Board of Directors ("Effective Date"). The Plan shall be
submitted to the shareholders of the Company for approval within twelve (12)
months after its adoption by the Board of Directors and, if the Plan shall not
be approved by the shareholders within such twelve month period, the Plan shall
be void and of no effect. Any Options granted under the Plan prior to the date
of approval by the stockholders shall be void if such shareholders, approval is
not timely obtained.
18. GOVERNING LAW. The Plan and all rights hereunder shall be construed
in accordance with an governed by the internal laws of the State of California.
BEVERAGE WORKS, INC.
By: Frederik G.M. Rodenhuis,
Chief Executive Officer
BEVERAGE WORKS, INC.
By: Lyle R. Maul,
Secretary
6
<PAGE> 1
Exhibit 10.19
LICENSE AGREEMENT
This License Agreement, made this day of ____________, 1996, between
C. A. WITTWER & ASSOCIATES (hereinafter "LICENSOR"), having its principal
office at 2772 Loker Avenue West, Suite F, Carlsbad, California, 92008, and
HERITAGE BREWING COMPANY, INC., a California corporation (hereinafter
"LICENSEE"), having its principal office at 571-C Crane Street, Lake Elsinore,
California 92530.
RECITALS
A. LICENSOR is the holder of the exclusive worldwide license for
the use of the tradename, trademark and logos of HUSSONG'S BEER (hereinafter
referred to collectively as "TRADENAME"). LICENSOR desires to have LICENSEE
manufacture, distribute and market beer under the TRADENAME.
B. LICENSEE is in the business of brewing beer and desires to
obtain the rights to manufacture, distribute and market beer under the
TRADENAME.
Wherefore, the parties hereto agree as follows:
1. OWNERSHIP RIGHTS
a. LICENSOR warrants that it is the holder of the
exclusive worldwide license for the use of the TRADENAME pursuant to an
agreement with Ricardo Hussong on behalf of the Hussong Family Mexico. A true
and correct copy of the agreement between LICENSOR and the Hussong Family
Mexico is attached hereto, identified as Exhibit "A," and incorporated herein
by reference.
b. During the term of this License Agreement and subject
to Paragraph 3(a), LICENSEE may from time to time develop new logos and artwork
for use with the name Hussong's Beer. All such logos and artwork shall be part
of the TRADENAME. LICENSEE shall have the exclusive right to the use of such
logos and artwork it develops for the term of this License Agreement. Upon
termination of this License Agreement, all rights and interest in such logos
and artwork developed by LICENSEE shall pass to LICENSOR.
c. The formulas for the beer to be brewed, distributed
and marketed under the TRADENAME has been developed by LICENSEE and is the
property of LICENSEE. All proprietary interest in the formula shall remain
with LICENSEE at all times during the term of this License Agreement, but shall
pass to LICENSOR upon termination of this License Agreement.
1
<PAGE> 2
LICENSE AGREEMENT
Page 2
2. APPOINTMENT AND TERRITORY
a. LICENSOR and LICENSEE agree that LICENSEE will be the
exclusive licensee with the exclusive right to use of the TRADENAME for the
manufacture, distribution and marketing of beer in California, Oregon,
Washington, Arizona, Nevada, Montana, Utah, New Mexico, Hawaii, Idaho, and
Mexico (hereinafter referred to collectively as the "TERRITORY"). In addition,
subject to Paragraph 3(b), LICENSEE shall have the limited right, for
promotional purposes related to the sale of beer only, to manufacture,
distribute and market clothing and merchandise using or bearing the TRADENAME.
b. LICENSEE shall also have the right to expand the
exclusive license and other rights granted hereunder to geographical areas
outside of the TERRITORY. LICENSEE shall have the exclusive right to expand
the manufacturing, distribution and marketing of beer under the TRADENAME into
other geographical areas west of the Mississippi River for three (3) years from
the date of this License Agreement. LICENSEE shall have the exclusive right to
expand the manufacturing, distribution and marketing of beer under the
TRADENAME into all other geographical areas worldwide for five (5) years from
the date of this License Agreement. LICENSOR shall not grant a license for use
of the TRADENAME within these geographical areas to any third party during the
time periods stated herein without the written consent of LICENSEE.
c. LICENSEE may exercise its right to expand into other
geographical areas by providing LICENSOR with written notice sent by certified
mail indicating the specific area into which LICENSEE intends to expand. When
LICENSEE elects to expand its rights to include additional geographical areas,
such areas shall become part of the TERRITORY.
3. APPROVAL BY LICENSOR
a. Use of any new logo or artwork developed by LICENSEE
for use with the name Hussong's Beer is subject to the prior approval of
LICENSOR, such approval not to be unreasonably withheld. All new logos and
artwork proposed for use by LICENSEE shall be submitted to LICENSOR for
approval by delivering representative copies to LICENSOR by certified mail.
LICENSOR shall communicate in writing, by certified mail, its approval or
rejection of the submitted materials within five (5) business days of receipt
thereof. If no response from LICENSOR has been delivered to LICENSEE by the
end of the fifth business day after receipt of the proposed materials by
LICENSOR, it shall be deemed that the proposed logos or artwork are approved.
b. The right of LICENSEE to manufacture, distribute or
market clothing or merchandise using or bearing the TRADENAME is subject to the
prior approval of
2
<PAGE> 3
LICENSE AGREEMENT
Page 3
LICENSOR, such approval not to be unreasonably withheld. All designs for such
clothing or merchandise proposed for use by LICENSEE shall be submitted to
LICENSOR for approval by delivering copies of the designs to LICENSOR by
certified mail. LICENSOR shall communicate in writing, by certified mail, its
approval or rejection of the submitted designs within five (5) business days of
receipt thereof. If no response from LICENSOR has been delivered to LICENSEE
by the end of the fifth business day after receipt of the proposed designs by
LICENSOR, it shall be deemed that the proposed designs are approved.
4. TERM OF AGREEMENT
The term of this License Agreement shall be as follows:
a. The initial term of this License Agreement shall be
for one (1) year, renewable annually at the option of LICENSEE so long as
LICENSEE is not in material breach of the terms of this License Agreement and
has met the annual minimum sales quotas set forth in subsection 4(b). The
option must be exercised by LICENSEE, if at all, no later than forty-five (45)
days prior to the commencement of the year for which the option is being
exercised by the giving of written notice sent by certified mail to LICENSOR.
In the event of termination of this License Agreement for any reason, LICENSEE
shall have the right to sell all then existing inventory of beer manufactured
under the TRADENAME. LICENSOR has the right of first refusal to purchase the
inventory at cost.
b. Annual minimum sales quotas for beer sold under the
TRADENAME which will entitle LICENSEE to renew the license are as follows:
<TABLE>
<CAPTION>
Year Sales in Gallons
---- ----------------
<S> <C>
1 63,000
2 135,000
3 225,000
4 337,500
5 500,000
</TABLE>
c. In the event LICENSEE sells 600,000 gallons or more
in years five (5), and on, this License Agreement and all rights granted
hereunder shall be extended at the option of LICENSEE so long as LICENSEE is
not in material breach. Such extension shall be for the same term as the
existing license agreement between the Hussong Family Mexico and LICENSOR
(Exhibit "A" hereto) and any superseding license agreement between such parties
or their respective agents, employees, heirs, successors, and assigns. If
LICENSEE exercises its option to extend this License Agreement pursuant to this
provision, LICENSEE shall pay LICENSOR, at the commencement of year six (6),
$100,000.
d. The exclusive rights granted by this License
Agreement shall vest as of
3
<PAGE> 4
LICENSE AGREEMENT
Page 4
the date this License Agreement is signed by both parties. However, for
purposes of calculating the time from which the first year of the license
begins to run, the license shall be deemed to commence as of June 1, 1996.
Each subsequent year under this License Agreement shall also commence on June
1. LICENSOR shall begin production of beer to be marketed under the TRADENAME
no later than June 1, 1996.
e. In the event that LICENSEE elects to expand into
geographical areas within the United States not initially included in the
TERRITORY as defined in paragraph 2(a), the quotas set forth in paragraph 4(b)
shall be modified as follows:
i. The quota will not increase during the first
year of operation within the geographical area newly
added to the TERRITORY.
ii. The quota for the second year of operation
within the geographical area newly added to the
TERRITORY and for each year thereafter will be based
on the following formula:
Population of Newly Added Area x .5 = % Increase in
Applicable Quota
Combined Population of Existing
TERRITORY in the United States
and Newly Added Area
iii. The increased quota will be calculated under
subsection ii above using the most recent official
United States Census Bureau figures.
iv. LICENSEE shall also pay to LICENSOR, upon
commencement, a territorial fee for the newly added
area calculated using the following formula:
<TABLE>
<S> <C> <C>
Population of Newly Added Area x base quota as set forth x $.20 = Territorial Fee
Combined Population of Existing in Paragraph 4(b) for
Territory in the United States the applicable year
and Newly Added Area
</TABLE>
f. In the event that LICENSEE elects to expand into
geographical areas outside of the United States, the quotas applicable to such
areas shall be negotiated by the parties.
5. COMPENSATION AND PAYMENT
a. LICENSEE shall pay LICENSOR, upon execution of this
License Agreement, a non-refundable territorial licensing fee of $25,000 for
the first year of the license.
4
<PAGE> 5
LICENSE AGREEMENT
Page 5
b. LICENSEE shall pay LICENSOR, upon commencement of the
second year of the license, a non-refundable territorial licensing fee of
$25,000.
c. LICENSEE shall pay LICENSOR, upon the commencement of
the each year, an advance royalty of $10,000. LICENSEE shall receive a credit
of that amount against the royalty payments due under Paragraph 5(f).
d. LICENSEE shall issue to LICENSOR 6,500 shares of
stock in BEVERAGE WORKS, INC. LICENSEE shall request that the investment
banking firm grant registration rights pursuant to the BEVERAGE WORKS, INC.
lockup agreement (also known as the "Brewco 13 Month Lockup"). In the event
that LICENSOR invokes its call option agreement with BEVERAGE WORKS, INC., then
LICENSEE will issue LICENSOR an equivalent number of shares of stock in
HERITAGE BREWING COMPANY, INC. in exchange for LICENSOR'S surrender of the
shares of stock in BEVERAGE WORKS, INC. originally issued to LICENSOR pursuant
to this provision.
e. LICENSEE shall pay to LICENSOR, upon execution of
this License Agreement, the sum of $5,000 as reimbursement of expenses incurred
by LICENSOR in connection with obtaining licensing rights from the Hussong
Family Mexico.
f. LICENSEE shall pay to LICENSOR a royalty of $.20 per
gallon on all beer sold under the TRADENAME during the first five (5) years of
this license agreement. Thereafter, the royalty to be paid by LICENSOR shall
be at double the rate to be paid by LICENSOR to the Hussong Family Mexico
pursuant to the terms and conditions of Exhibit "A."
g. LICENSEE shall pay to LICENSOR a royalty of 10% of
the gross profit from the sale of any clothing or merchandise bearing the
TRADENAME.
6. RELATIONSHIP OF THE PARTIES
The LICENSEE is an independent contractor under this License
Agreement and no agency, joint venture or partnership is created between the
parties. Neither party has the right to incur any liabilities on behalf of or
binding upon the other party.
7. BOOKS AND RECORDS
The LICENSEE will provide to LICENSOR monthly activity reports
detailing the sales of beer under the TRADENAME. "Sales" is used herein and
for purposes of calculating royalties under this License Agreement shall mean
shipments made (based on gallons sold)less returns. The monthly activity
reports are to be delivered to LICENSOR by regular mail on or before the 15th
day of the month following the month covered by the
5
<PAGE> 6
LICENSE AGREEMENT
Page 6
report.
8. PAYMENTS
Payments required under Paragraphs 5(f) and 5(g) of this
License Agreement shall be made by LICENSEE on the 15th day of the month
following the end of each calendar quarter. LICENSOR shall pay the royalty
payments due the Hussong Family Mexico under Exhibit "A" hereto, or under any
superseding License Agreement between said parties, on a timely basis and shall
provide LICENSEE with proof of payment within seven (7) days of the date each
such payment is made. In the event LICENSOR fails to make timely royalty
payments to the Hussong Family Mexico or fails to provide to LICENSEE proof of
such payments, LICENSEE at its sole option shall have the right to make the
royalty payments due the Hussong Family Mexico from LICENSOR. If LICENSEE
elects to make payments directly to the Hussong Family Mexico pursuant to the
provisions of this paragraph, the payments due LICENSOR from LICENSEE shall be
reduced by the amounts paid by LICENSEE directly to Hussong Family Mexico.
9. ASSIGNMENT
The rights and obligations hereunder may be assigned by
LICENSEE provided LICENSOR has given its written consent in advance of such
assignment. Consent shall not be unreasonably withheld by LICENSOR.
Effective January 1, 1997, and notwithstanding the foregoing, LICENSEE shall
have the right, at its sole discretion and without approval by LICENSOR, to
assign all rights and obligations hereunder to BEVERAGE WORKS, INC., a
California corporation, having its principal office at 9800 S. Sepulveda
Boulevard, Suite 720, Los Angeles, CA 90045.
10. INDEMNIFICATION
a. LICENSOR agrees to indemnify and hold LICENSEE free
from any loss, damage or cost, including legal fees and expenses for which
LICENSEE becomes liable by reason of acts of the LICENSOR in promoting,
marketing and selling the products which are the subject of this License
Agreement including, but not limited to misstatements or misrepresentations by
LICENSOR'S employees or agents concerning any aspect of the content, make-up or
characteristics of the products or availability, delivery dates or any other
term or condition relating to the sale of the products.
b. LICENSEE agrees to indemnify and hold LICENSOR free
from any loss, damage or cost, including legal fees and expenses, for which
LICENSOR becomes liable by reason of acts of the LICENSEE in promoting,
marketing and selling the products which are the subject of this License
Agreement, including, but not limited to misstatements or misrepresentations by
LICENSEE'S employees or agents concerning any aspect of the
6
<PAGE> 7
LICENSE AGREEMENT
Page 7
content, make-up or characteristics of the products, or availability, delivery
dates or any other term or condition relating to the sale of the products.
LICENSEE further agrees to indemnify and hold LICENSOR free from any loss,
damage or cost, including legal fees and expenses, based in tort or for
personal injury or property damage, for which LICENSOR becomes liable by reason
of the acts of LICENSEE in manufacturing, distributing, promoting, marketing
and selling the products.
11. INSURANCE
LICENSEE shall obtain and maintain at all times during the
term of this License Agreement a product liability insurance policy providing
for coverage of at least $1,000,000 for each occurrence. LICENSOR shall be
included as an additional insured under such policy of insurance.
12. FORCE MAJEURE
If LICENSEE fails to perform its obligations because of
strikes, lockouts, labor disputes, embargos, acts of God, inability to obtain
labor or materials or reasonable substitutes for labor or materials,
governmental restrictions, governmental regulations, governmental action,
judicial orders, enemy or hostile governmental action, civil commotion, fire or
other casualty, or other causes, except financial, beyond the reasonable
control of LICENSEE, then LICENSEE'S performance shall be excused for a period
equal to the period of such cause for failure to perform as long as LICENSEE
gives LICENSOR notice, in writing by certified mail, within three (3) business
days after the event causing the failure.
13. ARBITRATION
Any controversy, claim or dispute arising out of this License
Agreement or the breach of any provision hereof shall be settled by arbitration
in accordance with the rules of the American Arbitration Association. The
arbitrator may allocate all costs of dispute resolution, including attorneys'
fees, between the parties at his sole discretion. The award rendered by the
arbitrator shall be final and binding. The location of the arbitration
proceedings will be in Orange County, California.
14. NOTICES
All notices required or permitted under this License Agreement
shall be sent registered or certified mail, return receipt requested, to the
addresses set forth hereinabove, or at such address as the party to whom the
notice is to be sent directs in a writing sent in compliance with this notice
provision.
15. SEVERABILITY; HEADINGS; WAIVER; GOVERNING LAW; COMPLIANCE
7
<PAGE> 8
LICENSE AGREEMENT
Page 8
In the event that one or more of the provisions contained
herein are found to be illegal or unenforceable in any respect, the legality
and enforceability of the remaining provisions of this License Agreement shall
not be affected. The headings of this License Agreement are provided for
reference only. The failure of either party to enforce at any time any
provision of this License Agreement shall in no way be construed as a waiver of
such provision and shall in no way affect the ability of such party to
thereafter enforce each and every provision. This License Agreement shall be
governed by and construed in accordance with the laws of the State of
California. Both parties mutually agree to do all things reasonably necessary
in order to comply with all laws and regulations.
IN WITNESS WHEREOF, the parties have caused this License Agreement to
be signed by their duly authorized and empowered officers or representatives as
of the date first above written.
C. A. WITTWER & ASSOCIATES ("LICENSOR")
________________________________________ ___________________________
Date
________________________________________
Title of Signator
HERITAGE BREWING COMPANY, INC.,
a California corporation ("LICENSEE")
________________________________________ ___________________________
Date
________________________________________
Title of Signator
8
<PAGE> 1
EXHIBIT 10.21
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (this "Agreement") is made and entered into
as of the 19TH day of July , 1996, by and between Beverage Works, Inc. a
California corporation ("BW"), and Riverside Brewing Company, a California
corporation ( "Riverside" ) .
WHEREAS,-Riverside currently operates a craft microbrewery and brewpub
in the State of California (the "Business"); and
WHEREAS, BW and Riverside are concurrently herewith negotiating an
agreement (the "Acquisition Agreement") pursuant to which BW will, upon the
closing of the transactions contemplated thereby, acquire from the shareholders
of Riverside all of the issued and outstanding shares of common stock of
Riverside (the "business Transaction"); and
WHEREAS, BW desires, subject to the terms and conditions hereof, to
manage and operate the Business conducted by Riverside , effective as of 8 a.m.
on June 10, l996 and until the closing of the transactions contemplated by the
Acquisition Agreement;
NOW , THEREFORE , in consideration of the mutual covenants, agreements,
representations and warranties set forth in the Agreement, and for other good
and valuable consideration had and received, the parties hereto hereby agree as
follows:
MANAGEMENT AND OPERATION OF BUSINESS
SECTION 1.1. Appointment of BW. BW and Riverside intend for the
Business to be exclusively operated and managed by BW from and as of the date
hereof until this Agreement terminates as hereinafter provided. Accordingly,
Riverside hereby appoints BW, and BW hereby accepts such appointment, on the
terms and conditions hereinafter provided, to be the exclusive manager and
operator of the Business during the term of this Agreement. Riverside hereby
grants BW all power and authority, including, without limitation, the power and
authority to negotiate contracts (including sales contracts) and other written
instruments in the name and on behalf of Riverside, necessary to carry out the
terms of this appointment; provided, however, that BW shall not have the power
and authority to execute and deliver anything other than sales contracts.
Riverside hereby agrees, from time to time after the date hereof, upon the
request of BW,
to take all appropriate actions and execute any documents, instruments or
conveyances of any kind or nature, including, without limitation, powers of
attorney and other written instruments generally authorizing specified BW
personnel to take action with respect to the Business, the Riverside bank
accounts used in the operation of the Business, etc., necessary or conducive to
the performance of BW's obligations hereunder;
<PAGE> 2
provided however that no officer, director, employee, independent contractor or
agent of BW shall have authority to sign checks for or on behalf of Riversides
SECTION 1.2 . Compensation and Reimbursement of BW. As its sole
compensation for the management services provided hereunder, BW shall be
entitled to receive compensation in the amount of $6,500 per month, plus
reimbursement of expenses; provided, however, that such amounts shall only be
due and payable if the Business Transaction does not close by December 31, 1996
in which event payment of such amounts shall be made by Riverside to BW within
thirty (30) days after December 31, 1996.
SECTION 1.3. Reimbursement of Riverside. If the Business Transaction
does not close by December 31, 1996, BW agrees to reimburse Riverside for
expenditures made by Riverside on behalf of BW that do not remain with Riverside
or benefit Riverside after December 31, 1996. Any payments due to Riverside
pursuant hereto shall be made within thirty (30) days after December 31, 1996.
II.
REPRESENTATIONS AND WARRANTIES OF RIVERSIDE
To induce BW to enter into this Agreement, and to consummate the other
transactions contemplated hereby, Riverside hereby represents and warrants to BW
as follows:
SECTION 2.1. Organization of Riverside. Riverside is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. Riverside is duly qualified to do business and is in good standing
as a foreign corporation in each jurisdiction where the conduct of its business
requires it to be so qualified. Riverside has all necessary corporate power and
authority to carry on its business as it is now being conducted and to own or
lease and operate its properties and assets.
SECTION 2.2. Authorization and Validitv. Riverside has the full
corporate power and authority to execute, deliver and perform this Agreement.
This Agreement has been duly executed and delivered on behalf of Riverside and
constitutes the legal, valid and binding obligation of Riverside, enforceable
against Riverside in accordance with its terms, except that (a) such enforcement
may be subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws now and hereafter in effect relating to creditors rights, and (b)
the remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought; The execution, delivery and
performance of this Agreement by Riverside has been duly authorized by all
requisite corporate action, including, without limitation, approval and
authorization by its Board of Directors, and no registration or filing with, or
consent or approval of, or any other action by, any governmental agency or
instrumentality or any other person is or will be necessary for the valid
execution, delivery and performance of this Agreement by Riverside.
<PAGE> 3
SECTION 2.3. Absence of Conflicting Agreements, Etc. Neither the
execution, delivery or performance of this Agreement by Riverside nor the
consummation by Riverside of the transactions contemplated hereby will violate
any provisions of law, any order of any court or other agency of government, the
Articles; of Incorporation or Bylaws of Riverside, or any provisions of any
indenture, agreement or other instrument to which Riverside or any of the
properties or assets of Riverside is bound, or conflict with, result in a breach
of, or constitute (with due notice or lapse of time or both) a default under,
any such indenture, agreement or other instrument, or result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
the properties or assets of Riverside.
REPRESENTATION AND WARRANTIES OF BW
In order to induce Riverside to enter into this Agreement, and to
consummate the other transactions contemplated hereby, BW hereby represents and
warrants to Riverside as follows:
SECTION 3.1 Organization of BW. BW is a corporation duly organized,
validly existing and in good standing under the laws of the State of California.
BW is duly qualified to do business and is in good standing as a foreign
corporation in each jurisdiction where the conduct of its business requires it
to be so qualified.
SECTION 3.2. Authorization and Validity. BW has the full corporate
power and authority to execute, deliver and perform this Agreement. This
Agreement when duly executed and delivered by BW constitutes the legal, valid
and binding obligation of BW, enforceable against it in accordance with its
terms, except that (a) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar
laws nor or hereafter in effect relating to credits' rights, and (b) the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought. The execution, delivery and performance
of this Agreement by BW has been duly authorized by all requisite corporate
action, including approval and authorization by its Board of Directors, and no
registration or filing with, or consent of approval of or any other action by,
any governmental agency or instrumentality or any other person is or will be
necessary for the valid execution, delivery and performance of this Agreement by
BW.
SECTION 3.3. Absence of Conflicting Agreements, Etc. The execution,
delivery and performance of this Agreement by BW and the consummation by BW of
the transactions contemplated hereby will not violate any provisions of law, any
order of any court or other agency of government, the Articles of Incorporation
or By-laws of BW, or any provision of any indenture, agreement or other
instrument to which BW or any of the properties or assets of BW is bound,
conflict with, result in a breach of, or constitute (with due notice or lapse of
time or both) a default under, any such indenture, agreement or other
instrument, or result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any of the properties or assets of BW.
<PAGE> 4
IV.
INDEMNIFICATION
SECTION 4.1. Indemnification by Riverside. Riverside shall defend,
indemnify and hold BW and its officers, directors, employees, attorneys and
agents harmless from and against any and all claims, damages, demands,
liabilities, losses, costs, interest, penalties and expense (including, without
limitation, attorney's fees, accountant's fees, investigative fees, expert
witness fees and the costs associated therewith) which may be asserted against
or sustained or incurred by BW, its officers, directors, employees, attorneys
and agents, arising out of or in connection with BW's activities on behalf of
Riverside in accordance with the provisions of this Agreement; provided,
however, that BW shall not be entitled to such indemnification for willful
misconduct.
SECTION 4.2. Defense of Claims. If a claim for Damages is to be made by
BW, BW shall give written notice to Riverside as soon as practicable after BW
becomes aware of any fact, condition or event which may give rise to Damages for
which indemnification may be sought under this Agreement. If any lawsuit or
enforcement action is filed against BW for which indemnification shall be
sought, written notice thereof shall be given to Riverside as promptly as
practicable (and in any event within thirty (30) days after the service of any
citation or summons); provided, however, that the failure of BW to give timely
notice shall not affect its rights to indemnification under this Agreement
except to the extent Riverside demonstrates actual damage caused by such
failure. Riverside shall be entitled to take control of the defense and
investigation of such lawsuit or action, and to employ and engage attorneys of
its own choice to handle and defend the same. BW, if it so chooses, shall also
be entitled to be represented by its own counsel of choice (at its sole cost,
risk and expense) in connection with the investigation, trial or defense of any
such lawsuit or action; provided, however, that if a conflict or potential
conflict of interest arises regarding the same attorney representing both
Riverside and BW, BW shall then be entitled to be represented by its own counsel
of choice (at the sole cost, risk and expense of Riverside).
V.
TERM AND TERMINATION
SECTION 5.1. Term. This Agreement shall become effective on the date
hereof and shall continue in full force and effect until it terminates as
provided in Section 5.2 hereof.
SECTION 5.2. Termination. This Agreement shall terminate as follows:
(i) by mutual written consent of the parties at any time; or
(ii) upon consummation of the Business Transaction; or
(iii) after a breach by either party hereto of any representation,
warranty, covenant or agreement set forth herein, upon the other party giving
notice to the breaching party of its desire to terminate this Agreement; or
<PAGE> 5
(iv) on ________, 1996, unless both of the parties hereto agree in
writing to extend the term hereof.
VI.
MISCELLANEOUS
SECTION 6.1. Expenses. Except as otherwise expressly provided for
herein, each party hereto will pay its own expenses in connection with the
transactions contemplated hereby, whether or not such transactions shall be
consummated.
SECTION 6.2. Survival. All covenants, agreements, representations and
warranties made herein shall survive the execution and delivery of this
Agreement, and any investigation made by or on behalf of either party hereto.
SECTION 6.3 Brokerage. Each party hereto will indemnity, defend and
hold harmless the other against and in respect of any claim for brokerage or
other commissions relative to this Agreement or to the transactions contemplated
hereby, based in any way on agreements, arrangements or understandings made or
claimed to have been made by such party with any third party.
SECTION 6.4. Binding Agreement. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
successors and assigns. Neither party may transfer or assign its respective
rights or obligations under this Agreement without obtaining the prior written
consent of the other.
SECTION 6.5 Parties in Interest. Nothing in this Agreement, whether
express or implied, is intended to confer any rights or remedies under or by
reason of this Agreement on any person other than the parties to it and their
respective successors and assigns, nor is anything in this Agreement intended to
relive or discharge the obligation or liability of any third persons to any
party to this Agreement, nor shall any provision give any third persons any
right of subrogation or action over or against any party to this Agreement.
SECTION 6.6. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be effective upon
receipt, in each case address:
If to BW:
Beverage Works, Inc.
9800 S. Sepulveda Blvd, Suite 720
Los Angeles, California 90045
Attention: Lyle Maul
Telephone: (310) 642-5643
Telecopier: (310) 642-5645
If to Riverside:
<PAGE> 6
Riverside Brewing Company
1229 Columbia Avenue, Suite C-4
Riverside, California 92507
Attention
Telephone- (909) 682-5465
Telecopier: (909) 682-5487
or, in any such case, at such other address or addresses as shall have been
furnished in writing to the other parties hereto in accordance with the
provisions of this Section 6.6.
SECTION 6.7. Law Governing Arbitration. This Agreement shall be
governed by and construed in accordance with the internal substantive laws of
the State of California without regard to its choice of law or conflicts of law
principles.
The parties will attempt through good faith negotiation to resolve
their disputes, if any, arising hereunder or in relation hereto. The term
"disputes" includes, without limitation, any disagreements between the parties
concerning the existence, formation and interpretation of this Agreement, any
disagreements regarding the enforcement of this Agreement, or because of an
alleged dispute, breach, default, or misrepresentation in connection with any of
the provisions of this Agreement. If the parties hereto are unable to resolve
their dispute by negotiation, they shall attempt to resolve such dispute through
mediation. If that proves unsuccessful, either party may commence arbitration by
sending a written notice of arbitration to the other party. The notice will
state the dispute with particularity As part of his or her decision, the
arbitrator may allocate the Coat of arbitration, including fees of attorneys and
experts as he or she deems fair and equitable in light of all relevant
circumstances. The arbitration hearing shall be commenced thirty (30) days
following the date of delivery of notice of arbitration by one party to the
other. If the parties reasonably believe that the amount in controversy will be
less than Twenty-Five Thousand Dollars $25,000.00), such arbitration shall be
conducted in Los Angeles County, California by an arbitrator selected by the
parties, in accordance with the Commercial Arbitration Rules of the American
Arbitration Association as then in effect. If, on the other hand, the amount in
controversy will likely exceed the sum of Twenty-Five Thousand Dollars
($25,000.00), such arbitration shall be conducted by the Judicial Arbitration
and Mediation Services, Inc. ("JAMS'), as arbitrator. Such arbitration shall be
conducted in Low Angeles County, California in accordance with the rules
promulgated by JAMS (with the widest rights of discovery as provided in the
California Code of Civil Procedure by all parties), and each party shall retain
the right to cross-examine the opposing party's witnesses, either through legal
counsel, expert witnesses or both. In either case, the decision of the
arbitrator shall be final, binding and conclusive on all parties (without any
right or appeal therefrom) and shall not be subject to judicial review.
,
SECTION 6.8. Entire Agreement;Modiciations;Waiver. This Agreement
constitutes the entire agreement of the parties with respect to the subject
matter hereof and may not be modified or amended except in a writing signed by
both of the parties. Any term or provision of this Agreement may be waived at
any time by the party entitled to the benefit thereof by a written instrument
duly executed by such party.
<PAGE> 7
SECTION 6.9. Further Action . Each of the parties hereto shall use all
reasonable efforts to take or cause to be taken all appropriate action, do or
cause to be done all things necessary, proper or advisable, and execute and
deliver such documents and other papers as may be required, to carry out the
provisions of this Agreement and consummate and make effective the transactions
contemplated by this Agreement.
SECTION 6.10. Severability; Construction: Headings. In the event any
provision hereof is held to be invalid or unenforceable, the remaining
provisions hereof shall be deemed severable therefrom and shall remain in full
force and effect to the maximum extent permitted by applicable law. Words and
phrases defined herein in the plural shall also be used in the singular and vice
versa and be construed in the plural or singular as appropriate and apparent in
the context used. The Article and Section headings used herein are for reference
purposes only, and shall not in any way affect the meaning or interpretation of
this Agreement.
SECTION 6.11. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 6.12. Independent Contractor. In performing its duties
hereunder, BW will be an independent contractor and not an employee, partner or
joint venturer of Riverside. In this regard, BW shall have the absolute right to
determine in its sole discretion the manner, means and methods by which it shall
perform its obligations hereunder and Riverside shall have no right to control
any aspect thereof.
IN WITNESS WHEREOF , BW and Riverside have executed this Agreement to
be effective as of 9:00 a.m. on the day and year first above written.
BEVERAGE WORKS, INC.
a California corporation
By:
--------------------------
Name: Lyle Maul
Title Chief Financial Officer
RIVERSIDE BREWING COMPANY
a California corporation
By:
--------------------------
Name: Norm E. Kretschmar
Title: President
.
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
1. BWI-St. Stan's, Inc., a California Corporation is a wholly-owned
subsidiary of the Company. BWI-St. Stan's, Inc. is a 51% general partner of
BWI-Prost Partners, a California General Partnership, doing business as St.
Stan's Brewing Company.
2. Orange Empire Brewing Company ("OEBC") is a subsidiary of the Company.
Riverside Brewing Company is a wholly-owned subsidiary of OEBC.
3. Heritage Brewing Company is a subsidiary of the Company.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
Beverage Works, Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Prospectus.
/s/ CORBIN & WERTZ
-----------------------------
Corbin & Wertz
Irvine, California
September 11, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the General Partner
Prost Partners Limited Partnership
To the Board of Directors
Beverage Works, Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Prospectus.
/s/ CORBIN & WERTZ
----------------------------
Corbin & Wertz
Irvine, California
September 11, 1996
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
Orange Empire Brewing Company
To the Board of Directors
Beverage Works, Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Prospectus.
/s/ CORBIN & WERTZ
-------------------------------
Corbin & Wertz
Irvine, California
September 11, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BEVERAGE
WORKS, INC. AND SUBSIDIARY FOR THE PERIOD AUGUST 2, 1995 (INCORPORATION) TO
DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SB-2.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> AUG-02-1995
<PERIOD-END> DEC-31-1995
<CASH> 308,079
<SECURITIES> 0
<RECEIVABLES> 290,177
<ALLOWANCES> 20,000
<INVENTORY> 53,405
<CURRENT-ASSETS> 781,178
<PP&E> 1,407,705
<DEPRECIATION> 103,709
<TOTAL-ASSETS> 2,307,565
<CURRENT-LIABILITIES> 454,653
<BONDS> 0
0
0
<COMMON> 2,311,701
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,307,565
<SALES> 100,076
<TOTAL-REVENUES> 0
<CGS> 169,029
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,398
<INCOME-PRETAX> (658,899)
<INCOME-TAX> (17,415)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (641,484)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> 0
</TABLE>
